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HomeMy WebLinkAbout2.b. Off-Sale Liquor OrdinanceAGENDA ITEM: Off-Sale Liquor Ordinance AGENDA SECTION: Discussion PREPARED BY: Jamie Verbrugge, City Administrator AGE 2 ATTACHMENTS: Off -Sale Liquor Survey (updated), Letter from Owners of Rosemount Liquor Mart APPROVED BY: hth/c i r. S 'Oi net, 3ti t7/tti �S RECOMMENDED ACTION: Give staff direction 4 ROSEMOUNT CITY COUNCIL City Council Special Work Session: October 12, 2005 EXECUTIVE SUMMARY BACKGROUND The City Council discussed the off -sale liquor ordinance at a special City Council work session on September 20 The Council directed staff to return this item for discussion to the October 12 work session agenda for discussion of options to amend the City ordinance. ISSUE Based on Council direction, staff is posing two options for amending the City's off -sale liquor ordinance to loosen the restriction on the number of off -sale liquor hcenses that shall be issued. The current ordinance language allows for one (1) hcense for every 6,500 population, based on the Metropolitan Council's most recent population estimate. There are currently two (2) licenses Rosemount Liquor and Shenanigan's Wine and Spirits. Staff understood that Council wanted to basically evaluate two options. a phased m approach to allowing additional off -sale hcenses; or ehmmatng the restriction on the number of hcenses that will be granted. Option #1— Phased In Increase of Licenses Allowed Before discussing what number of hcenses is appropriate, it is Important to note that the State of Minnesota gives broad discretion to local governments to regulate alcohol. The pubhc interest in regulating alcohol generally has to do with community concerns regarding the proliferation and control of sales, pubhc safety and welfare, and social issues related to the use of alcohol. Should the City Council choose to increase the number of hcenses allowed while still hmiting their number, there are several different approaches that might be implemented. First, an increased number of hcenses per capita or a reduction in the per capita number could be adopted. This would allow for more licenses to immediately be issued but still tie the total number to community growth. A second approach would be to set a definite number without correlating it to a population figure. This approach would immediately increase the number of licenses but would still hunt the market Another approach (either with a new per capita standard or the existing 1.6500 standard) would be to tie the per capita number to the City's unofficial population estimate This would resolve the lag -time problem inherent m the certified Met Council population estimate, and would make one hcense immediately available based on the current staff estimate of City population (greater than 19,500). If the Council's intent is to allow more opportunity as the community grows, the staff recommendation would be to either reduce the per capita figure or increase the number of licenses per capita (and to consider which population estamate, Met Council's or the City's, will be the basis of restriction). This approach would continue to control the availability of alcohol with the growth of the coininumty. Option #2 No Limit on Number of Licenses This opnon is simply based on the belief that the market should be allowed to regulate the number of off sale liquor operations serving the cominumty, as it does with any other retail or service business. In this scenario, the City Council would be accepting that the City's current approach to enforcement and compliance monitoring is sufficient to control the availability and distribution of alcohol It would be anticipated that the City would continue to aggressively pursue violators through the graduated penalty program currently m place Evaluation of Options When considering the options, the City Council should discuss the pubhc interest inherent m the decision as it pertains to regulating alcohol. This question is especially pertinent if the Council chooses to phase -in more licenses with the intent of reviewing at some point m the future whether the limitation is required. In other words, the City Council would essentially be saying that a concern exists regarding the availability of alcohol and that we will be monitoring whether increased availability translates into increased incidents involving public safety or community welfare Staff believes that if this is the approach desired by Council, it would be wise to give direction on what type of monitoring is required to make that later determination. The current off -sale environment m the community does not seem to indicate that an alcohol problem exists in the community. There is no objective data (either collected or empirical) to suggest that intoxicated driving offenses, underage drinking, domestic disturbances or other public nuisances are attributable to either the restriction or ready availability of off -sale liquor m the community. If the concern is that mcreased off -sale operations will lead to a greater number of these types of incidents, it will be necessary to benchmark the current conditions and set parameters to determine if the offenses indicate a causal relationship to the increased availability. This has the potential to be a fairly resource intensive exercise. There are two other issues for the Council to consider as part of this discussion. One issue that has become apparent is that an increase in the number of licenses could pose a problem if multiple apphcants for a limited number of licenses come forward at the same time, as it appears may be the case given the recent number of inquiries to reconsider the ordinance. A second related issue is the consideration of distance requirements between off -sale establishments, which other communities have m place. As an example, the City of Cottage Grove recently eliminated the restriction on number of licenses available (based on the market regulation argument) but maintains a 1,000 foot separation requirement For perspective, Rosemount's two off -sale establishments are approximately 2,200 feet apart. Based on the current and future commercially designated land, staff would request more time to research the potential effects of a separation requirement if Council chooses to consider this approach. SUMMARY Give staff direction. It is anticipated that if Council makes a decision on which approach is most appropriate, an ordinance amendment could be processed for consideration in November. 2 Comments 1 Ordinance restrictions in place since 1970's, originally identified 10 sites Two of those sites are no longer viable, so effectively limited to eight sites I Revised ordinance in April 2005 removed restriction limiting to 1 per 7500 population Staff stated change was made because it was felt restriction discouraged new business and wanting to be competitive with nelohbonno communities 'Ordinance rewritten in June 2005 Did not have limit in earlier ordinance either According to staff, the old ordinance was applicable when they were a rural community, however, they have experienced so much growth, staff felt they needed to update their liquor license requirements to accommodate new business Ordinance rewritten in April 2004 because language was old and had not been updated for several years Did not have limit in earlier ordinance either Other Criteria Free Standing Building One Mile Separation Zoning /Market 1000 foot Separation Stores Per Population 1799'L £69'1' I LO£'1' 05L'Z 1 ZPL'OL 1 008'Z 1 8gZ'S 889'L L9 C£ 09L'£ 1 009'£ 09Z'Y 1 L69'Z 1 009'0 1 e0L'4 OGL'SZ 10,000 1 17,000 1 I L90'9L OOL'9L 1 OSCZL Current 8 171. 1 OL L eLseJeA 1 4 9 1 9 1 OL I eneraA N N (r) r 171111737.1W punt auoN auoN I auoN I auoN I ZL 1 a au oN auoN 1 auoN 1 auo I auoN 1 au oN 1 iunn 1 iunyl 1 iuntN iunyy wnyy Populaton Estimate 4£17'09 00£'1'9 OSLO£ 1 009'LZ I 1 r8Z'oz 1 1 oos'sL 1 sagi E 'OE 000'6L 22,500 1 0oo' 12,780 1 1 906'9Z 1 000'£Z 1 50,300 I 1 1 1 20,000 1 1 1 1 I 1 I L90 "9 000' Lg 1 I 1 25,500 I `West St Paul uakota county Cities Not Municipal Stores apiASwng' L uebeI I Inver trove Heights !Hastings L Inert LS uinogl L pied 14 IsoMI 1 !Other Comparable C !Cottage Grove i Lino Lakes Aeswea l Nrlor Lake 1 !moan ht t'aul ai 1 eiseunl 1 rwuntcrpar Liquor Sto 1 Ranee aldd \I !Far 1 j P aton oNl aurease t abenesl City of Rosemount 2875 145 Street West Rosemount, MN 55068 -4997 Attn: City Administrator Mr. Verbrugge, We are writing this letter to address the upcoming decision to increase the number of off sale liquor licenses available in the City of Rosemount. In June of 2004 we purchased Rosemount Liquor Mart based on a set of market conditions that existed at the time, namely the ordinance Section 3 -1 -2 L.3 that limited the number of licenses to one license for each 6,500 of city population attained based on the population estimates of the Metropolitan Council. Before we signed a purchase agreement we investigated the population numbers of both the City of Rosemount and the Metropolitan Council On March 14 2004 the Rosemount City website listed the 2000 population at 14,619 and the forecast for 2010 was 22,700, an average expected increase of approximately 800 residents per year. In addition, the Metropolitan Council 4/1/2003 estimate was 16,794. The increases in the Metropolitan Council numbers for the three previous years that were available to us at the time we purchased were as follows: 2000 -2001 651 2001 -2002 840 2002 -2003 684 The average increase over these three years is 725 residents. Based upon these figures we forecasted that the Metropolitan Council estimates would not surpass the ordinance required population of 19,500 until the estimates for 4/1/2007 were released in July 2008. Therefore we projected that we would have until late 2008 or early 2009 before we had to worry about another liquor store directly competing with the two existing stores in Rosemount. Even a more aggressive population growth estimate of an additional 900+ residents per year would have put the City of Rosemount over the required 19,500 only one year earlier in July 2007. This is how we derived the 3 -5 year window that we provided for in our business plan and as you can see we made a major business decision based heavily on the ordinance The total purchase price of our store, including start-up costs and inventory, was nearly $825,000. As two first time business owners we had some serious difficulty financing the purchase of a store of this size. Only with the aforementioned extensive business plan that we formulated and provided to the bank were we finally able to secure the required financing with a Small Business Administration loan. Even with that it took everything we had to purchase this store. It required that we both take out second mortgages on our homes up to 100% of the appraised values and also borrow money from family members and credit cards for the 20% down payment totaling well over $200,000. OCT -62005 Our financing includes the Small Business Administration loan that is a seven year repayment schedule and also some seller financing that is amortized over five years with a balloon payment due in three years. These required repayment terms means that our debt service burden every month is substantial. As a result, our store is still currently operating with negative cash flow every month and as owners we have already invested approximately an additional $50,000 over the past 16 months towards these debt payments. In essence the store is only just starting to pay for itself. We have investigated into getting our loans refinanced and the repayment terms extended, but banks won't even consider it until we have at least two full years worth of tax returns. The most likely scenano imaginable is that we will be able to secure refinancing at the time our balloon payment is due, which again is around the July 2007 time frame. Another major requirement of receiving the bank financing was that we had to secure a long-term lease, a lease that covered the entire length of the loan. We decided on a five year lease that had an additional five year option. While we are content with our current location, the lease does not give us any flexibility to move to a more desirable location at this time. One fear we have is that any new liquor store will sandwich us between Shenanigan's and themselves. For those consumers that do their shopping based on convenience of location this would leave us with a very small population of Rosemount. If we could, we would also try to move to the new Rosemount Crossings (the most likely spot for the new store at this time) but our lease obviously prevents that. In fact, our long -term business plan included financing for a brand new location and building in Rosemount after a five to seven year time period based upon the equity we would have in our business. We feel that we will be able to compete with anyone and are not afraid of competition, as long as we all have the same parameters to deal with. Included in the above mentioned purchase pnce of $825,000 was a premium that we paid for our license based upon the market conditions that existed at the time, particularly the ordinance limiting the number of liquor licenses. Under the proposal to make this an open market and now add more licenses, any new store could come in essentially for the cost of a new license, which is only $200.00, plus their investment in equipment and inventory. We need more time to simply level the playing field. Please allow us to at least gain the equity back in our business that equals the premium we paid for our license. Again, this premium we paid was for the fact that we owned the rights to do business in Rosemount under the guidelines that were set forward to us under the law by the previous City Council. We never would have made this kind of investment if we had believed that a similar investment would not be required by any competition. Obviously if we believed we could have waited a year and been able to buy a new store for the cost of the fixtures and $200.00 for the license, we would have pursued that angle ourselves. We agree that the population requirement of the ordinance, along with the fact that it also has to be according to the Metropolitan Council population estimate which is many months behind, is an arbitrary and somewhat vague basis for an ordinance. However, that does not change that fact that this was the law that we based our purchase decision on. What we would like to ask of the City Council is that if you feel that the ordinance does not serve the purpose that it was originally intended to, and that it should be removed or rewritten, that it is done so with a specific date for the change to take place. This would allow us to reformulate our business plans to make them become more appropriate under the new market conditions. We would also like to suggest that if this is how you decide to proceed that the date be set to be some time between July 2007 and July 2008 at the earliest. This is the time frame that we have outlined that is right in the middle of the most likely period of when the Metropolitan Council estimates will have passed the population criteria of the current ordinance and is the most likely to allow for fair competition. In addition to the economic reasons we have laid forward, we also fully understand your desire to meet the needs of the people of the City of Rosemount. We are sure they require a balance of at least these three categones- convenience, cost and control of sales. Addressing all three of these individually we feel that the public is currently well served in these areas: Convenience A third store within a one mile stretch and less than a quarter of a mile from our door would hardly be more convenient for anyone and would put unfair pressure on us for the reasons addressed above. Cost A lot of people currently travel from most of the surrounding communities to buy their liquor at a store in Rosemount because of cost. We have done some market research and we knowingly have lower prices for an average bundle of goods as compared to any store in the surrounding area, including MGM liquors in Eagan Control of Sales We believe this to be the main reason for the ordinance in the first place Limiting the competitive pressures on the liquor stores in any particular community reduces the risks that any of them will be liberal in their policies to sell to minors and/or other questionable or intoxicated persons. It also makes it easier for the City to monitor such practices. We believe the current situation as set up by the ordinance is a nice balance of all three themes. If you want to see the opposite, take a look at Eagan. Eagan, up until very recently, had unlimited numbers of liquor licenses. This set up the current mess they are in with a revolving door of store owners and a large number of little stores with very high prices. There was a lot of talk at the recent work session about letting the market dictate the number of stores. We are firm believers in the free market society we live in, but that doesn't change that fact that we made our purchase based on the market that existed at the time, a market that we had nothing to do with restnctmg or limiting. The market that we bought into, would put us at a distinct disadvantage in an open market. Businesses need to be flexible and change with market conditions, but most businesses can't take major disruptions to their market without serious consequences. Adding a third or more stores to our market would be considered a major disruption at this time. Again, we hope that you would consider waiting to open the market until such a time when we have some chance of making all the adaptations to our business plan that surely will be required. Setting a specific date would allow all parties, newcomers included, to make the necessary adjustments to their forecasts and plans, and allow them to position themselves to be competitive under the new market conditions. If you would like us to provide any more information about or current financial position, we could gladly supply you with our 2004 partial year income tax return, current balance sheet and profit /loss statements, our personal financial statements, our business plan that was presented to the bank, and any other documentation you may desire. Thank you in advance for you time and consideration of our situation. s (01 114_ Charles Christ W Sean Schumacher October 7, 2005 To Rosemount City Council Members Mayor City Administrator City Clerk Police Chief Regarding: Off Sale Liquor License Ordinance We are writing to ask that you keep the ordinance in place as it is currently written We understand that at some point the population of Rosemount will warrant the granting of another off -sale license, however, we feel it should be under the guidelines that are now in place Unlike other retail businesses, the State of Minnesota, County and City government actively regulates the liquor industry. This is due to the fact that liquor is a controlled substance and there are safety issues that surround the use of it. Our business plan is based on this ordinance. Please leave the present ordinance in place Sincerely, Fritz and Pat Dolejs Shannon Allen MaryBeth Poole Sarah Dostal Christina Ruzicka The Chanhassen Villager 1 Liquor license cap to be lifted PRINT (its Liquor license cap to be lifted Wednesday, October 05, 2005 By David Jansen Staff Writer 'There's no need to restrict competition," Mayor Tom Furlong said about lifting the restriction. Off-sale liquor licenses apply only for retail stores such as liquor stores and gas stations. On -sale liquor licenses are issued typically for bars, restaurants or golf courses. Page 1 of2 The Chanhassen City Council is planning to remove an 11 -year cap on off -sale liquor licenses in the city to help make way for a wine boutique downtown. At its work session Sept. 28, city officials made it clear they supported the lifting of the cap, which currently allows for four off sale liquor stores in the city. Like other cities, including Chaska and Prior Lake, Chanhassen would likely have no limit for off -sale liquor licenses. But as City Manager Todd Gerhardt said, the council wouldn't be paving the way for a city full of liquor stores if it approves the ordinance. "They (the City Council) believe in the free enterprise system let the market bear," he said. Apart from market restrictions, the city also has special zoning where liquor stores can go. Off-sale liquor stores can only be placed in Highway Business, Central Business District or in special developments such as Village on the Ponds or Arboretum Shopping Center, most of which are either in downtown or along Highway 5. Chanhassen now stands at three off -sale liquor stores: Cheers Wine Spirits, MGM Liquor Warehouse and Byerly's Wine and Spirits, all within a few blocks of one another. At its Oct. 10 meeting, the City Council is considering granting its fourth, and last, liquor license to Century Wine Spirits to appear in the Arboretum Shopping Center on Century Boulevard and Highway 5. According to a city report, the limit was put into effect in 1994 when the council approved a liquor license for Byerly's, which is outside the special zoning areas. The City Council decided to limit the city's liquor licenses to four to eliminate concern of setting a precedent for allowing liquor stores outside already established districts, the report also said. Upon hearing Chanhassen would be issuing its last off -sale liquor license to another business, Tara Clawson, owner of wine boutique Winestyles, wrote a letter asking the city to consider allowing at least one more license for her business. She would like her store in Market Street Station, which coincidentally is only a couple of blocks away from three competitors. But she said her business is different from the typical liquor store. "Although I do need an off-sale liquor license to operate my business," Clawson's letter to the council said, "the concept of a WineStyles is more focused on educating clients on the tastes and flavor of wine and actually less of a typical liquor store." In educating people on wine, she said she will offer 1 ounce samplings of wine, and help people understand how to choose a wine for a specific entree, taste or budget. "I really think its going to benefit Chanhassen's retail market when you walk in, it will be a real upscale store." But even with the council's approval to add more off -sale liquor licenses, she still has to get site approval and order inventory. http /www.chanvillager.com/print. asp ?ArticleID 7042 &Section1D= 2 &SubSection1D =2 10/11/2005 The Chanhassen Villager Liquor license cap to be lifted She doesn't expect to be open until early next year. David Jansen can be reached at djansen @swpub.com. 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