BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           SB 1285          Hearing Date:    4/12/2016
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          |Author:    |Leno                                                 |
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          |Version:   |4/6/2016     Amended                                 |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          SUBJECT: Alcoholic beverages:  licenses


            DIGEST:    This bill authorizes, beginning January 1, 2017, the  
          Department of Alcoholic Beverage Control (ABC) to issue no more  
          than a total of 28 new original "neighborhood-restricted"  
          special on-sale general licenses, for premises located within  
          specified City and County of San Francisco neighborhoods,  
          subject to certain requirements and restrictions.   

          ANALYSIS:
          
          Existing law:

          1)Establishes the Department of ABC and grants it exclusive  
            authority to administer the provisions of the Alcoholic  
            Beverage Control Act in accordance with laws enacted by the  
            Legislature.  This involves licensing individuals and  
            businesses associated with the manufacture, importation and  
            sale of alcoholic beverages in this state and the collection  
            of license fees. 

          2)Provides that the ABC must deny an application for a license  
            if issuance would create a law enforcement problem, or if  
            issuance would result in, or add to, an undue concentration of  
            licenses in the area where the license is desired.  For liquor  
            stores and other specified retail licenses, however, the ABC  
            is authorized to issue a license if the respective local  
            government determines that public convenience or necessity  







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            would be served by granting the license.

          3)Caps the number of new on and off-sale general licenses issued  
            by the ABC at one for every 2,500 inhabitants of the county  
            where the establishment is located (2,000:1 for on-sale  
            licenses).  If no licenses are available from the state due to  
            the population restrictions, those people interested in  
            obtaining a liquor license may purchase one from an existing  
            licensee, for whatever price the market bears.  In 1994, the  
            Legislature approved a 3-year moratorium on the issuance of  
            new off-sale beer and wine licenses, which at the time was not  
            bound by any population to license restriction.  In 1997 this  
            moratorium was made permanent.

          4)Defines "bona fide public eating place" to mean a place which  
            is regularly and in a bona fide manner used and kept open for  
            the serving of meals to guests for compensation and which has  
            suitable kitchen facilities connected therewith, containing  
            conveniences for cooking an assortment of foods which may be  
            required for ordinary meals, the kitchen of which must be kept  
            in a sanitary condition with the proper amount of  
            refrigeration for keeping of food on said premises and must  
            comply with all the regulations of the local Department of  
            Health.

          5)Defines an "on-sale" license as authorizing the sale of all  
            types of alcoholic beverages: namely, beer, wine and distilled  
            spirits, for consumption on the premises (such as at a  
            restaurant or bar).  An "off-sale" license authorizes the sale  
            of all types of alcoholic beverages for consumption off the  
            premises in original, sealed containers.  

          6)Provides for 58 counties and 58 "classes" of counties - one  
            county to each class based on their 1970 Census populations -  
            the City and County of San Francisco is a county of the 6th  
            class.  (Government Code Section 28020)

          This bill:

          1)Authorizes, beginning January 1, 2017, the Department of ABC  
            to issue no more than a total of 28 new original  
            neighborhood-restricted special on-sale general licenses for  
            premises located within the City and County of San Francisco.   
            Also, makes it explicit that an application for a  
            neighborhood-restricted special on-sale general license shall  








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            be subject to all the requirements that apply to an on-sale  
            general license for a bona fide eating place and that license  
            fees shall be the same as those for an on-sale general license  
            for a bona fide eating place.

          2)Limits these neighborhood-restricted special on-sale general  
            licenses to premises located within seven specified census  
            tracts and provides for no more than a total of four such  
            licenses within each of the seven designated census tracts  
            (neighborhoods).  Also, provides that a  
            neighborhood-restricted special on-sale general license may  
            exercise all of the privileges, and be subject to all the  
            restrictions, of an on-sale general license for a bona fide  
            eating place.

          3)Prohibits the issuance of a neighborhood-restricted special  
            on-sale general license until any existing on-sale licenses  
            issued to the applicant for the same premises are canceled.   
            Also, prohibits any person who currently holds an on-sale  
            general license for a premises from applying for a license  
            issued pursuant to this bill for that licensed premises. 

          4)Requires the applicant for one of these new licenses to  
            conduct a minimum of one pre-application meeting either on the  
            premises of the business or within a one-mile radius of the  
            premises to discuss the application with neighbors and members  
            of the community.  Also, requires the applicant to mail  
            notification of the pre-application meeting to residents,  
            neighborhood associations and law enforcement entities, as  
            specified.  In addition, requires the applicant to obtain  
            signed verification from the local governing body that he/she  
            has completed the pre-application meeting.

          5)Provides that a license issued pursuant to this bill shall not  
            be:

             a)   transferred between counties;

             b)   transferred to any person, partnership, limited  
               partnership, limited liability company, or corporation,  
               except as specified; and,

             c)   transferred to any other premises with the exception of  
               any licensee whose premises have been destroyed as a result  
               of fire or any act of God or other force beyond the control  








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               of the licensee.

          6)Provides that, upon the cancellation of any license issued  
            pursuant to this bill, the license shall be returned to the  
            Department of ABC for issuance to a new applicant following  
            procedures established in existing law.

          7)Prohibits any person that holds a neighborhood-restricted  
            special on-sale general license issued pursuant to this bill  
            from exchanging his or her license for an on-sale license for  
            public premises.

          8)Stipulates that a neighborhood-restricted special on-sale  
            general license issued pursuant to this bill shall not, with  
            respect to beer and wine, authorize the exercise of the rights  
            and privileges granted by an off-sale beer and wine license.

          9)Requires the Department of ABC to adopt rules and regulations  
            to enforce the provisions of this bill. 

          

          Background

          As noted above, existing law provides for a limitation on the  
          number of new on-sale general licenses that may be issued in a  
          given year by the Department of ABC based on the population  
          growth of the county in which the licensed premises are located  
          (one license for every 2,000 residents).  Thus, if a county  
          grows by 10,000 people in a given year the Department of ABC  
          will issue five new licenses in that county.  A drawing is held  
          by ABC if there are more buyers than licenses available.  The  
          cost of an original on-sale general eating place license (type  
          47) is $13,800.  Individuals seeking to open a full-service  
          restaurant with a bar or cocktail menu who fail to obtain a  
          liquor license through this process typically must locate an  
          existing licensed owner willing to sell his/her license.   
          Usually, that's done by contacting a liquor license broker.  The  
          cost of obtaining a license on the secondary market is driven by  
          supply and demand and potential sellers may ask for upwards of  
          $150,000.  Some of these potential sellers view their license as  
          tickets to a richer retirement.  

          Purpose of SB 1285.  The author's office states that this bill  
          is intended to create a new type of neighborhood-restricted,  








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          non-transferable liquor license for restaurants in order to  
          promote economic development, job growth, and increased vitality  
          in San Francisco's underdeveloped commercial corridors.  The  
          author's office notes that successful restaurants help to  
          activate neighborhood commercial corridors by reducing  
          vacancies, adding to the variety of neighborhood-serving small  
          businesses, creating good jobs for residents, providing  
          important spaces for neighbors to meet and socialize, and  
          boosting foot traffic that helps increase community safety.  The  
          author's office believes this bill will create an incentive for  
          entrepreneurs to launch new restaurants in currently vacant  
          storefronts.

          The author's office argues that because state law has capped the  
          number of full liquor licenses available in San Francisco,  
          licenses can only be purchased from existing licensed business  
          owners, unless of course an applicant gets lucky in the annual  
          ABC liquor license drawing.  Due to the scarcity of available  
          licenses, full liquor licenses are currently being sold on the  
          secondary market in San Francisco for around $300,000 with  
          prices expected to increase as the City's population continues  
          to grow.  The author's office notes that these extraordinary  
          prices make full liquor licenses inaccessible for small business  
          owners in the City's outer neighborhoods.  Simply put, a small  
          restaurant owner cannot charge the prices needed to recoup such  
          an investment.  As a result, licensed establishments tend to  
          concentrate in - and continue to migrate to - the City's most  
          active and bustling areas, even though many out-lying  
          neighborhood and commercial corridors would significantly  
          benefit from the increased vitality that successful nightlife  
          businesses could bring.
          Under this bill, 28 new neighborhood-restricted special on-sale  
          general licenses, for bona fide eating places, would be  
          authorized to be issued by the Department of ABC exclusively  
          within specific San Francisco census tracts (neighborhoods).   
          The author's office notes that these neighborhoods were selected  
          in line with the City's Invest in Neighborhoods strategy, which  
          is an interagency partnership to strengthen and revitalize  
          certain neighborhood commercial districts around San Francisco.   
          Specifically, the census tracts were selected by comparing the  
          map of current type 47 licenses scattered across the City with  
          the Invest in Neighborhood corridors and identifying the areas  
          with few or no such licenses. 

          This bill provides for a maximum of four such restricted  








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          licenses that may be issued by ABC in each of the seven census  
          tracts containing a target neighborhood commercial corridor.   
          The author's office has identified these census tracts as  
          follows: (1) Third Street in Bayview; (2) San Bruno Avenue in  
          Portola; (3) Leland Street and Bayshore in Visitacion Valley;  
          (4) Mission Street in the Excelsior; (5) Ocean Avenue; (6)  
          Taraval Street in the Sunset; and, (7) Noriega Street in the  
          Sunset.

          The author's office emphasizes that the neighborhood-specific  
          limits attached to these new licenses will prevent any  
          overconcentration of alcohol licenses in corridors that already  
          have a substantial amount of nightlife.  Also, the author's  
          office states this bill is structured to ensure that the  
          applicants who pursue these licenses will engage with the local  
          community through a pre-application vetting process, as  
          specified.  Additionally, the author's office contends that this  
          bill will not diminish the value of any existing liquor license  
          because these new licenses would not be transferrable to a new  
          business owner or a new location.  Furthermore, the author's  
          office states that owners of existing full liquor licenses  
          across San Francisco would remain able to sell or transfer their  
          licenses citywide and reap the value of their investment on the  
          private market.   

          Prior/Related Legislation
          
          AB 1558 (Mathis, 2016) authorizes the Department of ABC to issue  
          no more than a total of 5 new original on-sale general licenses,  
          over a 2-year period, for bona fide public eating places in the  
          County of Inyo.  (Pending in Assembly policy committee)

          AB 461 (Achadjian, Chapter 110, Statutes of 2013) authorized the  
          Department of ABC to issue no more than a total of 5 new  
          original on-sale general licenses, over a 3-year period, for  
          bona fide public eating places in the County of San Luis Obispo.
           
           AB 1320 (Allen, Chapter 467, Statutes of 2012) authorized the  
          Department of ABC to issue a maximum of 15 new original on-sale  
          general licenses, over a 3-year period, for bona fide public  
          eating places in the County of Marin.  

           AB 2266 (Evans, Chapter 130, Statutes of 2008) authorized the  
          Department of ABC to issue 5 additional new original on-sale  
          licenses, per year for a period of three years, for bona fide  








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          public eating places having a seating capacity for 50 or more  
          diners in Napa County.  

          SB 762 (Cox, Chapter 193, Statutes of 2007) authorized the  
          Department of ABC to issue 10 new original on-sale general  
          licenses for bona fide public eating places in the County of  
          Mono.

          AB 1252 (N. Waters, Chapter 753, Statutes of 1977) permitted the  
          Director of ABC to authorize the conversion of any on-sale  
          general license for "seasonal business" to an on-sale general  
          license, as specified. 
           
           SB 1092 (Berryhill, Chapter 571, Statutes of 1975) authorized  
          the Department of ABC to issue five additional new original  
          on-sale general licenses for bona fide public eating places  
          (seating for 100 or more diners) in any county where the  
          inhabitants number less than 5,000 but more than 3,000 (Mono  
          County) according to the 1970 federal census and where the major  
          economy of that county is dependent upon the year-round use of  
          that county's recreational facilities.

          SB 784 (Berryhill, Chapter 407, Statutes of 1975) authorized the  
          Department of ABC to issue three additional original off-sale  
          general licenses in a county of the 58th class (Alpine County).

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          No


            SUPPORT:  

          California Restaurant Association
          Family Winemakers of California
          Golden Gate Restaurant Association
          San Francisco Office of Economic and Workforce Development  
          (source)

          OPPOSITION:

          None received












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