Thomas J. George header image 1

Financial Facts or Myths?

Yesterday I received Ed FitzGerald’s 11×8.5 inch campaign mailer that lists his “Financial Facts.”

I find the statements put forth in his document and on his website deeply troubling.

Here are eight important questions:

1) You state that the Mayor proposes to raise income taxes as soon as the election is over, and that the City has lowest budget reserves in Cuyahoga County. However, each of your points in your “10 point plan for fiscal responsibility and economic growth” requires new expenditures to the City’s General Fund.

How do you propose to pay for them? Are you going to raise revenues, or what expenditures are you going to cut, especially since you state that the City does not have the fund balance to support your new proposed expenditures?
2) You are proposing an ordinance to establish a “Rainy Day” Fund, but at the same time you are stating that the City has the lowest budget reserves in Cuyahoga County. How do you propose to establish the fund? Are you going to increase revenues, i.e. income taxes, or cut expenditures, i.e. eliminate City services?

Also, wasn’t Council informed on March 30, 2007 that the State of Ohio Office of the Auditor would not permit the City of Lakewood to create a special revenue fund that restricts the City to use its General Fund as proposed by Councilman FitzGerald?
3) What were the 2006 year end General Fund balances for the municipalities in Cuyahoga County? How do you substantiate your claim that Lakewood is among the lowest?
4) In your graph of “Lakewood End of Year Surplus,” it appears that are you confusing two very basic financial concepts by comparing “budgeted or projected expenditures” versus “actual or realized expenditures” since the 2007 & 2008 actuals haven’t occurred yet.

The General Fund (GF) structural balance (actual revenues received vs. actual expenditures incurred) provides a much better financial picture, as shown with the following audited numbers for 2002-2006, and projected for 2007 and 2008. You can double check the 2002-2006 numbers in the City’s audited Comprehensive Annual Financial Reports.

2002 actual: GF revenues $33.447 million – GF expenditures $27.823 million = $5.624 million excess revenues over expenditures with a year end GF balance of $6.316 million

2003 actual: GF revenues $32.450 million – GF expenditures $33.194 million = ($744,364) excess revenues over expenditures with a year end GF balance of $3.64 million

2004 actual: GF revenues $34.178 million – GF expenditures $34.807 million = ($628,860) excess revenues over expenditures with a year end GF balance of $901,359

2005 actual: GF revenues $35.301 million – GF expenditures $33.112 million = $2,188,191 excess revenues over expenditures with a year end GF balance of $615,717

2006 actual: GF revenues $37.271 million – GF expenditures $35.039 million = $2,231,745 excess revenues over expenditures with a year end GF balance of $971,747

2007 projected based on minimum revenues coming in and maximum expenditures occurring: GF projected revenues $37.653 million – GF projected expenditures $38.534 million = ($880,578) projected revenues over projected expenditures with a projected year end GF balance of $91,167.

2008 projected based on minimum revenues coming in and maximum expenditures occurring: GF projected revenues $38.682 million – GF projected expenditures $40.264million = ($1,582,000) projected revenues over projected expenditures with a projected year end GF balance of ($1,490,645).

Can you explain the growth in revenues since 2003, and the George’s Administration ability to have actual audited revenues exceed actual audited expenditures for the past two years?
5) In your question “Where did all the money go?” weren’t you on Council when the following occurred?

  • Losses of Federal and State aid such reduced Community Development Block Grand funds, the freezing of the Local Government Funds, and the phasing out of tangible personal property tax.
  • Rising hospitalization costs. In FY 1999, healthcare costs were $2.46 million, whereas in FY 2006 the City experienced almost $4.91 million in healthcare expenditures.
  • A 27th pay period in FY 2004 resulted in $1.25 million in additional payroll expenses, which is a phenomena that occurs every 11 years.
  • A shifting of General Fund surpluses into one-time large capital expenditures, such as the FY 2005 Council request of over $700,000 transferred for street construction projects.
  • Retroactive cost of living pay increases for negotiated collective bargaining agreements, and a 2% lump sum payment of FY 2004 wages issued on December 2005 for the newly formed AFSCME Administrative Unit.
  • Municipal income tax revenue was flat in FY 2002, and then decreased in FY 2003 by $240,000. However, Regional Income Tax Agency costs escalated from $451,000 in FY 2002 to $809,000 in FY 2005, and Estate tax revenue reached its lowest point in years with receipts of $692,000 in FY 2004, whereas FY 2006 revenues were over $900,000.

Other than the Council requested cash expenditure for street projects in 2005, how would you have handled these financial challenges differently?
6) Didn’t you approve, along with the other members of Council, a resolution passed in March 2007 “which calls for Council and the Mayor to work together to achieve a structural balance for the Fiscal Year 2008 General Fund Budget. This includes working toward General Fund revenues higher than expenditures during 2007, creating a structurally sound budget for 2008 and creating financial strength and flexibility for 2009 and beyond”?

Other than proposing additional expenditures in your 10-point plan, how do you propose to ensure revenues are higher than expenditures, and to develop General Fund structurally balanced budgets?
7) Your number one point in FitzGerald’s 10 point plan is “in the first 100 days in office, conduct an immediate fiscal audit of all the City’s spending practices.” Doesn’t the City already receive an annual fiscal audit as required by law, and what have been the results of those audits over the past three years?

Isn’t it true that the City has received unqualified opinions, which means the Auditor of State has had no reservations concerning the financial statements presented, and that there were no deficiencies found with the fiscal practices or the accounting standards employed by the City?

8) Please explain “a ‘million dollar mistake’ in budget estimating” since the estimated cost of the much needed Clifton Blvd water line project never changed during the budget process.

Didn’t the City also raise its water rates to the market level for master meter communities, such as Cleveland Hts., based on the increases levied by the City of Cleveland, a fact not known to the City during the budget process?

Also, isn’t it true that by increasing water rates in order to support Revenue Bonds for Clifton Blvd and other long, delayed crucial water infrastructure projects,the George Administration actually freed up the City’s debt capacity so that it can continue its street improvement campaign for future years?

Finally, please explain how you calculated a 30% water rate increase. In early 2006, City Council authorized a water rate increase of $3.85 per hundred cubic feet of water with an increase to $4.08 beginning in 2007, phased out the $3.00 customer service charge by January 1, 2007, and increased the homestead exemption rate. In mid-2006, Council authorized an additional rate increase beginning January 1, 2007 increase to support the revenue bonds for the 2006 & 2007 water line projects from $4.08 to $4.85. Therefore, the revised increase from 2006 to 2007 was 19%. In fact, in 2005 the rate was $3.669 per hundred cubic feet, and the 2008 Council approved rate is $4.99, an increase of 26% over four years.