12650 DETROIT AVENUE

44107 216/529-6092 FAX 216/529-6806

Jennifer R. Pae

Director of Finance

ESTIMATEDFINANCIALIMPACTOFTHELAKEWOODHOSPITALTRANSITION
ONTHECITYOFLAKEWOODasofFebruary9,2015

Overview
Itisaccuratetosaythatthe2016financialimpactoftheLakewoodHospitaltransitionisapproximately$1.5to
$1.7milliontotheCitysGeneralFund.Thisisapproximately4%oftheGeneralFundRevenues.Althoughthis
amountmaysounddaunting,itisnotinsurmountableordevastatingtotheCity.
Toputthisintocontext,in2007theCityfacedovera$4.0millionprojecteddeficitgoinginto2008,or11%of
GeneralFundrevenues,andthe2007yearendfundbalancewasalittleover$300,000ora2dayreserve.This
wasconfirmedindependentlybytheStateofOhioAuditorsOfficeinearly2008.
TheAdministrationandCityCouncilin2008andeversince,workedtoimprovetheCitysfinancialpositionby
passingstructurallybalancedbudgetsinthatprojectedexpendituresdidnotexceedprojectedrevenues.This
practicereverseddecadesoldfinancialpracticesthatledtothedismalfiscalsituationtheCityfacedattheend
of2007.
Inamereeightyears,theCitysfinancialstabilityisthebestthatithasbeenindecadeswithaGeneralFund
endingbalanceinexcessof$6.0millionorover60daysinreserve.Thatamountdoesnotincludethe$1.7
millionbudgetstabilizationaccountcreatedin2014,andtheover$1.0millioncurrentlyintheeconomic
developmentaccount.
Since2008,theCityhasovercomethefollowingadditionalfinancialhitswhilemaintaining/improvingservices
andnotraisingtaxes:
o ThehousingcrisisimpactonGeneralFund=$1.13millioninreducedpropertytaxes
o The2012/2013StateLegislatureimpactonGeneralFundwiththeeliminationoftheEstateTaxes($1.5
millionaverageayear)andCATtaxes($200,000),andtheseverereductionoftheLocalGovernment
Fund($1.82million)disbursementby50%=$3.52millionreductionannuallytotheGeneralFundthat
beganin2013.
TheCityofLakewoodisthestrongestithasevenbeenfinanciallyindecades,allthewhileweatheringfinancial
challenges,anditwilldefinitelybeabletosuccessfullynavigatetheLakewoodHospitalTransitionintheshort
term,andwillbenefitgreatlyfromthefutureinvestmentsanddevelopmentthattheLetterofIntentallows.

LakewoodHospitalFund
CurrentlythebiggestfinancialimpactoftheleasewithClevelandClinicFoundationtorunthehospitalisthe
annualleasepayment,whichwillbe$1.15millionin2015,sincethereisastepupof$25,000everythreeyears
(20122014theamountwas$1.125millionayear).
However,thelargestcurrentrevenueintotheLakewoodHospitalFundisEMStransportfees,whichwerenearly
$1.3millionin2014.Thesewillnotgoaway,andwillonlyincreaseovertime.
Thelargestexpenditureoutofthisfundisthesalariesandbenefitsforthe9Paramedicsand7Firefighter/EMTs,
whichtotaledapproximately$1.4millionin2014.
Inorderforthisfundtobesustainable(expendituresdonotexceedrevenues),thesalariesandbenefitsofthe7
Firefighters/EMTswillbeshiftedtotheGeneralFund(approximatelya$750,000impact)andmovetheCitys
annualCuyahogaCountyHealthDepartmentpaymenttotheGeneralFund($205,000).
Allbeingsaid,thechangesintheLakewoodHospitalFundshouldhaveanapproximately$955,000impacton
theGeneralFundbeginningin2016.
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GeneralFund
IncomeTaxWithholdingfromtheHospitalhasbeenapproximately$950,000annuallyforthepast3years.This
isalmost5%ofallIncomeTaxRevenues,andabout1%ofAllGeneralFundRevenues.Withapproximately
1,100employeescurrentlyatLakewoodHospital,thatmeanstheaveragewithholdingtaxpaidperemployeeis
around$863ayear.Ithasbeenprojected(althoughloosely,withnothingdefinitiveatthispoint)thattherewill
beapproximately250employeesatthenewClevelandClinicfacility.Ifthatisthecase,andthoseemployees
havethesameamountofwithholding,theprojectedwithholdingrevenuewillbe$215,000.Thisisareduction
ofapproximately$735,000.

ProposedFinancialHandlingoftheTermsoftheLetterofIntent
Saleof850ColumbiaRoadproceedsof$8.2millionThiswouldgointotheFundBalanceoftheLakewood
HospitalFund.ThiswouldgivetheCityleverageforsitedevelopment,andmaintenanceandimprovementof
theparcels/buildings/homestheCitywouldacquire.TheCitywouldstrivenottousetheserevenuesfor
operatingcosts.
SaleofthepropertyfortheconstructionofthenewFamilyHealthCenter(amounttobedetermined)This
wouldgointotheFundBalanceoftheLakewoodHospitalFund.ThiswouldgivetheCityleverageforsite
development,andmaintenanceandimprovementoftheparcels/buildings/homestheCitywouldacquire.The
Citywouldstrivenottousetheserevenuesforoperatingcosts.
TheCitywouldhopefullyhavea3rdpartythattheCitywouldLeasetheparcels/buildings/homestooperate
(amounttobedetermined)ThiswouldgointotheFundBalanceoftheLakewoodHospitalFund.Thiswould
givetheCityleverageforsitedevelopment,andmaintenanceandimprovementoftheparcels/buildings/homes
theCitywouldacquire.TheCitywouldstrivenottousetheserevenuesforoperatingcosts.
Anysaleoftheparcels/buildings/homestheCitywouldacquirewouldgototheLandAcquisitionFundto
capitalizeonanyfuturedevelopment/investments.Nosalesofthesepropertiesarecurrentlybeing
considered.
IfamunicipaltaxsharingagreementismadewiththeCityofAvon(amounttobedetermined),thesefunds
wouldgototheGeneralFund.
Anypropertytaxesrealizedfromthetransitionofpropertyfromnontaxabletotaxablewouldgotothe
respectivefundsthatreceivepropertytaxpertheCityCharter.

HowwilltheCitymanagetheFinancialImpactin2016andBeyond?
Thepotentiallossof$735,000inincometaxand$955,000inadditionalexpendituresintheCityofLakewoods
GeneralFundwillhavetobecarefullynavigated,andwillbeincludedinthe2016AppropriationOrdinancethat
willbeintroducedtoCityCouncilonNovember16,2015.
TheCityhasrecentlysuccessfullyaddressedlargerfinancialchallengesofreducedrevenuesandincreased
expenditures,whilemaintaining/improvingservices,notraisinganytaxes,andimprovingtheCitysfinancial
position.
Pleasenotethat2016isayearwhentheCitywillrealizeadjustedpropertytaxesvalues.Medianhomesale
pricesarenearlyatthesameleveltheywereattheirhighestin2007beforethehousingcrisishit.TheCitywill
findoutifthattranslatesintohighervaluesandtaxesinearlyDecember2015whenCuyahogaCountyreleases
itsprojections.
EconomicDevelopmentneedstobeourhighestpriority.Fillingthoseofficebuildingswithqualitytenantsand
bestandhighestuseofthe4acreswillhaveasignificantimpactontaxrevenues.Theconstructionofrobust
fiberopticinfrastructurewillbepartoftheCitysstrategytoattractdevelopment.
Continuetoexploreandrealizereductionsinexpendituresthroughmeanssuchas:
o ContinuedLeanSixSigmaimplementation,
o Healthcarecostreductionsprimarilythroughwellnessandprevention,
o Maintainingcurrentheadcountorreducingheadcountviaattritionwhenappropriate,and
o Energycostreductions.
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