As new water fees in Mayor Emanuel’s 2012 budget take effect this month, Donors Forum is concerned for the hundreds of Chicago nonprofits who will be hit with a new bill they can ill afford – one that might also represent a hidden tax on the nonprofit community.

“Nonprofits should pay their bills every day, like other organizations. That’s not the source of our concern,” says Valerie Lies, President and CEO of Donors Forum. “However, fees that are used to provide revenue for operations outside of water infrastructure are a tax and the City is asking tax-exempt churches, schools, hospitals, and community organizations to pay it.”

The City’s 2012 budget overview proposes a 70% increase in water usage fees over the next 4 years for homeowners, as well as a removal of the water subsidy for nonprofits, in order to upgrade the City’s aging water infrastructure. Water fees are projected to contribute most of the revenue for the City’s Water Fund which supports the City’s operation, maintenance, and capital costs of the water and sewer system.

A closer look at the budget, however, shows at least 20% or $220 million would cover other City expenses. An analysis by Illinois PIRG (Illinois Public Interest Research Group) has found the revenues generated by new water fees will fund other government operations:

• $260 million: Fund annual operations in the water department
• $250 million: Water infrastructure
• $93 million: Set aside funds to cover unanticipated capital cost overruns
• $220 million: Other city expenses, including:
  • $150 million: Employee health and pension benefits and other unspecified “municipal services”
  • $41 million: Department of Fleet Management and Facilities Management
  • $2 million: Inspector General’s office
  • $8 million: Department of Finance to pay for “professional and technical services,”       

postage, and the rental and maintenance of computer equipment

• $5 million: Department of Innovation and Technology for “contractual services”

“Mayor Emanuel’s budget avoids many of the budget gimmicks that had become common-place, like last minute asset lease deals and raiding the rainy day fund,” said Brian Imus, State Director for Illinois PIRG. “Unfortunately, the proposed water hike is an all-too-familiar accounting trick that hides the true cost of the budget to Chicago taxpayers.”

The water fee is also a red flag for nonprofits worried about threats to their tax exempt status. The Inspector General’s 2010 report recommended removing nonprofit exemptions for water usage and sewage fees, estimating that removing the nonprofit fee waiver could provide up to $15.2 million in revenue for the City. The Emanuel administration has taken that recommendation to heart and is in the process of revoking all other fee waivers.

Laurel O’Sullivan, Vice President of Public Policy at Donors Forum, also argued for nonprofit parity. “If the City is going to make water fee discounts available to organizations who can demonstrate they provide a disproportionate size of charity care, community-based nonprofits should be eligible for the 20% discount on their water bills, as well.”

“Most Chicago nonprofits deliver basic needs to every neighborhood in the city. This is how community based nonprofits earn their tax-exemption – by providing goods and services on behalf of the public good without a profit motive. To tax these organizations is unfair and bad practice,” she said.

~Delia Coleman, Director, Public Policy

 Image: The Chicago River, via creative commons.