10.D.
City Council Meeting - FINAL
- Meeting Date:
- 10/15/2024
- From:
- Rick Tadder, Management Services Director
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 2023-24.
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 $25,548.26.
Executive Summary:
Council is requested to approve the annual write-offs for Municipal Services, Miscellaneous Accounts Receivables, Transaction Privilege Tax and Insufficient Fund of $25,548.26 in accounts receivable deemed to be uncollectible for the fiscal year ending June 30, 2024. 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.
We are not seeking write-offs of Library accounts this fiscal year as staff is focusing our time on implementing new payment services which will include on-line payment options. 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.
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 $77,000. 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.
We are not seeking write-offs of Library accounts this fiscal year as staff is focusing our time on implementing new payment services which will include on-line payment options. 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.
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 $77,000. 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.
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 2023-24 are broken down as follows:
| Category | Amount |
|---|---|
| Municipal Bill Accounts Receivable | $ 24,348.34 |
| Miscellaneous Accounts Receivable | $ 874.92 |
| Transaction Privilege Tax Receivable | $ 0.00 |
| Insufficient Funds (NSF Checks) | $ 325.00 |
| Total | $ 25,548.26 |
Policy Impact:
None.
Previous Council Decision or Community Discussion:
None.
Options and Alternatives to Recommended Action:
- 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.
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 and Miscellaneous Account Receivables
Before any account is eligible for a write-off, staff initiates collection efforts on each account after it becomes delinquent. 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 2023-24 were $47.6 million with recommended write-off amounts of $24,348.34 or 0.05% of total revenues. Miscellaneous Accounts Receivables billings at $7.8 million with recommended write-off amounts of $874.92 or 0.01% of total amounts billed. Below is a five-year history of the City's Municipal Services Bills and Miscellaneous Account Receivable write-offs:
Transactions Privilege Tax receivables and Insufficient Funds
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, 2024, our receivable balance was $82,062.14. During Fiscal Year 2022-23 $16,292.11 has been collected by staff efforts and working with the taxpayers. This year, staff is not requesting any write-off of accounts because customers are making payments based on a pay plan set up with them. These accounts are related to companies that are no longer in business.
Library Accounts: New this year.
This year we are not recommending the write-off of any uncollectible Library accounts. Staff from the Library and Customer Service are working on collection policies and enhanced abilities for customers to make payment on their account including credit cards and online payments.
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.
Municipal Services Bills and Miscellaneous Account Receivables
Before any account is eligible for a write-off, staff initiates collection efforts on each account after it becomes delinquent. 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 2023-24 were $47.6 million with recommended write-off amounts of $24,348.34 or 0.05% of total revenues. Miscellaneous Accounts Receivables billings at $7.8 million with recommended write-off amounts of $874.92 or 0.01% of total amounts billed. Below is a five-year history of the City's Municipal Services Bills and Miscellaneous Account Receivable write-offs:
| Write-Off Fiscal Year | Total Write-Off | Annual Amount Billed | % of Amount Billed |
|---|---|---|---|
| FY 2023-24 | $ 24,348.34 | $ 47.572,000 | 0.05% |
| 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% |
| Write-Off Fiscal Year | Total # of Accounts | Accounts Greater than $1,000 | Accounts Between $500-$1,000 | Accounts Less Than $500 |
|---|---|---|---|---|
| FY 2023-24 | 83 | 4 | 7 | 72 |
| 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 |
| Write-Off Fiscal Year | Total Write-Off | Annual Amount Billed | % of Amount Billed |
|---|---|---|---|
| FY 2023-24 | $ 871.92 | $ 7,819,000 | 0.01% |
| 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% |
| Write-Off Fiscal Year | Total # of Accounts | Accounts Greater than $1,000 | Accounts Between $500-$1,000 | Accounts Less Than $500 |
|---|---|---|---|---|
| FY 2023-24 | 1 | 0 | 1 | 0 |
| FY 2022-23 | 3 | 1 | 1 | 1 |
| FY 2021-22 | 3 | 1 | 0 | 2 |
| FY 2020-21 | 5 | 2 | 0 | 3 |
| FY 2019-20 | 3 | 0 | 1 | 2 |
Transactions Privilege Tax receivables and Insufficient Funds
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, 2024, our receivable balance was $82,062.14. During Fiscal Year 2022-23 $16,292.11 has been collected by staff efforts and working with the taxpayers. This year, staff is not requesting any write-off of accounts because customers are making payments based on a pay plan set up with them. These accounts are related to companies that are no longer in business.
Library Accounts: New this year.
This year we are not recommending the write-off of any uncollectible Library accounts. Staff from the Library and Customer Service are working on collection policies and enhanced abilities for customers to make payment on their account including credit cards and online payments.
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.
Connection to PBB Priorities and Objectives:
High Performing Governance: Enhance the organization’s fiscal stability and increase efficiency and effectiveness.
Connection to Regional Plan:
None.
Connection to Carbon Neutrality Plan:
None.
Connection to 10-Year Housing Plan:
None.