Fargo Liquor Code Improvement Memo

Fargo’s liquor code is a complicated conglomerate of high start up costs, secondary markets, and twenty-six distinct types of licenses. Its convoluted structure is a cultural and economic bottleneck that obstructs economic growth and is counter to the public’s well-being. This system has not been created intentionally or negligently, but has become trapped by path dependency and the lack of a holistic plan.

Moving forward, city officials have the opportunity to create a new system that provides opportunities for business owners and entrepreneurs while ensuring that all license holders are held responsible for their actions. In order for reform to be meaningful, however, it must address the economic, cultural, and community shortcomings of the current code.  

Fargo’s current fee system is structured around high initial issuance fees and fairly low annual fees. The cost of the licenses range widely and a table with how much the city charges for each license can be found in the appendix (figure 1.1).  While the initial issuance fees charged by the city are high, they are deceiving because in Fargo many liquor licenses are transferable from person to person on a secondary license market. The secondary market affects the cost of many of Fargo’s liquor licenses, but the effects are most prominent in the market for Class A, B, and AB licenses. The number of Class A, B, and AB licenses issued is capped by city ordinance and, because of the high demand for new bars and restaurants, their cost has skyrocketed to almost double the city’s initial issuance fee.      

Artificially restricted supply due to the secondary market and capped license distribution imposes too high of an economic cost on many entrepreneurs. The current structure works well for those with large amounts of liquid capital (e.g., national chain restaurants) but not for local entrepreneurs who want to start a neighborhood eatery. music lounge, wine shop etc. In order to reduce the massive startup costs associated with Class A, B, and AB licenses, the task force should explore other license structure options, such as the annual fee systems used by cities like Minneapolis and states like Washington.  

The economic burdens of the liquor code do not fall solely on business owners and entrepreneurs. We are all affected by the high costs and complicated code in the form of restricted cultural growth. A vibrant cultural community is important not only in improving our quality of life, but also in attracting the workers who will fill Fargo’s current workforce gap. One only has to look at the lack of live music venues in Fargo to see the impact that a static liquor code has had on the culture of the city. Being able to sell alcohol is an important facet of a music venue’s business plan, but the current code does not have a music venue license and its reliance on food revenue requirements would most likely make any license crafted in the current framework untenable for most venues. The importance of a strong music scene in a city is tied closely with the economic engine of tourism. Concerts bring people into the city who are willing to spend money at hotels, restaurants, and stores. Events and concerts at the Fargo Theater bring scores of people into Fargo’s core, filling restaurants, hotels, and sidewalks, but besides the Fargo Theater, Aquarium, and New Direction, few true venues exist.

The effects of the current code are also felt in the lack of different, unique alcohol serving establishments. The restricted supply and high cost of bar licenses precludes small establishments from opening, resulting in a stagnant marketplace. If Fargo is to become a safer, more economically and culturally dynamic city, it must diversify its drinking options downtown and throughout the city. Allowing new, unique establishments to open not only increases choices but also causes healthy competition among businesses.

In addition to economic and cultural shortcomings, Fargo’s current liquor code possesses an ineffective infraction enforcement system that does not hold irresponsible license holders accountable for their actions and is detrimental to the well-being of our community. For example, in order for an establishment to lose its liquor license for serving an overly intoxicated individual, it must have five separate infractions in an 18-month period. Even then, however, the license is not automatically revoked; instead, only the possibility of revocation is presented as an option. While the role of a strong, yet fair, infraction system is to ensure that establishments are responsible and accountable for their actions; its impact is felt outside of the enforcement and punishment arena. A solid infraction code frees up the Liquor Control Board to allow evolution in the industry because board members know that there is an enforcement system in place that can weed out irresponsible license holders. Currently in Fargo, the lack of a strong enforcement system has forced city officials to front-load the enforcement system. This chokes innovation and leaves many legitimate business owners asking why they were denied a license for the sake of protecting against a future irresponsible license holder who might “game the system.” Members of the taskforce should explore other cities’ enforcement codes, such as St. Paul’s, which balances fairness and strength in a clear and coherent manner.

Going forward, Fargo has the opportunity to create an inclusive liquor code that is in the best interest of businesses and residents. The high costs and secondary market within the current code preclude business innovation and the opening of new, unique establishments. On the other hand, the cultural implications of the license structure and the lack of a strong infraction system hurt Fargo’s residents. It is time for a new approach. By learning from other cities, Fargo can create a holistic liquor code that spurs innovation and creativity while ensuring responsible consumption and management.

  1. A Class A license allows for full on sale liquor sales without any food revenue requirements; A Class B license permits full off sale liquor sales; And a Class AB license allows for full on sale and off sale liquor sales without any food revenue requirements.

Appendix

Figure 1.1

Posted on August 12, 2015 and filed under Demonstration, Local Business.