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Fairlawn Seeing Income Tax Rise but Growth Lacking

Revenue not keeping pace with expenses

Income tax revenue for Fairlawn in 2011 , but growth is still slow.

“From 2011 to 2008, I can see revenue was up, primarily it was because of increases in net profit accounts and employee withholding accounts,” said city financial analyst Jacob Kaufman. “That would tell me businesses are more profitable now and the employees are getting paid back to the 2008 levels.

“I don’t know that I’d say we’ve recovered,” Kaufman said.

Fairlawn’s lowest collection year came in 2009. It was the lowest year in some time — if not in the history of the city.

Finance director Patricia Bertsch said the city tried to maintain the status quo of expenditures in a number of ways:

  • offering an employee voluntary separation program in 2010,
  • placing employees on a 10 percent furlough,
  • freezing wages
  • slashing department budgets across the board and
  • .

“You’re seeing improvement on the worst year we’ve had in a long time, so that year has kicked us back several years as far as collection comparison,” Bertsch said.

Fairlawn has an income tax rate of 2 percent. The city reported total income tax net profits of $8.3 million in 2009, $8.6 million in 2010, $9.2 million in 2011 and $5.3 million as of June 2012. (Note: Fairlawn income taxes are reported in net profit because the city must pay a portion of total income taxes collected in certain tax sharing districts to Akron for commercial water access.)

“Traditionally during a recession you have a recession and then recovery,” said Mayor William Roth. “This is the worst since World War II, so you don’t have those giant revenue jumps.”

Roth is instead looking to maintain stability, keep an eye on revenue projections and refinance whatever debt the city has to get a better interest rate. “We’re always looking at different ways to cut costs or make sure, into the future, we’re stable.”

Net income tax revenues have been increasing since 2010 and are holding steady this year. What concerns Kaufman is how the percentage growth has slowed. From 2002 to 2007, net income tax revenues grew at a rate of just under 4 percent. From 2007 to 2011, net income tax revenues grew at a rate of just over 1.5 percent.

“While revenue seems to have increased, costs have also escalated, so you’d like your revenue to grow with costs,” Kaufman said. “That’s what we’re waiting on. We’re hoping that the revenue growth increases back to that pre-recession percentage just to keep in line with costs if not exceed costs.

“As with your own job, you would hope your salary would increase over the years. That’s what we’re hoping with our income.”

Income taxes make up about 75 percent of the city’s $12 million general operating fund. The city keeps a general reserve fund balance, and officials consider a safe balance being $4 million to 6 million. That balance, a carry over of general fund money from year to year, was cut into in 2009 and 2010 to make up for down revenues and increased expenditures.

The general fund balance has recovered in part because in 2010 the city eliminated a number of special revenue funds.

“What that does for us is put the money back into our general fund so that we have the ability to use it in whatever fashion we deem responsible in that year,” Bertsch said.

From 2010 to 2011, Roth said the city started seeing growth in revenue from existing businesses rebounding and . Several new buildings have been built the last few years and industry is flocking to the Fairlawn is also working to sell and develop some of its land to boost economic development.

Fairlawn has some key development advantages:

  • Although the city has around 7,400 residents during the day an estimated 30,000 to 40,000 people come to the city to work, shop, dine, go to the doctor and seek other professional services.
  • No single entity accounts for more than 3 percent of income tax revenues.
  • While the city doesn’t have any industrial or manufacturing zones, it does have significant retail and office space.

“The good news is Fairlawn’s had the healthiest retail we’ve probably had in 30 years,” Roth said. He estimated 98 to 99 percent occupancy at Fairlawn Town Centre after the renovation and 100 percent occupancy at the Shops of Fairlawn. is also in very good shape, he said.

However, the office market is weak. Roth said some office buildings may be full while others are only 75 percent or 85 percent occupied. There’s room for small businesses, though the city doesn’t have a 20,000 square foot office available. But there is open land available for new construction.

City officials are interested in attracting office, research and laboratory spaces. Existing companies that match this description include Veyance Technologies, Inc.; Kumho Tires; ; and Trelleborg Wheel Systems.

“People talk about the Rust Belt,” Roth said. “We’re not the rust belt anymore. We’ve moved past that. Kent State is liquid crystals. The University of Akron is polymers. You’re creating a medical corridor. You have that skilled workforce. You have the infrastructure. You have the airports, the interstates. You have a lot in this area that companies are really looking at.”

Editor’s Note: In this series, Patch gauges the recovery of 18 Ohio communities based on income tax receipts since the Great Recession. Read about

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