Liquor Store by the Numbers II

The Finance Committee met Friday and staff presented us with their numbers. Ok so the initial quotes presented at the last Council meeting was $600,000 and for my analysis I used $700,000. Well Staff's information places the total cost with contingencies at $799,500.

There is $225,000 in available cash from the liquor fund after cash needed for operations is deducted. To be clear this is only "extra" if the city does not transfer it to the general fund to pay for city services which helps keep property taxes down. We will come back to this later...

So we have $225,000 in the liquor fund to lower the $799,500 to $574,500. Staff put together the debt payment schedule for a 15 and 20 year pay back. I am going to use the 15 year since it is cheaper. Each amount is the yearly payment amount for the next 15 years.

• $500,000 borrowed = $46,557
• $600,000 borrowed = $55,868
• $700,000 borrowed = $65,180

So back to our net profit analysis from the last post. A 7% net profit yields $7,000 for every $100,000 in sales. $46,557 in debt payments would need $665,000 in new sales or a 35% increase in sales just to cover the new debt payment. This is pure fantasy...
If the expansion yielded a 10% increase in sales, which I think would be quite good considering city growth has slowed to a crawl. Liquor store sales grew 20% from 2003 to 2006. It took 4 years of rapid residential growth to increase sales by 20%. I think 10% in one year with an expansion and no city growth is generous.
10% increase from, lets be generous, $2,000,000 at the end of this year will give us an extra $200,000 in sales. 7% of $200,000 is $14,000. So lets extrapolate this all the way out. $14,000 increase in net profit could make debt payments on $150,000 borrowed over 15 years.
$150,000 plus the $225,000 of cash on hand gets us to $375,000. This however wipes out the cash on hand and gets us exactly no more money to the general fund than we have today. In a few years the growth might get us a few more dollars coming in but then we need to also calculate the lost value of the $225,000 on hand. Simple 5% gives us $11,500 in interest or almost the equivalent a $150,000 would bring to our bottom line.
There are some needs that have to be addressed for a building and equipment that is nearing 20 years. We need a new cooler, registers and some of the exterior block needs to be sealed. We have had issues with the sprinkler system and these need to be addressed. A roof will be needed in about 5 years. All I am asking is that we fix what needs to be fixed so we can get to a point where the market either makes a new store or a sale of the existing store feasible. We are no where near that point.
Last point on that "extra" $225,000. If this is used and the existing sales have to pay for the expansion there will be very little to transfer to the general fund to help off set property taxes. I want to see a budget from those Council Members who push this through that does not dramatically increase property taxes or cut essential city services.
The decision is clear. We need to be conservative with our financial resources to keep taxes low. It was bad decisions like this that has caused City debt to balloon. Decisions that subsidized development at the cost of the tax payer. Decisions that make a needed water treatment plant fall almost entirely on our citizens when this infrastructure should have been paid mostly by development. Our City faces tough decisions, a little more liquor will not wash away the harm of the past nor will it blind us to the course we must follow.