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HomeMy WebLinkAboutItem 07ZEMNIT Memorandum To: Mayor and City Councilmembers Steve Mielke, City Administrator From: Dennis Feller, Finance Director Brenda Visnovec, Liquor Manager Date: May 28, 2013 Subject: Liquor Financing Policy City of Lakeville Finance Department The Liquor Finance Policy was reviewed by and includes the recommendations of the Finance Committee a copy of which is attached. One of the Committee members stated that more parameters are needed to define "public purpose" as stated in the Interfund Loan Policy section and as such the Council may wish to consider defining public purposes. An "Alternative - Liquor Financing Policy" is therefore attached which defines public purpose as it relates to this particular policy. Subject to any changes provided at the May 28 work session, the Policy will be submitted to the Council at the June 3 meeting. CITY OF LAKEVILLE POLICY MANUAL SECTION 4 FINANCE POLICIES LIQUOR FUND Policy 4.01 1) PREAMBLE a) The City of Lakeville Liquor Operations will responsibly control the sale of off -sale alcoholic beverages, while generating revenue for the community. 2) PURPOSE a) The purpose of the Liquor Fund Financial Policy is to provide guidelines to the financial management and appropriation of Liquor Funds. 1) CAPITAL STRUCTURE a) The long term financial viability of the Liquor Fund is critical to accomplishing the mission of controlling the sale of alcoholic beverages and contribution of equity. b) The City will be vigilant in its on -going financial stewardship of the Liquor Funds capital structure to finance its operations and growth taking into consideration working capital, debt, and equity positions. c) Working Capital is the financial metric which represents operating liquidity. It is the current assets (such as cash, investments, receivables and inventory) less current liabilities. The City will endeavor to maintain an adequate working capital to provide for unanticipated expenditures, cash flow and inventory seasonal fluctuations, unforeseen deviations in sales and operating capital. Working capital may also be reserved for long term investment in fixed assets. d) Debt and long term liabilities such as leases can maximize the Liquor Funds financial leverage for asset acquisition to accommodate growth and expansion. However, debt also involves risk which can compromise the Funds ability to maximize profits. In order to achieve the desired balance of debt and capital financing, the City will maintain a long term strategic plan, evaluate various financing options and seek the advice of its financial advisors when appropriate. Capital structure evaluation and management may be reported in various documents including but not limited to the budget and strategic plan. 2) PROFITABILITY AND OPERATIONAL ANALYSIS a) The profitability and operational evaluation is vital for both the survivability of the Liquor Fund as well insuring the long term sustainability of contributions to City functions. The profitability and operational evaluation provides a good understanding of how well the Fund utilizes its resources in generating a profit. The City will therefore periodically review the profitability indicators in conjunction with operation performances. b) Profitability and operational metrics to be considered include but are not limited to return on investment, gross profits, gross profits as a percent of total sales, operating profits as a percent of sales and net income (before transfers) as a percent of sales. The metrics will also include comparisons with comparable municipal liquor operations. The profitability metrics may be included in various reports including but not limited to the budget and strategic plan. 3) INTERFUND LOANS a) The Liquor Fund may be utilized to provide loans to those City of Lakeville funds for which (a) it is in the best interests of the community to provide internal financing (b) expenditures which serve a public purpose and (c) there is a reasonable expectation of repayment within a specified period of time. b) Interfund Loans shall be approved by Resolution. 4) EQUITY CONTRIBUTIONS a) The purpose of Liquor Fund equity contributions is to finance those expenditures which would otherwise be supported with taxes and fees. The City Council will approve the equity contributions in conjunction with the budget process and /or by Resolution. The equity contributions include but are not limited to: ✓ Substance abuse preventions and education programs. ✓ Equipment acquisitions or replacements including police, fire, streets, parks or general government. ✓ Capital improvement projects such as streets, roads, bridges, trails and government facilities. ✓ Major maintenance projects such as road reconstruction, trails, and government facilities. ✓ Land and open space for parks, greenways, public facilities, wetlands or environmental protections. ✓ General government debt. ✓ Economic Development initiatives. ✓ Redevelopment and community revitalization. ✓ Municipal programs and services. CITY OF LAKEVILLE POLICY MANUAL SECTION 4 FINANCE POLICIES (ALTERNATIVE) LIQUOR FUND Policy 4.01 1) PREAMBLE a) The City of Lakeville Liquor Operations will responsibly control the sale of off -sale alcoholic beverages, while generating revenue for the community. 2) PURPOSE a) The purpose of the Liquor Fund Financial Policy is to provide guidelines to the financial management and appropriation of Liquor Funds. 5) CAPITAL STRUCTURE a) The long term financial viability of the Liquor Fund is critical to accomplishing the mission of controlling the sale of alcoholic beverages and contribution of equity. b) The City will be vigilant in its on -going financial stewardship of the Liquor Funds capital structure to finance its operations and growth taking into consideration working capital, debt, and equity positions. c) Working Capital is the financial metric which represents operating liquidity. It is the current assets (such as cash, investments, receivables and inventory) less current liabilities. The City will endeavor to maintain an adequate working capital to provide for unanticipated expenditures, cash flow and inventory seasonal fluctuations, unforeseen deviations in sales and operating capital. Working capital may also be reserved for long term investment in fixed assets. d) Debt and long term liabilities such as leases can maximize the Liquor Funds financial leverage for asset acquisition to accommodate growth and expansion. However, debt also involves risk which can compromise the Funds ability to maximize profits. In order to achieve the desired balance of debt and capital financing, the City will maintain a long term strategic plan, evaluate various financing options and seek the advice of its financial advisors when appropriate. Capital structure evaluation and management may be reported in various documents including but not limited to the budget and strategic plan. 6) PROFITABILITY AND OPERATIONAL ANALYSIS a) The profitability and operational evaluation is vital for both the survivability of the Liquor Fund as well insuring the long term sustainability of contributions to City functions. The profitability and operational evaluation provides a good understanding of how well the Fund utilizes its resources in generating a profit. The City will therefore periodically review the profitability indicators in conjunction with operation performances. b) Profitability and operational metrics to be considered include but are not limited to return on investment, gross profits, gross profits as a percent of total sales, operating profits as a percent of sales and net income (before transfers) as a percent of sales. The metrics will also include comparisons with comparable municipal liquor operations. The profitability metrics may be included in various reports including but not limited to the budget and strategic plan. 7) INTERFUND LOANS a) The Liquor Fund may be utilized to provide loans to those City of Lakeville funds for which (a) it is in the best interests of the community to provide internal financing (b) expenditures which serve a public purpose as defined in this Policy and (c) there is a reasonable expectation of repayment within a specified period of time. Interfund loans shall be approved by Resolution. 8] EQUITY CONTRIBUTIONS ay The purpose of Liquor Fund equity contributions is to finance those expenditures which would otherwise be supported with taxes and fees. The City Council will approve the equity contributions in conjunction with the budget process and /or by Resolution. The equity contributions for public purposes defined in this Policy. 9] DEFINITION: PUBLIC PURPOSE For this Policy, "Public Purpose" is defined as... ✓ Substance abuse preventions and education programs. ✓ Equipment acquisitions or replacements including police, fire, streets, parks or general government. ✓ Capital improvement projects such as streets, roads, bridges, trails and government facilities. ✓ Major maintenance projects such as road reconstruction, trails, and government facilities. ✓ Land and open space for parks, greenways, public facilities, wetlands or environmental protections. ✓ General government debt. ✓ Economic Development initiatives. ✓ Redevelopment and community revitalization. ✓ Municipal programs and services.