Depreciation of new building is dragging profits down, city says
By Lynda Jensen
DASSEL, MN The Dassel Liquor Store recorded a second year of marginal losses, prompting the Dassel council to consider setting a public hearing to discuss the future of the liquor store.
Technically, the liquor store operates in the black if depreciation is not counted, said Administrator Myles McGrath. Depreciation is an expense deducted from the fund to eventually replace the building, and is typically higher after the purchase of a new building.
The net loss for 2008 was $11,065, noted auditor Dennis Oberloh. Depreciation amounted to $28,082 that year, McGrath said, which means that the store would have shown a profit of $17,017 otherwise.
The liquor store recorded gross revenue of nearly a million dollars in 2008. In 2007, gross revenue was more than $1 million.
In 2007, a net loss of $34,409 was recorded for the store, with $23,677 of that being depreciation. “Actually the sales were strong in 2007 at $1,016,142 compared with the 2008 sales of $921,729,”McGrath observed.
The reason behind the operating loss in 2007 was not sales, but rather the transition into the new building, McGrath added. “All things being equal, if the 2008 sales would have been comparable to 2007, the store would have seen a strong profit in 2008,” he said.
In 2008, operating costs for the liquor store were $921,729 in revenue and $904,712 in expenses (depreciation not included).
“All of these improvements are important to the future of the community and are being financed as needed,” McGrath commented “In a perfect world the city would set aside an amount of depreciation each year over and above the operations and debt service to have the money put away to avoid placing debt again when the assets wear out.
“The question is,” McGrath continued, “how realistic is that expectation? If we debt service and depreciate can the community really afford that?”
“It would be like every homeowner setting aside enough money over and above their mortgage payments to replace their home when it wears out,” he said.
A public hearing will be set to discuss the issue, McGrath said.
Dassel's financial house is in good order
Otherwise, the City of Dassel came in $102,000 under its budget, auditor and CPA Dennis Oberloh reported to the council last Monday. “Overall, I woud say you’re in good financial shape,” Oberloh told the council.
This is true, despite property tax revenue being down, licensing permits going down; and the unexpected shortage in local government aid, he said.
“We started to hold the line about this time last year,” commented Administrator Myles McGrath. The city has been holding off buying things, he noted.
Dassel was unallocated $33,600 in 2008 with no warning, and no way to recoup it in the 2008 budget, it was noted.
Dassel is scheduled to be unallocated $29,800 in the 2009 budget, and will be unallocated $66,800 in 2010, McGrath said.
However, not all of it was good news, as Oberloh told the council to keep an eye on the enterprise funds namely, the liquor store, water fund and sewer fund particularly the liquor store, which should be watched (see article above).
He suggested small increases in water and sewer to build up the fund over time, which could eventually be used toward infrastructure.