William George presented an extremely skewed analysis comparing the City of Lakewood’s income tax collections to the City of Parma’s in his August 7, 2007 Lakewood Observer opinion article, “Don’t Raise Taxes, Just Collect Them.” You have heard of making an apples-to-oranges comparison; well, Mr. George compared apples-to-cannon balls.

An apples-to-apples comparison begins with an examination of General Fund revenues for year ended December 31, 2005. This information is found in the Comprehensive Annual Financial Reports (CAFRs) for both municipalities, and anyone can access these reports at the Auditor of State’s website. Lakewood also posts its CAFR on the Division of Finance’s webpage.

The General Fund accounts for all financial resources except those required to be accounted for in another fund. This is the fund that supports the majority of a city’s operations, like Police, Fire and Refuse. Parma’s General Fund revenue for 2005 was $40.724 million, compared to Lakewood’s $35.301 million. Of that amount, income taxes supported 65% of Parma’s General Fund, whereas 48% supported Lakewood’s.

The City of Parma also levies a portion of its income taxes to fund capital improvements, which Lakewood does not. Therefore, in 2005, the City of Parma collected $33.803 million in income taxes versus Lakewood’s $17.139 million.

Nothing frightens a community more than the possibility of a major employer leaving the City, and Mr. George neglected to examine the impact of withholding taxes on a community. The City of Parma is home to a General Motors plant, Parmatown Mall, and many other industries and businesses that Lakewood does not have, nor will have due to our dense, primarily residential community. If General Motors shut down its plant in Parma, the city could experience nearly a 12%, or $4.0 million, decrease in their income tax collections. Since the City of Lakewood’s income taxes depend on its residential base, it is more stable, and less susceptible to economic downturns.

In Mr. George’s article, he poses the question “So why does Lakewood collect so much less in income tax?” The difference in collections is due to Parma’s large industrial base, since employees working in Parma pay employment tax to the City of Parma. For this reason Lakewood and Parma income tax collections cannot and should not be compared. Consider the following:

 

2005 Income Tax Collections

Individual Net Profit Withholding Total Lakewood: $9,507,763 $592,659 $7,038,931 $17,139,352

Parma: $10,783,689 $1,742,223 $21,277,956 $33,803,868

If one were to use a per capita comparison on individual income tax collections, Lakewood collects approximately $170 per resident versus Parma’s $127 per resident. That is a lot more apples-to-apples, and it demonstrates that Lakewood is effectively collecting its income taxes when compared to Parma. However, Mr. George also stated in his article he was interested in how Lakewood taxpayers are identified, and that he “called the income tax department and was told there is no ‘effective’ way to identify these individuals at the present time.” He is correct that there is not one effective way the City of Lakewood identifies taxpayers, but several ways, including: An annual comparison of the Lakewood taxpayer database to the State of Ohio Income Taxpayer database; failure-to-file notices that go out to taxpayers that filed their State income tax forms but did not file Lakewood’s forms; and utilization of new software showing every possible location address in the City, as well as rental property tracking capabilities, that allow for the mailing of occupancy letters. Therefore, if a known address does not file, a failure-to-file letter is sent. There are mandatory filing requirements for all residents regardless of status such as retiree or student. The city also does data sharing and cross-checking with the Lakewood Division of Water customer database and the Division of Building and Housing, including contract registration. Data is shared with other communities, especially the City of Cleveland. The city does comparisons with AT&T’s new resident phone listings. There are also anonymous tips from other residents and, of course, employer reconciliations and audits. These are just some of the ways the city of Lakewood identifies taxpayers.

Finally, Mr. George neglected to consider taxpayers who file jointly. He states that from the 2000 Census, there are 33,000 residents in the workforce. In a typical year the City receives approximately 26,000 current-year tax returns, and of those annual tax returns, the City has 6,200 active joint accounts.

The bottom line is growth in income tax collections, which the City of Lakewood is experiencing. In 2003, the City collected $16.585 million compared to $17.139 million in 2005, or a 4% increase. The City of Parma is not experiencing growth. In 2003, Parma collected $34.383 million compared to $33.803 million in 2005, or a 2% decrease.

Despite Lakewood’s recent growth in income tax revenues, a potential increase in income tax rates for the City of Lakewood would be related to projected General Fund expenditures exceeding anticipated revenues, a declining General Fund balance, and to ensure future financial flexibility.

Mr. George, if you are going to “analyze the fiscal responsibility of the City of Lakewood,” please ensure you understand what you are comparing before making broad conclusions. The Division of Finance and the Division of Income Tax are more than happy to help anyone with their analyses, and we can be reached at (216) 529-6092 or (216) 529-6622.