Local Liquor Limits - Michigan's Dry Localities & License Quotas

People are often surprised to learn that there are areas in Michigan that are still dry for on-premises sales and service of spirits.  In this episode we discuss the history of local on-premises spirits legalization that goes all the way back to the end of Prohibition in 1933.  We'll also dive into the topic of local governmental unit quotas to explore the limits on retailer liquor licenses in cities, villages, and townships.

As mentioned in this episode, the MLCC's website has a dedicated Local Governmental Resources page.  Also, the please visit the MLCC's 90th Anniversary page for more information on the early years of the MLCC after Prohibition ended in 1933.

Hosts: Sara Weber and David Marvin

The MLCC On The Road podcast is brought to you by the Michigan Liquor Control Commission (MLCC). For more information on the MLCC, please visit our website at www.michigan.gov/lcc. To submit a question or idea for a podcast topic, please email mlccinfo2@michigan.gov.

The mission of the Michigan Liquor Control Commission is to make alcoholic beverages available for consumption while protecting the consumer and the general public through regulation of those involved in the sale and distribution of these alcohol beverage products.

Transcript

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you

SPEAKER_01: 0:00

You're listening to the MLCC On The Road podcast, brought to you by the Michigan Liquor Control Commission, with hosts Sarah Weber and David Marvin.

SPEAKER_00: 0:10

Hello, everyone, and welcome back to another edition of MLCC On The Road. I'm Sarah Weber, and with me is David Marvin. So coincidentally this morning, David and I wanted to talk about local governmental units and what we call a dry LGU, and maybe talk about quotas a little bit. And by pure coincidence, I came across some old files as I was cleaning up, and I had to come down to David's office right away and show him this letter that I found from, was it 1937, David? 1939. 1939. And we had to incorporate this into our podcast this morning just because it really comes to the heart of a lot of people's feelings about alcohol or how they used to be, or even today, we still get some. But this one was really interesting. from this particular person when they addressed it to the commission. So I'm going to let David read that and then we will kind of jump into our discussion. But I had to bring a little bit of history into this one this morning.

SPEAKER_01: 1:10

And I love history and I love all of these old letters and I have a bunch of stuff that I've collected over the years for our collection here at the MLCC of historical information. We have some of it up on the website for our 90th anniversary webpage. I'll put a link in the description of this podcast to that. It's a couple years old now, but it has some information out there.

SPEAKER_00: 1:35

This one will probably not make the cut. This one

SPEAKER_01: 1:37

will not make the

SPEAKER_00: 1:39

cut. But we will probably hold on to it for historical purposes, just because I love the exuberance in this letter so So without further ado, I'm going to let David read this to you.

SPEAKER_01: 1:50

And I'm only going to read some excerpts. And for the background on this, there was a township election that had just happened. And there was a somewhat disgruntled writer making some accusations. And so it starts out, they're talking about this location that is applying for a license. It's a disreputable blind pig, broken down streetcar, 10 cent oil stand and filthy tavern and swamp hole all combined in one that at the least could not even pass a sanitation test forever. backyard cesspool. The proprietor of this filthy place was promised a Class C license if he would do all he could for the support of the successful candidates and with the help of free beer and Coca-Cola highballs, they were successful. It goes on to bemoan the fact that these people have applied for a license and were asking us to do our due diligence in reviewing it based off of a number of things at the behest of the decent drinker's and citizens of this community. And community is very interestingly spelled, but it was a very interesting letter. And it kind of talks about what we're going to talk a little bit about today is that the local government aspect of licensure. We have quotas for licenses, certain types of licenses. Others don't have them. On our manufacturing, on our wholesaling side, we don't have quotas. But the retailer side, we do. And then there are still some local government units that are dry for the sale of spirits for on-premises consumption. And we will talk about that. And just so you know, we're going to probably use an acronym, and we'll just get this out of the way so that people aren't confused. We are going to probably use the term LGU. That stands for Local Governmental Unit. And so when you hear LGU, just that's what we're talking about through the rest of this podcast.

SPEAKER_00: 3:37

Yep. That means your city, your township or your village. That's what we are referring to when we say LGU. I go back to the letter again. It goes to the heart of the matter when we are talking about liquor licensing. And even when we're talking about what we call dry LGUs. This was a hot topic after Prohibition, wasn't it, David? Oh, yeah. is today. And that's why we wanted to talk about this, because when you're looking at the numbers and what we have still on record at the commission for communities that still don't allow for spirits for on-premise consumption. And let's talk about that a little bit, too. What does that actually mean? So for people listening who may not be familiar with these terms, what does that actually mean for our consumers?

SPEAKER_01: 4:51

Whenever you see in the Liquor Control Code the term for consumption on the licensed premises or consumption off the licensed premises, or sometimes you'll see on-premises license or off-premises license, they do have some specific meaning. So if a license is for consumption on the premises, that means the alcohol that's being sold there is going to be consumed right there on the premises. Vice versa, if it's alcohol that you're selling for consumption off the premises, it means you're not going to drink it there. So what we're talking about when we say dry LGUs and dry for spirits on the premises is just that. They cannot sell spirits by the glass for someone to consume right there at the bar, the restaurant, whatever the establishment is. There are still a significant number out of the 1,775 total local government units that we have. There are 216 municipalities, and most of those are townships, but there are a few villages that are still dry for the sale of on-premises consumption. Some of that is because after the 1933 law, after Prohibition ended in December of 1933 when it came to spirit sales, at that point in time, local government units had to choose. They could choose to do nothing, and spirits weren't legalized for on-premises consumption. They could vote by the local unit of government to legalize, or they could could have a vote of the local voters to do it. Out of the 1,775 local government units that we have in Michigan, 216 municipalities have never legalized spirits for on-premises consumption. Of that number, 11 had voter referendums to prohibit that. So they actually took action. The voters chose not to allow it. And then five were prohibited by the local elected body, the township board or the city council.

SPEAKER_00: 6:38

And that means they entered into a resolution at their city council or village council level and voted not to allow for the spirits to be allowed for on-premise consumption.

SPEAKER_01: 6:49

Interestingly, there are actually five remaining dry townships in Michigan where no alcohol can be sold. There's two in Allegan County, one in Gratiot County, and two in Ottawa County.

SPEAKER_00: 7:00

And what do you mean by completely dry?

SPEAKER_01: 7:02

Completely dry, as in they voted, either the township board or the voters voted to say we were not going to legalize any alcohol consumption at at all, or any alcohol sales and consumption. It's not just dry for on-premises spirits. They can't have liquor stores. They can't have bars. They can't have restaurants. They can't have grocery stores that sell any sort of alcohol. And so in those five municipalities, there are no licenses that have been issued because of that. Over the last decade or so, we've had a number of local government units that were dry for spirits that said, you know, we want to change that. How do they go about changing that? How does one get that passed so that their local government unit can now have licenses that sell alcohol for on-premises consumption?

SPEAKER_00: 7:48

That is a great question. And what we usually recommend is if there is a question on legalizing that they contact our office first. I like to do research to see if I can determine the legalization method, which did or did not take place. That's where I start. The proof of how old our records are can be said for this morning when I find a letter from 1939 in one of our folders for our local governmental unit. That is the first step. I look at that. If there is no legalization method or resolution or referendum in the file, I can usually determine at that point or assume that there was no legalization method ever taken by that local unit of government. So I will recommend to them that they can provide us with a resolution from their local legislative body to allow for the sale of consumption for on-premise spirits.

SPEAKER_01: 8:39

And we do have that on our website. Yes. A sample resolution for that. We also have a sample resolution for the handful, and I think we noted that earlier, that there were 11 that were voter referendum. Correct. And those ones, they would have to actually go back and vote on it

SPEAKER_00: 8:54

again? Yes. Is that correct? Yep. They will have to go back to the Board of Electors. We will have to get information from that. So they can either do that during special elections or during a normal election year if they can get that on the ballots. There's instructions for that as well. You can find that information on our website under the Local Government Resources tab.

SPEAKER_01: 9:11

And I We'll also, in the description of this podcast, put a link to that local government resources page.

SPEAKER_00: 9:16

Thank you. We get a number of people throughout the years where they're asking about this process. Or as we go through and audit records, we can determine governmental units where we have allowed licenses to be issued that only allow for beer or wine sales. And so as these licenses are transferred or moved throughout the state, we have to verify that liquor is legal in those governmental units. I do also think it's worth mentioning, too, that we're talking about dry LGUs for on-premise consumption that does not impact our off-premise licensees. Other than those five completely dry townships that David mentioned, this does not impact our off-premise licensees. However, in the event that we are combining licenses in cases where you have an off-premise that also wants to be an on-premise licensee, they would have to maybe eliminate some of their licenses that they hold if they have any as they're moving into a governmental unit that may not allow for it, or they're going to have to work with that local municipal to determine whether or not they're going to legalize sales. And that is something of a pet project I would like to do down the road, given the fact that we still have 200 LGUs that are dry that may not realize they're dry. In most cases, as we come across these or applicants go into these areas, they don't realize it. There's too much time that has passed. And so it's understandable that they don't have the records that the commission does. And luckily, we do have that information. I feel very fortunate that we are that record keeper or the historians of this information And it's available to us to be able to make that determination. And

SPEAKER_01: 10:45

another thing is that a lot of these local government units that haven't legalized spirits for on-premises consumption are smaller rural townships that don't have a larger population base. I grew up in a township that is dry for spirits. We have zero licenses of any sort where I grew up. There's just not a large population base. And so there was never a need for that. But if a bar decided to come in and they wanted to sell spirits, they wouldn't be able to. They would only be able to get a tab license for beer and wine and they wouldn't even be able to sell mixed beer and drink because mixed beer and drink has that spirit component to it. So that's probably why a good number of them are. But on the flip side, we were just working a couple weeks ago with a legislative office dealing with a license in a dry LGU and they really want to get the spirits there because it's a big investment they're putting in for a license there and they're going to go back to the LGU and say, hey, you've never done anything with this. Will you go ahead and legalize it for us because this is going to be well millions of dollars from what we heard of investment in this township and so there are some situations like that I don't think where I grew up it's ever going to be an issue unless I move home and decide to open up a restaurant someday which is probably unlikely

SPEAKER_00: 11:58

I want to segue briefly away from the dry LGU discussion because I think talking about licensing quotas kind of ties into this a little bit because most of the time when we find out about these dry LGUs, it's because someone's trying to come in with a new license. So if we could talk a little bit about what a licensing quota is and what that means to the layperson as we're talking about licensing or trying to obtain a license in a specific area, why that matters.

SPEAKER_01: 12:26

Licensing quotas are specifically for our licenses. We have different tiers of licenses. We talk about the three-tier system. We have the supplier or manufacturer tier. We have the wholesaler tier. And then we have the retailer tier. And the retailer tier is what most people that are out there buying alcohol are probably going to interact with most frequently. Either you're going to a bar or restaurant. You're going to a grocery store or liquor store. Your manufacturing or supplier tier, you do have micro brewers and small distillers and small winemakers that have tasting rooms. And so you do have that interaction there. Those licenses are not controlled by buy a quota so that you can have as many of those in a local government unit as long as the local government unit approves that. But when it comes to the retailer side, there are specific limits and they're population-based. They're based on the size of the local government unit and the population from the most recent 10-year census. So we're looking at the census from 2020. There are ways that those census numbers can be adjusted in the law, but that would be a whole episode unto itself to go into that. But the rule of thumb is for specially designated merchant licenses or SDM licenses and that's a license that allows you for off-premises consumption for beer wine and the low alcohol content mixed spirit drink products allows you to sell that to go it's one license for every thousand in population or fraction thereof we'll get into that fraction thereof in a moment for specially designated distributor licenses or SDD licenses which are for off-premises spirit sales that spirits to go, packaged liquor to go. It's one for every 3,000 in population or fraction thereof. And then for on-premises retailers, and that could include Class C licenses, which are most common license type, B hotels, which are the second most common license type. It's a liquor license for a hotel, A hotels and tavern licenses, and the G1 or the G2 golf course member-only licenses. Those have a population limit of one for every 1,500 or major fraction thereof. And again, that's a slightly complicated formula. But the rule of thumb is you got to remember 1,000 for SDM, 3,000 for SDD, 1,500 for on-premises, and that'll get you in the ballpark. The fractions or major fractions thereof are there so that when you get to a certain point above that number, you get a second one. For an SDD, you don't have to wait until you have 6,000. You have to wait until you have 3,001. For an SDM, you don't have to wait until you have 2,000, 3, your second one, it's 1,001 and you get your second one. So it's a complicated math there. We have all of the quotas listed on our website by LGU so people can go in and look and see. And it will say how many are issued and how many are available. And oftentimes it's a negative number. And Sarah, why is there that negative number?

SPEAKER_00: 15:17

That's a great question. And I was going to, if you didn't bring it up, I was going to bring something up similarly. So when you're looking at licensing quotas and the fact they are based on census numbers that are done every 10 years you're going to see major fluctuations throughout history. A primary example of that would be the city of Detroit. I always fall back on that one because you're going to see a negative number on that one for a pretty big reason. And that's because the population base has decreased so dramatically over the past decades. And the important thing to note when we're looking at quota numbers and census information as despite what was available in the previous census and what may change in the new census, we can't take licenses away. But what we can do is note that there is a difference in the population of what is allowed versus what is currently issued. And as licenses naturally go away throughout time, and what I mean by that is people cancel them, or if they don't renew them, they'll go away. They're taken out of that quota. Vice versa, if there's areas in the state where licenses have never been issued and they see a significant increase, you'll see a number that is well above maybe what they may ever want to issue. And as licenses go away there, it'll just keep adding to that number. You'll have special interest groups and other municipalities asking about outlet density and oversaturation of licenses in areas. And they're concerned by the fact that we are over quota. And it's not a matter of being over quota. It's just what the census has allowed throughout the years. And we can't pick and choose who we're going to take licenses away from. And

SPEAKER_01: 16:57

so a good example, why we don't do away with these licenses that are over the quota is because through the decades, there has been legal cases and just the way the law is written that there is a property interest in that license. So once we issue the license, you have somebody who got it under the quota at one point in time, or they bought it from somebody who got it under the quota when it was initially issued. If there's not a license there under the quota, we can't issue a license that doesn't have a quota available. If I bought a license from somebody or I've just held on to it and continued in active operation for that period of time, I have that property interest in it. The quota number is less than what is issued in that local government unit. We can't go in and take them away. I know we've had that conversation a couple of times in recent history where there have been many licenses out there and somebody wanted to transfer a license that was 100% transferable. It was issued under the quota when the quota was lower. And the local government unit said, well, we don't want that in our neighborhood. Why are you issuing it anyway? Because we're over quota. And we had to explain they have a legal right to that license. That's something that local government units need to prize themselves up under understand how their quotas work. Also, there are a handful of licenses, the DDA licenses and resort licenses, but mostly DDA licenses that are non-quota. They're over and above the quota, but the local government unit has to approve that. And I remember several years ago, myself and one of our analysts were at a meeting. It was Township Clerks, I think is what it was. And the question came up, a hand in the background from a local government unit that said, why do you keep on issuing these in our local government unit? And I knew that this was one of our local government units, that the quota was full, and yet they were very, very active in approving these DDA licenses. And I explained. I said, well, you as the local unit of government keep on approving them, and then we're assuming you're good with them, and so we are going to move ahead with them. If you don't want those issued, then you need to stop approving them. We're only approving them because the people otherwise qualify, and you've signed off on it. And so that's one thing that local governments can all will look at is if they have hit a quota limit and they still want to get more licenses into their area for economic development or even during the summertime they have a larger population because of vacationers and such there are some other options resort licenses and dda licenses they all require a certain amount of investment and a certain requirements to be open a number of days every week and seating and so on so they're not something that you can just get willy-nilly there's a lot more regulation there but that's because it's over the quota and so there are some options

SPEAKER_00: 19:33

out there for local government units. And we've talked a little bit about the dry LGU process, quota establishments. And I really want to reiterate to our listeners that at the end of the day, we need cooperation at our local level and collaboration with the commission because this is something that we need to work together on so our communities know exactly what we are trying to build here. And we want our businesses to be successful. And we want our local legislative partners to feel comfortable with what is being issued in their municipalities at the end. of the day.

SPEAKER_01: 20:29

Thank you, Sarah, for this good conversation that we had today about local government units, the ones that are still dry for on-premises consumption, how you change that if you want to, and then our conversation about quotas, just so that people understand what quotas are all about. I think this is a good conversation. We're always open to local government units or our applicants or licensees to send us inquiries about quota issues and all the issues dealing with local government units and how we interact as the commission with local government units. We're always looking for input from our local And we are excited to be a part of your community and to have successful, safe alcohol sales and service in your communities. And we look forward to being a good partner in that.

SPEAKER_00: 21:12

And always, if you have topics or ideas that you would like discussed in future podcasts, please reach out to us. We love your feedback. And we'd like to know how we're doing and making sure that we are covering things that really interest you or matter to you. Because after all, that's what this whole podcast is all about. is for. So thank you.

SPEAKER_01: 21:31

The MLCC On The Road podcast is brought to you by the Michigan Liquor Control Commission. For more information on the Michigan Liquor Control Commission, please visit our website at www.michigan.gov. Thank you for listening.