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 2019-20.

Council is requested to approve the write-offs of $198,972.57 in accounts receivable deemed to be uncollectible for the fiscal year ending June 30, 2020. 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. 

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 2019-20 are broken down as follows: 
 

Category	Amount
Municipal Service Accounts	$  61,628.61
Miscellaneous Accounts Receivable	$  1,033.72
Transaction Privilege Tax Receivable	$  135,845.24
Insufficient Funds (NSF Checks)	$   465.00
Total	$  198,972.57

None.

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

None.

1. Authorize the write-off of uncollectible Municipal Services, Miscellaneous Accounts Receivable, and Insufficient Funds.
2. 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.

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 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 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 $37.2 million and Miscellaneous Accounts Receivables billings at $13.7 million. Write-offs are $61,628.61 or 0.17% of total revenue estimate for Municipal Services and $1,033.72 or 0.01% of total revenue for Miscellaneous Accounts Receivables. We anticipate both will be lower next fiscal year due to improved payment processing and collection efforts.

In January 2017, the Arizona Department of Revenue began collecting our local Transaction Privilege Tax.  At the end of 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, 2019, our receivable balance was $691,150.40.  Staff has not requested approval to write-off our Transaction Privilege Tax receivables since Fiscal Year 2015-16.  This year, staff is requesting the write-off of two accounts totaling the amount of $135,845.24 which staff deems uncollectible at this time. 

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. 

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 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%
FY 2015-16	$  89,421.85	$  35,400,000	0.25%

 

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 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
FY 2015-16	380	7	21	352

 

Miscellaneous Accounts Receivable Write-Offs: 5-Year History

Write-Off Fiscal Year	Total Write-Off	Annual Amount Billed	% of Amount Billed
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%
FY 2015-16	$  31,095.45	$  5,488,000	0.57%

 

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 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
FY 2015-16	14	2	4	8

 

Staff worked the write-off accounts by using billing statements, postcards, 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 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. 

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