5.4. SR 11-04-1996
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Eli( River
ITEM 5.4. a. & b.
MEMORANDUM
TO:
Mayor & City Council
FROM:
Pat Klaers, City Am~~or
November 4, 1996 ~
DATE:
SUBJECT: Liquor Store Proposal
The finances of the municipal liquor store fund were briefly reviewed at the
October 28, 1996, meeting. Attached for your review is a section of my memo
from last week which relates to these finances. As you can tell from this
attachment, with a number of assumptions it appears that the city will have
about $450,000 for a new store by late 1997. A new Northbound store should
cost just less than $1 million, so when considering some bond issuance costs,
it appears that the liquor store fund will be approximately $550,000 in debt
at the end of 1997 when the new store is in operation. Based on reasonable
profits and a continued constant level of annual contribution to the city
general fund, there appears to be sufficient funds available to payoff this
debt within about a six year time frame. As noted by the Council at the last
meeting, this scenario allows for very few, if any, new projects or programs to
be financed out of the liquor store fund for the next six years or so.
As discussed in the past, from a purely financial point of view, staff would
prefer to wait one year before proceeding with this project so that the fund is
in a better financial status. If this is not the desire of the Council, then it
also appears that the debt of a new liquor store will be manageable.
At the 10/28/96 meeting, I advised the Council of another Northbound option
associated with the Sax store. At this time I have not received any additional
information from representatives of Sax and, once we do get additional
material and data, it will take some time to analyze this information.
Gary Tushie of the architectural firm Tushie-Montgomery and Associates,
Inc., is scheduled to be in attendance at this meeting to discuss with the City
Council the proposed new Northbound plans. The store as presented by Gary
is consistent with the input he has received from city staff and we support
this proposal.
The timing of opening a new liquor store is critical to its first year success. A
new liquor store must be opened before the holiday season, preferably around
October. In order to accomplish this schedule, the project must begin in
13065 Orono Parkway. P.O. Box 490. Elk River, MN 55330. (612) 441-7420. Fax: (612) 441-7425
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spring and the best bidding period for spring construction is to go out for
public bids around February. In order for the bid documents to be ready by
February, the city needs to authorize the architect to proceed with the
development of the construction documents in early November. Accordingly,
if the presented plans (see attachment) meet with the approval of the City
Council and the Council is comfortable with the finances for a new store, then
staff supports having Tushie-Montgomery and Associates, Inc. proceed to the
next step in this project and move forward with the development of the
construction documents. This work is about one-half of the total fee paid to
the architect for the project. The decision to go out for bids for a new store
will be made in February.
council\liqstrpp.doc
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ElkT"River
MEMORANDUM
TO:
Mayor & City Council
FROM:
Pat Klaers, City Admi1.istrator
October 28, 1996 ;p
DATE:
SUBJECT: Liquor Store Projects
i
1
FINANCES - I previously noted to the City Council that the liquor
store fund was the internal source of money used (as a loan) for the
Kingl11ain purchase. Since that discussion with the Council, staff has
transferred part of tha t loan to a less active reserve - the self insurance
fund. Part of the Kingl11ain internal loan is still in the liquor store
fund, but this is the $225,000 that is the anticipated purchase price for
this property. It is scheduled that this property will be sold to Mr.
Chuba in July, 1997. Accordingly, the liquor store fund will be made
whole in 1997 in time to finance any type of construction
project that is desired. Assuming that the liquor store fund is made
whole in July, 1997, the finances for a Westbound site and a new
Northbound store looks something like the following:
1/97 Cash Balance
Westbound Site
7/97 Kingl11ain Revenues
$675,000
( 375,000)
225.000
525,000
125.000
650,000
200.000
$450,000
Northbound Profits '97
Operating Reserves
A new Northbound store is estimated at $960,000 plus bond issuance
costs. Accordingly, the debt for a new Northbound store would be
approximately $550,000. This debt could be repaid in about a six year
time frame with profits from the Northbound store.
The above scenario assumes a continued contribution out of the liquor
store profits of $163,000 annually to the general fund. This
contribution includes the payment for part of the City Hall and Fire
Hall projects. This contribution is based on the assumption of
$293,000 annual profits being made by the Northbound operation.
Accordingly, about $130,000 annually will be available for debt. More
funds could be available for a project debt if the profit estimate is low
or if the city transfers less money into the general fund. The above
scenario is viewed as a worse case scenario and the financial situation
could be much better than the above review. Staff prefers to not go
into debt for a new Northbound store, but even if we waited one year
we would still be in debt to a certain extent. The debt would be less
and more manageable, but at this time it does not appear that we can
construct a new Northbound by only using the liquor store reserves.
As long as the debt is manageable, this situation is not a major
concern.
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