Inspector general hits city for lax administration of user fees

Chicago user fees generate millions, but City Hall has no idea how many there are, nor does it regularly review those fees to determine whether they’re sufficient to recoup city costs, a troubling audit concluded Thursday.

In fact, Inspector General Joe Ferguson’s latest audit concludes, the city’s Office of Budget and Management conducted a full cost analysis for only three of the 91 “unique fee proposals” submitted during the 2013-through-2017 budget cycles.

Those included 61 fee modification proposals and 30 proposals for new fees.

Ferguson’s office reviewed two of those analyses and found several “inaccuracies” resulting in a “potential $45.2 million over-estimation of the cost of collecting residential refuse and a $1 million under-estimation” of the cost of the city’s booting program, the audit states.

In an executive summary accompanying his audit, Ferguson noted that maintaining user fees well below the cost of the service “may have the unintentional result of non-users subsidizing the services in addition to causing the city to forgo” sorely needed revenue.

Without knowing the actual cost of providing services, city departments are also prevented or discouraged from “identifying future operational efficiencies,” the audit states.

“In an era of unfunded or underfunded program mandates, proper fee-setting is an important tool for assuring the city meets legally prescribed program and policy objectives,” Ferguson said.

“Moreover, as a draw on residents who have had to bear the burden of significant tax increases to address the consequences of poor fiscal practices of prior administrations, the city should endeavor to assure that fees closely correspond to program needs and objectives, including the costs of effective enforcement.”

The city’s failure to evaluate user fees in accordance with its own policies and recommendations made by the Government Finance Officers Association may also “result in revenue shortfalls, unintended subsidies of private beneficiaries by taxpayers, overcharging, lack of transparency, and public perception that fees are set arbitrarily,” the inspector general said.

The budget office agreed with Ferguson’s findings and agreed to follow his recommendation to “develop a user fee policy, create a complete list of all city fees and establish a schedule for periodic review.”

Budget Director Samantha Fields also “intends to provide a more uniform definition of user fees” and require city departments to conduct a “thorough review to ensure that the city identifies all existing fees and current fee structures,” the IG said.

“OBM stated that the city’s irregular review results in many fee levels remaining well below the cost of service and that, as time passes without incremental adjustments, such fees eventually require large increases that are difficult to justify to fee payers,” the executive summary states.

An example of that erratic decision making occurred during the 2017 budget cycle.

The city raised the application fee for vacating the public way from $50 to $1,025 without conducting a full cost analysis to determine the actual cost.

The fee was last adjusted in 2003 and was “clearly far below the cost of the service.”

But the budget office rejected a proposal by the Department of Public Health to raise environmental and food inspection fees, even though those fees had not been updated since the mid 1990s and were also “below the cost of the service.”

The rationale was that, “It was not the right time to adjust the fees, taking into consideration the other fee and tax increases imposed by the city that year,” the audit states.

User fees are just that. They’re supposed to recoup the cost of providing city services.

They generate tens of millions of dollars each year and represent a “significant source of city revenue.” They include charges for garbage collection, water usage, inspections, towing, booting, permits and licenses.

The city’s loosey-goosey administration of user fees has literally created a situation where the city is “unable to state with certainty how many fees exist,” Ferguson wrote.

During his audit, the budget office created a list of 301 fees. The inspector general identified another 20 for a total of 321 user fees.

“It is likely that the actual number of city fees is much larger,” Ferguson wrote.

He noted that the city of Houston — with a population of 2.3 million compared to Chicago’s 2.7 million — imposes 1,600 different user fees.

The Civic Federation has urged Mayor Rahm Emanuel to conduct an annual review of the $9.50-a-month fee for garbage collection imposed in 2016. That fee covers just 25 percent of the city’s waste-removal costs.