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Legislative panel focuses on idle alcohol permits

August 10, 2018

When the Indiana Alcohol Code Revision Commission heard public testimony for the first time ahead of the 2019 legislative session on Friday, members of the Indiana legal and business community came forward to discuss the topic that has emerged as one of the most important for the commission to grapple with: how long alcohol permits can be held in escrow before being revoked.

Statewide, 728 alcohol permits are currently being held in escrow, which means they have been purchased but have not yet been put to use, Rep. Ben Smaltz, R-Auburn, said during Friday’s testimony. Looking specifically at restaurants, 308 permits are being held in reserve, he said.

To Smaltz, those numbers represent 728 economic opportunities that are not being placed into the market to benefit Hoosiers, either as restaurants or stores that sell alcohol. His comments came in response to testimony from Jimmy Schindler, the president of Bandido’s Mexican Restaurant in Fort Wayne. Schindler advocated for the Legislature to continue allowing permit holders to keep their permits in escrow for five years, while Smaltz is urging his colleagues to implement a three-year cap.

Schindler and Warren Scheidt, owner of Columbus-based Cork Liquors, said several business considerations justify the five-year waiting period for permits not in use. The process of developing a business plan, finding a location, negotiating a lease, securing financing, hiring employers and vendors, stocking products and other necessary steps toward opening a business all take time, Schindler and Scheidt said. In some cases, three years would not be enough time to accomplish each of those tasks, they said.

Further, Jeff McKean of the McKean Law Firm in Indianapolis said that in his more than 20 years of handling hospitality and alcoholic beverage cases, he has come to believe the five-year timeframe is not unreasonable. In addition to business considerations, McKean said he has witnessed clients who have experienced personal issues that delayed the development of their businesses.

McKean gave the example of one client whose father died. Without the five-year allowance, that business could not have sold alcohol, as was intended, because the owner took time off to recover from his father’s passing, McKean said.

Another attorney who spoke Friday, Mark Webb of Voyles Vaiana Lukemeyer Baldwin & Webb, said the Legislature increased the acceptable escrow timeframe from two years to five years for the very reasons Schindler and Scheidt identified: the two-year time limit was often too much of a constraint for developing businesses. Webb is the former executive secretary of the Indiana Alcohol and Tobacco Commission.

But Webb also said the state overcorrected when it allowed a five-year escrow and said he would be in favor of Smaltz’s three-year cap. If an entrepreneur needs more than three years to get a business off the ground, Webb said the entrepreneur should be required to appear before the ATC and make their case for an extension. McKean agreed with that proposition, telling the commission that if entrepreneurs are required to answer tough questions to justify an extension, “bad actors” who are trying to withhold permits for personal gain may be deterred.

The problem of so-called bad actors was a frequent topic of conversation during Friday’s testimony. Sen. Ron Alting, R-Lafayette, said the General Assembly has grappled with the problem before, noting that some people hold permits purely for investment purposes and with no intention to open a business, while others use their permits to develop strip malls and incentivize businesses to set up shop in the malls.

Both Schindler and Scheidt acknowledge that bad actors exist in their field, but Schindler said the focus should be on punishing known bad actors, rather than putting restrictions in place that could negatively impact all permit holders. He suggested devising a system that regularly monitors statistics such as how many permits a permittee has bought and sold, versus how many have been put to use, as a way of identifying permit holders with no business plans.

To Webb, the greatest issue with permits held in escrow lies in permits that are purchased at the annual ATC auction, not those bought on the open market. To that end, he suggested the Legislature should impose a prohibition against allowing a person who has more than two permits in escrow to purchase more permits at the auction.

The committee did not take any action on Friday, and the meeting was also scheduled to include discussions about overconsumption of alcohol at retail outlets, how hours of alcohol sales impact issues such as drunk driving and sexual assault, and how technology can minimize overconsumption.

The next meeting is scheduled for Aug. 31, when commissioners will discuss the complexity and consistency of the state’s alcohol licensing system and evaluate the current quota structure.

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