The Observation Deck

Good Afternoon,

These periodic e-mails are updates of the City of Lakewood, Ohio's concurrent initiatives to create financial strength and flexibility for 2009 and beyond as prescribed by Joint Resolution #8167-07 and Resolution #8292-08.
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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'sOffice 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 reductionequates 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 and to check out the City's updated website, go to: http://www.onelakewood.com/fin_main.html

And as always, if you ever have any questions or need clarification regarding a City of Lakewood Financial matter or issue, please feel free to contact me.
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Finally, I will be out of the country beginning Tuesday, May 19th and will be back in the office on Monday, June 8th.

In honor and memory of my uncle, Fr. James Karaffa, I am going with a group from the University of Notre Dame to Nairobi, Kenya to celebrate the first graduation ceremony of the Father James Karaffa Business Academy for Women (http://newsinfo.nd.edu/news/8905-kenyan ... ss-academy)

If you need any assistance, please contact Asst. Finance Director, Keith Schuster, who will be serving as the acting Finance Director during this time.

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Thanks for reading & have a great day!

~Jenn
Jennifer R. Pae
Director of Finance
City of Lakewood
(216) 529-6092
http://www.onelakewood.com

This post deserves more views and discussion than it is going to get.

This administration is doing a fine job of balancing the need to provide BASIC services and the need to balance the budget.

I think the link in the original post is supposed to be

http://www.onelakewood.com/Finance/Default.aspx

They may have been changing the website around when she got the original link.

I sometimes wonder if we have a way of looking if all the apartment dwellers in the city file tax returns for the city. Not accusing anyone, but people sometimes move here from cities without city income taxes, and may not be aware. Do we investigate anything, or do we miss out on income that's effectively "off the grid" for the city, though they may pay state and Federal.

Jerry Ritcey wrote:I sometimes wonder if we have a way of looking if all the apartment dwellers in the city file tax returns for the city.

Some time ago I sent some questions to RITA regarding income tax collections. The format might be a little hard to read but this seems a good place to provide the information without getting everyone all up in arms. Here is the info.

1.The fees that would be charged to the City for Rita services based on income tax collection of about $18 million per year.

Using RITA’s 2007 results and including Lakewood with collections of $18 million, RITA’s cost would have been in the range of $430,000 - $450,000. This cost is for RITA’s standard services. Since Lakewood maintained an in-house tax staff while they were members of RITA, one can only assume they would have continued this practice. As such, the costs associated with Lakewood’s in-house staff should be added to RITA’s fees to arrive at a total cost for tax administration. Based on information provided by Lakewood in 2005, their budget for tax personnel was $155,739 for salaries, wages, & benefits. To adjust for inflation for years 2006 & 2007, one can use the Federal Employment Cost Index as a guide (shown below) to arrive at an estimate for in-house staff for 2007. An inflation adjusted figure for 2007 in-house staff would be in the range of $166,000 - $167,000. Using the higher estimate, the total for Lakewood’s cost of tax collection for 2007 had it remained with RITA is estimated below:

RITA’s fees: $434,506
Lakewood’s staff: $167,000
Total: $601,506


In 2005, RITA provided Lakewood with projections for the cost of RITA services through 2009. RITA projected declining costs based on the following:
• implementation of new technology
• expansion in membership
• data sharing agreement with the IRS.

Lakewood doubted the validity of the projections and the successful completion of the initiatives listed above. RITA was successful on all three counts. The result has led to decreases in our members’ cost and, in the case of data sharing with the IRS, will lead to increased collections. Consider the following:

• implementation of new technology – RITA expanded its online filing and payment capabilities which reduces the processing cost associated with paper filings.
• expansion in membership – RITA added 10 new members in 2006; 12 new members in 2007; and as of this writing, will add 6 new members in 2008. One of the municipalities that joined in 2006, the City of Youngstown, is approximately three times the size of Lakewood. Publicly, Lakewood had expressed doubts as to this actually happening, feeling that RITA may be a good solution for small communities, but not larger ones. However, since joining the Agency Youngstown has experienced a significant increase in collections while enjoying a substantial reduction in costs. Furthermore, two of RITA’s newest members, the Cities of Mentor and Willoughby are also quite considerable. The former is twice as large as Lakewood and the latter is similar in size. All told total collections this year will approach ¾ of a billion dollars. The expansion in membership means RITA’s operating costs are shared by an even larger group - thus each member’s share is reduced.
• data sharing agreement with the IRS – RITA was successful in changing Federal law governing the entities that were permitted to enter into data sharing agreements with the IRS. On December 20, 2006, the Tax Relief and Healthcare Act of 2006 included a change in federal law to allow RITA, on behalf of members in the Regional Council of Governments, to obtain data from the IRS. This unprecedented achievement provides RITA with another powerful dimension to its tax collection and compliance efforts to increase revenues to member municipalities.


2.Any audit functions that would be included in those fees.

Included in the standard membership cost is an audit of all returns for completeness and accuracy. The audit includes use of outside information from sources such as the Ohio Lottery, U.S. Postal Service and soon, the data from the IRS.


3.Any audit functions that are offered for additional fees.

RITA offers optional services such as an administrative subpoena program (designed to bring non-filers into compliance) and a legal program (designed to obtain court judgments on past due accounts, and to collect on accounts that default on the court judgments) for a small additional fee,. However, the City of Lakewood opted to pursue these programs via in-house staff.



4.Any estimated increases (if any) in the Rita fees charged to the City.

RITA does not have plans to increase fees to any members and that includes Lakewood should they decide to rejoin the Regional Council of Governments. Perhaps your question focuses on conversion efforts to bring Lakewood tax records back into RITA’s system. If so, the answer again is there are no additional fees. There were no extra charges to convert tax records from RITA to Lakewood’s system and there would be no extra charges to convert Lakewood tax records back to RITA’s system. As mentioned above with regard to the optional services such as our administrative subpoena program and legal programs, RITA would charge Lakewood the same small fee as it does to all members participating in these programs.


5.Any information on audit findings for Rita cities.

The Agency does not maintain data on the audits of our members. However, the Auditor of State does provide the information electronically via the Internet. You may access the audits at http://www.auditor.state.oh.us/.


6.Lakewood spends nearly $1,800,000 per year on its finance department. That seems like a lot of money too me but maybe it’s about right. Anyway, if you can provide some info I would appreciate it.

We realize a municipal Finance Office is involved with a myriad of duties and responsibilities, thus we cannot speculate as to the level of expenditures for Lakewood.


7.I have an estimate from a Paychex rep for about $26,000 per year to handle all of Lakewood’s payroll processing. Assuming Rita fees are about $650,000 I can’t quite come to $1,800,000 but I guess I am missing something.


While we cannot comment on Lakewood’s Finance Department’s expenditures, we can estimate that RITA’s fees would be less than the $650,000 stated here. See the estimate provided above.

Hi,
Thanks, Mr. Call. Nice job on presenting the facts. I always thought RITA was the right way to implement regionalism.

If I had to choose between using RITA and dragging trash cans to the curb on cold winter mornings, I think I may have preferred RITA and cushmans traveling to the back yard. But, Lakewood is faced with buying roughly a million dollars worth of new trash cans to switch to robo-trash trucks.