Two pieces of proposed legislation that would change the way cities distribute liquor licenses are headed for confrontation or conference committee in the 2008 state Legislature.

Current law issues liquor licenses based on population: One licenses for the first 1,000 residents and an additional license for every 1,500 people after that.

But a rash of large-scale retail developments in Rapid City and Sioux Falls is leading a drive to change that system to make it easier to attract franchise restaurants. As any developer knows, full-service, national restaurants are unlikely to sign on to Rushmore Crossing or any other retail development without an on-sale liquor license as part of the deal.

Both Senate and House legislation would change the current formula, allowing cities and counties to issue additional licenses, but in different ways with slightly different effects for current license holders.

The Senate bill would allow a city or county to issue as many licenses as the market will bear, but at a price equal to the market value of privately held licenses. Current holders would be given something akin to first right of refusal - the newcomer would have to first try to buy a license privately before going to the city.

The House version, favored by the liquor industry, is much more restrictive. It would limit the licenses to larger cities, and limit the number of new licenses. Also, recipients of the new licenses would have to derive at least 70 percent of revenue from food.

Either would be an improvement over an outdated, antiquated system that seems more interested in protecting the business investment of a few than in promoting a fair price for liquor licenses in a free market.

The law of supply and demand has given current license holders a big stake in a relatively scarce, and therefore valuable, commodity. But the state legislature must not be in the business of guaranteeing a private investment in perpetuity. Things change in the marketplace. Ask any other businessman who has had to adapt to changing demographics or new government policies.

An argument can be made for allowing as many liquor licenses as the market will bear, especially if municipalities want to increase their revenues from license fees or sales tax on alcoholic drinks.

In reality, those licenses are going to be regulated by the government in some form. We think it truly should be at the municipal level, not at the state.

The people who will live with those licenses should decide how many of them there will be, how they'll be distributed and at what price. City councils, county commissions and the people who elect them are in the best position to decide what is the right number of liquor license for their communities.

Whatever compromise lawmakers choose in changing the way liquor licenses are allotted, we hope it will be one that gives the local control of licenses that is needed.