Firehouse Case Shows Flaws in Alcohol Policies

Last week Northampton County DA John Morganelli made a public apology to the Firehouse, a bar in South Bethlehem. In December, Morganelli had publicly considered shuttering the bar for alleged nuisance activity, but upon further examination he found that description was unsupported by the evidence.

While this was a happy ending for the Firehouse and its patrons, the episode brought to light some serious flaws in Pennsylvania's alcohol policies that need to be part of the broader alcohol policy reform discussion in Harrisburg. Specifically, state legislators need to reconsider the state's liquor license policy and its approach to regulating nuisance activity.

I believe nuisance bars are a direct result of the cap on the number of liquor licenses.

Pennsylvania caps the number of liquor licenses at 1 license per 3000 county residents. The licenses typically go for around $250,000, making it insanely expensive to open a bar, and depriving restaurants of a high markup item that would make their businesses more profitable.

The predictable result is that there are fewer restaurants and bars than would exist if there were a simple flat rate for licenses instead of a cap and trade regime.

The problem with trying to regulate the supply of alcohol by limiting the number of bars is that it doesn't do anything to limit the demand for alcohol, or the size of the bar-going public.

If the size of the bar-going population is larger than can be accommodated by the number of bars, the result is either overcrowding and rowdy behavior, or queueing. Economics blogger Ryan Avent describes this problem well in a post about license caps in Washington DC:

In the Washington area, you can’t have a place that’s both really good and quiet in a neighborhood-y sort of way.

 

That’s largely because it’s very difficult to open new bars. And the result is a pernicious feedback loop. With too few bars around, most good bars are typically crowded. This crowdedness alienates neighbors, and it also has a selecting effect on the types of people who choose to go to bars — those interested in a loud, rowdy environment, who will often tend to be loud and rowdy. This alienates neighbors even more, leading to tighter restrictions still and exacerbating the problem.

South Side Bethlehem provides two good examples of this phenomenon.

The Bookstore is amazing, and has become very popular, but it is frequently booked. They don't have standing room, so space is limited. That results in queueing, which is unfortunate since no other place in the neighborhood offers a similar experience. The less rowdy atmosphere attracts more adults than you see at Starters or the Firehouse, and, I suspect, many are people who would otherwise just not go out to bars on the weekend.

Clearly there is a market for classy non-rowdy bars like the Bookstore, but the cap on liquor licenses prevents many competitors from opening in the neighborhood to serve the people who can't get reservations there.

The other example is the Firehouse. Even though Morganelli backed off his nuisance complaint, this bar does attract a more rowdy crowd and is frequently packed. Because the bar has a reputation for being rowdy, rowdy people like to go there. Noise complaints and other problems result when too many people want to be at a bar and access is not limited.

If there were more bars, the distribution of bar-going people would be less concentrated, leading to fewer of the nuisance issues that result from overcrowding.

Suppose John Morganelli had designated the Firehouse a nuisance bar and closed it down. Is it more likely that the rowdy Firehouse patrons would opt for quiet evenings at home, or that they would merely try to recreate the atmosphere they want at Starters Riverport, the Funhouse, or some other establishment? I would bet on the latter.

In fairness to Morganelli, the state liquor control code provides DA's only very blunt tools for dealing with nuisance activity. Riley Yates and Pamela Lehman at the Morning Call explain:

Under the state's liquor control code, an establishment that furnishes alcohol can be shuttered for up to one year if a judge deems it a nuisance. To prove their cases, prosecutors typically cite such problems as drugs, crimes of violence, vandalism, noise complaints and intoxicated and underage patrons.

Back in December, Morganelli's goal was to compel nuisance bars to "address complaints on their own, for instance by hiring more security or barring disruptive patrons from their premises."

If that's the objective, I think we should ask whether closing nuisance bars is really a better option than stiff fines.

Suppose the county fined bar owners $1 million for every noise complaint. We can all agree that would be excessive. But I think we can also agree that bar owners would take every precaution to ensure that they didn't get fined, since hiring security or taking a tougher line on rowdy patrons would be less expensive than paying the fine.

Somewhere between a $0 fine and a $1 million fine, there is a price that would induce bar owners to get serious about reducing nuisance activity.

In this scenario, the government would actually make money off of the problem. If the fine proved to be a successful deterrent, that would lead to a more efficient use of police resources by reducing the amount of time officers spend responding to noise complaints and increasing the amount of time they spend responding to more serious crimes.

By contrast, the deadweight loss to economic activity that results from the current policy means lower revenues and lower police productivity.