Water is the new TIF

This is second of a series. First one is here.

For years, DeKalb bailed out its general operating budget with tax increment financing (TIF) funds. TIF administrative fees helped soften the blows following the 2008 market crashes and assisted the hiring spree after that. Now the enormous “TIF 1” district is gone, replaced by the “Downtown TIF” that is but a shadow of its previously glorious, slush-fund-y self.

Pandemic relief money — just in time — is now subsidizing the city’s payroll and will continue to do so for a couple more years. What follows when that’s gone, especially now that other federal funds will disappear with our population losses? My hypothesis is the Water Operations Fund will see pressure to take on more of the bailout role.

Water Ops already assists in compensating city employees who work outside of that division, and has for ages. But since 2016 it’s hard to spot. The city scrapped its policy of clean, transparent transfers from Water Fund to General Fund and adopted deceptive budgeting practices that help to conceal the dependence on water sales.*

The Water Ops budget for regular full-time wages this year is $1.2 million, enough to cover base wages for 15 Water (aka Utility) employees including supervisors. But Water only has nine full-timers. The rest goes to help staff the city manager’s office and divisions under the manager’s direct supervision (Finance, HR, IT) without this being shown anywhere in the General Fund budget where these offices and divisions reside. Water also is apparently picking up the insurance tab for more than its nine workers, as its currently budgeted expense for employee health insurance is $569,000.*

size-of-water-div-2021

Water-budget-2021

A behind-the-scenes process similar to that used to calculate the TIF administrative transfer determines what percentages of salaries to charge directly to Water. But we’ve seen how this procedure turned out with TIF: two dozen people morphed into part-time TIF administrators on paper so the city could sustain its bloated workforce as long as possible; it was a cheat and it led to the embarrassing forensic audit. Now, Water is similarly helping prop up payroll and the assignments are becoming nearly as ridiculous — with myself Exhibit A, because Water paid part of my compensation as city clerk and the only city business I had with them was to transfer the odd misdirected phone call.

Using Water as an assist to the General Fund is not, in itself, a bad thing. But the past dishonest use of TIF is an example of DeKalb’s predilection for prying up every spare dime to grow its workforce, which has led to chronic failures to plan strategically for other purposes such as capital, fleet, and equipment needs. If we want to break this cycle, it’s important to accompany the arrival of new industrial water customers with utmost transparency in budgeting and to ensure future surplus Water funds build more than just the bureaucracy. In an improved financial scenario, Water cannot be the new TIF.

*Water Ops Fund does make one clean transfer to the General Fund, a $311,000 yearly payment in lieu of taxes (PILOT). The amount is based on what Water would be paying in property taxes if its assets were taxable. The last hard number I had for Water’s subsidization of non-Water salaries was $370,000, so PILOT plus salaries comes to at least $681,000 annually. I have submitted a request for information about the health insurance, and if non-Water employees’ insurance expenses are covered it could potentially push Water’s total annual General Fund bailout to more than $1 million.