On May 27, 2020, States Attorney Rick Amato informed the City of DeKalb that the forensic audit report of the City’s tax increment financing (TIF) program was complete and posted on the County’s website. This was the first opportunity for the City’s staff to review the findings of Ernst & Young.
Over the past year, City staff has spent several hundred hours working with auditors from Ernst & Young to search for and produce documents and records relating to the TIF program. Auditors were provided full access to financial records, development agreements, and other documents, which were all used in the compilation of this report.
“The Ernst & Young audit makes some recommendations for process improvement,” City Manager Bill Nicklas stated. “I am pleased to report that many of these recommendations have already been implemented but were not noted because they did not exist during the period of the audit (2009-2018). The Council’s recent discussion on May 26, 2020, of broad guidelines to be followed in evaluating and making TIF awards closely follows a number of these recommendations.”
In the short interval available to review the report, the City Manager and his staff have drawn several very preliminary impressions:
- As many observers surmised in the fall of 2018, in the period 2009-2018 the City of DeKalb used an excessive amount of TIF funds to defray the administrative costs assigned to the City’s operating budget. The auditors found $7,895,027 was transferred from the City’s TIF 1 and TIF 2 funds, combined, in this period. The TIF Act states that after July 1, 1999, annual administrative costs “shall not include general overhead or administrative costs of the municipality that would still have been incurred by the municipality if the municipality had not designated a redevelopment project area or approved a redevelopment plan” (see pages 10-12).
- From 2011 through 2018, the City’s surplus distributions to other taxing bodies according to the terms of the 2007 intergovernmental agreement (IGA) exceeded the 50% threshold for incremental property taxes by $1,948,436 (see pages 13-14).
- For most of the test period, the City had no clearly articulated guidelines for the range of documents required for payouts or permanent records of project transactions (see pages 17-20 for a general discussion, and pages 21-28 for specific project reviews).
- The City “should consider obtaining advice” as to whether the guidance it has received from the Illinois Department of Revenue and a former city attorney regarding surplus distributions of sales tax incremental revenue is accurate.
The City and its Joint Review Board (JRB) partners have taken many steps to correct past errors or omissions. Among those steps are the following:
- On January 16, 2019, the City Manager articulated an internal administrative policy limiting any TIF reimbursement to work that would not have been performed but for the existence of the TIF program. Further, any reimbursement had to be based on timesheets kept by the several professional staff (e.g. city manager, assistant city manager, principal planner) directly involved with TIF redevelopment projects, plans, and records.
- On February 11, 2019, the Council approved a new Chapter 37 of the Municipal Code adopting Tax Increment Financing Regulations for the City of DeKalb;
- On March 25, 2019, the Council concurred in the award of a contract between the County of DeKalb and Ernst & Young to perform a forensic audit on the City’s TIF district financing from 2009-2018;
- The City convened three special JRB meetings on January 5, January 25, and February 15, 2019, to wrestle with how the JRB can sustain a broad and inclusive conversation about DeKalb’s TIF program. Among the conclusions drawn from these extraordinary meetings was a commitment to include representatives of all local taxing bodies in future quarterly JRB discussions, while respecting the fact that not all participants would have statutory voting authority. Quarterly meetings have followed. By unanimous direction of the JRB, the City adopted TIF 3, closed TIF 2, and worked out a unique, early termination of TIF 1. Each JRB meeting now features all the quarterly financials of the City’s TIF 1 and TIF 3 districts, as well as running totals of administrative transfers and supporting timesheets. The quarterly JRB meetings are televised, invite public participation, and include City staff reports on TIF projects in progress.
The JRB will next meet on June 26, 2020, at 1:00 p.m. in a deferred quarterly session due to the COVID-19 restrictions. At that time, the JRB as a body can discuss the forensic audit.
Ernst & Young TIF Forensic Audit Report