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Dolton, which has repeatedly fallen behind on water payments to Chicago and currently owes the city more than $9 million in past due bills and penalties, will retain control of its waterworks system after resolving a lawsuit brought by Chicago earlier this year.
The village will pay Chicago $600,000 this year and $1.15 million annually for the next 10 years to satisfy its debt plus 6 percent annual interest for a total of more than $12 million, according to a consent decree reached Friday.
Dolton also will provide Chicago real-time access to its financial accounting system, as well as quarterly and audited annual financial reports on its water fund to ensure compliance with the agreement.
Chicago sued the financially challenged village in March, alleging it had violated past contracts, repayment agreements and the law by making unauthorized transfers of millions of dollars from its water fund account into its general fund.
The suit asked the court to appoint an independent receiver to monitor the waterworks system, collect payments from its resident customers and deposit those collections into a segregated water fund account used only for legitimate water-related operating expenses, including repaying the debts owed to Chicago.
At the time, a spokesman for Chicago’s law department said the city was open to resolving the debt through a repayment agreement, but had requested the appointment of a receiver after finding success with that approach in Harvey, which lost control of its waterworks in August 2017 due to its unauthorized transfer of $26 million of water revenues into its general fund.
A city spokesman declined comment on the consent decree with Dolton, which twice before has defaulted on commitments to Chicago following past water debt repayment agreements in 2009 and 2014.
Chicago, which draws water from Lake Michigan, by law must provide it to any municipality that can connect to its waterworks system.
While municipalities like Dolton must pay Chicago for its water, the city is not permitted to shut off water to towns that do not pay because doing so would impose “severe hardship on all of that municipality’s water customers, most of whom did not cause the non-payment,” according to the Metropolitan Water Reclamation District Act.
As a result, some cash-strapped communities have stiffed Chicago on water bills, diverting the revenues they generate from reselling and distributing water to residents and businesses for other purposes.
In Dolton’s case, officials used water revenues to subsidize the village’s money-losing senior center and fitness center, village attorney John Murphey said.
“It’s kind of like a domino thing,” he said. “The general fund subsidized the (Dorchester Senior Center) and (Melanie Fitness Center), which then caused the village to have the water fund transfer almost $9 million to the general fund.”
Unloading the Dorchester, which Murphey said the village has kept afloat with approximately $13 million in general fund transfers over the years, was “imperative,” he said.
Dolton is currently in the process of closing on a $2.6 million sale of the property, he said, but has yet to reach a consensus on selling the Melanie, which continues to bleed money.
“It’s in a quandary on the Melanie,” Trustee Duane Muhammad said. “Half of the board would love to get rid of it right now, but the others are saying, ‘No, we should be able to get more money.’ We’re losing more money on it each year, each month, each day.”
Dolton plans to hike property taxes to help repay its massive water debt to Chicago.
The village has scheduled a public hearing Monday to approve a 3.33 percent property tax increase, which would raise taxes by about $44 on a $100,000 home.
“We’ve got to add that to our property tax levy, at least for now,” Murphey said. “The hope is the water system would get on its feet again and start generating the revenue it should generate, at which point we may not have to use the property tax for everything.”
Trustee Valeria Stubbs said it pained her to raise taxes on residents — who already pay one of the highest rates in the county — but that it was necessary to keep the village’s water department from going into receivership.
“We didn’t want that to happen to the people out here because they truly, truly don’t deserve any of this and it’s just an unfortunate situation,” she said of the proposed property tax hike. “I pray that it gets better and we’re able to keep our agreement with Chicago.”
According to the terms of the consent decree, if Dolton makes all of its annual payments to Chicago for the next eight-plus years — at which point the current $9,086,343 balance will have been paid off — the remaining $3,043,878 in principal and interest will be forgiven.
Muhammad said that while a tax increase is necessary to fund the water debt repayments, he hopes the village can come up with other means of funding village operations in the future.
“We can’t keep taxing ourselves out of a problem,” he said. “We have to come up with other ways of revenue, so we have to do some extreme cuts. The cuts that we’ve done are not enough because we still have a deficit.”
Earlier this year, village trustees adopted an amended budget that included 10 employee layoffs and a nearly 10 percent reduction in spending for all village departments. The layoffs, which the mayor has said were politically motivated because they primarily affected his perceived allies and appointees, prompted the filing of a wrongful termination suit in October.
Muhammad, who denies the cuts were politically motivated, said he does not believe additional personnel cuts will be necessary but that some service reductions will be.
“Certain equipment expenditures we won’t be able to do. We’ll have to cut back on some of the services for public works,” he said. “We just don’t have the revenue for that right now.”
A 2018 fiscal year audit of village finances, presented at Dolton’s board meeting on Monday, found the village had a general fund balance of negative $5.4 million, following a $2.5 million decrease over the past fiscal year.
“Basically, expenses exceeded your revenues by that much during this year,” Matt Beran, a partner with accounting firm Lauterbach & Amen, told the board.
If the village defaults on its repayment agreement with Chicago, the entire unpaid balance of the judgment becomes due immediately and the court may order a receiver be appointed to oversee Dolton’s water fund account, according to the consent decree.
Any debts that Dolton cannot satisfy from its water fund account must be paid from its general fund unless those payments “would impair Dolton’s ability to provide essential government services, such as police and fire services,” the agreement states.
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