Revenue Sources, The Heights, and Solving Lakeland’s Looming Budget Crisis

Part of me feels late to the game, but I had actually started working on this about a month ago when the Save the Heights initiative was just getting started. I was wanting to take a comprehensive look at the City of Lakeland budget challenges on the horizon and how The Heights fits into that conversation.

So, here I am weeks later, finally getting around to this. The landscape has changed, as city officials and even the media have taken notice of the outpouring of support for The Heights (and the old civic center and Lakeland Community Theatre headquarters), and there is a real conversation happening around the value of these entities to our community. There have also been clear statements from city leaders that there aren’t any plans remotely in the works to sell off these properties.

That being said, there is still a major budget challenge looming for Lakeland. As LEDC President Steve Scruggs outlined in his now famous (infamous?) presentation to the City Commission in January, the lease payments from Lakeland Regional Health will cease in 2040. That will leave a $14 million hole in the budget, though the amount could increase in the years leading up to 2040.

That is no small amount of money. Scruggs’ presentation (which can be viewed here) also broke down how the city’s current revenue structure works. It included the following numbers:

	Lakeland Electric	Property Tax	Hospital Lease	Combined
2014	$24,877,000	$21,904,000	$12,100,000	$58,881,000
2015	$28,954,000	$28,345,000	$12,100,000	$69,399,000
2016	$29,584,000	$30,495,000	$24,155,000	$84,234,000
2017	$29,223,000	$33,225,000	$13,619,000	$76,067,000
2018	$29,702,000	$35,885,000	$13,994,000	$79,581,000

Total city revenue, best I can tell from looking at budget summaries on the city website, has floated around the $200-$220 million mark the past few years (excluding utilities). So you’re looking at more than a third of city revenue made up in the three buckets above — Lakeland Electric, property taxes and the hospital lease. Other major sources include utility taxes, grants, service fees and other shared state taxes such as taxes on cigarettes.

Scruggs is right to sound the alarm about the end of the hospital lease. It’s about 5% of total city revenue and won’t be easy to replace. So what should the city do to ensure we don’t have a budget crisis? Well, there are only two options when dealing with lost revenue:

Find ways to raise more revenue to replace it
Cut expenses to offset it

Scruggs’ proposal included a mix of both, which I’ll try diving into a little bit. The best way we can solve this problem is by presenting, discussing and evaluating ideas. I’m grateful that Scruggs put his forward in a public setting to allow citizens the chance to weigh in this early in the process, rather than us chasing backroom deals and getting outmaneuvered in the shadows until it’s too late.

About The Heights

Let me first go on record that I’m against one of the ideas in the presentation — selling a portion or all of Cleveland Heights Golf Course for development. Setting aside my personal history with The Heights of having grown up playing golf there and four generations of my family having enjoyed it, the course truly is an irreplaceable pocket of green space and recreation right in the heart of the city.

It should be at the bottom of the list of ways to consider closing the budget gap. The only argument for selling the course at this point is purely economic in nature, using the reasoning that it’s a net-negative on the city budget that should be corrected.

The Heights is “subsidized” by the city at around $1 million per year, but that number should(*) go down in future years now that substantial renovations to the course and other improvements around/through it are completed. Does it matter, though, that the course is a net-negative? The entire parks & rec operation for the City of Lakeland brought in about $3.7 million in revenue in 2018 (from what I can gather online, though I’m certainly open to being corrected).

So that’s $3.7 million in parks & rec revenue. What are the expenses? In 2018, they were $27.9 million. And you know what? That’s OK, because parks aren’t supposed to generate revenue for the city! They are an investment in quality of life. The Heights just happens to be the largest source of annual recreation revenue, though, to the tune of $1.2 million. In the context of parks and rec investing, The Heights is a standard bearer for ROI.

But what about that $1 million subsidy? Taking total parks & rec expenses, you’re looking at about 4% of it in that subsidy. I’m going to take a deeper look at Lakeland’s parks & rec spending as we go, but suffice it to say that there’s a much bigger pie to choose from than just The Heights if we’re looking to simply cut expenses. And selling The Heights on its own won’t get us close to closing the $14 million gap.

Of course, redeveloping part of The Heights would add some property taxes back to the city budget. That could generate $1 million or more in new revenue. All these dollars do start to add up, but there are other ways to generate more revenue, including raising green fees. The course has about 60,000 rounds played on it per year. A $5 increase would generate $300,000 more to the bottom line. And there also isn’t much marketing done for the course, so if a modest investment there of $5,000 in digital ads led to 500 more rounds (take $30/round as a low ballpark), then that’s a net gain of $10,000. Do that a few times and you’re starting to chip away.

Another argument in The Heights favor is that there has been significant disruption to operations from recent public works projects, most notably an irrigation and water main project that shut down part of the course. That’s more revenue that was lost and came at a time when expenses went up to fix the irrigation. But according to Parks & Rec Director Bob Donahay on a recent podcast, using the course property to fix a water main connection for South Lakeland actually saved the city $6 million over what the cost would have been had the property not been city-owned. That’s $6 million the city would have had to pay if the course had been sold and developed.

And then the final piece — the money that local organizations raise by hosting fundraising tournaments at The Heights. That total has been estimated at about $250,000 per year, which includes critical funds for nonprofits, scholarships for junior golfers and numerous other causes. Take away even 9 holes from The Heights and hosting those tournaments becomes much more difficult given existing traffic on the course. Those 30-40 groups could try getting a spot at other local courses, but those places might not have the room and likely won’t be as affordable.

So for those reasons (and some others I’ll probably think of or articulate later), selling The Heights needs to fall to the back of the line in this budget crisis conversation. But if not selling/developing Cleveland Heights, then what do we do?

Savings Elsewhere

For anyone interested in this topic who hasn’t already listened to Donahay’s appearance on the Elevate Polk podcast, please stop reading and go listen to it now. It’s terrific, you won’t hurt my feelings if you even go and listen and forget to come back and read the rest of this.

In all seriousness, the episode was a fantastic deep dive into details about The Heights and the parks & rec budget for Lakeland. Kudos to hosts Chrissanne Long and Rob Arturi for creating the setting and to Donahay for his candid perspective.

The most fascinating section for me was when they got into the details about other parts of the parks & rec budget. Suffice it to say, The Heights isn’t the only park or facility that requires a “subsidy.” In fact, you could argue that the entire parks & rec budget is a “subsidy.” These things aren’t meant to make money, and the city offers them as an amenity to the citizens to promote a high quality of life.

It’s been established that The Heights has been subsidized the past couple of years at about $1 million per year. According to Donahay, here are numbers for other parks & rec entities:

Lake Mirror Complex – $900,000
Simpson Park – $650,000
Kelly Recreation Center – $650,000

Those numbers help give some perspective. The Heights isn’t the only big-ticket item. But where does that even fit within the full parks & rec budget? Here’s how the city breaks it down:

Parks	$12,309,871
Recreation	$6,542,215
Main Library	$4,221,175
The Heights	$2,457,038
Cemeteries	$1,105,420
Director’s Office	$774,532
Branch Library	$480,896
Total	$27,891,147

That is a significant quality of life investment, for which I’m very thankful. The only departments that cost the city more than parks & rec are the Police Department ($42 million) and the Fire Department ($18.9 million). Other departments aren’t even cracking the $5 million level.

So to save the $14 million that’s needed to offset the hospital lease payment ONLY by cutting expenses, is going to require some kind of cuts in those three departments to get there because they’re the only ones with big enough numbers to have a chance to doing the job. And I don’t think anyone wants to touch any of them to the tune of $14 million.

Parks & Rec Budgets

Before I get into the other half of that offset equation (increasing revenue), I got curious as to how our parks & rec budget for Lakeland compares to other cities. Are we in the same ballpark with the size of our parks & rec department, or are we bigger/smaller? I have a theory that because of our unique revenue sources (Lakeland Electric, hospital lease), that we have a larger parks & rec budget than typical cities our size.

This is an arbitrary and incomplete exercise, but I wanted to compare us to cities that are relevant. Here’s where I looked (all population numbers are 2018 estimates from the U.S. Census; for reference, Lakeland’s population is 110,516):

Greenville, S.C. — Mentioned in the LEDC proposal as a city that Lakeland could emulate. The city also has a minor league baseball team. Population 68,563.
Gainesville, Fla. — Mentioned in the LEDC proposal. No minor league team, but is obviously home to the University of Florida, which comes with its own funding and amenity needs. Population 133,857.
Columbia, Mo. — I attended college here and always felt it was similar to Lakeland. Small but revitalizing downtown, between two large cities in Kansas City and St. Louis, large park infrastructure. Home to the University of Missouri. Population 123,180.
Chattanooga, Tenn. — Has been referenced numerous times by city leaders as a place we could emulate, particularly for its tech development and city-owned broadband. Has a minor league baseball team. Population 180,557.

There are some caveats I should mention before looking at the numbers. First, the cities don’t consider all the same things as part of their parks & rec budgets. For instance, Chattanooga doesn’t include its libraries with parks & rec like Lakeland does, but the libraries are about $6 million in Chattanooga’s annual budget. So I had to do some digging to try to make this as much an apples-to-apples comparison as possible, and there is a chance that I missed something that should be included in these totals.

Second, not every city provides final numbers for each budget year at the same time. So the numbers below are a mix of budget year 2018 and 2019 numbers. I figured those were close enough to be relevant comparisons, as most places won’t have massive swings over a one-year period (particularly when the economies of each city are doing fairly well).

Here’s what I found (Note: I had some numbers pretty far off initially, failing to include some major budget lines for Lakeland. The Lakeland total below should now include everything that is not considered utilities, which I still am trying to keep separate):

City	Parks & Rec Budget	Total Expenses	% Parks/Rec
Lakeland	$27.9 million	$214.0 million	13.0%
Chattanooga	$24 million	$269.8 million	8.9%
Columbia	$21.2 million	$248.3 million	8.5%
Greenville	$8.8 million	$89.0 million	9.9%
Gainesville	$8.6 million	$123.1 million	7.0%

There is a LOT to consider in that chart. Again, I’m fairly confident that this is an imperfect comparison model thanks in large part to the different ways cities categorize their budgets. But even assuming a narrow definition, Lakeland’s budget would still be about $21 million just including the parks, recreation and Heights lines. That would still give it a relatively large percentage compared to other cities.

So Lakeland clearly has a very, very big commitment financially to its parks and recreation amenities. Some specific notes to highlight:

Gainesville actually includes an $800,000 budget transfer (in other words, “subsidy”) per year to Ironwood Golf Course.
Columbia maintains two municipal golf courses, but from what I can tell operates with revenues within $100,000 of expenses. Their 2019 budget anticipated about $13,000 in expenses above revenues. They also have a wide range of annual, seasonal, junior and other passes available, in addition to standard greens fees.
Chattanooga and Columbia each have significantly higher sales tax rates than Lakeland. Obviously, there are other ways of generating revenue than sales taxes, but it’s interesting to compare — Chattanooga (9.25%), Columbia (8.48%), Lakeland 7%). Columbia, in particular, has a dedicated $.25 sales tax just for parks and recreation. Which leads me to ….

Raising New Revenue

Perhaps the most interesting section of Steve Scruggs’ presentation to the city commission was related to revenue, both how Lakeland compares to other cities on some current measures and some creative ways that other cities have generated revenue. Some of the points/ideas that he shared:

Greenville started a hospitality tax, charging 2% on food and beverage in the city limits (generates more than $10 million per year).
When comparing property tax millage rates, Lakeland’s rate of 5.4644 is less than Plant City, Bradenton and Ocala. It’s also less than Tampa, Orlando and Jacksonville (all of which are over 6.0), but that makes sense given their size. Gainesville is actually lower at 4.7474. Within Polk County, Lakeland is one of only four cities under 6.0 (Bartow, Auburndale and Hillcrest Heights are the others).
Lakeland also has a lower electric rate than every other major city in the state. Presumably, increasing the rate could allow Lakeland Electric to give the city a larger dividend.
Summit’s new building that is just now getting started on Lake Mirror is projected to add about $490,000 in tax revenue each year to the city budget. Scruggs mentioned it in the context of other redevelopment opportunities around Lake Mirror, such as the community center or even the Lakeland Electric building. Those properties could generate hundreds of thousands of new tax revenue per year.

This, more than anything else Scruggs covered, is what I think deserves the most attention. There really isn’t enough fat on the bone to make up the hospital lease payment. It’s either going to require severe cuts that negatively impact the total parks & recreation infrastructure (not just the golf course), or a willingness of citizens to approve new revenue streams to cover the difference.

I’m not well-versed enough in the city budget to know just how far things like a .1000 millage increase or a 2% hospitality tax would go. I’d love to see either the LEDC or the city’s finance department take a stab at some real projections for consideration. In addition to the ideas that Scruggs shared, I’d also love to look into the following:

Annexation — There are many, many residences with a Lakeland address that are not in the city limits and therefore not contributing property taxes to the city budget. I’m really out of the loop as to how annexation would happen, but I don’t know why it wouldn’t be on the table. How could adding thousands of homes from South Lakeland hurt the city’s bottom line? Why not extend north all the way to Socrum Loop?
Broadband Utility — This has some opposition from many in the business community, but it really could be Lakeland Electric 2.0 for our city. I know that there are some major upfront costs associated with pursuing broadband as a municipal utility, and in general I’m not a huge fan of government competing with the private sector. But my feelings shift on the hyperlocal level, and this seems like something still work exploring. The current approach of seeking a private partner that would kick back some profits to the city is better than nothing, but I fear it has a lower ceiling.
Increasing Fees — Small drops in the bucket that could add up if done across the board. Raise the cost to play at The Heights, start new paid programs at recreation centers, increase rental fees for city facilities (Magnolia Building, RP Funding Center, etc.).
Parks & Rec Tax – Similar to what Columbia, Mo., did. Propose a tax ($.25 or $.50) that goes directly to maintaining the parks and recreation facilities in the city.

All the ideas listed above have the potential to add millions (and more) to the city budget. The only drawback is that citizens will have to pay for them, above and beyond what they currently pay. That’s where I see this conversation headed, not into a battle over which portion of the Cleveland Heights Golf Course to sell off to the highest development bid.

In general, I still go back to my theory that our parks & rec infrastructure is a bit inflated. We have more than we deserve if you only looked at the size of our city and traditional funding sources. A big piece of that unique revenue puzzle that has allowed us to enjoy this reality is going away, and the bill will come due in 20 years.

It’s up to us to commit to raising the money and contributing more toward keeping and improving what we have, or to accept that we can’t support this much and be willing to see some of it go away. Hard choices are coming, and we need to continue having hard conversations to come up with solutions together.

The Ledger – https://www.theledger.com/news/20190718/cleveland-heights-golf-course-finances-in-rough

WFLA Channel 8 – https://www.wfla.com/news/polk-county/save-the-heights-group-hopes-to-rally-support-for-city-owned-golf-course/

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