Drowning in debt

This story is supported by the Pulitzer Center.

A billing error turned Sylvia Taylor’s life upside down.

The bureaucratic nightmare started when Taylor inherited her family’s Englewood house. Taylor needed time to figure out whether her daughter would move in or if she’d rent it out. Taylor turned off the water in 2007 to avoid the pipes from bursting during the winter.

She went back to her life in Bronzeville and didn’t think about the water again until the city sent her a notice more than a year later, alerting her that the water would be shut off. Attached was a bill for $1,100.

Taylor was shocked.

Taylor said that she spoke with the city’s water department and finance departments in hopes that they would clear the error. She was advised to register the two-flat house with the city as a vacant property — which comes with an initial fee up to $600 plus an additional $300 to renew every six months. Upset about the ordeal, Taylor refused to pay the fee. Years of fighting with the city went by.

Meanwhile, the city continued to charge Taylor for water she wasn’t using — and fined her for a debt she didn’t really owe. And the city couldn’t provide an accounting of the water usage at the vacant, unmetered property — those properties are charged not for the actual amount of water used but for an estimated amount of water usage based on a property’s size and its number of plumbing fixtures.

In 2015, Taylor requested the water department send an inspector to verify that the building was vacant. A water department employee wrote in the report “entire building vacant, water shutoff since 2007.” However, the report went unnoticed for years.

Nearly 13 years after she turned off the water to her family home, the debt had ballooned to $25,253.

The city had filed a statutory lien against the property — a debt collection tactic that the city has used against people with long-standing water debt.

“If you’re calling them and you’re telling them you don’t have any water … but they charge you all these fees, it’s really upsetting,” Taylor said. “I thought I was being robbed, really robbed by the water department.”

Taylor’s case showcases a number of problems with Chicago’s water debt — from the massive amounts owed by tens of thousands of residents who’ve failed to keep up with the rising cost of water over the past decade to the city’s troubled billing system, punitive fees and aggressive collection tactics.

A monthslong WBEZ investigation revealed that:

• Chicago homeowners have racked up over $421 million dollars in water debt. More than 60% of the debt is concentrated in the city’s majority Black ZIP codes.
• The city’s debt collection system has moved delinquent water bills into the hands of private debt collectors,with little transparency. At least $60 million of the city’s water revenue has gone to pay private debt collectors.
• Chicagoans have had millions of dollars in earnings garnished from their paychecks to help settle water debt and many others have faced judgments and statutory liens in an effort to collect water debt.
• An estimated $775 million in water-sewer tax revenue was allocated to the city’s municipal employees’ pension fund, city budgets show.

In a statement, a spokesman for Chicago Mayor Lori Lightfoot touted her administration’s continued efforts to address water debt.

“Mayor Lightfoot has been focused on improving water affordability for lower-income residents from the beginning of her administration,” wrote Cesar Rodriguez, Lightfoot’s press secretary. “The passing of the historic 2022 budget will provide much-needed funding for disinvested neighborhoods, including funds for water reconnection and additional fines and fees reforms to help individuals get out of debt.”

During the budget hearing process, the city made permanent a pilot program the Lightfoot administration launched last year to help low-income homeowners struggling with water debt. The city has allocated a total of $12 million to forgive the water debt of participants since the program started. The city said 6,300 homeowners successfully completed the program for one year and their debt was forgiven.

Andrea Cheng, commissioner of the city’s Department of Water Management, declined to comment.

Homeowners don’t have to worry about getting their water disconnected right now, since Mayor Lightfoot issued a moratorium on water shutoffs in 2019. That move was prompted, in part, by an American Public Media/WBEZ investigation published earlier that year, which revealed that, in a decade, the cost of water in Chicago tripled and more than 150,000 water shutoffs for delinquent customers were disproportionately concentrated in Black and Latino neighborhoods. WBEZ has now found that tens of thousands of Chicago homeowners have incurred hundreds of millions of dollars in debt to pay for a resource they can’t live without.

“It’s the way cities are trying to collect this [water] debt, but it can end up being very unfair for the customers,” said Coty Montag, senior counsel at the NAACP Legal Defense Fund and author of the 2019 report “Water/Color: A Study of Race and the Water Affordability Crisis in America’s Cities.”

Montag said water debt will continue to grow in some parts of the city faster than others.

“When your water rates are unaffordable, and you’re not accounting for low-income customers, there’s going to be a disproportionate impact on Black residents and other residents of color,” Montag said.

Sixty percent of the city’s water debt is concentrated in majority-Black ZIP codes

The ZIP codes with the highest debt burden are majority-Black or Latino. Meanwhile, most of the areas with the least debt are predominantly white.

And that water debt can have profound effects both on the generational wealth of individual families and on the long-term stability and economic viability of entire communities. Homeowners stuck in water debt can lead to properties stuck in disrepair and communities locked into disinvestment.

Water debt can help diminish the value of a home, keeping it from being well-maintained, sold or generating any wealth for relatives who inherit the property. And communities riddled with hundreds of such homes are hard pressed to attract economic investments.

Furthermore, some frown on the practice of municipalities taxing water at all.

“Raising general tax revenue through a water and sewer bill is one of the most regressive ways a government can raise revenue,” said Manuel Teodoro, an associate professor at the University of Wisconsin-Madison.

Municipalities across the country issue taxes on water to fund other services, Teodoro said.

“If you look at the full range of ways that the city can raise revenue, a water and sewer tax is extremely regressive because everybody has to use water,” he said.

Shortly after taking office in 2011, when faced with his first budget deficit, former Mayor Rahm Emanuel followed the footsteps of his predecessor — former Mayor Richard M. Daley. Emanuel turned the city’s water and sewer bills into a revenue stream.

Emanuel added a garbage fee and increased the sewer fee. Within four years, Chicago’s water rates nearly doubled. At that time, Emanuel said the rate hikes were needed to repair the city’s aging water infrastructure.

Those price rate hikes were even higher for homeowners without water meters. In 2013, the city said people in unmetered single family homes, on average, paid 25% more for water because their bills are calculated on a property’s size and number of plumbing fixtures instead of the actual number of gallons used. That same year, the MeterSave program, a city program that installed water meters for free, exceeded its annual goal by installing more than 16,300 meters, and Emanuel announced the program was “achieving significant savings for Chicago residents across the city.”

But many South Side homeowners, like Carla Padgett, didn’t know their properties were unmetered. Padgett and her teenage son live in a two-flat house she inherited from her grandfather that includes five bedrooms and two bathrooms. She says they use very little water, crediting the military showers her father taught her, but her recent water and sewer bills are about $1,400, on average, every six months.

Leading up to a divorce in 2015, she started falling behind on her water bills, which only kept climbing when Emanuel implemented a water-sewer tax in 2017 on top of the earlier rate hike.

The water-sewer tax was created, specifically, to help pay off the city’s gigantic unfunded employee pension debt, which stood at close to $19 billion when the tax was approved. Emanuel said the tax would protect Chicago taxpayers from “bearing the full burden of growing pension costs in the future.”

“Not only are we shoring up the city’s finances, we’re ensuring that thousands of workers are able to retire with dignity and security,” Emanuel said in a press release after the tax was approved by the Chicago City Council.

But Emanuel’s solution to the pension problem fueled a new water debt crisis. It increased the financial burden for Padgett and many other Chicagoans who were still reeling from the hike in water and sewer bills Emanuel passed years earlier. Thousands of Chicago homeowners were going into debt because they couldn’t keep up.

Emanuel could not be reached for comment.

Since the water-sewer tax was implemented, Padgett’s water bills grew and her debt accumulated at a faster rate than in previous years. In 2017, she was billed about $1,100 every six months. By April 2019, her bill had increased by nearly 30% to $1,415. She continued making payments but not enough to cover the entire bills. Today, she owes the city more than $8,000, billing records show.

“We don’t go on vacations. We don’t do anything extravagant. I don’t buy a lot of clothes,” Padgett said.

While Padgett tried to pay off the debt, she started doing research. A local nonprofit told her about the city’s MeterSave program.

But by then it was too late. The city suspended the MeterSave program in 2019 following a Chicago Tribune investigation that found elevated levels of lead in the water of homes with the new meters.

There are almost twice as many unmetered homes in Chicago’s majority-Black ZIP codes compared to its majority-white ZIP codes, a WBEZ analysis found.

Not only do those homes have higher water bills, but they also carry a higher tax burden.

Padgett would have to spend more than two weeks of her earnings to pay for the bill she received in April 2019 alone.

Teodoro says working class Chicagoans, like Padgett, are spending a bigger portion of their paychecks on water and sewer bills to help to balance budgets. But utility taxes are particularly regressive.

“My advice is: Resist the urge, tax honestly” Teodoro said. “Water and sewer taxes put a disproportionately heavy burden on the population that is least able to pay.”

An estimated $775 million in water and sewer tax revenue were allocated to the city’s Municipal Employees’ Annuity and Benefit Fund, since the tax was implemented in 2017, according to a WBEZ analysis of city budget documents.

Naomi Davis, founder and CEO of Blacks in Green, a nonprofit advocating for environmental justice, helped Chicago homeowners living without water. Davis coordinated water distribution to those homeowners during the pandemic and tried to help them, and others, deal with delinquent accounts. Those efforts have been difficult, she said.

“We knew that there were programs and funds in place to abate water debt and to avoid shutoff, but this information was not routinely and consistently conveyed by the customer service representatives,” Davis said.

Davis along with other local organizations worked together during the pandemic to reconnect water services to Chicagoans and provide free bottled water. As they met homeowners struggling with water shutoffs and high water bills, these organizations started helping homeowners interact with the water department.

“When we would call into the water department, with the authorization of a ratepayer, and we would look to steward the process, or facilitate a solution,” Davis said, “what we found consistently was that there was no consistent quality, there was no consistent information that was being delivered from the customer service representative to the water customers.”

Davis said the water department’s “outright dysfunction or incompetence” and its “culture of hostility and indifference” has disproportionately harmed Black Chicagoans. She pointed to the department’s documented history of  racism.

Water department leadership was plagued with scandal under Emanuel.

In 2017, Commissioner Barrett Murphy was forced to resign after just a year on the job when news broke that racist and sexist emails were circulating among water department employees, and Murphy himself participated by forwarding an offensive email.

Chicago’s Inspector General Joseph Ferguson’s office uncovered emails “that extended to senior levels of department management” while reportedly investigating allegations that a district superintendent used his city email account to sell guns. By the end of that investigation, Ferguson’s office recommended firing three water department employees.

On May 12, 2017, Emanuel named Randy Conner as the new commissioner. Conner, who is Black, was tasked with fixing an agency with a pervasive culture of racism. Former City Council Black Caucus chair Ald. Roderick Sawyer, 6th Ward, described “the pervasive culture of racism” at the department as an “open secret for years.”

The month after Conner was appointed, seven Black employees filed a federal lawsuit alleging they were denied promotions, were subjected to racial slurs and were sexually harassed because of their race.

“Yes, I’ve heard the N-word repeatedly,” an assistant chief operating engineer told the Chicago Tribune .

During a City Council hearing, South Side Ald. David Moore, 17th Ward, exhibited a photo of a water department truck with a noose hanging above the dashboard as evidence of the ongoing racist culture at the department.

When Connor retired in December, deputy commissioner Andrea Cheng stepped in temporarily and was later named commissioner. Davis, of Blacks in Green, said this appointment was a missed opportunity for real change in the department.

“She also is not on record as having taken any stand against the structural imbalances and the sort of the draconian result that was produced on Black and brown people under the present system,” Davis said. “Now, we’re just situated for more of the same.”

Padgett is not aware of the department’s history but questions the punitive debt collection system. Her finances worsened during the pandemic. In 2020, when the schools were ordered closed in favor of remote instruction, she lost her job. Without income, her debt kept growing. Earlier this year, it reached over $8,000 and included more than $1,700 in penalties. She has since returned to work.

“This is so crazy. … I’m already struggling hard enough just to pay my mortgage, Padgett said. “It doesn’t make any sense. Why would you penalize people for water? I don’t understand.”

Padgett said she was proud when she inherited the home from her grandfather, who was the second Black person to own a home on the block. The Padgett family tree is rooted in this house. After serving in the military, her grandfather moved from Mississippi to Chicago in the 1950s and settled in the Greater Grand Crossing neighborhood. He planted a pine tree in his front yard. It now stands taller than the building and is the only such tree on the  block.

“If that tree right there could talk, that’s why you see I got a picture on it. The stories that the tree could tell,” she said.

Dozens of relatives have sat under that tree and made the house their home, too.

“Everyone in my grandmother and my grandfather’s family from the South stayed in this building,” she said.

Padgett’s divorce and a subsequent job loss triggered a series of financial hardships that led to a bankruptcy. But the growing water debt is destabilizing.

Padgett doesn’t make enough to stay current with her water bills. But she makes too much to qualify for the Utility Billing Relief program, which the Lightfoot administration said it created last year to help low-income homeowners. Under the program, homeowners who qualify get a 50% discount on their water and sewer bills and qualify for debt forgiveness. The Community and Economic Development Association of Cook County, Inc. or CEDA helped the city enroll more than 15,000 households.

“I don’t want to have to lose my building over a water bill,” said Padgett after she received a letter from a law firm regarding her debt. She recently learned the city can issue liens against the properties of homeowners with delinquent bills. She said she’s afraid of the aggressive debt collectors who often call or send her letters. “It’s not like this is a choice,” Padgett said, holding back tears. “I have to have water.”

On March 1, 2021, Padgett’s delinquent water bill turned into a default judgement for $5,669. That sum includes hundreds of dollars in fees, like a $350 fee to cover the cost of a private attorney who represented the city at an administrative hearing where the judgment was rendered. Padgett missed the hearing because she didn’t get the notice in time.

Like widgets on a factory conveyor belt, Padgett is among the tens of thousands of Chicagoans navigating an unfamiliar debt collection system with few checks and balances that offers little room to negotiate the repayment of hundreds of millions of dollars, collectively, owed to the city.

On a hot and humid Saturday morning this past summer, administrative law Judge Joseph Chico sits at the helm of a small city courtroom inside the Department of Administrative Hearings. The department was created more than 20 years ago to expedite code enforcement violations by keeping the violation out of the county circuit court. This administrative court has adjudicated more than 100,000 cases involving delinquent water bills over the last decade.

On this day, Chico’s docket is busy with 59 cases before noon.

“The city of Chicago versus Luis and Cristina Infante,” Chico reads from the docket.

Cristina Infante and her husband, Luis, sit close to the small microphone. But it’s her brother, Pedro, who answers the judge’s questions. Infante brought her brother to translate during the hearing. After two minutes of discussion, Chico issued his ruling. He found the Infantes liable for $4,969.85 in past-due water bills. That total included a $25 administrative fee. The judge waived the $350 fee to cover the appearance of the private attorney who represented the city — a rare occurrence in administrative hearings.

Infante said she hoped the judge would show compassion.

She wanted to tell the judge that her family didn’t have any income since her husband had a stroke in 2019 that left him paralyzed.

“Our lives changed completely,” the 59-year-old Pilsen resident said in Spanish. “He got sick, and I got sick, too. And we couldn’t pay all of our bills.”

But Infante never got a chance to explain her family’s situation. This was their second hearing within 10 years.

She said the private lawyer representing the city was only interested in enrolling her in a payment plan.

Unlike the Infantes, most homeowners summoned over the last decade never made it to court. Administrative judges issue default judgments when homeowners don’t attend their hearings. Nearly nine out of every 10 cases involving delinquent water debt ended up with default judgements.

Critics question the system’s lack of transparency and due process. However, department officials pushed back. In a statement, the department wrote that “there is a significant amount of due process afforded” and that homeowners have up to 21 days to file a motion to “set aside the default” judgements.

WBEZ interviewed dozens of homeowners who fell behind on their water bills. Of the homeowners who said they had been contacted by a debt collector, none of them knew about the hearings.

Whether by default or delivered in person during the hearings, those judgements are powerful enforcement tools. They become the basis through which debt collectors go after the paychecks and even people’s homes.

The city outsourced its debt collection to eight private law firms that keep 25% of the water debt they recover on behalf of the city. Since the law firms are paid on contingency, enforcement is aggressive.

Debt collectors have garnished $8.8 million in wages and collected $26.4 million from judgements since 2013. The city also filed statutory liens against 4,500 homeowners between 2010 and 2012. It’s unclear how many of those liens have been released. The city said it stopped issuing statutory liens in 2012.

When asked about ending that practice, the finance department said in a statement that “liens are no longer cost effective.”

Since 2010, Chicagoans have paid more than $937 million to address their delinquent water bills and additional fees associated with that debt. The eight law firms contracted to collect those debts have collectively taken more than a $60 million cut from that total.

“The city attempts to make collection of outstanding utility debt through a series of bills and collection noticies,” the law department wrote in a statement when asked if contracting with private law firms was the most cost-effective way of collecting water debt.

The city provided letters of retainment for the private law firms dating back to 2013. “Outside law firms are chosen based on an evaluation process which includes experience in a particular field, legal expertise, professional reputation, previous clients’ evaluation as well as the client department’s needs and evaluations,” the law department wrote in a statement.

Weeks after former Mayor Richard M. Daley won the 1989 special election and first took office, he faced his first major challenge — an estimated $120 million budget deficit. Over the next several months, Daley targeted delinquent accounts, including water bills, as a ripe source for revenue.

“I am putting a stop to the idea that the city of Chicago is not serious about collecting money it is owed,” Daley said in August 1989. “No business can stay afloat if it ignores its accounts receivable and no government can justify continually dipping into the taxpayers’ wallets to cover up for a poor collection system.”

Daley started trying to gather support for the idea of using the water department as a way to get revenue for the city. In 1989, his administration explored legal strategies to collect delinquent water bills, according to internal documents.

Daley launched an aggressive debt collection program, which included going after city employees with delinquent water bills. The city also went after 75 delinquent water accounts by filing liens against those properties with plans that would be followed by foreclosure proceedings. The city also pursued 30 lawsuits seeking judgments against individuals.

“As a result of these efforts, the city has collected approximately $174,000,” Kelly R. Welsh, the city’s corporate counsel at the time, wrote in a memorandum.

The following year, with Daley’s help, a new ordinance was passed. The ordinance established a new enforcement model that includes a path for the city to issue statutory liens against properties with delinquent water bills. The ordinance, which is still on the books, also allowed the city to issue interest, fines and fees.

Then in 1997, after spending two years strategizing on how to make it happen, Daley led the City Council to approve an ordinance that created the administrative hearing department. Daley wanted to find a faster way to enforce city code violations, including parking tickets.

“Daley has aggressively pursued minor civil and criminal offenses, under the ‘broken windows’ concept that unchecked small disorders will lead to larger ones,” Jim Reilly, the first director of the administrative hearings department, co-wrote in a 1998 Pepperdine University report. “The department of administrative hearings is at the forefront of the city’s mission and is typically a citizen’s first contact with quasi-judicial process.”