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Liquor Industry Cries Foul

By Mike Gallagher
Copyright 2007 Albuquerque Journal; Journal Investigative Reporter
    A noted liquor lobbyist once made an ill-advised comment that has become part of New Mexico political folklore.
    "I own this Legislature," Frank "Pancho" Padilla yelled at then-State Sen. Fabian Chavez in 1963 during an argument over liquor law reform, according to news accounts at the time.
    Many dismiss the outburst as groundless political grandstanding and Padilla was banned from the Legislature— although he denied saying it.
    But the industry has turned to the Legislature for help in the past and is once again asking lawmakers to step in as it chafes under what it says is an unfair, get-tough approach by state regulators.
    Superintendent Edward Lopez, whose Regulation and Licensing Department oversees the Alcohol and Gaming Division, has undeniably raised some hackles.
    The man charged with implementing Gov. Bill Richardson's orders to toughen enforcement of rules against serving underage and intoxicated patrons, Lopez has flagged several liquor-related issues of concern.
    Topping his list:
  • Continuing migration of liquor licenses from rural areas to urban and resort destinations without considering impact on neighborhoods and whether they add to DWI problems.
  • Liquor license prices that have climbed to more than $300,000— which Lopez says is tough on small business people and could open the door to organized crime interests.
        The industry says it has legitimate concerns of its own.
        It is critical of new state enforcement rules. It also accuses the state of dragging its feet in approving license transfers and says the state is taking way too long to issue new beer and wine licenses to restaurants.
        "It has been taking nine months, and we've had restaurants open and close in that time while waiting for their license," said Carol Wight, head of the New Mexico Restaurant Association.
        The industry has also complained that the state's new "three strikes" rule allowing revocation of a very valuable liquor license after three citations is unfair and that enforcement is uneven and arbitrary.
        They have heartburn with the rules themselves, arguing the penalties are too severe in cases when it is almost impossible to tell if a patron who walks in the door and orders a drink is intoxicated.
        In some cases, agents have followed a patron from another establishment or bullied people leaving bars into taking a breath alcohol test.
        "We're working our butts off to abide by the regulations, but one or two slip-ups and I can lose a liquor license," said Connie Nellos, a restaurant and bar operator in Albuquerque.
        "They're arresting 22-year-old kids (employees) who make a mistake when they check an ID. They get taken to jail in handcuffs."
    'Right now, it's a maze'
        Lopez, a former General Services secretary who moved to his new post in 2005, said he wanted the public and legislators to focus on problems in the liquor industry.
        "If you wanted to design a more dysfunctional set of laws that we have governing the liquor industry, I don't think you could if you tried," Lopez said in an interview. "We really need to look at the laws. Right now, it's a maze."
        He's got the Legislature's attention. And so does the industry.
        The Legislative Revenue Stabilization and Tax Policy Committee plans a daylong hearing on liquor regulation this week. The session follows one in Las Cruces, where Lopez was roasted by some legislators over enforcement.
        Legislators have been receiving complaints from around the state.
        Sen. John Arthur Smith, D-Deming, said legislators want to make sure enforcement isn't just targeting small neighborhood bars and package stores but also includes chain restaurants and convenience stores.
        "We want to make sure they aren't profiling in their enforcement efforts," he said.
        Last month, multiple workers in bars, package stores and restaurants were arrested and the owners cited in one undercover operation.
        Regulations approved last October allow for revocation of a liquor license that has convictions on three liquor violations in a 12-month period. Rules used to allow five violations.
        Smith said complaints increased after the change.
        Both Smith and Lopez also want to examine the roles of unlicensed and unregulated brokers in the sale and transfer of liquor licenses.
        "The entire liquor issue has been flying under the radar for too many years. I just think there are enough concerns that we need to get on the radar," Smith said.
        Lopez said the industry is applying pressure.
        "There's a lot of political heat, complaints to the Legislature and the Fourth Floor (a reference to Richardson) about what we're doing."
        "I know from my own family how integrated the liquor industry is in politics at the local level. They are part of local campaigns and elections. I saw it growing up in my father's campaigns," said Lopez, whose father was a powerful state senator from Santa Fe.
        Smith acknowledged that liquor legislation is difficult.
        "Trying to do anything about liquor in the Legislature is tough," he said. "It is a tough industry to work through."
    Quota problems
        As head of Regulation and Licensing, Lopez is in charge of a mixture of regulatory agencies and commissions. None has a higher profile than Alcohol and Gaming.
        What he found surprised him.
        For starters, he learned the state's quota system, which attempted to limit the number of licenses in cities based on population, had been gutted in 1997.
        The population-based quota system allocated one full service license— meaning liquor by the drink or package— for every 2,000 people. Restaurant beer and wine licenses aren't counted against the quota.
        But places like Albuquerque had more than 350 by the drink or package liquor licenses when it should have had between 200 and 220. Cities like Carlsbad, Las Cruces, Española, Farmington and Santa Fe have almost twice the number of licenses called for in the quota system.
        In large part that's because in 1997 the Legislature allowed up to 10 licenses a year to be move into each municipality from other parts of the state without regard to the quota.
        As part of compromise to close drive-up package liquor sales in 1998, the Legislature allowed almost 300 licenses to move anywhere. Many moved to urban areas where chain restaurants, convenience stores and mega-marts were paying top dollar.
        Lopez said he was hoping to use the quota system to slow the migration of liquor licenses from rural to urban and resort areas while he assessed the impact of liquor license density on drunken driving accidents and fatalities.
        "My charge when I was appointed by the governor was to do something about the DWI problem from the supply side," Lopez said. "I want to make health and safety concerns, for instance the impact on DWI accidents in an area, one of the main considerations for deciding whether a license should be able to move to a location."
        He said those decisions would be based on the best scientific data and expert testimony he can get, and he wants lawmakers to give him more authority to do it.
        Recent court rulings have limited the state's say in approving the location of transfers, something Lopez wants the Legislature to look at.
        Nellos said tough laws and regulations haven't solved the problem of drunken driving.
        "The general public is being held hostage by this," he said. "Customers are afraid to have a single beer with dinner and drive."
    Price of licenses
        The cost of some liquor licenses has raised eyebrows in Santa Fe.
        According to department records, two licenses in Las Cruces sold for $600,000 each. Elsewhere, at least one has sold for $400,000, and others sell in the $350,000 price range.
        "The price of liquor licenses was growing steadily," Lopez said. "When we see a license sale for $600,000, I believe the day of a $1 million liquor license can't be far off."
        Lopez's concern is twofold: concentration of licenses in the hands of national companies, driving out local small businesses, and potential involvement of organized crime.
        The organized crime issue is dismissed by many, but federal prosecutors have found that organizations smuggling narcotics and marijuana have bought liquor licenses to help launder cash.
        One Albuquerque nightclub and its liquor licenses were recently forfeited in a drug case and sold for $900,000.
        "Who can afford a license is becoming an issue," Lopez said.
        Ray Shollenbarger has been involved in liquor license sales since he headed the state liquor division in the 1980s.
        He says price is driven by demand, availability of certain types of licenses and whether the license can move from one town to another.
        Whether an operating business is being sold with a license or a building can also impact the price.
        "National chain restaurants don't want a package license. They want to sell by the drink," he said. "The big grocery chains and convenience stores sell package, so they want licenses that allow them to sell package."
        Shollenbarger said the national chains pay cash. They aren't interested in the owner's business or other property in most cases.
        If a license that allows the sale of package liquor isn't on the market, liquor license brokers will try to find one.
        To get the right license to the right buyer sometimes involves two or more licenses changing hands because of the intricacies of state statutes, which can involve a license moving from one town to another.
        As the result of one earlier liquor law reform, a group of about 80 retail package liquor licenses can be transferred anywhere in the state. Shollenbarger said these licenses seldom come on the market and when they do they command a premium.
        "Right now, you can't touch a license, any license, for under $250,000," Shollenbarger said.
    Defense of efforts
        Lopez said he believes his willingness to listen to neighborhoods and groups concerned with the drunken driving problem has caused him trouble with the liquor industry.
        "I'm not a neo-prohibitionist," Lopez said. "But I'm not going to close my eyes to the problems the state has with alcohol consumption."
        Industry criticisms of Lopez's administration cover a wide range of issues from increasing the bureaucracy in license approvals, and drawing a hard line on enforcement.
        The Restaurant Association's Wight said she has been working with Lopez to clear a backlog of 108 beer and wine applications.
        "We've been working with the superintendent, but we're getting ready to explode."
        "These businesses are important for economic development," she said. "The restaurant industry pays more than $200 million a year in gross receipts taxes."
        Shollenbarger said approvals for sales of by-the-drink and package licenses can take as long. "I tell people it will take a minimum of six months and as long as nine months," he said.
        Lopez said the number of beer and wine applications doubled this year, but the number of hearing officers remained the same at three.
        "I've put all three hearing officers on clearing the restaurant license backlog," Lopez said. "We're working with the restaurants to streamline the process, but we didn't have the people to meet the increase in demand."
    License to serve
        These are cities with the
        highest number of licenses over their quotas and some
        unincorporated areas of counties that have fewer licenses than their quotas would allow.
        Top Cities,
        Licenses Over Quota
        Albuquerque 156
        Santa Fe 80
        Las Cruces 27
        Gallup 25
        Farmington 24
        Española 19
        Unincorporated Areas, Licences Under Quota
        Doña Ana 18
        McKinley 12
        Bernalillo 7
        Source: N.M. Regulation and Licensing Department
    Quota numbers

        It's an illustration of the oft-quoted observation of territorial Gov. Lew Wallace that "every calculation based on experience elsewhere fails in New Mexico."
        New Mexico has quotas for liquor licenses, but they are based on 1996 population figures. That's because state law requires the Alcohol and Gaming Division to base the quotas on population figures from the Economic Development Department.
        But Alcohol and Gaming chief Edward Lopez says the Economic Development Department doesn't compile those numbers and hasn't since 1996. Hence, those are the numbers used.
        The quotas basically don't apply anyway in most cases. The only time the department considers quotas is when an area goes below the quota.