Edina Liquor Monopoly Losing Revenue - Why - How to Solve

For many years, some Minnesota municipalities have maintained a tight control over the sale of alcohol within their borders.  Historically, the justification of this control centered on maintaining community standards and attitudes.  However, there is another reason which propels municipalities into the liquor business.  Many cities discovered that if they can create a government-controlled monopoly by banning the private sale of an item, they can noticeably increase government revenue.  This can prove to be a fleeting benefit.

Edina_Liquor_Pic.jpgLet’s take a look at local liquor sales.  Edina has operated three liquor stores for decades. The profits from the liquor sales help fund parks, arts, and pay down capital.  In 2012, nearly $1.5 million in profit was generated by liquor sales in Edina. Unfortunately, no one in the Edina city government thought that would change.

But it did.  The liquor profits fell to $600,000 in 2015, the last year in which figures are available. The 2017 figures may decrease even further. Regrettably, no one on the City Council or the City Administration budgeted for fluctuations in that revenue stream.

Many believe Edina's liquor profits have been drastically reduced largely because of the opening of a Total Wine store right across the border in Bloomington.   Edina and other municipality liquor stores have a hard time competing with the pricing of Total Wine, Costco, and other nearby stores.  Basic market economics would suggest that this shouldn’t have been a surprise.

Edina, like many city governments, is destined to learn the same lesson over and over again: they cannot control the market, particularly in the metropolitan area.  Bloomington, on the other hand, made the wise decision some years ago to give up its liquor monopoly and open the market up to private liquor stores. When Edina residents leave to do their shopping elsewhere, they don't just buy liquor. Edina loses not only the tax on the liquor sales, but also the sales tax on anything else purchased.

Edina's response to the lowered revenue was typical of inefficient government.  The city decided to simply form a Task Force in the vague hope of rectifying this problem and to raise property taxes by 7%.  City Manager Scott Neal has said that, moving forward, the goal is to stress to residents the connection between community benefits and increased liquor profits. In an attempt to encourage residents to shop locally, he said, “They should care because the better we do in terms of producing profit through our liquor operations, the more that we can spend in our recreation enterprises.”  He added that the more profit generated by liquor, the less we have to raise taxes. The rhetoric Neal puts forth is very reminiscent of past government ineptitude.

This is not an isolated example.  Consider the pending ban on the sale of cigarettes to individuals under the age of 21.  Or the imposition of a higher minimum wage.  Local city governments may promote these steps as necessary for the common good.  However, like the government-imposed liquor sales monopoly in Edina, common sense suggests that local customers may not react as city governments expect them to react.  As long as we are free to make our purchases wherever we like, local cities could well see revenue hits similar to loss of liquor revenue experienced by Edina 

It is disappointing how a poorly budgeted government that can't anticipate revenue changes always seem to default to, 'Let’s just raise taxes.'  I would love to have that level of flexibility in my own family budget. Like me, many of you have seen property taxes increase over the last two years. We, as residents of Edina, should insist our City Government lives within its budget, is more forward thinking regarding revenue streams, and does not default to simply raising taxes when there is a shortfall.

Perhaps Bloomington has the right answer?  It may be time for the City of Edina to get out of the liquor business and bring in private companies such as Total Wine, Costco, and others.

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