Credit: Chema Skandal!

All summer long, in press conferences and at public hearings, Mayor Rahm Emanuel’s budget refrain remained the same: no more accounting gimmicks and no new taxes.

“We have been doing smoke and mirrors on the budget and avoided taking control of our own future as a city,” he said at a public budget hearing in Englewood in August. “That moment of reckoning is here.”

But the mayor who vowed to bring honesty to the budgeting process continues to rely on one of the oldest tricks of them all: the water/sewer fund sleight of hand.

That’s the one where the mayor says he’s jacking up your water and sewer bill to pay for infrastructure and environmental protection—but then diverts millions of dollars a year to finance other city operations that have little direct connection to water, sewers, or protecting the lake.

In this case, Emanuel is proposing to double water and sewer fees over the next decade, an eventual increase of about $500 a year for the average household. Yet how much of that money will actually make it to the water and sewer system is hard to determine, since, despite Emanuel’s promises of transparency, his first budget obscures what’s being diverted.

A conservative estimate is that the mayor’s 2012 budget will siphon off at least $70 million in water and sewer fees to cover other city spending, according to our analysis of budget documents and interviews with current and former city officials.

That’s roughly the same amount that Emanuel’s predecessor, Mayor Richard Daley, appears to have moved out of the water and sewer funds in each of the last several years—though some former city officials say the total is probably far higher.

“This budget is the biggest shell game I’ve seen yet,” says Second Ward alderman Robert Fioretti.

There’s no question that hundreds of miles of leaky water and sewer lines are in desperate need of repair, and, as the mayor notes, fixing them could put thousands of people to work.

“This is a real issue—the infrastructure is crumbling,” says Fioretti, who’s dealt with more than 700 sewer cave-ins in his ward this year alone.

What’s more, Emanuel’s budget is balanced with a number of cost-cutting moves in addition to the water rate hike, including layoffs, police station closures, and reduced library hours.

And Emanuel isn’t the first mayor to funnel water and sewer funds to other city operations. Daley was a master of the game.

That’s why an official who worked for Daley for years describes the water and sewer money this way: “It’s a big slush fund.”

Think of it as water plus sewers equals slush—another robbing-Peter-to-pay-Paul trick from the city that brought you the tax increment financing program, a $500 million-a-year money pot with a shadow budget that’s dipped into for almost anything city officials choose. That includes—you guessed it—sewer and water line repairs, even though they’re already supposed to be covered with the money collected through water bills.

The water and sewer money diversion has encountered even less scrutiny than the TIF debacle.

Here’s how it works.

Water and sewer fees are among the most regressive of taxes, since everyone, regardless of income level, has to pay the same rate for a service no one can do without—as opposed to a sales tax on luxury items like, say, health club memberships or visits to the tanning salon, which Emanuel proposed during his mayoral campaign.

Yet the city is becoming more dependent on a tax that many of its residents find increasingly hard to pay, especially in these tough times.

In 2007 the City Council, at Daley’s urging, approved a hike of about 45 percent in water and sewer rates over three years. As a result, one north-side household—we’ll call them the Joravskys—saw their water and sewer bill leap from $328 in 2007 to $502 this year.

On top of these increases Emanuel wants to phase in another 70 percent hike over the next four years. All told, by 2015, residents will be paying nearly two-and-a-half times the water and sewer fees they were paying in 2007. In years after that, Emanuel would implement additional hikes tied to the rate of inflation.

In short, by 2017, the “Joravskys” can expect to pay—gulp—as much as $1,000 a year for water and sewer.

So why is Mayor Emanuel willing to bite the bullet on raising water and sewer fees as opposed to, say, property taxes? For one thing, jacking up water and sewer fees sparks less opposition because the money is supposed to be spent on a very specific purpose, City Hall insiders explain. That’s why mayors find the water and sewer hikes so difficult to resist—and why the City Council goes along. (Of course, the City Council goes along with just about everything else too, but that’s another story.)

Furthermore, no one has paid much attention to whether the city has kept pace with needed water and sewer upgrades.

It hasn’t. Even as Daley increased what he charged the public for water, fewer and fewer repairs were done on the system, according to annual reports the city files with the state. In 2001 about 50 miles of water mains were replaced. In 2010 the number had fallen to 30 miles—even though the city was collecting $200 million more a year in sewer and water fees.

As with Daley, Emanuel is promising to use the new proceeds to make much-needed repairs to busted water mains and put thousands of people to work. Chicago has hundreds of miles of water and sewer lines that are more than a century old, and the water pipes alone leak an estimated ten million gallons a day, according to city records.

“Other states may have their oil fields; here in Chicago we have our lake,” Emanuel said in his budget address. “But the fact is, we need to be better stewards of this precious resource. Today, our ability to deliver quality water is threatened by the aging system that provides it.”

If Emanuel’s budget passes, city residents will pay about $823 million in water and sewer fees next year. About $260 million will fund annual operations in the water department, which includes water and sewer maintenance, employee salaries, and administrative expenses—lots of administrative expenses, totaling tens of millions of dollars.

Another $250 million will be spent on infrastructure, up about $35 million from 2011, according to the proposed budget. In addition, Mayor Emanuel will deposit about $93 million into reserve funds to cover unanticipated cost overruns in construction programs.

The $220 million left will be put toward a murky array of other city expenses. More on that in a minute.

Even as the mayor is asking city residents to pony up, his administration has offered few specifics about his construction plan. City water commissioner Thomas Powers told aldermen during City Council budget hearings on October 21 that he wasn’t sure where the infrastructure work would be done or how much of it would be outsourced to private contractors. “We’re still formulating the plan but there’s nothing concrete yet,” he said.

Aldermen practically begged for some details—even vague promises to help them stave off angry constituents.

“If there are some assurances that flooding will be reduced, I think that will go a long way towards selling this to the public,” said Tenth Ward alderman John Pope. “There is apprehension, obviously.”

Powers promised to provide aldermen with plans as soon as he had them. What no one brought up in the council hearings, however, was the fact that much of the water and sewer fund budget has nothing to do with infrastructure—or even the water and sewer system.

Of the $823 million the city plans to collect in water and sewer fees next year, about $220 million will be set aside for other purposes—some more clearly spelled out in the budget than others.

Roughly $150 million will cover employee health and pension benefits and other unspecified “municipal services.” These line items are categorized in the budget under “finance general,” since, as old budget hands tell us, they include a grab bag of expenses, including costs incurred by other departments.

Emanuel administration officials say nothing is mysterious about these expenditures. “They’re all water-related costs,” says Kathleen Strand, a spokeswoman for the city’s budget and finance departments.

If so, water department employees are getting truly amazing benefits. Emanuel’s budget calls for 2,100 positions in the water department (an increase over the 1,800 department employees currently on the payroll). That means that the city anticipates paying roughly $72,000 in benefits per water department employee. In comparison, the budget earmarks about $32,000 in benefits for each of the 32,000 employees of all other city departments.

Either budget officials are exaggerating these health care and pension expenses so the money can be used elsewhere, or water department employees take a lot more trips to the dentist than other city workers.

Not all of the water and sewer leakage is so subtle. There’s also the matter of $70 million that goes directly to other departments. And it’s spelled out in the budget.

According to Strand, that money pays for the water department’s share of expenses for things like human resources, legal services, and contracting oversight.

The problem with that explanation is that it doesn’t quite add up. Literally.

For example, almost $41 million would help cover the costs of the department of fleet and facility management, which is responsible for the maintenance of city vehicles and buildings. That means water and sewer fees pay for the maintenance of 13 percent of all the properties and vehicles owned by the city, including thousands of police squad cars, fire trucks, and garbage trucks. But the water department only accounts for about 7 percent of all city workers.

Of course, anything’s possible in the water department, historically one of the city’s most notorious pipelines of patronage and waste.

Perhaps that explains why the inspector general’s office, which investigates City Hall corruption and budget shenanigans, gets about $2 million a year from your water and sewer bills—about a third of its overall budget. In other words, a budget gimmick will effectively pay for the watchdog against budget gimmicks.

So far this year the inspector general hasn’t filed any reports on the water department.

Similarly, another $8 million will go to the Department of Finance to pay for an assortment of expenses, including “professional and technical services,” postage, and the rental and maintenance of computer equipment.

Another chunk of money will flow to the Department of Innovation and Technology, which collects and posts city data online. That department is slated to get $5 million in water and sewer fees to pay for more “professional and technical services.”

And so on and so forth. If you want to track the water and sewer fund leakage go to page 330 of the budget and read for yourself.

Another former Daley aide, who supports Emanuel’s water rate hike, says nothing is illegal or even unusual about these maneuvers—they’re just the games budget makers have to play to pay the city’s bills and make good on the mayor’s promise not to hike property taxes. “They’re all pools of money,” he says.

In fact, most veterans around City Hall—including many aldermen—know what’s going on. They just don’t do anything about it.

“I know this is a bonanza for you if we pass this budget,” 44th Ward alderman Tom Tunney told Powers during the October 21 hearing.

“It’s actually a bonanza for the citizens,” Powers said.

“Whoa, whoa, whoa!” Tunney shot back. “We’ve heard this line before.”

Powers promised the public would see a return on its money. “I look forward to the challenge and we are up for the challenge.”

Just as the aldermen seemed ready to deliver their votes for the water hike. And so the game continues.