BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:  June 30, 2016


                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION


                                  Adam Gray, Chair


          SB  
          1285 (Leno) - As Amended April 6, 2016


          SENATE VOTE:  38-0


          SUBJECT:  Alcoholic beverages:  licenses


          SUMMARY:  Would authorize the Department of Alcoholic Beverage  
          Control (ABC), beginning January 1, 2017 to issue no more than  a  
          total of 28  new original "neighborhood-restricted" special  
          on-sale general licenses for a bona fide eating place, for  
          premises located within specified City and County of San  
          Francisco neighborhoods, subject to specific requirements and  
          restrictions.  Specifically, this bill: 


          1)Allows, beginning January 1, 2017, 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.  In addition, makes it explicit  
            that an application for a neighborhood-restricted special  
            on-sale general license shall 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.









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          2)Maintains 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)Provides 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)States 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  








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               of fire or any act of God or other force beyond the control  
               of the licensee.

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

          7)Provides 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)States 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 ABC to adopt rules and regulations to enforce the  
          provisions of this bill. 

          EXISTING LAW:   


          1)  The enactment of the 21st Amendment to the U.S. Constitution  
          in 1933 repealed the 18th Amendment and ended the era of  
          Prohibition.  Accordingly, states were granted the authority to  
          establish alcoholic beverage laws and administrative structures  
          to regulate the sale and distribution of alcoholic beverages.

          2)  Establishes 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. 

          3)  Provides ABC must deny an application for a license if  








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          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 would be served by granting  
          the license.

          4)  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.

          5)  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.

          6)  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.  

          7)  Provides for 58 counties and 58 "classes" of counties - one  
          county to each class based on their 1970 Census populations -  








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          the City and County of San Francisco is a county of the 6th  
          class.  

          FISCAL EFFECT:  Unknown


          COMMENTS:  


           Purpose of the bill  :  According to the author, this bill is  
          intended to create a new type of neighborhood-restricted,  
          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 states 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 states this bill  
          will create an incentive for entrepreneurs to launch new  
          restaurants in currently vacant storefronts.

          The author states 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 maintains 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  








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          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 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  
          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.  The author maintains  
          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,  
          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.  In addition, the author  
          asserts 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  








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          market.   

           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 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, ABC will issue five new  
          licenses in that county.  ABC holds a drawing 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.  Typically, that is 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.  According to ABC, currently there are  
          approximately 13,360 Type 47 licenses statewide.

           Policy consideration  :  The bill is not clear relating to which  
          local governing body will be empowered to approve the  
          application at the local level before being forwarded to ABC for  
          approval.  To provide checks and balances within the application  
          process, the author should consider an amendment, which would  
          require the San Francisco Board of Supervisors to approve by  
          vote an application before it is forwarded to ABC for approval.

          The bill requires the applicant to conduct a minimum of one  
          pre-application meeting to discuss the application with  
          neighbors and members of the community within the census tract  
          in which the premises are located, however, it does not outline  
          the specific goals of this meeting.  Who would be empowered to  
          make the final determination of gauging the success, or lack  
          thereof, relating to the meeting?  The intent of the bill is  
          somewhat unclear why the new 28 special on-sale general licenses  
          would be divided evenly among census tracts in the county.   








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          Might it be more prudent to disburse the licenses to address the  
          true need and demand within the specified census tracts?

          The committee might consider the precedent this bill could set  
          by allowing a total of 28 on-sale general licenses for a bona  
          fide eating place at one given time in a specific county.  Does  
          this mean that Los Angeles County might be eligible for up to  
          364 licenses since its population is approximately 13 times  
          greater than San Francisco County?  Since 2008, the Assembly  
          Governmental Organization Committee  has not  passed out a bill,  
          which granted more than five new on-sale general licenses for a  
          bona fide eating place in a given year for a specific county.   
          To further examine how to best deal with the perception that  
          there is a lack of licenses available in various counties  
          throughout the state, the committee may want to consider holding  
          an informational hearing on this matter in the fall.

           Related Legislation  :  AB 1558 (Mathis) of 2016.  World authorize  
          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 Senate  
          Appropriations G.O. Committee)

          AB 1670 (Dodd) of 2016.  Would authorize ABC to issue a total of  
          5 new original on-sale general licenses per year to a bona fide  
          public eating place with a seating capacity of 25 or more  
          diners, for a period of 3 years in the County of Napa.  The bill  
          would prohibit more than 15 of those licenses from being issued.  
           (Pending in the Senate Appropriations Committee)

           Prior legislation  :  AB 461 (Achadjian), Chapter 110, Statutes of  
          2013.  Authorized ABC to issue no more than a total of five new  
          original on-sale general licenses, over a three-year period, for  
          bona fide public eating-places in the County of San Luis Obispo.  
           

          AB 1320 (Allen), Chapter 467, Statutes of 2012.  Authorized ABC  
          to issue a total of 5 new original on-sale general licenses for  
          bona fide public eating places per year, for three years in the  








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          County of Marin.  The bill would prohibit more than 15 of those  
          licenses from being issued.

          AB 2266 (Evans), Chapter 130, Statutes of 2008.  Authorizes ABC  
          to issue a total of 5 new original on-sale licenses, per year  
          for a period of three years, for bona fide public eating places  
          having a seating capacity of 50 or more diners in Napa County.


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

          SB 1092 (Berryhill), Chapter 571, Statutes of 1975.  Authorized  
          ABC to issue 5 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  
          ABC to issue 3 additional original off-sale general licenses in  
          a county of the 58th class (Alpine County).


          REGISTERED SUPPORT / OPPOSITION:




          Support
          San Francisco Chamber of Commerce
          Family Winemakers of California
          Golden Gate Restaurant Association
          San Francisco Office of Economic and Workforce Development










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          Opposition


          None on file




          Analysis Prepared by:Eric Johnson / G.O. / (916)  
          319-2531