Simplified: The city is looking to replace a random lottery for liquor licenses with a system that awards the licenses to the highest bidder. But some councilors are concerned the change will hurt small businesses.

Why it matters

  • Cities are limited in how many liquor licenses they can have based on population, which means the licenses can be a hot commodity for folks looking to open a bar or restaurant. It also means that as the city grows, more licenses are becoming available every two years.
  • City Council voted unanimously to advance a proposal Tuesday night to switch from a random lottery to a sealed bid system. It's the second change Mayor Paul TenHaken has brought in only a few years, and the city has only held one lottery since that system was implemented.
  • The goal is to make the process more fair and market-based, Finance Director Shawn Pritchett said – as well as bring in additional money for the city. But some councilors expressed concerns about what the new system would mean for small business owners.
"I don't want to give anything away," Councilor Pat Starr said Tuesday. "If we're going to sell something, we need to get the full price for it, but maybe not at the cost of hurting small businesses."

How would the new system work?

When new liquor licenses come available – which is expected to happen about every two years as Sioux Falls continues to grow – the city would publicly announce the availability and open applications.

  • People would then submit bids along with a $100 application fee. Each bid has to be tied to a separate location.
  • Bids cannot be lower than the previously established fees for liquor licenses – which are $500 for an off-sale license and $240,646 for an on-sale license.

When the city has collected all the bids, they'll be opened and listed in order from highest to lowest.

  • If two bids are the same, the one submitted first will get priority.
  • Bidders will be listed publicly, and bids will be awarded in order until the licenses run out.
"If we have seven licenses available to award," Pritchett said, "the highest seven bids will be conditionally awarded."

Winners must then submit a full application and payment within 10 days of being chosen – or within 70 days if they need a conditional use permit.

  • The license has to be used within 90 days for an off-sale license and two years for an on-sale license.

What's keeping people from gaming the system?

There are a couple penalties in place to try to prevent people from 'hacking' the system, as Councilor David Barranco put it Tuesday night.

First, a person who wins the sealed bid but then pulls out would be ineligible to bid again for three years.

Another check in place is that bidders who submit bids for multiple locations must withdraw their lowest bids first before withdrawing their highest bids.

  • That's to discourage people from making a bunch of artificially high bids and then only using the lowest of their bids when chosen.

Changes also affect liquor in city-owned properties

The ordinance would also change the process for allowing liquor licenses in city-owned facilities – changes made possible by some updated legislation passed earlier this year by the state legislature.

  • The city can pass on-sale licenses at city-owned facilities, and those licenses don't count against the limited licenses available to the public.

Councilor Greg Neitzert expressed reservations about this part of the ordinance, saying he doesn't want to see alcohol at every city-owned facility.

"Probably the biggest addiction to alcohol is the city and the City Council," Neitzert said. "And this state has a lot of alcohol addiction problems. We reap the revenues but then we let the police department and social service agencies clean up the mess."

What happens next?

The proposal moves now to a second reading for final approval next week.