Montana lawmakers drastically changed the system by which liquor licenses are obtained from a lottery to a competitive bidding auction during the recent special session.

Senate Bill 5, sponsored by Rep. Steve Fitzpatrick, R-Great Falls, passed by a large majority in both the Senate and the House and will also eliminate so-called “combined quota areas” where city boundaries have overlapped.

Gov. Steve Bullock requested the bill, so he's expected to sign it within the next nine days.

“The Department of Revenue has some rule-making to do, but it takes effect immediately,” Fitzpatrick said.

Montana has had a lottery-based system for obtaining liquor licenses since about 1945. New licenses were essentially free, although fees were attached.

Under the new system, anyone who wants to buy a license must bid at an auction held by the state. The minimum bid will be three-quarters of the market value, as determined by the DOR. In Missoula, that could be more than half a million dollars, as several liquor licenses were recently listed for sale for $750,000.

The licenses will not include gambling licenses. The new system does not affect licenses that are bought and sold on the private market, only new ones created by rising populations or businesses letting them go.

After the buyer puts in the winning bid with the state, they then must purchase the license from a private owner in an area where they are for sale. In Butte and Anaconda, for example, there is a large surplus of licenses.

The Department of Revenue expects the new system to generate $2.5 million in fiscal year 2018, $3.8 million in fiscal year 2019 and $4 million in fiscal year 2020.

Fitzpatrick said that money is sorely needed and will go to the state’s general fund. In fact, the reason the special session was called in the first place was to address the state’s budget crisis. However, he concedes that only people with a lot of money will now be able to purchase liquor licenses.

“That’s a conceivable downside,” he said. “The upside, though, is the state’s in a budget problem and we have basically been giving away property for free. These licenses are property with real value. The typical taxpayer wouldn’t think it would be right for the state to give away old trucks or something like that, they’d expect it to be auctioned off.”

The auction system is temporary, and in 2023, if it’s still working, the Legislature will have to reauthorize it.

The only way licenses can become available is if population growth in a certain area raises its quota, or if a license lapses out or the owner goes out of business. Using U.S. Census data and projecting growth, the DOR estimates that Missoula won’t have new all-beverage liquor licenses until 2020, when it will get two, along with one beer license and one beer and wine license.

For 2018, the tiny town of Pinesdale north of Hamilton in the Bitterroot Valley is expected to get one all-beverage license, along with four other towns scattered across the state.

Another piece of the legislation will eliminate combined quota areas. In places like Columbia Falls and Whitefish, Belgrade and Bozeman, and Helena and East Helena, city boundaries have expanded and overlapped. That means licenses in lower-population areas are being sold to places where they are in higher demand. Belgrade business owners, for example, complained that they couldn’t get licenses and that meant their restaurant business suffered.

The legislation was supported by the Montana Tavern Association, according to past president Jim Johnson, a saloon owner in Red Lodge and member of the MTA.

“We felt like it was a fair solution for all persons concerned,” he said. “We didn’t get everything we wanted, they didn’t get everything they wanted. Some of our members didn’t like it. But they say when everybody’s a little dissatisfied it’s a pretty good compromise.”

To separate places where the city boundaries overlap, the state will take the two nearest points of the city boundaries and draw a line equidistant between them.

Johnson said the bill was “amenable” to the Department of Revenue, the MTA and lawmakers.

“It’s hard to believe government got something done like that,” he said, chuckling.

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