Chicago suburb Dolton faces vehicle repossessions, murky finances

The city of Dolton, Illinois, in south Cook County, shares a boundary with Harvey. It also appears to share a level of financial turmoil that brings basic city operations under court scrutiny.

It's been two years since Dolton made public an audited annual financial report. But an annual treasurer's report for 2023 shared with The Bond Buyer indicates the village had a positive general fund balance at fiscal year's end, despite expenditures that surpassed revenues.

But the report raises questions about Dolton's financial management between the end of fiscal year 2023 and that September, when village trustees say they were told Dolton was $7 million in debt. And that's not the only worry village officials have had to face.

Village of Dolton

This January, lawyers petitioned a local court to force Dolton to raise taxes to fund legal damages after a jury found the village liable to the tune of $33.5 million for the deaths of two men in a police chase, according to the Cook County Record.

KS StateBank last month warned Dolton it will repossess six police cruisers, according to WGN-TV, plus more than a half-dozen other village vehicles, due to loan payment defaults.

At a special meeting, village trustees passed a resolution calling for a federal investigation into the town's mayor, Tiffany Henyard. And the FBI reportedly opened an investigation into Henyard's dealings.

But Henyard, a former village trustee, was not elected mayor until 2021, and her tenure is not the first time Dolton has faced financial trouble.

In 2015, for example, Dolton's village administrator told The Bond Buyer he rejected findings in one report and said Dolton would not be a candidate for bankruptcy if Illinois changed its laws to let municipalities file for Chapter 9. Dolton did not need any such protection, he said. The following year, Dolton defaulted on five outstanding general obligation and corporate purpose bonds.

The bonds in the city's 2016 default were insured, and the city reported in 2017 that it had reimbursed the bond insurers.

S&P Global Ratings withdrew its underlying rating of Dolton in 2015, after downgrading it to junk BB from investment grade A-minus in 2013, citing low liquidity and expected general fund drawdowns.

Dolton has also been losing population, going from 23,153 residents in 2010 to 21,426 residents in 2020 to 20,621 residents in 2022, according to Census data.

"They are just gradually bleeding out, and that's not great for their municipal finances," said Marc Joffe, a former Moody's Analytics analyst and current state policy analyst at the Cato Institute, a libertarian think tank based in Washington, D.C. "That [population loss] generally is a very negative sign for municipal financial health… It may mean that property values are going down because there's less demand for homes." 

In Dolton's 2021 audited financial report, the last one it made public, the village recorded a $7.2 million improvement in its net position and a $2.4 million year-over-year increase in general fund revenues. 

Dolton's liabilities fell to $113.85 million from $123 million. Its long-term debt also fell by roughly $21 million between 2020 and 2021. However, it was still $46.76 million in the red.

"They probably still were getting American Rescue Plan Act money into 2022," Joffe said of Dolton's ensuing financial position, noting that ARPA funds have tapered off since then. 

He stressed that a negative general fund balance is one key red flag for municipalities. Dolton ended fiscal year 2021 in the black with a general fund balance of $4.12 million. So it has been faring better in recent years than in 2015.

According to the interim and unaudited financial reports posted to the Municipal Securities Rulemaking Board's EMMA disclosure website in November, Dolton's ending general fund balance was $3.088 million at the April 30, 2023, close of its last fiscal year. Its expenditures came in around $27 million, and it brought in $24.2 million in revenues.

Dolton had about $10.7 million of outstanding bond debt as of April 30, the reports said.

In another disclosure posted on EMMA, the city reported taking out a $2.9 million general obligation tax anticipation warrant in November, with half due Feb. 1 and the balance May 1.

The warrants, placed with the Flagstar Public Funding Corp., carry a tax-exempt annualized interest rate of 6.5%.

As for 2024's financial position, Trustee Kiana Belcher said village officials, "at the direction of the mayor," have not shared the village's books with trustees lately. But she told The Bond Buyer that last they heard, which was in September, Dolton was about $7 million in debt.

"Taxes have come in, which would be about $2 million," she said. "So [it's now an] estimated $5 million, without concrete evidence, because no financial reports have been given."

Dolton is one of a handful of struggling Illinois towns to skip filing official audited annual financial statements in recent years — another "red flag" for municipalities, Joffe said. Some of the other towns delinquent on their financial statements are arguably in worse shape than Dolton.

Sauk Village has failed to file audited financial statements the last three years, and the village does have outstanding bonds at present. Maywood, like Dolton, hasn't filed since 2021, but unlike Dolton had a negative general fund balance the last time it filed. And Country Club Hills has also failed to file the last two years, although it had a comparatively strong general fund balance in 2021.

Illinois did not ultimately change its rules to let municipalities file for Chapter 9, and some Illinois cities that tried have failed. Washington Park filed in 2004, but the filing was dismissed. It filed again in 2009, pointing to overwhelming debts; the filing was dismissed in 2010, on the grounds that Chapter 9 bankruptcies are not authorized under Illinois law.

Brooklyn, Illinois also filed for Chapter 9 bankruptcy in 2003 and emerged from bankruptcy in 2005, according to a later report in the Chicago Sun-Times. The attorney who filed the case said he believes it was allowed to proceed because no one objected.

East St. Louis never actually filed, but was placed under supervision by the Financial Advisory Authority.

"I believe there needs to be a more robust regime of state intervention," Joffe said, pointing to states like North Carolina that more actively intervene in local governments. "Cities exist at the pleasure of the state government, and state governments should take the responsibility to ensure that cities are operating in the interests of their stakeholders."

Without a change in Illinois law, Dolton might face an uphill struggle to declare bankruptcy — that is, if such a step were needed. In the absence of transparency around its current financial straits, the best policy solutions are a matter of speculation.

"I feel badly for stakeholders in Dolton, because everyone deserves to live in a well-run community," Joffe said. "And the evidence now is that residents of Dolton are not living in a well-run community, and there are going to be consequences for that."

Dolton's median household income in 2022 was $54,748, according to the U.S. Census Bureau, or less than 70% of the Illinois median of $78433. More than 90% of Dolton's population is Black.

The residents of Dolton voted in a 2022 referendum to recall Mayor Henyard, according to CBS News, but the Illinois First District Appellate Court ruled that the recall attempt was invalid for technical reasons.