The city’s budget is in good shape through the first three months of 2002, officials reported.

“It’s not bad,” Assistant City Manager Debbie Van Saun said. “We have no departments in any area of concern.”

That could change. Officials are watching the Legislature, the Kmart bankruptcy and the Middle East with a wary eye.

“Consumer confidence in the economy has been increasing,” City Finance Director Ed Mullins wrote in a memorandum. “But another oil crisis could have a major detrimental effect on the economy.”

State legislators could still decide to withhold “demand transfer” money to balance their own books, leaving the city in a lurch during the second half of the year. About $1.8 million in state aid could be reduced or withheld by the Legislature.

And the city apparently overestimated the number of people who would be renting its recreational buildings. Mullins is now projecting a $50,000 shortfall in the $160,000 of expected rental revenues for the year.

“The first quarter shows that might’ve been a little optimistic,” Van Saun said. “The recreation fund is one of those funds that’s hard to predict.”

Mullins reported the city in the first quarter took in $11.2 million from taxes, permits and other revenues that support the general fund, while spending about $9 million.

Another positive: The T has already taken in 90 percent of the fare revenues that it was budgeted to receive for the entire year.

And property taxes remain a stable source of revenue, Mullins said.

“The outlook for 2002 is good,” Mullins wrote. “The Kmart bankruptcy should not negatively impact property taxes.”

Unless, he said, the retailer’s troubles get worse.

“If (Kmart) closes additional stores and this results in the closure of the Lawrence distribution center, property tax revenue will take a significant hit,” Mullins said.

The Lawrence City Commission will receive the budget report at its meeting, 6:35 p.m. Tuesday in City Hall, Sixth and Massachusetts streets.