Consideration and Approval of Municipal Services Accounts and Miscellaneous Account Receivable Write-offs: Delinquency and Uncollectible Accounts for Fiscal Year 2017.

The Council is requested to approve the write off of $81,849.88 in accounts receivable deemed to be uncollectible for the fiscal year ending June 30, 2017.

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 delinquent account information is not subject to public release.

Each year, the City reserves funds, anticipating that there will be uncollectible municipal services accounts and miscellaneous account receivables. The reserves are computed at the end of each fiscal year to project the potential write-offs for the upcoming year.  These are based on a calculation utilizing all aged accounts, current year write-offs, as well as the consideration of anomalies and anticipated changes in procedures impacting collections.

 In FY 2017, the amount reserved for municipal services uncollectible accounts was $128,000, with $22,000 for miscellaneous accounts receivables.  This recommendation of $68,061.31 and $13,788.57, respectively reflect 53% and 63% of the reserved amounts.

 None.

Team Flagstaff Strategic Plan - 2017:
Strategic priority #3: Foster a resilient and economically prosperous city
1. Enhance the organization’s fiscal stability and resourcefulness.
2. Deliver outstanding services through a healthy environment, resources and infrastructure.
5. Continue to enhance community outreach and engagement.

None.

1. Authorize the write-off of uncollectible municipal services and miscellaneous receivables accounts.

2. Do not authorize the write-off of uncollectible municipal services and miscellaneous receivables accounts and continue collection efforts.

Before any account is eligible for write-off, staff must initiate collection efforts on each account after it becomes delinquent. 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 of the 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 revenues in FY2017 are estimated at $33 million and miscellaneous accounts receivables at $15 million. The write-offs are $68,061.31 for utilities or approximately 0.21% of the estimated total revenue and $13,788.57 or 0.09% of the total revenue for miscellaneous accounts receivables. The number continued to decrease in FY2017 due to enhanced collection processes discussed in more detail below.
 
The first significant change was the approval by City Council in the summer of 2014 to increase the municipal services deposit for residential and commercial customers. This continues to be a significant factor in reducing the number of municipal services write-offs. Residential customer deposits went from $25 to $150 and commercial customer deposits went from a time-intensive calculated rate to a flat rate of $300. 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. 
 
Plans to further improve the collection processes include sending out delinquency postcards, as well as contacting customers via email and text messaging, when unable to contact them by phone.
   

Municipal Services Account Write-Off Summary
Breakdown Summary

Write-Off Year	Total Write-Off	Annual Amount Billed	% of Amount Billed
FY 17	$ 67,974.66	$ 33,006,000	0.21%
FY 16	$ 89,421.85	$ 35,400,000	0.25%
FY 15	$ 188,767.04	$ 33,800,000	0.56%
FY 14	$ 191,097.81	$ 33,161,000	0.58%
FY 13	$ 121,300.64	$ 33,200,000	0.37%

 

Municipal Services Write-Off
Other Breakdown Information

Write-Off Year	Total # of Accounts	# of Accounts Greater Than $1,000	# of Accounts Between $500 to $1,000	# of Accounts Between $0 and $500
FY 17	385	4	19	362
FY 16	380	7	21	352
FY 15	525	35	77	413
FY 14	479	30	74	375
FY 13	487	14	40	433

 

Miscellaneous Accounts Receivable Write-Off
Breakdown Summary

Write-Off Year	Total Write-Off	Annual Amount Billed	% of Amount Billed
FY 17	$13,788.57	$ 15,156,495	0.09%
FY 16	$ 8,234.68	$ 9,055,170	0.09%
FY 15	$ 31,095.45	$ 5,488,126	0.57%
FY 14	$ 2,125.86	$ 8,000,000	0.03%
FY 13	$ 3,831.73	$ 9,400,000	0.04%

 

Miscellaneous Account Receivable Write-Off
Other Breakdown Information

Write-Off Year	Total # of Accounts	# of Accounts Greater Than $1,000	# of Accounts Between $500 to $1,000	# of Accounts Between $0 and $500
FY 17	25	6	2	17
FY 16	14	2	4	8
FY 15	19	3	2	14
FY 14	16	0	0	16
FY 13	23	0	1	22

 

Staff worked the write-off accounts by using billing statements, letters, and telephone calls. When customers fail to make payments, they may be denied access to future City services.  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.

It is sound financial 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 community will continue to benefit as overall debt is reduced and collection efforts are improved.

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