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Local

DeKalb municipal leaders react to City of DeKalb's TIF forensic audit

"This audit puts a big item in front of us and that's a lot of money that went not where it should have been," said DeKalb County Administrator Gary Hanson at the JRB meeting Friday.
"This audit puts a big item in front of us and that's a lot of money that went not where it should have been," said DeKalb County Administrator Gary Hanson at the JRB meeting Friday.

DeKALB - Some DeKalb County municipal leaders are asking if the city plans to pay back tax increment finance funds to the taxing bodies that were instead surplussed out to the city, as confirmed in a forensic audit conducted by Chicago-based Ernst & Young.

Municipal representatives will continue the discussion at their next Joint Review Board meeting July 24.

A completed forensic audit of the City of DeKalb's tax increment finance spending since 2008 released May 27, 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.

"This audit puts a big item in front of us and that's a lot of money that went not where it should have been," said DeKalb County Administrator Gary Hanson at the JRB meeting Friday. "I know each of us sits here with a different perspective, for some of you, your boundaries are very close to the city of DeKalb. But 75% of value in county is not in the city of DeKalb so those taxpayers have really subsidized those errors."

Auditors from Chicago-based Ernst and Young, the firm chosen by DeKalb County State's Attorney Rick Amato, presented their forensic audit to the JRB, 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.

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."

Kishwaukee College Board President Bob Johnson said a loss in TIF revenue for the college also meant that tuition had to be raised, a cost fronted by Kish's students.

"Kishwaukee College has an even larger district than all the rest, our students made up the difference, budgets were short but tuition went up so it was paid for by entire student body over that time period," Johnson said.

DeKalb City Manager Bill Nicklas said that all the taxing bodies have some responsibility int the way TIF funds were used in the past decade.

"All of us are complicit in this," Nicklas said, adding he would not have voted for the 2007 agreement." So the city made out twice but everybody else made out pretty well too, to the tune of $35 million dollars. As I drive home every night, I drive up 7th Street on Lincoln Highway and I look east. Everything on Peace Road was part of TIF 1, that area was begging for redevelopment, hundreds and hundreds of acres, and what have we done? We've got factory buildings out there that will stand until they go to dust. I regret it mightily."

Some JRB members took issue with Nicklas' claim. Hanson said his issue was that the city was surplussed an extra $4.5 million that should have gone to the taxing bodies when sales tax revenue was included in the surplus.

"I take exception to this sales tax surplus that paid to the state and the city, I really think that clearly should've stayed local," Hanson said. "I don't think we can jump over that number that probably should have been distributed out to the taxing bodies."

DeKalb District 428 Finance Director Cindy Carpenter also voiced concern about ongoing TIF processes in the city, and called for better record keeping to ensure those who receive TIF funds for a development have a record of having paid back the loan so future JRB members can keep accounting of the TIF awards.

"As a school district we're in the same situation where we encompass more than just City of DeKalb, obviously Malta and Cortland and it has effected all of the taxpayers," Carpenter said. "So I would say we're in the same boat in terms of we know now at least a portion of the dollar that were put through and how is that going to be rectified?"

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