Municipal liquor sales: No job for a city?

After 46 years, Shorewood has gone out of the municipal liquor store business. Now it must decide how to use the $720,000 it made from the sale of its two stores at the end of last year.

Prompted by lackluster sales and the view of a three-member council majority that a city should not be in the business of selling liquor, Shorewood's move leaves 20 cities in the metro area in municipal liquor sales. The most profitable have been stores in Richfield, Edina and Lakeville.

Some cities have made adjustments -- some expanding, some contracting their operations -- to boost the profitability of their stores in recent years.

Eden Prairie sank $400,000 in its 10-year-old Den Road store in a project completed last spring. Savage closed one of three liquor stores in 2004, and though its sales went down, the city's net liquor profits went up after eliminating the rent, staff and utilities at the closed store, said liquor operations director Pete Matthies.

Mound spent $1.4 million on a new, much larger store in 2003. After several years of losses that reflected the debt and depreciation of the new store, the city now expects to see a profit for 2007, said City Manager Kandis Hanson.

"It was a business decision by the council to reinvest, and it was absolutely the right decision," Hanson said. "Our business is going through the roof. We have become the wine destination for the west lake region."

The State Auditor's office says the number of cities across the state that operate liquor stores has declined in the past 10 years due to lack of profitability and increasing insurance and other costs. During 2005, seven cities around the state decided to close or sell stores. State law allows cities with populations of less than 10,000 to run their own liquor stores, and if they grow larger, they are grandfathered into the business.

"The trend in our business is remodeling and expansion in big cities and small towns," he said. "Shorewood is the opposite of what is going on. Political ideology ruled the day."

Kaspszak, who spoke before the Shorewood City Council, said municipal liquor stores have two purposes: to control the sale of alcohol and make money to reduce taxes. There is community value in both of those functions, he said. "Shorewood didn't do a good job -- and many municipal liquor stores don't do a good job -- of promoting the community value of their stores."

The decision in Shorewood was led by Council Member Martin Wellens, who wanted to see liquor sales in private hands. "I believe in supporting capitalism versus socialism," Wellens said. "Why not promote private business coming in?"

Council Member Richard Woodruff said that if Wellens had not proposed the sale, he would have.

"We have a business that had a history of reduced revenues and operated at a loss in 2006 and was in fact actually budgeted to lose money in 2007," Woodruff said. "The city of Shorewood is really not organized to effectively manage a commercial business."

Shorewood had about $300,000 in the bank from the sale of a third liquor store in 2003 and made about $720,000 from the sale of the two remaining stores and their inventory.

If the $1 million were invested, the city could easily generate the $40,000 a year that the liquor stores had been contributing to the city's general fund, Woodruff said.

"It has been widely reported that we are going to lose $40,000 a year. That is not true," Woodruff said. "I'm a businessman. I wouldn't have done this if it hadn't made financial sense."

Council Member Paula Callies, who voted with Mayor Christine Lizee against the sale of the stores, is not convinced it was the best financial decision.

Just a few months earlier, the council had cut the staff at the liquor stores and renegotiated the leases to make the stores more profitable, Callies said. The council didn't give those changes time to work, she said. "We were in the business. It was something we could get revenues from, and we have now cut off that option. Obviously the people who bought it thought they could make money."

Now that the decision has been made, Lizee said, it will be important to include the public in discussions about how to use the money. That could start at the council's Jan. 14 meeting, she said.

"We will be looking at the lump sum and how we can create some sort of legacy with it." She said she will suggest converting it to a "green legacy" to environmental improvements in the city.