City Council Meeting - FINAL

8.B.

Meeting Date:	06/01/2021
From:	Rick Tadder, Management Services Director

Information

TITLE:

Consideration and Approval of Municipal Services Accounts, Miscellaneous Account Receivable, Transaction Privilege Tax and Insufficient Funds Write-offs: Delinquency and Uncollectible Accounts for Fiscal Year 2020-21.

STAFF RECOMMENDED ACTION:

Approve the write-off of delinquent and uncollectible Municipal Services accounts, Miscellaneous Account Receivables, Transaction Privilege Tax accounts and Insufficient Funds in the combined amount of $277,468.38.

Executive Summary:

Council is requested to approve the write-offs of $277,468.38 in accounts receivable deemed to be uncollectible for the fiscal year ending June 30, 2021. Generally accepted business practices allow for the write-off of uncollectible accounts annually. City staff has exhausted collection efforts on the eligible accounts and will no longer actively collect them. Where possible, City reports amounts due to a credit reporting agency. As a result, debt that has previously been written off is occasionally paid sometime later to clear a customer's outstanding debt. Pursuant to state law, individual utility account information is not subject to public release.

[A brief presentation will be provided with the Final agenda.]

Financial Impact:

Each year, the City reserves funds, anticipating there will be uncollectible Municipal Services accounts and Miscellaneous Account Receivables. At the end of each fiscal year, reserves are computed to project potential write-offs for the upcoming year. These are based on a calculation utilizing aged accounts, current year write-offs, as well as consideration of anomalies and anticipated changes in procedures impacting collections. The amount requested to write-off is below the reserve.

Total write-offs for the Fiscal Year 2020-21 are broken down as follows:

Category	Amount
Municipal Service Accounts	$ 46,254.86
Miscellaneous Accounts Receivable	$ 5,386.86
Transaction Privilege Tax Receivable	$ 225,674.51
Insufficient Funds (NSF Checks)	$ 152.15
Total	$ 277,468.38

Policy Impact:

None.

Connection to PBB Key Community Priorities/Objectives & Regional Plan:

High Performing Governance: Enhance the organization’s fiscal stability and increase efficiency and effectiveness.

Previous Council Decision on This:

None.

Options and Alternatives:

Authorize the write-off of uncollectible Municipal Services, Miscellaneous Accounts Receivable, and Insufficient Funds.
Do not authorize the write-off of uncollectible Municipal Services, Miscellaneous Accounts Receivable, and Insufficient Funds, leave the outstanding receivables on our balance sheet, and continue collection efforts.

Background and History:

Municipal Services Bills are for monthly billings of water services, solid waste, and environmental services. Miscellaneous Account Receivables is monthly billing for lease revenue, retiree insurance, and a variety of fees. Transaction Privilege Tax receivables are for City Sales Tax accounts prior to 1/1/2017. Insufficient Funds are related to returned checks and disputed credit card charges at various city locations.

Before any account is eligible for a write-off, staff initiates collection efforts on each account after it becomes delinquent. When customers do not pay a past-due bill and do not respond to collection efforts, the City recoups a higher percentage of the delinquent amount by applying the higher deposit to the outstanding balance. Additionally, the higher deposit typically covers the amount due on final bills, reducing write-offs from customers who have moved and have not provided an accurate forwarding address. The other significant change relates to improved teamwork and timeliness of City collection efforts. Customer accounts are being disconnected prior to large unpaid balances accumulating. Customers are being contacted after their accounts are closed and before postal delivery forwarding orders have expired. At that time customers are being notified of the City's intent to report their accounts to a credit reporting agency if the final bills are not paid. To further improve the collection processes, we have begun sending out delinquency postcards and contacting customers via the customer’s preferred method of choice, be it by phone or email.

When collection efforts are exhausted, the account is eligible for a write-off. If possible, any amounts due are applied to the customer's credit. If placed on the customer’s credit, the amount owed remains active for 7 years after the delinquency date.  Application against the credit of the debtor may lead to the recovery of some delinquent amounts in the future. This often occurs when customers apply for credit via other avenues (i.e. mortgages, car loans, apartment rentals, etc.).

Total Municipal Services billings for FY 2020 are estimated at $40.9 million with recommended write-off amounts of $46,254.86 or 0.11% of total revenues. Miscellaneous Accounts Receivables billings at $13.7 million with recommended write-off amounts of $5,386.86 or 0.03% of total revenue.

Due to the COVID 19 pandemic, we anticipate Municipal Service billing will be much higher next fiscal year.

In January 2017, the Arizona Department of Revenue began collecting our local Transaction Privilege Tax. At the end of the Fiscal Year 2016-17, the City had a receivable balance from the City collected accounts of $928,293.06. Staff continued to work on collections of these accounts and as of June 30, 2020, our receivable balance was $555,305.16.  This fiscal year $89,881.32 has been collected by staff efforts and working with the taxpayers. This year, staff is requesting the write-off of thirty-two accounts totaling the amount of $225,674.51 which staff deems uncollectible. These accounts are related to companies that are no longer in business.

Below is a five-year history of the City's write-offs:

**Municipal Services Account Write-Offs: 5-Year History**
Write-Off Fiscal Year	Total Write-Off	Annual Amount Billed	% of Amount Billed
FY 2020-21	$ 46,254.86	$ 40,851,000	0.11%
FY 2019-20	$ 61,628.61	$ 37,232,000	0.17%
FY 2018-19	$ 86,460.80	$ 36,450,000	0.24%
FY 2017-18	$ 117,902.90	$ 34,327,000	0.34%
FY 2016-17	$ 67,974.66	$ 33,006,000	0.21%

**Municipal Services Account Write-Off: Breakdown Information**
Write-Off Fiscal Year	Total # of Accounts	Accounts Greater than $1,000	Accounts Between $500-$1,000	Accounts Less Than $500
FY 2020-21	166	6	20	140
FY 2019-20	257	5	24	228
FY 2018-19	395	13	37	345
FY 2017-18	493	18	38	437
FY 2016-17	385	4	19	362

**Miscellaneous Accounts Receivable Write-Offs: 5-Year History**
Write-Off Fiscal Year	Total Write-Off	Annual Amount Billed	% of Amount Billed
FY 2020-21	$ 5,386.86	$ 17,983,000	0.03%
FY 2019-20	$ 1,033.72	$ 13,672,000	0.01%
FY 2018-19	$ 2,581.37	$ 16,102,000	0.02%
FY 2017-18	$ 38,212.57	$ 15,156,000	0.25%
FY 2016-17	$ 8,234.68	$ 9,055,000	0.90%

**Miscellaneous Accounts Receivable Write-Offs: Breakdown Information**
Write-Off Fiscal Year	Total # of Accounts	Accounts Greater than $1,000	Accounts Between $500-$1,000	Accounts Less Than $500
FY 2020-21	5	2	0	5
FY 2019-20	3	0	1	2
FY 2018-19	7	0	2	5
FY 2017-18	27	8	2	17
FY 2016-17	25	6	2	17

Key Considerations:

For active customer accounts, staff works collections of accounts by using billing statements, postcards, letters, and telephone calls. When customers fail to make payment or set up a payment arrangement for their past due amount, services are terminated and a door hanger is left on the property with instructions on how to reestablish services. Terminated services could include turning off water services or removal of trash and recycle bins as an example. Services are reestablished after a payment and a possible payment arrangement is made or if a new customer request services at that location. If a customer opens a new account, the previous balance is transferred to the new account. If there is no new account and when possible, the amount owed is reported to a credit agency.

Since the City's declaration of emergency related to the COVID-19 pandemic, the practice of terminating service for non-payment was eliminated. We understood that during the pandemic, it is best to maintain water and trash/recycling services so that our customer have a safer environment. We continue to provide notices to our customers including monthly bills, post cards and door hangars. We have also mailed a flyer that provided financial resources that are available to pay bills to those with delinquent accounts. Most of our customers have maintained contact and we have several payment plans set up to assist them. There are only a few customers that have made no attempt to contact us or make a payment since July 2020.

While the practice to not terminate services is appropriate during the pandemic environment, this will have an impact on future write off of customers' accounts should they close their accounts with us.

Community Benefits and Considerations:

It is sound fiscal management practice to reduce assets to reflect their true valuation. Failure to write-off accounts deemed uncollectible overstates the asset value of the City. The City sets up an annual allowance for uncollectible accounts and currently set at $783,000. The amount requested to write off falls below this allowance. Write-offs are charged back to the fund from which the service or fee had originated from.

Expanded Options and Alternatives:

Inform. Yearly write-offs ensure the City is following generally accepted business practices.

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