Lakeville study shows municipal liquor is a winner

  • Article by: JIM ADAMS
  • Star Tribune
  • September 28, 2011 - 9:05 PM

It turns out Lakeville's municipal liquor business is a good deal after all.

Three months and $25,000 later, a study has provided some sobering facts for doubting businesspeople and council members:

• If Lakeville sold its three liquor stores to private businesses, it would need to raise property taxes about 5.6 percent to offset the nearly $1.2 million in city revenue provided last year by the stores. Taxes on the average home would rise $46 a year; on the average business, $223.

• To recover lost liquor revenue without raising taxes, $112 million in new construction would have to be built. "In effect," the study said, "approximately 20 to 40 large developments would have to come to the city who had been avoiding development because of the presence of these three stores."

Because state law doesn't allow private liquor stores in cities with municipal liquor, Mayor Mark Bellows had said earlier that the city's municipal stores cost the city a Costco, which wanted to sell liquor and located in Burnsville instead. He said after approving the study in June that if the city closed its liquor stores, the lost revenue could be offset by taxes from private liquor sellers and spinoff businesses that come with big retailers.

It's an argument that's been made sporadically in other cities with municipal liquor stores, and in some cases, cities have actually sold them off and gotten out of the business. But none of those cities had as successful a liquor operation as Lakeville, which is the state's most profitable.

Bellows and Council Member Colleen LaBeau had pushed for the study, which was paid for out of the city liquor fund. The results were presented at a council workshop this week.

After hearing the report, Bellows sounded convinced: "It is highly doubtful that we will leave the municipal liquor business," he said Wednesday.

City Administrator Steve Mielke said the report, by Shenehon Co., provided the facts the council had sought.

"The Costco rumor was debunked," said Council Member Matt Little. He had voted against the study, saying it was a waste of money. He noted that the study's researchers talked to Costco, which said it didn't build in Lakeville because the population density wasn't high enough around a potential store site.

"We have identified a significant financial benefit provided by the municipal liquor stores," said the 125-page report. It noted that 2010's profits to the city were $1.175 million, or 5.6 percent of the city's tax levy of almost $20.1 million.

The salable value of the city's liquor assets, mostly the two stores it owns, is about $6.5 million. The rate of return on that investment is 18 percent, the report said.

The report found that Lakeville had more retail development than other cities on the urban fringe, and the city has seven of the top 15 retailers in the United States that have stores in the Twin Cities. It found that all 15 top retailers, including Costco, had stores in cities with municipal liquor stores, suggesting that municipal liquor stores and big businesses can coexist.

Locally, Costco has a store in Eden Prairie, despite that city's municipal liquor stores.

Not everyone was happy about the report, including some businesspeople and residents at the council workshop on Monday night. Members of the Lakeville Chamber of Commerce were alerted by e-mail and were urged to attend the meeting, where the city budget also was discussed.

Bellows noted people at the meeting "still have a lot of questions and strong opposition to municipal liquor. ... One reason we did the study is to create a sense of unity in this community as we move forward."

Bellows said that after hearing workshop questions, the council referred the study to its newly formed Finance Advisory Board for review and comment. A majority of that board's seven members are Chamber of Commerce members, Little noted.

The advisory board will discuss the study Oct. 13. A final public presentation is to be made at the council meeting on Oct. 17.

Jim Adams • 952-746-3283

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