Privatization of City Liquor Store a Win-win for Taxpayers in Cottonwood

No more taxpayer subsidies as former municipal liquor store goes on tax rolls

Cottonwood, MN--When the state’s next Analysis of Municipal Liquor Store Operations annual report is released, at least one southwestern Minnesota city will no longer be on the list of losers.

After years of mounting operating losses, the City of Cottonwood recently got out of the liquor business for good. Even though it was a local monopoly in this small city, the Cottonwood liquor store ran up $20,000 in losses in 2009. Data from the State Auditor’s office shows the Cottonwood liquor store lost nearly $43,000 in 2008, one of the biggest total losses among municipal liquor stores in the entire state. The net loss of the liquor store represented nearly 3% of the city’s total expenditures in 2008, higher than the entire budget for the Park and Recreation Department or Community Center.

The on and off sale “muni” was becoming a drain on the tight city budget. In the face of declining sales and mounting operating losses, the city was faced with a tough decision: to pursue additional investments in the site or cut their losses and move on. Ultimately, city leaders decided they needed to get out of this non-essential business.

“The final decision to sell the Liquor Store was primarily because of the operating losses that could no longer be tolerated,” said Cottonwood City Administrator Greg Isaackson.“We reached the conclusion that the City could no longer absorb such operating losses, because we were ending up using general fund dollars to pay some of the liquor store expenses.This could not be continued.”

In closing the doors of a community institution that dates back to the days of prohibition in 1937, however, Cottonwood opened the door to new opportunity. When the Cottonwood City Council put the muni up for sale, a local businessman saw opportunity knocking and snapped it up for $75,000.

“There was a need in the community, and there was potential to make money,” said Tom Handeland, new owner of the former city run liquor store. “The city thought they could use a restaurant, and I could provide it.”

New owner Handeland took over the location in November and opened up the new and improved LeRoy’s Food and Spirits. No stranger to the hospitality business, Handeland already owns and operates a successful restaurant in nearby Marshall. He gave the business a complete makeover, renovating the bar and expanding operations by investing in a new restaurant on the premises. The new upgrades include a totally rebuilt kitchen stocked with brand new grills and fryers, turning the former muni liquor operation into a full-scale restaurant.

Rather than a liability, the former city store is now a moneymaker on the property tax rolls. The taxable market value of LeRoy’s Food and Spirits is set at $113,000, according to Handeland, meaning the city will make money instead of losing it. Taking the business off the city’s books further avoids any other opportunity to cost the taxpayers money down the line.

The privatization of the city liquor store comes at a critical time given recent reductions in Local Government Aid (LGA) payments that have cut into the city budget. The City of Cottonwood saw a reduction of $76,674 in LGA funding in 2009 and 2010.

“The sale of the liquor store will help to off-set LGA cuts because the city will not longer be using general fund dollars to help pay for liquor store operating bills,” City Manager Isaackson said.

A Freedom Foundation of Minnesota report indicates that many other cities continue to subsidize unprofitable municipal liquor stores with general tax revenue.

“The primary conclusion is that we should have sold the liquor store a lot sooner than we did,” said Isaackson. “Each city has to make its own decision. In our case it made the most sense to sell the liquor store to private ownership.”

When the grills get fired up and the fryers boiling at LeRoy’s Food and Spirits, there’ll be no more taxpayer losses and budget deficits on the menu in Cottonwood.

Tips, comments, or suggestions? Contact Tom Steward, FFM Investigative Director (952-451-3684).


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