Only 2 Municipally Operated Liquor Store Remain In SD
BELLE FOURCHE –– After many decades of managing Belle Package Liquor in the community, the city is out of the liquor business.
During its Nov. 20 meeting, the city council approved a resolution to enter a municipal operating agreement for a period of five years with BW Gas & Convenience Holdings, LLC, doing business as Yesway, finalizing the sale. Included with the sale were $300,000 worth of assets transferred to Yesway, which officially took over Dec. 1.
The city received only one other offer to run the liquor store, from Dacotah Group Inc.
Yesway purchased off-sale liquor licenses for both the liquor store and its current location on Fifth Avenue.
The city also approved offsale operation agreements and licenses for CBH Cooperative and Dakotamart Inc., doing business as Lynn’s Dakotamart Belle Fourche. Now, people have four different locations around the community to purchase liquor.
In addition to requiring the four new license holders pay $35,000 to acquire an initial license, with a $5,000 annual renewal fee, the entities are mandated to hold general and liquor liability insurance coverage at a minimum amount of $1,000,000 per occurrence and $2.000,000 aggregate.
Years in the making discussions about whether the municipality should operate a liquor store have been ongoing for many years and commonly simmered into heated debates. Ward 3 Councilman Larry Schmaltz told the Beacon that he chose to serve as a supporter of the decision to sell, adopting the matter, and its anticipated challenges, upon his April 2022 election onto the council.
“It’s something that I came (onto) the council wanting to do when I’d decided to run,” he said. “I had the belief … (that the) government’s job is to provide taxpayers what the citizens or business entities can’t provide for them.”
Having grown up in Belle Fourche, Schmaltz shared an anecdotal memory of an occasion in his adolescence when he accompanied his father on a trip to the liquor store, later inquiring who owned the business.
After his father told him the city owned the operation, Schmaltz recalled feeling puzzled.
“And I said, ‘That doesn’t make sense; why would they (the city) own a liquor store,’” he said.
And now, approximately 50 years later, Schmaltz said his opinion hadn’t changed.
“It’s been on my mind that long,” he said.
Although unsure about the exact time frame related to when the city opened the business, Schmaltz said its been since at least the 1940s or 1950s. He said the liquor store was opened sometime after the repeal of Prohibition, a 1920 constitutional amendment which federally outlawed the manufacture, sale, and transportation of alcohol.
In 1933, approximately four years into the Great Depression, the 13-year ban was lifted with the aim of garnering tax revenues for already strapped federal, state, and local government agencies.
“ … with Prohibition ending and so many municipalities, especially smaller municipalities, (opened a liquor store) just to be able to number one, open liquor stores, and secondly to have a cash flow stream because nobody else could do it,” he said.
The support infrastructure that municipalities and other governing entities commonly provide for its residents are commonly referred to as “city services.” Examples of this refer to basic services that residents of a community expect their local government to provide in exchange for the taxes paid by its citizens. Commonly, those include sanitation services like sewer and refuse disposal, water, streets, public libraries, fire department and police services, etc.
Schmaltz said he believes that a city’s operation of a liquor store does not fall within the types of social infrastructure which should be provided to people by their city governments.
“(Common types of city services) are things that private industries and people cannot provide for themselves, so the city has to,” he said. “This is something that I don’t feel the city should compete with businesses that want to be in business in Belle Fourche.”
After decades of back and forth consideration, Schmaltz said that persistence is what led to closing the deal on the liquor store issue.
But it wasn’t easy.
When he and other proponents resurrected discussions related to privatization approximately 18 months ago, Schmaltz said they hit a roadblock immediately. Some members of the public were not in support and created push back onto the city and council.
“People thought, ‘Oh, the liquor store makes so much money, how could you possibly do that?’” he said.
However, Schmaltz said that financial figures showed that the city’s operation of the liquor store didn’t bring in as much revenue as some had previously thought. Although the store retailed around $1.8 million in recent years, Schmaltz said the actual profit was only about $100,000, less than 5% of net revenues annually.
Additionally, those net revenues hadn’t yet accounted for additional expenses related to the administrative costs of work done within the city’s departmental oversight including offices of legal finance and human resources, administrative meetings, etc.
The limited financial reward was not proportionate to the risks associated with operation, he said.
As with private alcohol retailers, city-operated liquor establishments can be held legally and financially liable for instances resulting in death or injury due to alcohol consumption.
Most have heard about cases in which bar or restaurant operators have been held responsible for alcohol-related issue in the context of a DUI or drunk driving incident. However, liquor liability coverage cases can also include assault and battery charges and others not associated with operating a vehicle.
“That’s now our liability because we screwed up,” he said, referring to a theoretical example like those mentioned above.
Under the new privatized liquor operations, the city still owns the liquor licenses and will employ operation agreements with retailers. Establishments are required by state law to carry liquor liability insurance coverage. Because the city still owns the liquor licenses, the municipality is required to be named on the retailer’s insurance policies as an additionally insured party. To protect the interests of the city and its taxpayers, indemnification clauses have been built into the operations agreements to shield the municipality from potential future financial consequences resulting from liability claims filed against a retailer.
Although more commonplace in years past, most municipalities have gotten out of the liquor business.
“Everybody but Belle Fourche, Sturgis and Brookings has moved away from that model and into the private industry model, and its worked out extremely well for all of them,” Schmaltz said.
And, he said the city will continue to receive sales tax revenues from the contracted-out sales, with less oversight obligations.
In addition to the host of benefits that privatization would offer, Schmaltz shared a cherry that will soon top off the topic. In the more immediate future, Schmaltz also shared considerable short-term benefits of securing operation agreement incomes from four different sources, a buyout of the existing liquor store, and the opportunity to reallocate approximately $750,000 worth of funds saved to pay for emergency circumstances related to the store’s operation.
As of Jan. 1, 2024, Schmaltz said the city will have $1.2 million to use on several upcoming projects such as building an addition at the Tri-State Museum and Visitors Center, the construction of a new police station, or upgrades to the wastewater treatment system which will be required in about five years. “The city has one less thing to worry about and we can focus more on things that the public or private industry can’t provide for themselves, and I think that’s what the city needs to be good at,” Schmaltz said.
