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NEWPORT – When he was a child, Rich Willis would create menus based on what his parents were serving for breakfast. All he has ever wanted to do is work in the hospitality industry in Newport.

He worked his way through Rhode Island College while managing a restaurant at the Hyatt hotel in the city. Then he became a food and beverage manager at Marina Cafe & Pub to learn the ropes of the business.

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So when it came time to open his own restaurant in 2014, Willis was ready. But for Caleb & Broad to survive, he needed a personal loan to secure the most precious asset in all of Newport: a liquor license.

“I paid $200,000 for the liquor license,” Willis said. “I paid $240,000 for my house.”

Because Newport has capped the number of alcoholic beverage licenses it will issue for the last four decades, the going rate for those permits on the private market has swelled in recent years. Willis said some licenses are now valued above $400,000.

But with two new hotels opening next year and more development planned for Newport’s north end, a controversial proposal from hotel developers to expand the number of licenses has touched off the hottest debate of the summer in a city known far more for its tourists than its politics.

On one side are existing business owners, like Willis, who say it’s unfair to allow new companies to obtain a license without having to pay hundreds of thousands of dollars. Flooding the zone with licenses, they contend, will lower the value of existing ones. Some worry they’ll no longer be able to use their licenses as collateral for business loans.

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On the other side, supporters of adding licenses say the prices have made it nearly impossible for new restaurants to open in the city, let alone succeed. They say Newport needs to move away from allowing the licenses to be sold on the black market with little oversight.

“Newport has a problem right now,” said Colin Kane, one of the developers of the 84-room Hammetts Wharf Hotel, which is expected to open next year and is still seeking a liquor license. “We can afford to pay, but if you’re just graduating from Johnson & Wales and you want to open a restaurant, you can’t do it here.”

The Newport City Council ordered a freeze on the number of liquor licenses it would issue in the late 1970s, in part out of fear that the city was being overrun with bars, leading to violence and other undesirable behavior.

The city has 117 alcohol-related licenses, nearly half of which are set aside for restaurants. Other licenses are reserved for hotels, liquor stores, and clubs. The City Council is responsible for approving license transfers or issuing penalties if an establishment breaks the law, but it does not regulate the sale of licenses.

By contrast, Providence has no limit on the number of liquor licenses it can issue for restaurants. In Boston, which does have a cap on liquor sales, a private sale can approach $400,000, too.

Richard Sardella, a restaurateur and former mayor of Newport, said he paid $5,000 for a liquor license when he opened Sardella’s Restaurant in 1980. He is among the dozens of business owners who have signed a petition urging the City Council to oppose creating new licenses for the new hotels.

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“They knew what the lay of the land was,” Sardella said, referring to Kane and the other developers. “If you’re going to buy a $40 million hotel, I think you can afford to take one percent of that and buy a liquor license.”

But Evan Smith, the president and CEO of Discover Newport, the local tourism bureau, said he doesn’t believe the City Council set out to “create a commodity” as valuable as the existing liquor licenses.

While he understands why existing license holders oppose new licenses, Smith said, he thinks the city is “tracking down the wrong direction” by allowing licenses to become so expensive. By comparison, a similar license in neighboring Middletown costs about $2,000, he said.

Smith said he would like to see state leaders intervene by helping to pay existing license holders using a small percentage of the state’s meal and beverage tax. But that idea hasn’t been presented to the General Assembly.

“This is one of the more complicated and twisted issues to come through our city in a while,” Smith said

Stuck in the middle of the debate are the Newport County Chamber of Commerce and the City Council, the body that will ultimately have the final say.

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Erin Donovan-Boyle, the executive director of the chamber, said she understands where both sides are coming from. She’s hopeful the council will have a thoughtful discussion on how to balance the need for more licenses with protecting the interests of the existing business owners.

One idea she suggested was that the city could try to auction off a certain number of liquor licenses each year, although that would likely require General Assembly approval.

“We’re not advocating one way or the other, outside of the fact that the restaurateurs are our members and we want to be supportive of their efforts,” Donovan-Boyle said.

Mayor Jamie Bova said the City Council plans to continue discussing new licenses in December. She said it’s clear the city will eventually need to issue more licenses if it wants development in the northern section of the city, but she wants to find a way to avoid hurting existing businesses.

“The way I keep coming back to looking at it is we are going to have to figure out how to add licenses for north end development to be successful, but it has to be equitable,” Bova said.

For Willis, the owner of Caleb & Broad, it took several years to pay off the loan he secured to buy his liquor license. He said he’s less concerned about the competition that will come with additional licenses than he is about the fairness of it.

“Everyone knows that liquor license is your barrier to entry,” he said. “And it’s expensive.”

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Dan McGowan can be reached at dan.mcgowan@globe.com. Follow him on Twitter at @danmcgowan.