Loading...
HomeMy WebLinkAbout8A - Liquor License Fee Increase CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: MARCH 3, 2008 8A Ralph Teschner, Finance Director PUBLIC HEARING TO CONSIDER LIQUOR LICENSE FEE INCREASE DISCUSSION: Introduction The purpose of this agenda item is for the City Council to conduct a public hearing to solicit input from the public and affected business owners with respect to increasing the on-sale intoxicating liquor license fee. Historv The City Council conducted a workshop on December 17, 2007 to review all general license fees and adopted the new 2008 Fee Schedule at its January ih Council meeting. The new liquor license fee was conditioned upon a public hearing. The last time on-sale liquor licenses were increased was in 1994. Current Circumstances Before a liquor license fee increase may occur Minnesota Statute 340 A.408 requires that a public hearing be conducted and mailed notice of at least 30 days must be given to all affected licensees. This requirement was observed with a copy of the legal notice and letter explaining the proposed change mailed on January 23, 2008 to all eight (8) liquor business establishments that currently hold an on-sale liquor license. The 2007 Association of Metropolitan Municipalities (AMM) Fee Survey average for all cities in the 7 county metropolitan area was $6,332.00 for an on-sale liquor license. As indicated above our current fee of $5300 has been in place for the past 14 years. Considering that the cost of police enforcement has more than doubled during this same time period Staff believes that a $1000 increase in the on-sale liquor license fee is rationally related to the increased cost to provide officers, vehicle and equipment capable of responding to incidents at licensed on sale liquor establishments. For information purposes 90% of all cities charge a fixed license fee amount for liquor licenses. Five cities charge on a square footage basis. A typical example for these cities is illustrated below: 0-3000 sf $6000 3001 sf - 6000 sf $7000 Over 6000 sf $8000 One city (Eagan) charges on a sales volume basis: Less than $275,000 $5300 $275,001 - $550,000 $6300 Over $550,000 $7300 www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 ISSUES: FINANCIAL IMPACT: ALTERNATIVES: RECOMMENDED MOTION: If approved our new fee would continue to be below the 2007 metropolitan area average and represents less than an overall 1.4% annualized increase. Enforcement action by the Prior Lake Police Department has increased substantially. Alcohol compliance checks, bar incidents and disturbances associated with the five principal bar establishments all have risen. Police department records since 2000 show that police related responses have increased by 78% from 101 calls in 2000 to 230 calls in 2007. Comparatively speaking the new license fee amount of $6300 will have gone up by only 19% since 1994, covering a period of 14 years. Attached to this report is an e-mail submitted by Bill Perron on behalf of Sui Lago. I asked the City Attorney whether the City can base the fee for a liquor license on the volume of alcohol sold by the licensee. Attached is a memorandum from Gregory Bromen to Suesan Pace qualifying the question Mr. Perron raised. Minnesota law does not prohibit adoption of a graduated fee schedule. However, there must be an empirical basis to support the graduated fees. If the City Council were to approve the new on-sale liquor license fee amount an additional $9,000.00 would be generated that would reduce the property tax levy next year. Also adjusting the license fee would be consistent with the 2030 Vision element of balancing revenue resources to minimize reliance upon the property tax. The following alternatives are available to the City Council: 1. Adopt A Resolution Amending the 2008 City of Prior Lake Fee Schedule to Incorporate New On-sale Liquor License Fee as recommended by Staff or as desired by the City Council. 2. Table this item for a specific reason. Alternative 1. nager 1. Public Hearing Notice 2. A Resolution Amending the 2008 City of Prior Lake Fee Schedule to Incorporate New On-sale Liquor License Fee. 3. Sui Lago e-mail 4. Legal memorandum FROM: City of Prior Lake Legal Notice RE: Public Notice CITY OF PRIOR LAKE PUBLIC HEARING NOTICE TO CONSIDER ON-SALE LIQUOR LICENSE FEE INCREASE Notice is hereby given that a public hearing will be conducted on Monday March 3,2008, at 6:00 P.M. at Prior Lake City Hall, 4646 Dakota Street SE, for the purpose of considering an increase in on-sale intoxicating liquor licenses. Frank Boyles City Manager (published in Prior Lake American week of February 2,2008) (e-mailed Wednesday, January 23,2008) www.cityofpriorlake.com HILICENSEILIQUORLICENSEFEEHEARIN~2.447.9800 / Fax 952.447.4245 WHEREAS, WHEREAS, WHEREAS, WHEREAS, WHEREAS, WHEREAS, Motion By: Second By: A public hearing has been conducted to consider public input with respect to increasing the on-sale intoxicating liquor license fee; and The City Council has evaluated the costs associated with administration and public law enforcement of on-sale liquor consumption; and The median fee for an on-sale intoxicating liquor license is $6,330 within the Metropolitan area according to the most recent AMM Municipal License and Permit Fee Survey; and It has been fourteen (14) years since the last on-sale intoxicating liquor license increase occurred in 1994; and An increase in on-sale liquor licenses is determined to be appropriate and consistent with the 2030 Vision element of updating general city license fees; and The on-sale intoxicating liquor license increase shall become effective upon the July 1 S\ 2008 liquor license renewal date. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE that: 1. The recitals set forth above are incorporated herein. 2. The 2008 City of Prior Lake Official Fee Schedule is hereby amended as follows: License Descriotion On-Sale Intoxicating Liquor License License Amount $6,300.00 Passed and adopted this 3rd day of March, 2008. {Seal} YES NO Haugen Erickson Hedberg LeMair Millar Haugen Erickson Hedberg LeMair Millar City Manager City of Prior Lake www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 PerronEwald Page 1 of 1 Frank Boyles From: William P. Perron [bill@perron-ewald.com] Sent: Monday, February 18, 2008 1:57 PM To: Frank Boyles Subject: Taxes PERRO~<<) ....-._--~ 'ate --1 4. Frank I have information from Todd that the liquor fee is going to be increased by about $2,000. In that regard, I would like you and the staff to consider a method of assessment that may help Sui Lago As you probably know, Sui Lago does not have large liquor sales. Thus, an increase in the fee is a regressive tax. The liquor sales have been about the same for the last three years. I have participated with the police department in Burnsville and I know they consider the fee to be somewhat of a fee for the service of taking care of calls to the establishment. Thus, the more calls the department makes, the more that the establishment should pay because they use the service. I do not know if it is legal to charge a fee based on volume. If so, this is my proposal for thought. Leave the existing fee as it is. Determine the amount that would be raised by the new increase. Spread this amount back to the establishments that have licenses based on sales. Thus, the more the sales, the more they would pay. For me, this gives the city what they want. It charges for use, or at least potential use. Obviously, I am hoping to keep the fees to Sui Lago down. It the above works, it would be great. Bill Perron 2/20/2008 halleland lewis nilan & johnson PA Attorneys at Law 600 U.S. Bank Plaza South 220 South Sixth Street Minneapolis, MN 55402-4501 Office: 612.338.1838 Fax: 612.338.7858 www.halleland.com MEMORANDUM TO: Suesan Pace FROM: Gregory A. Bromen DATE: February 25, 2008 RE: On-Sale Intoxicating Liquor License Fees I Setting Fee by Sales V oluIDe ISSUE EXAMINED I have been asked to consider whether the City can set graduated license fees for on-sale intoxicating liquor licenses based upon a licensee's sales volume. My understanding is that this idea has been suggested by a present licensee based upon his perception that higher-volume licensees conswne more City services and therefore should be required to pay a higher proportion of license fees. SHORT ANSWER Minnesota law does not prohibit adopting a graduated fee schedule. However, because liquor licenses fees are intended to "cover the costs of issuing and inspecting and other directly related costs of enforcement," there would have to be showing that these costs also increase with licensees' sales volumes before a system of graduated rates could be justified. It is unclear whether evidence showing that higher-volume licensees tend to generate more police calls would be sufficient to meet this requirement. ANALYSIS In general, absent a statute or constitutional provision to the contrary, the amount of a license fee "may be graduated upon any fair and adequate basis," including sales volume. 9 McQuillin, The Law of Municipal Corporations, S 26.48 (3rd Ed. 2005). I reviewed the state constitution and searched liquor licensing statutes but did not find any provision that would preclude graduated license fees. Therefore, although it appears that adopting a graduated fee schedule would be unprecedented in Minnesota, it does appear allowable if the City can also comply with the remainder of the licensing statute. Minn. Stat. S 340AA08, subd. 2, authorizes the City to set the licensing fee for on-sale intoxicating liquor licenses. However, the City's discretion in this area is not unlimited. The statute provides: "The license fee is intended to cover the costs of issuing and inspecting and other directly related costs of enforcement." Id. (emphasis added). This provision was adopted by the legislature in 1992 and was generally intended to codify the common law requirement that "a license fee should be intended to cover the expenses of issuing, the services of officers, and other expenses directly or indirectly imposed or occurred." Dunham's Food & Drink v. West St. Paul, 526 N.W.2d 413, 415 (Minn.App. 1995) (citing Lyons v. Minneapolis, 63 N.W.2d 585,588 (Minn. 1954)). However, the legislature chose to only allow "directly related costs of enforcement" to be recouped by liquor licensing fees, rather than both direct and indirect costs, rendering the statute more restrictive than the common law. Id. A City's determination of a license fee will not be overturned unless it is "palpably" unreasonable. Id. (citing State v. Clousing, 285 N.W. 711, 713 (Minn. 1939)). Because it is difficult or impossible to precisely estimate enforcement costs, a fee will not be overturned merely because it is nominally higher than the actual licensing costs. Id. Although courts grant cities great deference when reviewing the reasonableness of fees, there still must be a "relationship" between the fee amount and the cost of administering and enforcing the license program. Id. Although there is no Minnesota statute or court decision determining whether the proposed fee arrangement would be allowable, it does appear that there would need to be evidence that the licensing, inspection and direct enforcement costs increase with a licensee's sales volume before a system of graduated license fees could be justified. See Minn. Stat. S 340AA08, subd. 2. Absent such evidence, such a system could appear to be a hidden tax on higher-volume licensees, rather than a means of recouping the costs of licensing the establishment. Although I would obviously defer to staff, it seems unlikely to me that the administrative costs of issuing the license, inspecting the premises, and enforcing the license provisions, such as conducting compliance checks, would vary significantly with the licensee's volume of sales. If so, this would present an obstacle to the graduated fee proposal. My understanding is that the proposal was suggested based on the assumption that licensees with higher sales volumes generate more police calls and therefore are more of a burden on law enforcement. Assuming for present purposes that this proposition is factually accurate, the question becomes whether these increased costs constitute "direct enforcement costs" so that they can be considered while setting the license fee. If so, these costs could provide a basis to impose graduated fees. Unfortunately, the issue has not been decided by the courts. In Dunham's Food and Drink, the city had instituted a "walk through" program where police officers would periodically visit licensed establishments "to check for underage drinkers and as a display of police presence." 526 N.W.2d at 414. The licensee argued that the cost of the program was not a direct cost of enforcing the license and therefore could not be used to justify a higher license fee. The court of appeals sidestepped the issue and upheld the fee, stating that "even ifthe walk-through program was discounted by 50%, the estimated enforcement costs are 2 still in line with the license fees." This could be read as implicitly holding that the program could not be included as a direct enforcement cost, but it is far from clear. Other Minnesota cases have discussed, with inconsistent results, whether law enforcement costs can be included in the calculation of other (non-liquor) license fees. In Minneapolis St. Ry. Co. v. Minneapolis, 52 N.W.2d 120, 123-24, the Supreme Court held that license fees should be set considering only the costs of regulating the business, not the general public who might also happen to be patrons of the business. Thus, in setting streetcar license fees, Minneapolis could not include the cost of hiring traffic officers because their roles went beyond regulating streetcars given that they were present to promote a safe and efficient flow of all traffic. The court also found that the cost of investigating streetcar accidents was a general police expense, not a licensing expense. Id. Similarly, in Crescent Oil Co. ofMinn. v. Minneapolis, 225 N.W. 904, 905 (Minn. 1929), the court held that gas station license fees could not include the cost of police protection against armed robbery, even though gas stations were proving to be the "favorite scenes of operation by the bandit class." Instead, the court concluded that protection against crime was an overall public service not related to licensing. The most recent case addressing the issue appears to be State v. Northern Raceway Corp., 381 N.W.2d 526 (Minn.App. 1986). In that case, the court allowed the City of Elko to include the cost of hiring extra police officers on race nights as a speedway's license fee. The extra officers were needed because the races attracted 3,000 people - ten times the town's normal population of300. The court noted: "The costs included must be only the cost of regulating the business itself and not the general public, who may also become patrons of the business or who incidentally benefit by increased safety because of the city's use of police." Id. at 529. Nonetheless, because the increased police protection would not have been needed but for the speedway, the court allowed those costs to be considered in setting the license fee. It is important to note that there are at least two important differenc~s between these cases and the current question. First, the Minneapolis St. case noted that a city has more discretion to set higher fees when the licensed business has the capacity to become a public nuisance, such as a pawn shop or liquor seller. 52 N.W.2d at 119-120. Second, all three cases were decided under common law principles. In contrast, the authority to set a liquor license fee arises from Minn. Stat. S 340AA08, subd. 2. Although that statute is based upon the common law, it undeniably more restrictive in that it only allows consideration of "direct" enforcement costs, as opposed to the common law which allows both "direct and indirect" costs to be considered. Unfortunately, given the lack of case law we simply do not know how a court would ultimately decide this issue. Should a graduated fee arrangement be adopted and challenged, there would be strong arguments that the expense of general police calls to the business do not constitute direct license enforcement costs and therefore cannot be considered while setting a license fee. However, the City would also have counter-arguments and the court would probably be inclined to defer to the City's judgment. Nonetheless, it is impossible to predict how the issue would ultimately be decided. 3