Wednesday, February 12, 2014
The Business of Funding City Services—Should Cities Operate Liquor Stores?
Should government compete with the private sector? At first blush, most would likely say "no." Throughout the history of this country, there has been a strong bias toward government providing only those services not available in the private sector. The argument is partly philosophical—the least amount of government is best—and partly based on the notion that the private sector will do things more efficiently because of competition and the profit motive.
Yet, local governments do have a long history of providing services also available in the private sector—like electricity, golf courses, health club-like facilities, even Wi-Fi. None, however, seems to raise as much perennial discussion about appropriateness as does municipal liquor operations. Reflecting this uniqueness, the State Auditor annually prepares a report on municipal liquor sales, which always receives media attention.
Indeed, the Minneapolis Star Tribune recently highlighted the State Auditor's latest such annual report on municipal liquor sales for 2012. It noted that profits are up for most stores; only about 10 percent reported losses. Importantly, unlike what happens with private sector profits, cities used these funds to help defray the cost of maintaining parks, purchasing snowplows and squad cars and—in one case—building a new fire training facility. All listed are items of important needs in those respective communities that otherwise would likely have been funded, instead, through property taxes. Still, many of the online reader comments responding to the Star Tribune article were critical of cities being in the liquor sales business.
Profits hold down taxes, fund needs
Local governments were originally given the authority to sell liquor as a means of controlling its use. That reason still exists, but it is also undeniably true that, in many communities, revenue from liquor sales has been used to hold down property taxes. State law does not permit new municipal liquor sales, but it would be ill-advised to require those cities now profitably doing so to divest themselves of that resource. Rather, city councils should continue to be able to make the decision about what is best for their communities, balancing community needs while being cognizant that there may indeed be a time to relinquish that function to the private sector.