$14M in ‘questionable’ University Park TIF transfers found

Audit determines about 35% were deemed suspicious

From 2012 to 2016, University Park shifted nearly $40 million from tax increment finance accounts into its general and payroll funds, according to an audit the cash-strapped community commissioned to assess its TIF debt.

While the majority of the transfers appear to have been made for legitimate TIF-related purposes, the auditing firm determined that approximately 35 percent of the transfers, or nearly $14 million, were “questionable,” village manager John Pate said.

Municipalities regularly designate tax increment financing districts or TIF districts to spur development in blighted areas that would not otherwise attract outside investment. Any future “tax increment” generated as a result of redevelopment within a designated TIF district is diverted to a special TIF account and must be used solely for economic development.

In University Park’s case, however, officials routinely tapped TIF accounts to cover payroll and critical operations, leaving the village with a sizable TIF debt, Pate said.

The forensic audit comes as federal authorities continue to review University Park’s financial records, Pate said. The audit will be provided to the FBI in the near future, he said.

The FBI has been looking into University Park’s finances for more than two years, documents show, but the focus of the agency’s probe is unclear. No charges have been filed against any village employee or official.

An FBI spokeswoman said Friday that, per agency policy, she could not comment on any matter the agency may or may not be investigating.

Pate said he’d been in touch with federal agents in recent months and was continuing to share information with the agency, as his predecessor had, in an effort to aid its investigation.

“I want people held accountable,” he said. “If people broke the law, they should go to jail.”

Despite the fact that, in many cases, University Park made no attempt to conceal its improper TIF transfers, the practice apparently went unnoticed by officials at multiple levels of government for many years, Pate said.

“You have budgets that were done that had transfers from the TIF as a line item in the budget,” he said, questioning how such red flags escaped the scrutiny of local, county and state officials. “There’s a lot of checks and balances that were in place that failed, in my opinion.”

The Illinois Comptroller’s office, which is tasked with collecting financial reports from municipalities across the state and spotting warning signs of fiscal trouble, appears not to have taken action against University Park despite the village’s failure to submit annual reports for years, officials said.

Comptroller spokesman Abdon Pallasch said he couldn’t speak to the agency’s failure to take action against University Park because it happened under the prior administration.

“After we took office a year and a half ago, it took us a while to realize the dearth of paperwork left by the previous administration,” he said. “How long had some of these towns not been submitting their required reports? Had they been made aware of the potential disciplinary consequences of not filing their required reports? We found very incomplete evidence they had.”

Pallasch said going forward the comptroller’s office would be in a position to enforce annual financial reporting requirements, but that the agency preferred to work with local governments to achieve compliance rather than issuing fines and conducting forced audits.

Pate, who was appointed in August 2017 to help University Park get back on track after years of questionable transfers, said the audit’s accuracy was somewhat compromised by the village’s inability to locate pertinent financial documents but that it still provided a blueprint for better understanding how TIF funds were spent.

“If you can’t find source documentation, either because it doesn’t exist or it was damaged or it was misfiled or if it was destroyed, it has to be listed in the forensic audit as either a questionable expenditure or an unverified expenditure,” he said.

Pate said the $7.1 million found to have been diverted to the payroll fund was clearly improper, but that some of the $6.8 million shifted into the general fund may end up being deemed permissible, if supporting documentation can be found.

“Do I think all the unverified expenditures are all questionable?” he said. “No, based on looking at some of them, if we do proper due diligence and ... find source documents, some of those expenditures are valid.”

Despite University Park’s practice of using TIF accounts to plug budget shortfalls, Pate said past village officials always made sure that enough funds remained in the accounts to fully reimburse businesses as stipulated in their TIF redevelopment agreements — even if those reimbursements were not always paid.

“The village at no time will ever not be solvent as far as fulfilling the businesses’ obligations,” he said. “(Past officials) made sure they didn’t spend the businesses’ money ... They only spent what was left over.”

The amount left over is supposed to be distributed among the taxing bodies that forego increased tax revenue during the lifetime of the TIF, which happens only after the TIF district closes, Pate said.

While two of University Park’s six TIF districts have already closed, the redistribution process has yet to take place because the village is behind on its TIF audits, he said.

If, once those audits are completed, it’s determined the village misspent TIF money that should have been distributed among other taxing bodies, Pate said he would work with those entities to ensure they’re made whole.

“Our goal is to be very transparent and open with taxing bodies and communicate what’s going on,” he said. “If the village is wrong, we’re wrong. We can get it taken care of without a lawsuit. I think we’re being proactive and transparent. It’s when we’re cryptic and shut these taxing bodies out that it turns into a problem.”

Pate said the forensic audit did not uncover any TIF transfers that suggested village money had been embezzled, but that he could not discount that possibility.

“I can’t sit here and tell you for sure if laws were broken,” he said. “Was it malfeasance? Was it negligence? Lack of understanding of the laws in regards to TIFs?

“That’s honestly up to the law enforcement authorities to kind of define that.”

Pate said blame for the village’s financial mismanagement falls squarely on past village managers and finance directors, not the elected officials who have “very little visibility of dayto-day operations and banking accounts.”

“I would say our board did the best job they can with the information they have to make an informed decision,” he said.

While the forensic audit looked only at TIF transfers from 2012 to 2016, Pate said he believes the practice of using TIF money to supplement the budget likely went back decades.

“I think this stuff with the TIFs started way long ago and I think it was a habit that was done because that was just the way of business here,” he said.

Lafayette Linear, the former village manager who, according to Pate, oversaw “99 percent” of the inappropriate transactions that occurred between 2012 and 2016, could not be reached for comment.

According to meeting minutes from September 2015, shortly after Bola Delano replaced Linear as village manager, University Park’s finance director reported to the board that she’d just returned from a “highly informative” TIF conference where she learned the village had been violating TIF rules.

Trustee Paula Wilson, who attended that meeting, said she recalled Delano sending the finance director to the training that year after realizing the village had been misappropriating TIF funds.

“I think (board members) were all just ignorant to the facts and it wasn’t until Bola Delano came that she brought it to light what was happening and you guys aren’t supposed to be doing it,” Wilson said.

“(Trustees) did know it was happening,” she said of TIF funds being transferred into the general and payroll funds. “They just didn’t know that it should not have been happening.”

University Park officials are in the process of working with the comptroller to get up to date with the village’s financial reporting requirements and hope to do so by early 2019, Pate said.

He expressed confidence that University Park would recover from its current financial difficulties and touted the changes he said he’d made since taking over as village manager.

“I think University Park is in a position where other municipalities can learn about what not to do, and they need to follow our path in looking at the direction of what the village is going to do better,” he said.

Pate said legislators ought to consider comprehensive TIF reform to avoid situations like University Park’s from happening in the future.

“The TIF Act is weak and I think our state legislature needs to bring that to the table and change that,” he said. “Based on how I’m looking here and how easy this happened here, I assure you this is not the only municipality that’s doing it. I think it’s the only municipality that people started yelling about it.”

“I can’t sit here and tell you for sure if laws were broken.” — John Pate, village manager