The Alcohol and Tobacco Commission (ATC) issues permits for incorporated areas based on a quota system tied to population, as determined by an official census.  This topic generated interesting back-and-forth between the committee and witnesses.  More discussion on the following topics is anticipated. 

Additional Permits for Growing Communities.  The Indiana Association of Cities and Towns appeared with representatives of the Towns of McCordsville and Avon, growing communities near Indianapolis.  These towns requested that additional permits be issued not just for economic development areas, but for incorporated areas such as their towns that have experienced explosive population growth since the last official census.  Tying their request to economic development, the towns noted a number of commercial developments within their limits that have not been able to attract anchor restaurants because additional permits are not available. 

Municipal Riverfront Development.  The committee next considered municipal riverfront development projects.  Under existing law, the ATC may issue a permit for a restaurant located within the boundaries of a riverfront development project without regard to the quota in the community. 

Witnesses expressed the concern that riverfront permits issued in excess of the local quota depress the value of existing permits for transfer purposes.  One witness observed that a restaurant owner acquired a riverfront permit merely by paying the permit fee of $1,500, while an owner across the street, but outside the boundaries of the riverfront development project, paid $250,000 to acquire an existing permit by transfer.  These witnesses, representing established permit holders, were also concerned about the impact less expensive permits have on existing businesses that incur substantial debt to acquire a permit.

In response, a committee member posited that additional riverfront permits do not create an unfair advantage compared to existing permit holders, because such a permit serves the public good by encouraging economic development, which should have a positive effect on all economic activity in the area.  In addition, the General Assembly limited riverfront permits to the boundaries of the riverfront redevelopment project and the permits may not be transferred.  Finally, the committee member observed that there is no evidence that the riverfront permits take business away from other establishments, noting that many other factors contribute to competition.

Northern Indiana Permits.  Next, the project manager of a major commercial development in northern Indiana lamented the lack of progress in completing the development due to the lack of permits in the area.  As with developments in Avon and McCordsville, the northern Indiana development has empty space for several built-to-suit restaurants because the quota has been filled and additional permits are not available.  The project manager pointed out the benefits in jobs and millions of dollars in annual retail sales, sales taxes, and property tax payments for a fully occupied development.  He proposed that the quota determination for an incorporated area consider residential population and business population.

Taft partner, Mark Palmer, presented testimony on behalf of the owners of several restaurants in northwestern Indiana.  Mark expressed concern about the legislature creating new economic development permits that would have the effect interfering with the market value of permits issued under the current quota system, including mandates that permits be tied to specific properties or boundaries.  He observed that in many situations, the market value of these permits are the equivalent of a 401K investment for self-employed permit holders, and that banks have used permits as a valuation tool for lending purposes. Mark observed that enacting the legislation requested by several large multi-state development companies would serve to devalue permits to the disadvantage of existing permit holders. Mark concluded by stating that when the state issues additional economic development permits resulting in a reduction in the value of existing permits, the issues raised are analogous to those raised in an eminent domain situation.

Two trade organizations testified in favor of maintaining the status quo.  The Indiana Licensed Beverage Association stated that it is concerned about issuing additional permits in an incorporated area that is already over the quota, and noted that unincorporated areas do not have a quota.  The Restaurant and Hospitality Association of Indiana said that while the status quo is probably best, any departure should be based on market demand.  Options include making quotas county-wide and allowing a municipality or redevelopment corporation to purchase an existing permit at market rate.  The association recommended an auction for additional permits created.

Several committee members asked for details about the market effect on existing permits if additional permits are issued for specific economic development purposes.  Anecdotal information was provided and a few witnesses offered to submit detailed responses for the committee’s consideration.

What’s Next?

Taft Dispatches to follow will focus on Sunday sales for Indiana microbreweries, training requirements for sales clerks, and whether grocers and other stores open to minors should be required to construct a separate area for display of alcoholic beverages.  Stay tuned for the next Taft Dispatch from the Indiana Statehouse!