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| Information |
| TITLE: |
| Consideration and Approval of Municipal Services Accounts, Miscellaneous Account Receivable, Transaction Privilege Tax, Insufficient Funds and Library Write-offs: Delinquency and Uncollectible Accounts for Fiscal Year 2022-23. |
| 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 $76,462.86 and Library account balances in the amount of $1,158,567.03.
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| Executive Summary: |
Council is requested to approve the annual write-offs for Municipal Services, Miscellaneous Accounts Receivables, Transaction Privilege Tax and Insufficient Fund of $76,462.86 in accounts receivable deemed to be uncollectible for the fiscal year ending June 30, 2023. 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.
In addition, this year staff is asking Council to approve the write-offs of several Library accounts of $1,158,567.03 that have been deemed uncollectible. These accounts do not show on the City's balance sheet as receivables; however, they are being tracked by the Library staff in the software they utilize. The City has never requested to write-off accounts at the Library and the balance has seen increases since June 1987. The Library accounts being requested for write-off are from the period of June 22, 1987 to August 17, 2016. |
| 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 2022-23 are broken down as follows:
| Category |
Amount |
| Municipal Service Accounts |
$ 64,711.38 |
| Miscellaneous Accounts Receivable |
$ 1,110.57 |
| Transaction Privilege Tax Receivable |
$ 10,426.52 |
| Insufficient Funds (NSF Checks) |
$ 214.39 |
| Total |
$ 76,462.86 |
The Library accounts receivables are not included on the City's financial statements but are administratively tracked in Library software. Therefore, writing off the $1,158,567.03 for Library accounts does not create a financial impact to the City. |
| 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, Insufficient Funds and Library accounts.
- Do not authorize the write-off of uncollectible Municipal Services, Miscellaneous Accounts Receivable, Insufficient Funds and Library accounts, leave the outstanding receivables on our balance sheet, and continue collection efforts.
- Authorize a lower amount of write-off, leaving some accounts outstanding and continue collection efforts.
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| 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. Library accounts are related to charges for un-returned library materials and equipment and fines.
Municipal Services Bills, Miscellaneous Account Receivables, Transactions Privilege Tax receivables, and Insufficient Funds
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 2020-21 are estimated at $44..3 million with recommended write-off amounts of $64,711.38 or 0.15% of total revenues. Miscellaneous Accounts Receivables billings at $9.8 million with recommended write-off amounts of $1,110.57 or 0.01% of total billing statements.
During FY 2020-21, there was the City was not disconnecting services due to nonpayment because of the COVID 19 pandemic, therefore we anticipated Municipal Service billing will be higher last fiscal year. While there was an increase from the FY 2021-22 write offs, we may continue to see a rise in this amount next fiscal year. We currently have 178 accounts on payment plans.
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, 2023, our receivable balance was $113,185.18. During Fiscal Year 2022-23 $16,292.11 has been collected by staff efforts and working with the taxpayers. This year, staff is requesting the write-off of nine accounts totaling the amount of $10,426.52 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 2022-23 |
$ 64,711.38 |
$ 44,260,000 |
0.15% |
| FY 2021-22 |
$ 61,315.10 |
$ 44,455,000 |
0.14% |
| 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% |
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 2022-23 |
144 |
17 |
24 |
103 |
| FY 2021-22 |
137 |
11 |
20 |
106 |
| FY 2020-21 |
166 |
6 |
20 |
140 |
| FY 2019-20 |
257 |
5 |
24 |
228 |
| FY 2018-19 |
395 |
13 |
37 |
345 |
Miscellaneous Accounts Receivable Write-Offs: 5-Year History
| Write-Off Fiscal Year |
Total Write-Off |
Annual Amount Billed |
% of Amount Billed |
| FY 2022-23 |
$ 1,110.57 |
$ 9,970,000 |
0.01% |
| FY 2021-22 |
$ 2,541.32 |
$ 11,747,000 |
0.02% |
| FY 2020-21 |
$ 5,386.86 |
$ 11,411,000 |
0.05% |
| FY 2019-20 |
$ 1,033.72 |
$ 8,261,000 |
0.01% |
| FY 2018-19 |
$ 2,581.37 |
$ 7,898,000 |
0.03% |
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 2022-23 |
3 |
1 |
1 |
1 |
| FY 2021-22 |
3 |
1 |
0 |
2 |
| FY 2020-21 |
5 |
2 |
0 |
5 |
| FY 2019-20 |
3 |
0 |
1 |
2 |
| FY 2018-19 |
7 |
0 |
2 |
5 |
Library Accounts: New this year.
This year we are also recommending the write-off of several uncollectible Library accounts. These accounts are dated from June 22, 1987 to August 17, 2016. The Library has never written-off accounts for non-payment during this period.
Additional Information on Library Accounts since draft staff summary: The write-off requested consists of 15,531 accounts with an average of $74.60 and have a range from $1.00 to $2,000 due. Of these accounts 14134 accounts expired more than 7 years ago. The City keeps track of library accounts though the library information system. We have not posted any receivables or revenues on the City's general ledger, therefore there is not a financial impact to approving the library account write-offs.
The City has used a collections service in the 1980's and 1990 prior to bringing collections in-house. At that time cities were allowed to report past due amounts to credit agencies. Around 2016 credit agency laws changed and we no longer are allowed to report library accounts on customer's credit. This made it a little more difficult to effectively collect. Collections became more passive at this point.
Library staff and Revenue Section staff met to discuss library accounts and update procedures to see how we can work together and make some internal policy changes to enhance our collections in the future. One new resource in recent years is the ability to report to the State of Arizona Debt Service Offset program. Accounts that are greater than $50 will be allowed for reporting and should a customer have a Arizona tax return amount due, the State will collect on accounts that have been reported. In addition, staff will bring forward library accounts for write-offs on an annual basis versus waiting for long periods of time to pass.
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| 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. |
| 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 $124,000. 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. |