Completed DeKalb TIF audit shows city used $7.9M in TIF money to offset employee salaries

DeKALB – A completed forensic audit of the City of DeKalb’s tax increment finance spending since 2008 shows the city used $7.9 million in TIF funds to offset salary costs, lacks consistent and complete record-keeping for TIF spending, and was including sales tax revenue in the TIF surplus to grow the increment, which auditors say needs clarification as to whether that complies with Illinois’ TIF Act.

Auditors from Chicago-based Ernst and Young, the firm chosen by DeKalb County State’s Attorney Rick Amato, have completed their forensic look prompted by public outcry which began in the fall of 2018 alleging the city was “misusing” TIF money outside of the realm allowed for in the TIF Act.

"The absence of standardized processes and the resulting lack of documentation meant there are few contemporaneous records documenting TIF eligibility for the programs and the expenses approved," the 66-page audit, published on the DeKalb County State's Attorney's website, reads.

City response

City Manager Bill Nicklas said Thursday that he was not surprised by the audit's findings, and said the city is already addressing much of the recommendations handed down by Ernst and Young.

He called the administrative spending "excessive," and said the city no longer authorizes transfers like that.

"They made some good recommendations and we’ll probably take a third and fourth look at that sales tax question," Nicklas said.

On Jan. 16, 2019, the city began to implement internal policies to limit TIF reimbursement to employees who would not have performed that type of work were it not for the TIF program.

"Further, any reimbursement had to be based on timesheets kept by the several professional staff, city manager, assistant city manager, principal planner, directly involved with TIF redevelopment projects, plans and records," Nicklas said.

Per the 2007 intergovernmental agreement with neighboring taxing bodies such as the DeKalb County government, the DeKalb Park District and the DeKalb School District 428, surplus increment from the Central Business TIF known as TIF 1 was divided up among the taxing bodies. The audit shows the city included sales tax revenue in addition to property tax revenue in the surplus, increasing the sum and and collecting more than they would have if they haven’t included sales tax revenue.

"If we assume that they had ceased to benefit after FY2013, then the DeKalb County Collector would have received an additional surplus distribution of $4.5," the audit reads. "And [Illinois Department of Revenue] and the city could have received $2.4 and $2.1M less."

The city council on Feb. 11, 2019 also approved a new municipal code adopted TIF regulations. On Monday, council began discussions outlining further regulations including whether to implement a project cost cap, and whether to annualize the TIF program so developers wishing to appeal for TIF funds would only be allowed to do so up to a certain deadline per year.

Council will vote on those measure at a later date, and the city's Joint Review Board will next meet June 26 at 1 p.m. to discuss the audit's findings.

Forensic look at audit

For the audit, Ernst and Young reviewed documents from 2008 through December of 2018 to determine the city's protocols for TIF spending including 85 TIF payments from that period. Of those 85 payments, auditors said the city wasn't able to provide documentation for 16 invoices or proof of payment for 71 transactions.

Under TIF, property taxes in a defined geographic area are collected and, over time, as property values rise, the increased tax revenue which would have been collected normally, goes into an incentive pool to grow and be used for specific projects. Traditionally, TIF incentive pool funds go to development or other projects designed to improve buildings or areas within the TIF-defined region which are deemed ‘blighted’ by the TIF Act.

However, many municipalities use the tax dollars to augment their budgets, utilizing the money to pay for administrative and police salaries. Meanwhile, millions more are spent with no officially reported purpose at all, a Shaw Media review of tax increment financing records over the last 10 years has found.

The auditors also discovered inconsistencies in amount of TIF dollars given to projects, lack of clarity related to surplus and the TIF Act, and questioned whether TIF money used in eight projects fell under TIF-eligibility when it came to developers using it for new construction.

"There is little clear policy guidance on TIF reimbursements," the findings read. "Our analysis suggests that while the majority of the transactions were TIF eligible, for 8 of the transaction, aggregating to $4 million, we were unable to access TIF eligible based on docs provided."

The majority of the eight developments ­ which include work for Joyce Superstore, Pappas Glasgow Development, Irving Construction Co., Brian Bemis Toyota, Mid City, Cornerstone DeKalb and Curran Contracting Company ­ relate to TIF-eligibility around new construction, the audit states, citing the TIF Act which stipulates "Unless explicitly stated herein, the cost of construction of new privately-owned buildings shall not be an eligible redevelopment project cost."

It’s been 17 months since Amato held a townhall in December of 2018 following allegations of misused TIF funds.

"The results of the TIF audit support the concerns that many citizens and taxing bodies shared about the city’s use of public funds," Amato said Thursday. "The audit shows that while there was not one single bad actor benefiting from the misuse of tax dollars, the city lacked any institutional controls to ensure that the community’s money was being spent properly. It is my hope that the city along with all taxing bodies and boards incorporate the recommendations provided by the audit and restore the public’s faith."

Amato’s office selected the auditor in March, and the DeKalb city council in December of 2018 approved paying for the audit with $200,000.