Here are the highlights:

* The combined net profit of all municipal liquor operations totaled $23.4  million in 2011. This represents an increase of $1.7 million, or 8.0 percent, over the amount generated in 2010. Among on-sale operations, net profits totaled $2.6 million in 2011, which was an increase of $598,468, or 30.3 percent, over 2010. Total net profits for off-sale operations totaled $20.8 million in 2011, which was an increase of $1.1 million, or 5.8 percent, over 2010.
 
* Over the past five years, net profits have increased 4.4 percent. Among off-sale stores, there was a 6.5 percent increase in net profits, while on-sale stores showed a decrease of 9.9 percent.

* Thirty-six Minnesota cities reported net losses for 2011, compared to 40 cities in 2010. All 36 cities with losses were from Greater Minnesota.

* During 2011, Minnesota's municipal liquor operations reported a 16th consecutive year of record sales totaling $317.2 million. Total sales generated in 2011 increased by $3.8 million, or 1.2 percent, over 2010. Total municipal liquor sales ranged from $81,839 in Canton to $14.4 million in Lakeville. 

* Municipal liquor operations located within the Metro Area are considerably larger and more profitable than their Greater Minnesota counterparts. Although only 19 of the 208 Minnesota cities (9.1 percent) that own and operate municipal liquor stores are located in the Metro Area, they represent 37.4 percent of the total sales and 36.6 percent of the net profits of municipal liquor operations. Sales by all Metro Area operations averaged $3.0 million in 2011, compared to average sales of $988,189 for all Greater Minnesota municipal liquor operations.

* During 2011, Minnesota's municipal liquor stores transferred $20.1 million of their profits to other city funds. This represents an increase of 20.8 percent over the total net transfers made in 2010. Transfers totaled $6.5 million among Metro Area establishments, compared to $13.6 million for Greater Minnesota establishments.

 

For those new to the report, it is important to note that when comparing operations the only consistent numbers are sales, cost of sales, and gross profits.

However, cities use different methods in allocating expenses that ultimately determine net profit.

Examples include:

* One city may treat a transfer to the general fund as a direct expense.  Others list the transfer after net-income is determined.

* In one community, the municipal liquor store is in a building that also houses the City Clerk's office, the fire garage, and the Council Chambers.  As a result, the municipal liquor store pays a portion of the utilities and maintenance costs that would otherwise be a general fund expense.

* Some communities pay salaries of non-liquor store employees as a direct expense against the liquor facility.  Others transfer the money, after net-income is determined.

* Some cities have a liquor operation reserve fund to pay for building improvements.  Others record the money as a direct liquor facility expense, in the year the work was done.

* One city accelerated their new construction loan payments, from 8 years to 4 years, by reducing their annual net income.  Other cities may decide to spread the payments over the full life of a loan.

Furthermore, don't forget the role of depreciation as explained in a recent MMBA newsletter and magazine:

One difference between the private and municipal liquor sector is the role of depreciation.

According to the Internal Revenue Service, "Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.

Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable."

Cities / municipal liquor operations do not pay taxes, yet depreciation is routinely listed as an operating expense that directly impacts net-income amounts.

This is important since the success of municipal liquor operations is based on net-income numbers.

In fact, according to state statute, "In any city in which the report of the operations of a municipal liquor store has shown a net loss prior to interfund transfer in any two of three consecutive years, the city council shall, not more than 45 days prior to the end of the fiscal year following the three-year period, hold a public hearing on the question of whether the city shall continue to operate a municipal liquor store."

Consequently, because of depreciation a city may show negative net-income (and have to have a public hearing) even though there is an increase in the amount of money in the bank. These increases are usually shown in a "Retained Earnings" or similar line item in a different financial statement and rarely shown in an profit and loss statement footnote.