2009 Financial Overview: In the Black

How Much Was Earned, Where Did It Go & What Do We Owe?

The City ended 2009 in the black with its General Fund revenues exceeding Expenditures. The General Fund is the City's primary operating fund that pays for Police, Fire, Refuse and all the other services that make the City tick. Revenue for the General Fund comes primarily from Income Tax, which was up almost 2% due to a one-time Tax Amnesty that took place this year.

The City's Property Tax goes to various functions such as the General Fund, to pay for debt related to capital projects, and to pay for police and fire pension costs.

The largest capital investments during 2009 was Street projects. More streets were resurfaced this year than there have been in any of the last 20 years. The City resurfaced over 7.5 miles of street, which is more than triple the average done in recent years. This was accomplished through Federal Stimulus monies, debt financing, and good timing when the City when out to bid the projects early in the year.

The City has six Enterprise or Revenue Funds. These funds are supported solely by the revenues received from those specific operations via the water and sewer rates and parking meters. The over $18.5 million in revenues from these sources can only be spent on these functions. So revenue from the water rates can only be spent on water operations and capital, sewer revenue only on sewer operations and capital, and so on.

For more information on City of Lakewood Finances including budgets and audit reports, visit the Finance Department web page.

Tax Amnesty Initiative Nets Half-Million Plus for City

Good news: In 2009, the City of Lakewood launched the first phase of a new initiative to collect delinquent income taxes. This first phase, a one-time income tax amnesty program, was implemented to ensure that every taxpayer is aware of and contributing to the funding of city services (police, fire, street maintenance, blogging, etc). Many took advantage of this opportunity to “wipe the slate clean” and from July 21, 2009 until September 30, 2009, the City of Lakewood collected $567,000 in delinquent tax dollars and processed 2,200 delinquent tax returns.

There is still time for taxpayers to file delinquent tax returns before the second phase- the one with penalties--is instituted later this year. The Lakewood Municipal Income Tax Division is located at 12805 Detroit Avenue in the City Hall Annex Building on the corner of Detroit and Alameda Avenue. No appointment is necessary. The Income Tax Division will assist with free Lakewood tax return preparation or assistance during regular business hours, 8:00 AM to 5:00 PM, Monday through Friday.

The Division can address any questions or concerns in person, by phone at (216) 529-6620, or by email at taxdept@lakewoodoh.net during their regular business hours. Frequently asked questions, additional information, and/or tax forms are available here.

Lakewood Receives Clean Audit

Today the State Auditor's Office released the City of Lakewood's 2008 Financial Audit which certifies the City's 2008 Comprehensive Annual Financial Report (CAFR).

The City received an unqualified opinion (that means good) from the Auditor of the State of Ohio. An unqualified opinion represents that the City's financial statements are presented fairly in all material aspects in conformity with generally accepted accounting principles. The audit and CAFR can be viewed here.

Wanna Buy a Cushman?

The City of Lakewood will be disposing of certain forfeited, confiscated, obsolete and
surplus items through GovDeals.com online auction service.

We've ended our usual Spring and Autumn auctions at City Hall. Now, items are added monthly as they become available throughout the year, so check back frequently to see the current items. You can inspect items before bidding (by appointment). To see a list of auction items, including the opportunity to own your very own Cushman Cart, visit here, or click on the "City Auctions" link on the onelakewood.com home page.

Email purchasing@lakewoodoh.net to schedule an appointment or for answers to any of your questions.

Thanks to Your Votes...

After 31 days of voting and strong “get-out-the-vote” campaigns by all of the nine finalists, the residents of Northeast Ohio have made their choice and determined the three EfficientGovNow collaboration projects that will receive grants from the Fund for Our Economic Future. A total of 13,483 qualified votes were cast from every corner of the 16-county region. Lakewood, together with outher Westshoe communities won a grant of $100,000 to research assembling the Westshore Regional Fire District Project.

The Westshore Council of Governments is working toward a comprehensive regionalization of its entire Fire and EMS operations, which covers more than 75 square miles and serves more than 250,000 residents. The intent of the fire district is to provide the most cost effective solution to the emergency needs of its constituents by utilizing the economies of scale corporate model. By autumn of 2009, partners expect to employ an experienced firm to direct the multifaceted regional fire district transition, and would use funding toward that end. Read the proposal here.

Copy credit to www.advancenortheastohio.org

Balanced Budget Update

General Fund Revenues are currently slightly above (at 66%) the overall estimate at this point of the year, but is due to the timing of Property Tax disbursements - the City receives all of theses funds during the first half of the year. Several revenues to watch since they are significantly below budget as of July 31st, which are indicative of the economy, are: Building Permits (41%); Net Profit Income Taxes (48%); and Interest Earnings (37%).

Overall General Fund Expenditures are still slightly below budget (54%), and are lower than actual expenditures at this point in time in 2007, which means the City is continuing to keep its expenditures in check.

However, the City's greatest challenge currently is its revenues. Attached is an analysis of revenues as of July 31, 2009.

Combined known and projected decreases in Income Taxes, Property Taxes, Local Government Funds, and Interest Earnings has caused the City to project its 2010 General Fund Revenues at slightly above $34.0 million, or the City's 2005 revenue level.

Therefore, the City faces the challenge of expenditure levels for 2010 with revenue levels of five years ago.

For more information regarding the City of Lakewood's Finances, go to: http://www.onelakewood.com/Finance/Default.aspx, or email Jennifer.Pae [AT] lakewoodoh.net for a copy of the actual expenditure report.

Tax Amnesty Begins

For the first time in recent memory, the City of Lakewood is launching an initiative to collect delinquent income taxes. Starting July 21st, the City will offer a ONE-TIME income tax amnesty allowing residents and businesses who are delinquent on their taxes to:

• File outstanding tax return(s) and pay the outstanding tax and interest in full without penalties
• Pay outstanding tax balance(s) and interest in full without penalties
• Pay outstanding penalties only balance(s) at a reduced amount

This opportunity will expire on September 30th, 2009. On that date, the City will initiate a more aggressive and less friendly, approach. The City will use its ability to access Internal Revenue Service (IRS) tax records to identify taxpayers who did not file and/or pay the proper city income tax. Taxpayers identified after the income tax amnesty will be prosecuted to the fullest extent of the Lakewood Income Tax Ordinance and be held responsible for all penalties and interest levied against any outstanding tax balance(s).

No appointment is necessary. The Lakewood Municipal Income Tax Division is located at 12805 Detroit Avenue in the City Hall Annex Building on the corner of Detroit and Alameda Avenue. The Division can address any questions or concerns regarding this one-time tax amnesty in person, by phone at (216) 529-6620, or by email at taxdept@lakewoodoh.net during their regular business hours. Frequently asked questions, additional information, extended hours, and/or tax forms are available on our website at OneLakewood.com/Tax.

Regional vs. Local Income Tax Collection

Since the last Balanced Budget Update, there has been some public discussion about the City of Lakewood's Income Taxes, and the impact of leaving the Regional Income Tax Agency (RITA) on November 1, 2005, and the following is a discussion comparing Lakewood's In house collections to that of RITA.

It is important to note the ratio of income tax related expenditures to actual income tax collections was at a high of 4.77% in 2003 (with RITA) to a low of 3.2% in 2007 (In house). This ratio has been at or below 3.5% since leaving RITA, where the ratio was historically above 4%.

Here is the 2007 estimate of costs if Lakewood remained with RITA:

RITA Standard Services*: $434,506

Outside Law Firm: $ 55,428

Lakewood Staff: $167,000

Total RITA Estimate: $656,934
*does not include researching fees, small claims / civil complaints, and filing of subpoenas

City of Lakewood In House Collections Total Costs in 2007: $572,192 - a savings of nearly $85,000

The City of Lakewood's Income Tax software contains a database of the entire city that identifies each address and classifying it as an owner-occupied or rental property in order to track residents, businesses and property owners. It also tracks if a return was filed from that address, which effectively identifies non-filers that the Income Tax Division aggressively pursues.

To our knowledge, RITA has been in the process of updating its computer system for several years, and is still using an outdated server that could not provide and track a database of Lakewood addresses like the one the City has been using since leaving RITA.

RITA currently has 158 members with a total population served of over 1.5 million. They have stated "the expansion in membership means RITA's operating costs are shared by an even larger group - thus each members' share is reduced."

This was not the experience of Lakewood as a member of RITA as it saw its ratio of expenditures to collections increase over time. Also, with a rental base of nearly 50% of its residents, the City of Lakewood believes stringent maintenance and analysis of its taxpayer database is the key to revenue growth.

The City of Lakewood is in the process of finalizing an agreement with the City of Cleveland this summer for Internal Revenue Service (IRS) data sharing. Cleveland has had IRS data for several years, and Lakewood will be in a position this year to access IRS data prior to RITA being able to complete IRS audits for its members and begin to implement its IRS data share system.

It was the City of Lakewood's experience that RITA did not fully utilize its taxpayer information. For example, Lakewood found that data share information received from the State of Ohio Division of Taxation was used to prepare a one time delinquent letter, however, the information was not input into the RITA database. This allowed Lakewood residents, even homeowners, to avoid paying taxes for years.

The City of Lakewood inputs the State of Ohio taxpayer information into is database annually and aggressively pursues non- or under-filers.

Even when the City was part of RITA, Lakewood employed three positions to audit returns, file small claims / civil complaints, and issue subpoenas, since these are additional costs charged by RITA for these services, including researching fees.

Although RITA stated that any audit functions were included in the fees charged, it has since been discovered that many tax issues were missed by RITA at a cost to the City of Lakewood.

For example, recently the Lakewood Income Tax Division issued a substantial refund to a past resident that paid local tax on capital gains (not taxable on the local level) to RITA for eight straight years. The tax returns clearly show this income was derived from capital gains and even had the Federal Schedule D-Capital Gains attached to the tax return. This is an audit item that should not have been missed, especially for eight straight years.

RITA is a well-run and respected income tax agency that benefits many communities throughout Ohio, but it was found and proven that the City of Lakewood could provide these services better to its taxpayers at a lower cost.

Balanced Budget Update

The Monthly Financial Report as of May 31, 2009 can be found here. The benchmark of budget estimates versus the amount spent at this point in time is 42%.

A couple items to note include:

- General Fund Revenues are currently slightly above (at 46%) the overall estimate at this point of the year, but is due to the timing of Property Tax disbursements - the City receives all of theses funds during the first half of the year. Several revenues to watch since they are significantly below budget as of May 31st are: Building Permits (21%); Net Profit Income Taxes (32%); and, Municipal Court Costs & Fines (36%).

- Overall General Fund Expenditures are still slightly below budget (39%), and are lower than actual expenditures at this point in time in 2007.

- Other revenues to keep an eye on since they are currently below estimates include: Street Construction, Maintenance & Repair (SCMR) that is derived from gasoline & motor vehicle taxes (39%); Emergency Medical Services (EMS) Transport Charges (38%); and Water, Sewer & Wastewater Treatment billings (37-38%).

Also, the City has not yet received its Community Development Block Grant (CDBG) and Emergency Shelter Grant (ESG) funds, although we have been given notice of the City's disbursement amounts.

Balanced Budget Update

Higher individual income tax revenues to date are significantly higher this year as compared to the prior two years due to a timing difference, which equates to approximately $900,000. This year the City implemented a lockbox for tax collections so that payments are sent to the bank directly where they are immediately deposited, thus eliminating the April 15th lag in revenue collections experienced in 2007 & 2008.

Local Government Funds are lagging due to reduced State and County tax revenues. The City receives these funds based on a formula, and the reduction is an indication of the current state of the economy.

By reducing the General Fund revenues as of April 30, 2009 by the $900,000 timing difference for income tax, the City is nearly $175,000 lower than this point last year in collections.

However, General Fund expenditures are $340,065 lower as of April 30th than this point this year. The true test this year of remaining under budget is the successful implementation of the automated refuse collection process which began last week.

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As mentioned in the April 8th Balanced Budget Update, revenues are the City's greatest uncertainty this year.

This month we received word from the Cuyahoga County Auditor's Office that we will receive a 6% decrease in real property tax revenues in 2010, which as a typical reappraisal year that will not take place, the City would have expected to receive the on average 10% increase.

This reduction equates to approximately $950,000, with an known impact on the General Fund of nearly $500,000. The remaining $450,000 impacts capital and debt service.
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With all of the above in play, the remainder of 2009 and 2010 will definitely be a budget challenge. The following is the preliminary 2010 budget process time line:

June 15th - Introduce 2010 Tax Budget to Council. Will include what is known with the 6% property tax revenue decrease and the Finance Department's preliminary high-level projections for 2010 revenue and estimated expenditures

Week of June 29th - Finance Committee meeting to discuss Tax Budget

July 6th - Expected Tax Budget Passage by City Council

Week of July 13th - The Finance Department will have preliminary 2009 year-end expenditure and revenue projections based on mid-year actuals and 2010 budget estimates.

Week of August 3rd - With the July 2009 month-end close, the City will know the 2nd Quarter Estimate Individual Income Tax Revenues to see if there is a decrease. If so, determine how it will impact the remainder of 2009.

Since the City of Lakewood does not have any major industrial or commercial employers, its major source of income tax revenue is from its residents.

The 2nd Quarter Estimate is what residents pay on a quarterly basis of their estimated income for that year. The 2nd quarter estimate receipts are crucial to see how the economy is impacting Lakewood's citizen's since anyone that was laid off or furloughed in late 2008 or 2009 would adjust their estimates that this time.

The City will have also received Property Tax Advances by this date to determine actual collections vs. the County projection / what is budgeted. If these revenues are below the estimate, will need to determine how it will impact the remainder of 2009.

Based on mid-year expenditures to date and year-end projections, plus the known income and property tax revenue as detailed above, determine if any mid-year budget reductions are needed.

The City will also receive 2010 Local Government Fund revenue estimates for the State by this time.

August & September - The City Administration will begin to craft the 2010 Budget Strategy.

October 1 - Purchasing Cut-off. No new purchases can be made after this date.

October-November 15 - The Finance Department will be working on the creation of Nov. 15th Estimate of Expenditures / 2010 Budget Document

November - December - Budget Hearings will take place depending on the status of the union negotiations. All of the City's seven bargaining unit contracts expire on December 31, 2009.
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For more information regarding the City of Lakewood's Finances, go to: http://www.onelakewood.com/finance

Balanced Budget Update

It has been a few months since the last City of Lakewood Balanced Budget Update, but I wanted to wait until the 1st Quarter of 2009 was under our belt before reporting out.

Have a look at the Monthly Financial Report here.

It reflects the revised budget numbers passed by Council on April 6th, and expenditures to date with the year-to-date expenditure versus budget benchmark of 25%.

The most notable item in the revised budget is a $600,000 increase in the reserve balance account, bringing the City's budgeted General Fund reserves to $850,000. The target balance goal is $4.4 million, so there still is a ways to go.

As shown on page 5 of the document, overall General Fund expenditures are 2% below budget as of today's date, but it is still early in the year, and the automated refuse collections change over has not yet begun, but will, beginning in May. This will be the true test of keeping the City's budgeted expenditures on track for the year.

The City's greatest challenge (as well as everyone else's these days) and the biggest unknown because of economic conditions, are revenues. Finance Director Jenn Pae sends a pretty good email to folks interested in that stuff. To get on the distribution list, or to get a copy of the last one, email her at Jennifer.Pae AT lakewoodoh.net

Lakewood to Recieve $1.9 Million from NOACA for Clifton Boulevard Signals

The Northeast Ohio Areawide Coordinating Agency (NOACA) has announced that it will award $1,963,500 to the City of Lakewood for the Clifton Boulevard Signalization Project. NOACA’s Regional Transportation Investment Subcommittee approved this project to be 100% funded with its Congestion Mitigation/Air Quality (CMAQ) funding. CMAQ funds are allocated to projects that help alleviate traffic congestion and improve air quality.

The new state of the art equipment will use wireless communication. This system upgrade will improve traffic movement, reduce delays, reduce fuel consumption and improve air quality. The system will be more energy efficient and easier to maintain.

The Northeast Ohio Areawide Coordinating Agency (NOACA) is a transportation and environmental planning agency that represents state, county, city, village and township officials. NOACA addresses the transportation, air quality and water quality needs of Cuyahoga, Geauga, Lake, Lorain and Medina counties. NOACA and its partners cooperatively develop and implement plans to ensure that travel throughout the region is safe, cost-effective and environmentally sound.

It's Tax Time...

The Lakewood Division of Municipal Income Tax is available to assist you with your local income taxes (they'll even help with refunds too).

Beginning March 19th, the Lakewood Municipal Income Tax Division will extend their business hours on Tuesdays and Thursdays to 8:00 AM through 7:00 PM until April 14th. The department also has extend hours Saturday, April 11th from 9:00 AM to 12:00 PM and Wednesday, April 15th from 8:00 PM to 7:00 PM.

If you prefer to file online, click here.

For more information, call the department at (216) 529-6620.

Lakewood to Receive $1.4 Million Grant

The City of Lakewood continues to push for its fair share of federal dollars from the 2009 Recovery Act. Lakewood has been recently awarded over $1.4 million from the United States Department of Housing and Urban Development (HUD). This is in addition to the approximately $1.1 million already awarded from the Federal Neighborhood Stabilization Program (NSP) for property acquisition.

The City of Lakewood will receive $589,901 in Community Development Block Grant (CDBG) funding and $902,439 in Homelessness Prevention money, as part of the economic stimulus package.

The Community Development Block Grant (CDBG) program enables local governments to undertake a wide range of activities intended to create suitable living environments, provide decent affordable housing and create economic opportunities, primarily for persons of low and moderate income. One priority of this additional funding is to maximize job creation and economic development. While HUD has not released the specific requirements for spending this money, the additional CDBG money will most likely be spent on public infrastructure or economic development projects.

Lakewood will also receive $902,439 as part of the Homelessness Prevention Fund. The intention of this fund is to provide financial assistance and services to prevent individuals and families from becoming homeless. The funds will provide for a variety of assistance, including: short-term or medium-term rental assistance and housing relocation and stabilization services, including such activities as mediation, credit counseling, security or utility deposits, utility payments, moving cost assistance, and case management. Program details will be announced in the coming months.

Balanced Budget Update

The Finance Department has issued the Financial Overview for the City of Lakewood for Fiscal Year 2008. This document diagrams the how much was earned (revenues), where did it go (what it funded), and what do we owe (debt for streets, vehicles, parks, etc.) as of December 31, 2008. Governments are required to follow fund accounting. In other words, by law, dollars from specific sources can only be use for specific sources.

The City of Lakewood has three major, specific "buckets" as shown on this diagram from left to right: General Fund, Capital Investment & Debt Retirement, and Enterprise Funds.

General Fund

In 2008, City Council requested and passed a budget that was structurally balanced. That means that total estimated revenues were to exceed estimated expenditures, and that any carry over from the prior year could not be used to balance the budget.

Passing a structurally balanced budget contributed to the 2008 year-end actual General Fund revenues exceeding actual expenditures by over $500,000. The City experienced a significant reduction in revenues in 2008, which made the need to reduce expenditures necessary, and to be structurally balanced an even greater challenge.

Here is the General Fund comparison for the past 4 years and the current 2009 budget:

Revenues:

2005 Actual = $35,400,543

2006 Actual = $37,271,284

2007 Actual = $37,109,124

2008 Actual = $36,383,736

2009 Estimate = $37,070,844

Expenditures

2005 Actual = $35,691,476

2006 Actual = $36,970,229

2007 Actual = $37,756,664

2008 Actual = $35,875,703

2009 Budget = $36,871,066

Year-End Structural Balance / (Imbalance)

2005 Actual = $(290,933)

2006 Actual = $301,115

2007 Actual = $(647,540)

2008 Actual = $508,033

2009 Projected = $199,778

During 2008, the City established Reserve Balance Accounts to create a way to set-aside portions of positive fund balances for known future or possible expenditures such as separation pay outs and other "rainy day" issues that may arise.

Although a balance of over $500,000 appears significant, it is only slightly more than 1% of overall revenues in 2008. To put this amount in perspective, this would not cover even one General Fund pay period expenditure, which is nearly a $800,000 pay out 26 times a year. And $800,000 per pay period only is the amount for salaries; it does not include benefits like health insurance and retirement.

The General Fund receives almost 50% of its revenues from Income Tax collections, and in 2008 collections were slightly down by approximately $53,000 from the 2007 total. Property Tax revenues were also down slightly by $18,000, but the largest decrease in revenues was in interest earnings and estate tax receipts which combined were over $650,000 lower than 2007 amount.

On average over the past 20 years, the City would realize 2% growth in General Fund Revenues each year. Due to the challenging economic climate, the 2008 actual General Fund Revenues were lower than 2006 receipts.

To be structurally balanced, 2008 expenditures were reduced nearly 2005 levels. The General Fund supports the core operations of the City with over 50% of expenditures funding Public Safety, over 25% supporting Public Works, and the remaining 25% support General Government, Human Services and Administrative Costs.

General Fund Public Works (Parks, Refuse, Fleet, Forestry, Engineering) operations experienced the greatest reduction in overall expenditures from 2007 to 2008 of nearly $800,000. Human Services (Aging, Youth and Early Childhood) saw the next largest decrease of nearly $525,000, and General Government (Mayor's Office, Court, Finance, Planning & Development, Law, HR) decreased by over $275,000. Public Safety (Police, Fire, Building & Housing) increased slightly by nearly $55,000, and Administrative Costs (primarily city-wide insurance and professional services) were $8,000 higher than the 2007 levels.

Capital Investment & Debt Retirement

Many ask why the City of Lakewood can continue to invest in reconstructing roads or purchasing new equipment when it is reducing General Fund expenditures. The reason is that the General Fund does not support these types of expenditures, since the General Fund's purpose is for salaries & benefits and operating costs of the core services detailed above.

The City of Lakewood has a dedicated property tax amount that supports the debt service payments for bonds, leases and loans. As long as the City can afford the debt service payments, it can continue to invest in its Streets, Parks, Buildings, Vehicles and Equipment. For example, a $1.0 million street improvement has an approximate debt service payment of over $80,000 a year over 20 years. The City has to budget for the $80,000 not the $1.0 million.

In 2008, all types of debt service principal and interest payments totaled $10.245 million for current and prior year infrastructure improvements and vehicle and equipment purchases.

Enterprise / Revenue Funds

The City of Lakewood has five separate enterprise or "business" operations: Water, Sewer, Wastewater Treatment, Parking and Winterhurst Ice Rink. These are supported solely by the fees charged to operate these enterprises. These operations also support the debt service for improvements in the water and sewer lines, the wastewater treatment plant, and parking meters.
In 2008, the City of Lakewood leased its Ice Rink to private firm for operation. In 2009, the City will undergo utility rate studies to determine the rate structure required to continue operations, while meeting EPA regulations and to support past and future capital investment debt service.

Other Major Funds

The City has several other special revenue funds with dedicated revenue sources for dedicated purposes. The City receives Community Development Block Grant Funds from the Federal Government. Most of these funds are used for street improvements, economic and community development, and to fund community organizations, and have many restrictions on how the funds can be used. The Lakewood Hospital Fund receives funds from the City's lease with the Cleveland Clinic and from EMS billing. This fund primarily supports the City's paramedics and EMTs, and other health-related endeavors. The Street Construction, Maintenance & Repair (SCMR) Fund comes from gasoline excise & motor vehicle license taxes, and supports the City's Streets department and road salt purchases.

For more information, visit www.onelakewood.com or call the Department of Finance at (216) 529-6090.