City Hall will spend $3.5 million more than it collects this year, and will tap into reserve funds to cover the difference.

Finance Director Ed Mullins said Tuesday the reserves built up in previous years would help make ends meet after lower-than-expected returns on city investments and the withdrawal of $1.38 million in state funding at the start of the year led to the deficit.

Flat sales tax revenues also have hurt the city’s cash flow, officials said.

“This doesn’t say anything we haven’t already been saying,” City Manager Mike Wildgen said after the city’s quarterly financial report was made public.

Mullins said officials anticipated dipping into the city’s savings when they crafted the 2003 budget.

“Even if the revenues were good, we were going to draw down the fund balance,” he said.

Revenues haven’t been good, however, and Mullins is skeptical they will soon rebound — even though economists expect the national economy will pick up during the second half of the year.

“Unemployment has risen to 6.4 percent locally, and business spending remains sluggish,” Mullins wrote in the quarterly report. “In addition, consumer sentiment remains low.”

Other highlights from the report:

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• Mullins said the city’s outdoor pool would take in $80,000 less than expected this summer, but the Indoor Aquatic Center will show a $40,000 surplus thanks to several large swim meets there. Officials could not explain why business at the outdoor pool seems to have slowed.
• The city’s Eagle Bend Golf Course is once again earning less money than expected, Mullins reported.

“Golf course revenue from green fees and cart rental are $13,000 less than the prior year, despite an increase in green fees, and will likely end the year below budget,” he wrote.

Wildgen said the drop in revenue was partly because the newness has worn off Eagle Bend, while newer courses around northeast Kansas are attracting golfers.

• On a positive note, the city spent only 42 percent of its general fund budget during the first half of the year.

“The nice thing is, we seem to be controlling our expenditures,” Mullins said.

However, he wrote in the report, “expenditures in several funds will pick up in the third quarter due to construction and recreation activities.”

The Lawrence City Commission will receive the report at its next meeting, 9 a.m. Friday in City Hall, Sixth and Massachusetts streets.