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The City of Lakewood is a suburban community located in a major metropolitan area of over 5.5 million people. Lakewood’s reputation for good schools combined with recent improvements in the region’s roadways and the development of a large shopping complex nearby have led to rapid growth in the community. In the past 10 years the population of Lakewood has more than doubled from 20,000 to 50,000 residents. The rapid growth has placed a strain on Lakewood’s urban infrastructure, especially its water purification and wastewater treatment plants. The plants are operating well above the capacity they were designed to handle and represent a threat to public health and safety. The Lakewood City Council is considering spending several million dollars to enlarge and upgrade both facilities and is reviewing several means to finance the projects.

Following is some information about the current financial situation in Lakewood that the council must consider in making its decision.

· Like most local governments, Lakewood’s single largest source of revenue is property taxes. Most of the money collected from property taxes goes to support the local school system. The property tax rates in Lakewood are some of the highest in the metropolitan area.

· The state imposes a 4% consumer sales tax on all items with the exception of food and drugs. The state also allows local governments to levy as much as a 2% additional sales tax on goods sold in their jurisdictions. Lakewood currently levies a 1.5% additional sales tax.

· Over the years, Lakewood mostly has operated on a pay as you go basis and has not accumulated much debt. The city has an excellent bond rating and would be able to borrow money at a low interest rate.

· The state does not allow its local governments to tax income.

· Lakewood’s last major expansions to the water purification and sewage treatment plants were financed with grants from the federal government. Since the work was done with no direct cost to the city, its water and sewer rates are well below those of neighboring communities.

· The State Department of Environmental Quality makes grant funds available to local governments to finance 25% of the construction cost associated with building or enlarging sewage treatment plants. The State Department of Community Affairs has a similar grant program for water purification facilities; however, this program will cover only 15% of the total cost.