Loading...
HomeMy WebLinkAbout01.23.12 Work Session Minutes City Council Workshop Minutes January 23,2012 Mayor Larson called the workshop to order at 7:28 p.m. Present: Larson,Bartholomay,Donnelly, Fogarty,May Also Present: David McKnight, City Administrator;Teresa Walters,Finance Director;Randy Distad,Parks and Recreation Director;Cynthia Muller,Executive Assistant MOTION by Fogarty, second by Bartholomay to approve the agenda. APIF,MOTION CARRIED. The purpose of the workshop was to discuss City liquor operations. Council began with a philosophical discussion on whether or not the City should be in the liquor business. Councilmember Fogarty did not like the idea of being in the liquor business,but it is a huge portion of our budget and we need to support the pool and the arena. Residents have said that is a valid reason to stay in the liquor business. She did not know where we would come up with the funding for those facilities. We already have huge holes in the budget we need to fix for this year and to come up with another$150,000 for next year is not realistic. She doesn't like being in the business,but we do not have a lot of funding sources. Councilmember May stated if our objective is to maintain a funding source for enterprise funds, then fine. But she felt we should fully examine the enterprise funds(arena,pool,and senior center)and come up with a plan. If the plan consists of it continuing to lose money,then what is the cap? Will we approve the general levy funding the senior center for$50,000 or $100,000/year above and beyond their revenues? Right now,there doesn't seem to be a cap on the loss side. We do have a budget,but if we have a liquor store fund to dip into,no one is too excited about it. We need to ask ourselves what the taxpayer is willing and able to pay to support those entities whether it comes from general levy fund or from the liquor store fund, it still is Council direction and public input whether we will continue to operate those entities in this manner. Once those numbers are identified in those particular funds,then we need to talk about the source of funds and whether it will be from the general levy or liquor store money. What happens if we don't have liquor store money? What will our community look like? This is the piece we have never really discussed;a philosophical approach as to if the government should be in business to make a profit and especially from liquor,and if we really looked different from our neighbors and sold ourselves that way,what would Farmington really look like? Perhaps a Trader Joe's could start a movement towards a green community where we have boutiques and specialty organic shops,or medical technology businesses. We will never be a drive through community;we are a destination community. We will never see liquor sales like Lakeville and Apple Valley. We need to be bold and we need to be different. Let's focus on what government is supposed to do;create a welcoming environment for any business and perhaps we can have some say in whatever shape or form that ends up being for Farmington. If not,then we keep going and doing what we have always done. It really hasn't worked. Those funds continue to lose money. The liquor business does bring in some money,but she felt the alternative could be more exciting and give more hope to the future of our community. We don't 13 Council Workshop January 23,2012 Page 2 even have a full grocery store anymore in the eyes of many. Even Cub Foods is selling liquor. Do we really understand what the liquor business will look like in the future? We also don't know all the liability issues in the future of liquor sales as more and more places can now sell it. Let's focus on what we do know and what we are hired and elected to do. What does the City budget look like if we remove all liquor store expenses including future employee costs? We have not gotten a handle on that. What is the real impact? What is the potential shortfall while businesses come in to replace us? Let's make some calls and see if there is big box interest to come in exchange for the$100,000 or$200,000 we are hanging onto in liquor sales. Councilmember May felt we are at an exciting point in the community. We can be bold and different and this is our opportunity. She wanted to look at extending the lease while we get a bigger picture of what we want to do. Councilmember Donnelly did not consider the liquor business an essential service for the City to provide. He feels the arena,pool, and senior center are services the City should provide. They are amenities that attract people. He did not know why they are set up as enterprise funds. Finance Director Walters stated the arena is a special revenue fund,not an enterprise fund. When it was changed to a special revenue fund, it should have been supported by the general fund at that point and it never has been;that is why we have a deficit. The pool and the senior center are being transferred into the general fund in 2012. The arena is a special revenue fund because it cannot support itself. In order to be an enterprise fund it has to support itself. Parks and Recreation Director Distad stated originally the arena was an enterprise fund,but it wasn't making money so it was moved to the special revenue fund. Previous to that, liquor store profits were being transferred to cover the difference. The arena has come close to breaking even,but has never exceeded the cost to operate. Councilmember Donnelly would like to see the senior center,pool and the arena remain as services for the community. The liquor store is not extremely profitable so before we invest in a building,we should hire a consultant to look at the operation and see why it performs the way it does. If someone says it can be fixed or re- organized to make it profitable, but if it will stay as it is,then we should get out of the business. In order to do that,we should extend the lease where we are. It takes a lot of time and effort by staff to support that business. City Administrator McKnight suggested contacting the Minnesota Municipal Beverage Association(MTvIBA) as we are members. We also have neighbors that are more successful than we are. Councilmember Donnelly stated if we are not willing to do what is required to make it profitable,then we shouldn't be in the business. We have been looking at it internally for years and there hasn't been any improvement. Councilmember Fogarty stated if we continue,then what will be our threshold for how much debt these entities can go into and what is the threshold to say they are profitable? Mayor Larson felt the MMBA will give us realistic goals, and then we need to determine if those goals are good enough for us. Councilmember May was not big on spending money on studies,but this might be a little unique. There is a disconnect when we are talking about the bottom line and a 2%profit margin and expanding the business. Councilmember Bartholomay stated it sounds like doomsday if we don't support the pool,arena, and senior center. Will the City collapse if we don't support those? They need to be self- sufficient. Councilmember Fogarty stated that will not happen and you have to decide if they are worth funding. You will hear from residents who want to keep those facilities open. Councilmember Bartholomay stated that would be a good conversation because we may have 14 Council Workshop January 23,2012 Page 3 residents and business owners want to spend the money to build a liquor store. If we need to spend money on a study,we need to do it. He does not believe we should be in the liquor business because we are monopolizing a market that business owners should be able to open themselves. In June 2011,he and Councilmember May talked about getting out of the liquor business. If things are changing,we need to do an in-depth analysis. Councilmember May asked if we have looked at what if we weren't in the business? Councilmember Fogarty suspected in a market analysis we would not have a liquor store because the profit margin is so small. There is an average transfer of$150,000 for which she is unwilling to close those three entities. Without the liquor business, she doesn't know what fate they would have. We already have a huge amount to reduce this year. Councilmember May stated then we have to start with those three entities. Are they properly organized and run? Councilmember Fogarty noted we are not in a unique situation. Councilmember May stated if the public wants those things, are they willing to pay more for them if we didn't have the liquor business? Then we could open ourselves up to more economic development. Mayor Larson felt we should start with the MMBA,bring in our neighbors to see what the potential is with liquor. Transfers last year amount to $90,000; $70,000 was HR/IT administrative costs and$20,000 was for the pool. Mayor Larson stated the new lease at the Pilot Knob liquor store started December 1,2011. So we should see a savings this year of$72,000. The lease for the downtown store can be extended for any length of time. Staff discussed with the landlord keeping the lease amount the same for a year if we look at properties other than the current building. Mayor Larson wanted the buildings to be part of the analysis. Regarding the Elm Street site, Councilmember Fogarty would not be interested in that site. Councilmembers Bartholomay and May would not be in support of that site if we stay in the liquor business. Councilmember Donnelly stated when looking at the liquor business,there is a facility cost that has to be included whether we lease or buy. Councilmember Fogarty suggested looking at Vermillion River Crossing. Councilmember May asked about the old senior center. Mayor Larson felt the liquor business is suffering now because of bad leases. Councilmember May thinks it is more than that. People are driving home past other liquor stores and that will not change. Parks and Recreation Director Distad noted we did hire a broker to look at properties. The Elm Street property came through on that search so should we start all over? Mayor Larson replied no,just eliminate that site. Councilmember Fogarty agreed it has great visibility,but she did not understand the past problems with that site and that is why she wanted resident input. Mayor Larson noted if we get out of the liquor business,there is nothing to stop a liquor business from coming to that site, and it will not need Council approval. It is zoned for business. For other sites, staff should look at Vermillion River Crossing and the old senior center,however that was taken off the list because of traffic. Councilmember Donnelly did not want to limit the search and staff should look at everything possible. His preference would be Vermillion River Crossing. If we stay in the business,we should build a new store out there. Councilmember Fogarty agreed. Councilmember May asked if there was a concern with looking at locations and then we get away from what we should be talking about first. City Administrator McKnight clarified first staff will look internally at operations. Are we doing everything we need to do to get every penny out of the current operation? Councilmember Donnelly stated hopefully you will fmd some things, otherwise this is short lived. There should be a list of actions to be taken to make it more profitable. Mayor Larson stated another part should be realistic goals. City 15 Council Workshop January 23,2012 Page 4 Administrator McKnight noted staff has made some changes to increase profits so we do need to recognize that. Step two is if we stay in the business where will it be located. Councilmember Bartholomay noted we have to consider if we do get out of the business,how do we phase out, because we just agreed on a five year lease for the Pilot Knob store. Councilmember May was told we can get out of the lease. City Administrator McKnight added to Council's direction, if we want to get out of the lease,how do we do it? Councilmember May wanted to know what the budget would look like if we did get out of the business. City Administrator McKnight stated the liquor store budget would go away along with money into the general fund. Councilmember May asked if the year end number includes all long term costs. Finance Director Walters stated it does include everything including the transfer to the general fund and depreciation. We lump both liquor stores together and one store is more profitable than the other. The downtown store is not as profitable, but it has the potential to be. Councilmember May asked if there was a way to see if we were not in the liquor business,what businesses would come here. Parks and Recreation Director Distad noted the Elm Street property pays$14,000/year in property taxes to the City, county, and school district. We would have to have 15 liquor stores in place to replace the $90,000 being transferred. Mr. Tom Herme, 905 Larch Street,he read an article stating that profit was $36,000/year for both liquors stores and asked if that was accurate. Councilmember Fogarty replied no, it has to do with depreciation after we report to the State. It is not an accurate number. Mr.Herme would prefer to privatize the liquor business. If you do an analysis it would be useful to look at what revenue could be generated from issuing a liquor license to a private operation. Determine whether those revenues in addition to property taxes generated would meet the bottom line figures from the current operation. If so,the City could go down that path and have the same funds available. Then the question is do we really have a private party that would want to come in. Also, does the Council have the philosophy that would require a facility be in downtown Farmington? Mr. Herme was not sure a private party would see the revenues they want taking place downtown. He drives hwy 3 every day and within several blocks of county road 42 there are several choices. We are at the point to ask whether this should continue. He would like the City to determine if we can get more revenue without any effort by City staff to generate the revenue to support what we have today. Councilmember Bartholomay recalled from the June 2011 meeting,he asked the City Attorney if we got out of the liquor business, can we get back in and his reply was the City can re-establish, but it would be very difficult to discontinue private licenses. Mr. Tim Thompson, 816 7th Street, stated Council is dancing around what the liquor store is paying. The arena is$62,000 in the hole. No one brought that up at the time the $1 million bond to fix the arena was forced down our throat. The Hockey Association has contributed zero. We have to fix the mistakes before we continue to move forward and make more mistakes. Those entities are great for the town, but there is no reason they cannot be funded in a direct manner that does not take more items off the tax rolls. We will continue to have negatives until we fix the initial system. The system is either broke or something needs to be corrected. All he ever hears is the county did this and the state did this. Well,the state did not build this City Hall,the state did not build the bridge to no where,the state did not put in 195th Street,we did. Until the items that are really strapping this town get corrected, how are you going to fix things. You 16 Council Workshop January 23,2012 Page 5 cannot keep throwing bad money out. It is a philosophy factor. If the philosophy does not work to be in it, it is not worth a 2%margin. There has to be ways to pick up the difference to cover those three entities. The general fund has to be able to cover the basic core needs and infrastructure of this town. If the Elm Street location is open for a liquor store,then maybe an ordinance needs to be changed. What if they wanted to buy the Burger King building? We cannot continue to segregate ourselves and not get anyone in town. A company he works with regularly contacted him and it was impossible for him to get through to anyone at the City by the third phone call. It was too much work. You have to get the core of the town fixed and the structure so you can bring something to town. It has to be corrected. Supporting a senior center, arena and pool should be nothing. We have to look at the bigger picture. If we are talking about spending$1 million for a 2%profit margin,that makes no sense. City Administrator McKnight noted staff will talk with Mr. Wartman by February 1,2012, regarding extending the current lease. If we want to negotiate a new lease,that is not tied to that date. MOTION by Fogarty, second by Bartholomay to adjourn at 8:16 p.m. APIF,MOTION CARRIED. Respectfully submitted, Cynthia Muller Executive Assistant 17