Ten Reforms to Spur Coronavirus Recovery
From the Federalist Society’s Regulatory Transparency Project:
IX. Eliminate or Reform Food and Alcohol Industry Regulation
By Shoshana Weissmann
During the coronavirus outbreak and the subsequent stay-at-home orders and business closures, many state and local governments eased restrictions on the food and alcohol industries. The regulatory status quo had blocked business flexibility and consumer choice. Permanent relaxation or elimination of some rules in this sphere—especially those rules without a clear health or safety justification—would create breathing room for continued innovation in an industry that has been severely tested during the pandemic.
The food service and alcohol sectors of the economy are among the most regulated in the country. And many of the rules governing them seem unconnected to health and safety rationales, or indeed any public-interest rationale at all. For example, Washington, D.C. bans the use of images of or people dressed as Santa Claus in connection with the sale of alcohol. New Orleans prohibits food trucks from displaying third-party advertising. Such examples are nearly endless.
The coronavirus pandemic has significantly increased difficulties for these economic sectors. As of May 2020, three percent of restaurants had permanently closed, 44 percent were temporarily closed during the coronavirus pandemic, and 11 percent reported that they expected to close permanently within thirty days. Food banks have struggled during the pandemic and face shortages of food to distribute.
Despite these serious challenges, many state and local governments compounded the problems these businesses face by imposing onerous and unwieldy rules and regulations. Los Angeles, for example, prevented restaurants from selling groceries. Because the restaurants lacked grocery permits, the city therefore determined that they could not sell groceries—despite a history of selling prepared foods. “It’s not really possible for a restaurant to become a grocery store,” said the director of Los Angeles County’s Department of Public Health. “You cannot just decide you want to sell groceries.” But there are reasons to allow restaurants to enter this market: grocery services in restaurants can help reduce crowding in grocery stores, and social distancing can more easily be enforced. Officials eventually relaxed their rules, but they did so in a way that created more inefficiencies—including prohibiting customers from entering restaurants to obtain groceries, but imposing no such prohibitions on traditional grocery stores. As the pandemic slows and businesses reopen, policymakers should give restaurants more flexibility to sell both raw and prepared foods.
Despite the remnants of Prohibition-inspired rules in state codes, many states have allowed restaurants to sell alcohol to go during the pandemic. These changes ought to be made permanent in order to increase consumer satisfaction. Alcohol sales constitute 20-25 percent of sales for most restaurants; because consumers are no longer dining at restaurants at their pre-pandemic frequency, flexibility in alcohol sales may be crucial in helping restaurants stay afloat. Many states, including Colorado and Ohio, are considering making to-go alcohol and delivery alcohol permanent (or, at least, extending it beyond the pandemic). Oklahoma and Michigan have written permanent reforms along these lines into law.
Some states have reformed other alcohol restrictions in the wake of the pandemic. Louisiana recently expanded its alcohol delivery bill (originally passed last year) to allow third-party delivery companies to deliver alcohol from grocery and liquor stores to consumers. Kentucky passed a landmark alcohol shipping law which allows breweries, distilleries, and wineries to ship directly to Kentucky consumers. Kentucky’s measure also allows out-of-state alcohol producers to ship to in-state consumers if their state has a reciprocal shipping agreement with Kentucky (although only a small handful of states allow the direct shipment of all types of alcohol). Even control states—where the government controls all sales of distilled spirits—have shown an inclination for reform. Virginia allowed in-state distilleries the permanent right to hand-deliver their spirits to consumers, and state liquor regulators just announced pilot plans for home delivery from its system of state-run liquor stores in the months ahead.
It remains to be seen how many of these reforms will become permanent and what shape they will ultimately take. Some states, such as Colorado, have opted to extend takeout and delivery alcohol privileges for a few years, rather than making them permanent. Others have proposed allowing alcohol delivery from stores and restaurants, but have restricted third-party companies from conducting such deliveries. The latter policy appears to ignore the realities of the industry; third-party entities like Instacart and Amazon are much better suited to provide delivery services, but most retail stores and restaurants lack the infrastructure or resources necessary to hire employees as delivery drivers. States also may allow some types of licensees (such as restaurants) to deliver alcohol without extending those privileges to other types of licensees (such as liquor stores). Policymakers should embrace an equitable and broad-based system for takeout and delivery alcohol that increases both businesses flexibility and consumer choice.
States should also consider updating other antiquated alcohol rules on their books. Is the public really endangered if companies in Washington, D.C. and Ohio market alcohol with Santa images? Is there any harm if convenience stores and gas stations in Indiana sell refrigerated beer (currently, they can only sell it at room temperature)? What is the purpose of a New Mexico law that prohibits the sale of $1 margaritas? The list goes on. Many of these rules date back to the Prohibition era and have not been updated for nearly 85 years. Such rules are mostly untethered to consumer protection, health, or safety; instead, they appear driven by protectionist motives.
The food truck industry has also been hit with haphazard and onerous regulations. For instance, New Orleans bans advertising on food trucks, a prohibition that is not only without any apparent connection to health and safety but also raises constitutional concerns. The city code prevents the use of “sound-producing devices or music systems which can be heard outside of the truck.” If the intent of these rules is to prevent excessive noise, it is unclear why these regulations apply only to food trucks, not to all other types of vehicles. Food trucks also are often prevented by localities from operating within a specific distance of a brick-and-mortar restaurant. These prohibitions appear to be motivated less by the goal of protecting consumers than by protecting incumbent businesses. Such regulations stifle the ability of food trucks to operate and discourage prospective entrepreneurs.
Small cottage food businesses also face arbitrary rules. Cottage food laws vary by state: they generally regulate how people who make food at home can sell it. Some states cap the quantity of sales, while others restrict which foods may be sold. Oklahoma is studying how to make fresh food available on the market at the same time that Oklahoma farmers are struggling. Reforms to cottage food laws in that state could both increase access to food and assist farmers in getting their crops to market.
Regulations also constrain the donation of food to those in need. Many local regulations cruelly prevent people from feeding the homeless. In some localities, health officials bleached food intended for the homeless. Louisiana officials similarly destroyed venison that was intended for the homeless. As mayor of New York City, Michael Bloomberg cracked down on food donations, apparently because he was skeptical about their nutritional content.
Even during the pandemic, as demand for food bank services has doubled or tripled in different areas of the country, local governments are squelching generous efforts to give food away to people in need. Many people across the country are using the little free pantry concept—small structures in which people can take or donate food as needed. But despite the fact that hundreds of other little free pantries nationwide operate safely with no regulation, some local health departments have stifled this no-contact solution to food insecurity with red tape. In Asotin County, Washington, a woman decided to open a little free pantry in her backyard to help feed her neighbors. But the health department shut it down, threatening her with fines and criminal charges if she reopened without following a laundry list of regulations designed for large-scale food banks. It’s the same story on the East Coast. Health departments in New Bedford and Amesbury, Massachusetts also shut down little free pantries—not because they weren’t helping people, but because they hadn’t followed burdensome regulations.
In one notorious example, health officials in Georgia cracked down on MUST Ministries’ volunteer work that provided hundreds of thousands of lunches for hungry children because the meals were not prepared in certified kitchens. The program was wildly successful; unfortunately, MUST Ministries had to adjust to new enforcement of existing rules in order to serve the needy. Fortunately, in early 2020, a local school district was able to partner with MUST to feed kids who were no longer attending school due to the pandemic. Local and state regulations that prevent people from feeding the homeless are harmful in the best of times and disastrous in the worst. One might think that localities would seek opportunities to partner with charities to better serve the needy, but sometimes it almost appears that local governments view charitable endeavors as a nuisance that should be eliminated.
In short, regulations pertaining to food and alcohol need significant and permanent reform. When rules and regulations have negligible (or negative) impact on the public’s health and safety and primarily serve as barriers that protect existing businesses and inhibit innovation, policymakers should see this as an invitation to reform. That is true in normal times: it is especially true when food supply chains are stretched thin and small businesses are trying to adjust operations to stay afloat and meet consumer needs in a pandemic.
