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Temperate response to city-owned liquor store
by Nick Mason
Feb 27, 2012 | 2232 views | 0 0 comments | 2 2 recommendations | email to a friend | print
The husband-and-wife team of Tu Pham and Vicky Tran own Carver Liquor, the only liquor store in the city of Carver. They would have had to close their store if Carver city government opened a municipal liquor store, but the City Council decided this month to drop that idea.
The husband-and-wife team of Tu Pham and Vicky Tran own Carver Liquor, the only liquor store in the city of Carver. They would have had to close their store if Carver city government opened a municipal liquor store, but the City Council decided this month to drop that idea.
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A divided Carver City Council decided this month not to go into the business of selling alcoholic beverages.

Councilors rejected a recommendation by City Administrator Brent Mareck to hire a Minneapolis company that would have conducted a market study about the potential of the city government opening a liquor store in Carver.

Mayor Greg Osterdyk and Councilors Glen Henry and Mike Webb voted against issuing a maximum $7,800 contract to McComb Group, Ltd. and later said they wanted to stop exploring the concept of running a municipal liquor store.

“It’s dead with me,” said Henry, who became the tie-breaker during the Feb. 6 council meeting.

Councilors Cindy Monroe and Carrie Newhouse voted to hire McComb Group, and later said they wanted to continue consider-ing a liquor store operation because the city could control alcohol sales and turn a profit to boost the city budget.

“Cindy and I are on the same page that it merits further study,” Newhouse said. “I don’t want to walk away from an opportu-nity… If we don’t look further, we are doing a disservice.”

“If you three are not interested, we drop it and it’s dead and gone,” Monroe said to Henry, Osterdyk and Webb.

Carver would have been the first city in Carver County to open a municipal liquor store. State Auditor Rebecca Otto’s annual re-port last March identified Eden Prairie in Hennepin County as the closest city to Carver in the liquor sales business. Savage is the only city listed in Scott County.

If the proposal advanced, the city likely could not have opened a liquor store until at least 2013, because state law requires a city to give public notice one year before opening a store. Waiving that one-year notice would require approval by the Minnesota Legis-lature.

Councilors started learning about prospects of selling alcoholic beverages for off-site consumption after Mareck in October 2011 identified that as one way the city could raise money. They previously asked him how the city might produce income that could lead to a reduction of city property taxes.

The first step was a council work session Jan. 17 featuring presentations by City Attorney Larry Harris; Paul Kaspszak, execu-tive director of the Minnesota Municipal Beverage Association; and three officials of municipal liquor stores in other cities, Brenda Visnovec of Lakeville, Nancy Drumsta of Delano and Lara Smetana of Pine City.

Paul Bilotta of Stantec Consulting Services Inc. of St. Paul told councilors during the January session that the next step should be a market study to research the consumer demand for a municipal liquor store in Carver.

Carver councilors learned that the city’s only privately-owned liquor store, Carver Liquor at 309 Broadway, must close and the city’s three bars must halt sales for off-site consumption once the city government opens a municipal liquor store.

PUBLIC OPPOSITION

Lisa Schoknecht, owner of Lisa’s Place bar, 205 Broadway, told councilors during the Feb. 6 council meeting that she opposed the city opening a liquor store because her sales for off-site consumption are an important part of her business.

“It’s income for me and a convenience for my customers,” Schoknecht said.

The two other public speakers that night, former Carver Mayor Jim Weygand and Tim Craig, vice president of Carver Lions Club, also opposed the city opening a municipal liquor store.

“You shouldn’t do this,” Weygand said. “This is the private sector. Government should not be in this field … This is socialism.”

Craig joked that he was in rare agreement with Weygand about a political issue.

“There are things way more important than running a liquor store,” Craig said.

Tu Pham, co-owner of Carver Liquor with his wife, Vicky Tran, declined an invitation from Osterdyk to speak to councilors that night.

Pham and Tran later told the Chaska Herald that they had no preference of either having the city buy their business at a negoti-ated price or stay in business with plans of moving their store to a future commercial development along the Highway 212 corridor.

“It’s good both ways,” Pham said. “If the city would have done it and paid me a good price, I’m happy, of course. If we go next to Fleet Farm and it’s busy with traffic, any liquor store owner would want that opportunity.

“We bought the liquor store five years ago because we knew Fleet Farm was coming,” Pham said. “The potential up there is phe-nomenal. Fleet Farm opens in July. After that, I’m sure a strip mall will go in. I will lease a space up there whenever a space is available.”

Pham declined to say exactly how much profit his small liquor store in downtown Carver makes, but he said it is less than $100,000 per year.

Webb was the first councilor to express his views after hearing the three speakers during the Feb. 6 council meeting.

“For me, the process has kind of come to an end,” Webb began. “I don’t want to get into a municipal liquor store. We’re taking money away from a private venture.”

Osterdyk initially said he would be interested in opening a municipal liquor store only if it could produce more than $100,000 an-nual net profit. But his position changed after Schoknecht, Weygand and Craig spoke.

“I think it would be tougher for us to run a private business than it is for a private business to run a private business,” Osterdyk said. “I think we have bigger things to worry about, and I will say [the idea] is dead.”

Osterdyk was injured seriously while sitting in a golf cart that was struck by a car at the conclusion of Carver’s Steamboat Days celebration in September 2010. He cited his injuries and the resulting court case in explaining his concern about the city being re-sponsible and held liable if alcoholic beverages at a municipal liquor store were sold to an impaired driver.

“The more consideration I gave it and the more I talked to and heard from the residents and stakeholders within Carver, I made the decision we have other priorities we need to be working out,” Osterdyk told the Chaska Herald on Feb. 8, two days after the council made its decision.

“I think it was valuable to go through the process,” he said. “But at the end of the day, it was determined it wasn’t something we want to focus our time and money on. We need to focus on bringing additional business to Carver and building up the commercial district.”

ACROSS MINNESOTA

Municipal liquor stores started in Minnesota after prohibition ended in the 1930s as a way for cities to control distribution of al-coholic beverages in their communities, Kaspszak of the Minnesota Municipal Beverage Association said. Many cities later entered the business to produce non-tax income, he said.

“No politician wants to raise taxes, so they were looking to municipal liquor to generate revenue,” Kaspszak said during a Feb. 7 interview.

There are about 240 municipal liquor stores in about 210 cities across Minnesota, according to Kaspszak. Some cities have multi-ple stores.

“The number of cities is decreasing, but the trend in our business is remodeling and expansion,” he said. “Wayzata just built their new facility. Lakeville and Apple Valley are relatively new.”

Total annual sales of municipal liquor stores across Minnesota is about $300 million and total annual profits are about $20 mil-lion, Kaspszak advised Carver councilors last month. Individual store sales range from about $100,000 to more than $14 million per year. A profitable store makes up to $1.1 million per year.

He cited profits from municipal liquor stores being used by cities in their general fund of operations or for special projects such as recreation programs, transportation of elderly persons and purchase of public safety equipment.

“You are not the first city to be looking into this,” Kaspszak told Carver councilors in January. “With Local Government Aid cuts [by the Minnesota Legislature], cities are looking, people are looking for that additional revenue stream.”

But some cities, including Shorewood in Hennepin County, have decided to close or sell their municipal liquor stores for phi-losophical or financial reasons. Shorewood sold its two stores in 2007.

“It was not making enough money and they had a conservative council wave come in and decided this wasn’t the right place to be in business,” Kaspszak told the Chaska Herald about Shorewood.

“People get out for one of three reasons,” he continued. “One is the town is evaporating and does not have the population to sup-port it. Another is the philosophical argument. The biggest reason is poor management and the city’s unwillingness to do anything about it.”

LEGAL ISSUES

During the January work session, Harris reviewed his six-page memo summarizing legal requirements and his analysis of fi-nancial responsibility, insurance, liability and operational issues.

Cities with a population of 10,000 or less may establish, own and operate a municipal liquor store, Harris wrote. Once estab-lished, the store may remain open after the population reaches 10,000, he wrote. Carver’s population was 3,724 in the 2010 federal census.

Much of Harris’ analysis warned councilors of pitfalls the city could face, even compared to private businesses operating liquor stores. One area he cited was risk of expensive liability lawsuits.

“Frequently, on large dram shop liability claims, the injured parties would view a private licensee as a shell and would realize that their practical recovery is limited by the insurance proceeds available,” Harris wrote. “That protection does not apply to a city, which would likely be viewed as a ‘deep pocket’ from which a recovery could be made if damages could be proven in excess of the dram shop liability insurance limits carried by the city.”

Speaking to councilors, Harris half-jokingly put it this way: “You want – the legal term for it is – a boat load of insurance.”

Harris concluded his memo by stating “if the city is inclined to move forward, the next likely steps would be commissioning a feasibility study which could address, in detail, the economic issues of such an operation.”

STUDY PROPOSALS

Mareck obtained two proposals for a market study. One was the maximum $7,800 proposal from McComb Group. The other was a $2,500 fee plus expenses estimated to not exceed $200 from Bilotta of Stantec.

Mareck wanted councilors to choose the expensive one.

“Staff is recommending the City Council accept the proposal from the McComb Group; based on their overall work plan, exper-tise with this type of analysis, extensive experience and familiarity with our trade area,” Mareck wrote in a background memo to councilors.

Some councilors complained about McComb’s price.

“I wish it wasn’t $7,800. That was kind of a sticker shock,” Henry said.

Mareck defended his choice.

“This is a big decision,” Mareck told councilors. “Stantec data would be reliable, but I’m not sure it will be as comprehensive. [McComb Group] is sort of the gold standard in doing these types of studies.”

Osterdyk agreed.

“If we are interested in doing it, it’s a wise investment to get the right numbers,” Osterdyk said of hiring McComb Group. “I don’t quite feel comfortable with the Stantec side.”

Minutes later came the 3-2 formal vote not to hire McComb Group. Minutes after that came the decision by a 3-2 consensus with-out a formal vote to drop the whole idea of having a municipal liquor store.

After the meeting, Osterdyk said the next step will be for councilors to look at other ways of raising money for the city.

Some options listed by Mareck last October were imposing a city lodging tax, a city gambling tax or city franchise fees on elec-tric, natural gas and cable television utilities. His list also included selling advertising for the city’s newsletter, vehicles and equipment and increasing rentals of space on city water towers for placement of communications antennas.

“I want to go back to that list and see if there is anything else to look into,” Osterdyk said. “I’m always looking for ways to lower the tax burden to our residents.”
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