Lakeville Liquors More Friend Than Foe, Report Shows

Lakeville's City Council got its first look at a highly anticipated liquor study during a work session on Monday, and the results were pretty clear.

Without the municipal liquor stores, property taxes would go up, more private liquor stores would fill the city, in some cases popping up near residential areas, and municipal liquor is not costing the city retail opportunities.

Representatives from the Minneapolis-based Shenehon Company were on hand to share the results of the , and Mayor Mark Bellows said he hopes the community can come together and unify on the issue since the liquor operations first came under the microscope last fall.

“This is still a contentious issue, but I agree the outcome is pretty clear,” said Bellows.

Killing retail development

The council chose to review the city’s involvement in the liquor retail business in part due to perceptions that high-profile retailers such as Costco and Trader Joe’s had spurned the city due to the exclusivity of municipal liquor, as well as to analyze the possibility of expanding the operation.

The Shenehon Company was selected to perform the first phase of the analysis at a cost of $25,000 and representatives from the company wasted no time during their presentation Monday evening in putting to bed the notion of

“Based on our analysis, municipal liquor stores do not impact retailers locating to the city,” said Scot Torkelson, Shenehon Company’s Director of Special Projects. “The most important driver of retail location is demographics.”

Torkelson said the company looked at the top 15 retailers nationally, and of those, seven were already located in Lakeville.

“The reason we pick top retailers is that they are the ones more likely to have a formalized site location plan,” said Torkelson.

Torkelson also pointed out that all 15 of those companies have locations in cities that operate municipal liquor.

Costco, the nation’s No. 3 retailer, had been rumored to be favoring Lakeville for a new location last year. But Torkelson said that due to Lakeville’s geographic location and surrounding demographics, the city would have been less than ideal for the company. Costco ultimately decided to set up shop in Bursville.

“When I studied Costco’s site criteria, I found they want to be on-center of a super-regional demographic,” said Torkelson. “Lakeville would be an off-center location and their site criteria would preclude them ideally from locating in Lakeville.”

Likewise, Torkelson also pointed to Trader Joe’s site preferences as the possible main reason for choosing another location when they were rumored to be considering Lakeville for a new location.

Torkelson said Trader Joe’s prefers to go deep into neighborhoods and areas where the average household makeup is 2.6 or lower. Lakeville has an average of 3 people per household. Torkelson also said Lakeville’s heavy family demographic was outside the company’s “dual-income, no kids” preference according to his research.

Looked at from a different angle, Torkelson said the city was currently above other “edge communities” in the metro area when it came to retail square feet per capita. Lakeville currently has 19.1 square feet of retail space per person according to the 2010 census of a 55,954 population. Other edge communities looked at for the study came in at 16.7 square feet per capita, another indicator that retailers weren’t shying away from Lakeville according to Torkelson.

Private versus municipal

The study also analyzed square feet per capita of communities with private liquor stores versus municipal stores and found that overall communities with private liquor stores averaged more locations but smaller stores.

“Private liquor stores are smaller and more numerous,” said Torkelson. “You’re going to have more stores, smaller stores and stores closer to residential areas.”

Torkelson said his findings indicated that Lakeville could expect to wind up with a total of nine private liquor stores averaging about 5,000 square feet each if operations were privatized. That compares to three municipal locations of approximately 10,000 square feet each currently.

More importantly, the study findings concluded that any new private businesses would most likely be located in existing retail shopping centers rather than build independent buildings, a move that wouldn’t help to broaden the tax base.

Of six other south metro cities studied with private liquor stores, 84 percent were located in shopping centers with only 16 percent free-standing.

Taxes

The tax implications were perhaps the biggest nail in the coffin for any privatization movement.

Given the above scenario, Lakeville could expect only $15,215 annually in property taxes from private liquor operations. Currently, the city’s Galaxie and s contribute $66,931 as Payment in Lieu of Taxes (PILT). The city’s is leased.

That reduction, coupled with the loss of approximately $1.2 million in net profits annually would mean the city would need to see $112 million in new construction and expanded tax base to offset the loss of revenue, and that, said Torkelson, just isn’t likely to happen.

The resulting revenue vacuum would have to be made up by the current tax base at an estimated average increase of $46 per residential household and $233 per business.

The company also looked at selling the liquor businesses and said the city could expect $6.49 million for the entire operation. If invested at a projected 1 percent annual return, the city could expect only $64,903 per year. Torkelson estimated the city’s liquor businesses currently provide about an 18 percent rate of return.

Not a bad situation given the current economy and regulated lack of options for municipalities when it comes to where they can invest their money.

Expansion?

The city has been simultaneously looking to expand the liquor operation to a fourth location and will be faced with a possible $3.5 million expense just for land acquisition if they decide that should happen.

 “I don’t want to move forward with expansion of the liquor business without a unified community," Bellows said.

The issue will now be referred to the city’s newly-formed for “review and comment” without recommendations before the council takes any action at a yet-to-be-determined date.