HomeMy WebLinkAbout1978-01-17; City Council; 5309; Water Deposit Feasibility Study/$
CITY OP CARLSBAD
NDA BILL NO.6
E: ' JANUARY
&RTMENT :F
17,1978 . '
INANCE
Initial
Dept.Hd
C. Atty
C Mrrr-
..
• . It --
:1?^
^TSubject:
WATER DEPOSIT FEASIBILITY STUDY.
Statement of the Hatter
CITY COUNCIL HAS REQUESTED A StUDY OF DEPOSIT FEES FOR WATER
ACCOUNTS TO IMPROVE COLLECTION OF FINAL 'AND PAST DUE ACCOUNTS
THIS STUDY INCLUDES A SURVEY OF LOCAL WATER DEPARTMENTS AND
WATER DISTRICTS. THE AVERAGE WATER COLLECTION LOSSES IN THIS
AREA RANGE FROM .003% TO .02%. THESE ARE ESTIMATES IN MOST
CASES. LOSSES IN CARLSBAD HAVE BEEN AVERAGING .003%, OR A
LOSS"OF $6,900 OVER A TWO YEAR PERIOD. •
THE COST-OF IMPLEMENTING AND- MAINTAINING A DEPOSIT. AND "REFUND
' SYSTEM FOR OVER fa, 000 ACCOUNTS WOULD EXCEED THE.ANNUAL LOSS
. RATIO. M'ALN REQUIREMENT WOULD BE THE ADDITION OF ONE INTER-
MEDIATE ACCOUNT CLERK. •' .
EXHIBITS , • • ' •
'WATER "DEPOSIT FEASIBILITY STUDY ••_'-.
Recommendation .-"...
1. That the percentage of, nonpayment and dollar amount be monitored by
the Finance Department and reported.to the Council'in one year or
in January, 1979.
2. That the City be-prepared to implement a .deposit', system if the loss
approaches the -1% figure against the totfil dollar amount receivable
for water servicre accounts. . • ' ' ,
In the event the City Council'wishes to adopt 'a new deposit procedure,
it is suggested'that-the fee be: . •'•
1. based upon an average bimonthly bill fbi* water service.
'2.- uniformly applied "to all new applicants for water service to include
homeowners, tenants and commercial accounts alike.
3. refunded upon final payment, or applied to the last monthly bill bor
•service upon, closing the account.
Co'unci 1 .action • . • • • • \
1-17-78 Council accepted staff recommendations.
CITY OF CARLSBAD
DATE : December 7, 1977
TO : City Manager
FROM : Administrative Intern, Sean G. Renden
SUBJECT : Assignment Study
WATER DEPOSIT FEASIBILITY STUDY
I. Purpose.
The purpose of this study, as suggested by the City Council
and City Manager, is to investigate the conditions under
which the City may request a deposit fee for water service.
The nonpayment of bills has prompted the City to take action
to minimize the loss of revenue and facilitate the collection
of delinquent accounts by the Finance Department, thereby,
lessening the burden of uncollectable accounts which are
absorbed by the City.
II. Background.
The Finance Department reports outstanding past due accounts
for the last two fiscal years total $6,900.00. This represents
a collection loss of .003, or three tenths of one per cent.
Water service is provided and maintained by the City and
presently requires a deposit only for construction loan meters
at $100.00. Applicants for water service are subject to a
meter installation and service charge when a building is con-
structed. There is an initial service charge for new accounts
at $3.30. No penalty fees are charged for late payment of bills.
At one time, there was a 10% penelty fee provided for in Ordinance
No. 4001, Section 26, but was amended by Ordinance No. 4005,
Section 5. The former City Council felt the fee resulted in poor
community relations. Water service may be turned-off without
notice following 30 days of nonpayment, and not restored until
all delinquent water bills and reconnection charges are paid.
Presently, service accounts are not turned-off unless delinquent
for 60 days. There is an $8.25 reconnect fee when service is
turned-off for nonpayment. The Finance Department estimates
60 accounts per month are turned-off for nonpayment. They
estimate this to be the maximum number of meters that can be
shut-off by the meter crew, while maintaining their present
work load.
III. Legal Authority.
The application for water service lists both owner and tenant
of a residence, and if the tenant becomes delinquent in payment,
the owner is ultimately considered liable. Under City Ordinance
No.. 4001, Section 42, the owner of the property is liable for water
furnished to the premises rented, and so states on the water
application. The policy has been to not bring suit against
property owners for nonpayment. The City has been cautious in
legal action because of possible court precedence which may
dissolve the liability of the owner when the tenant is the
recipient of water service. Many owners reside outside the
corporate limits of the City, and many private water companies
have been unsuccessful in collection efforts because of PUBLIC
UTILITY COMMISSION regulations that provide that the person who
signs-up for the water service is responsible- owner or tenant.
A water deposit is within the rights of the City under Ordinance
No. 4001, Section 3. This gives the Council the power to adopt rules
and regulations for the maintenance of the water department and,
by resolution, modify the rates and impose charges and penalties.
Resolution No. 5127, Section 11, Restoring Service after
Discontinuance, states "When an owner or consumer has been
delinquent in his water bills in succession or three times
in any one calendar year, he shall be required to deposit a
sum equal to an average two month's water bill upon such
premises...".
IV. Study Method.
The manner in which this study was made is a comparative
analysis of the City of Carlsbad's water policy to that of
other cities in the County of San Diego. This survey includes
the practices of five cities, whose water service is a
municipal function, and three water districts providing service
to the remaining cities and adjoing areas. They responded to
questions about their particular billing practice and general
water policy. These areas include:
1. payment schedule
2. measuring or pricing systems
3. initial service fee for water turn-on
4. percentage of nonpayment
5. deposits and conditions
6. how deposit fee is determined
7. deposit refund and conditions
8. delinquency or penalty charges
9. turn-on fee after shut-off for nonpayment
10. payment liability: owner or renter?
11. employment of collection agencies and success
12. feasibility of a water deposit.
The results of the survey (Table 1 & 2) provide an indication
— 2 —
of how other cities and water districts control water service
and the incidence of nonpayment. Aside from variations in the
management of the service and size of the agency, this can be
used as a reference in assessing whether a similar deposit
system is desirable.
V. Discussion.
During the fiscal years 1975-76 and 1976-77, Finance Department
figures show uncollectable bills for water service amount to
$6,900.00, an average write-off of $3,450.00 per year. Against
the total amount receivable, this results in approximately
.003, or three tenths of one percent uncollectable payment for
water service.
This local comparative survey indicates that the City is below
the average in percentage of nonpayment in the County. The
cities or companies that estimated their percentage of nonpay-
ment to be high said they were compelled to request a deposit
due to a transient renter population and low income areas.
As most of the percentages are estimates, it is difficult to
discern whether a deposit has deterred the incidence of
nonpayment in these areas or increased the number of paid
accounts. Yearly figures showing differences in percentage of
nonpayments over the previous year were, in most cases, not
available. Many respondents were unable to give an accurate
percentage of nonpayment and considered the incidence of
nonpayment to be low.
Two-thirds of the water companies and cities surveyed required
a deposit as a condition of providing water service. Three-
fourths of the respondents felt the water deposit is a workable
deterrent against delinquent bills. All of the respondents
that require a deposit felt it was effective and provided the
city or company with some form of compensation when left with
a delinquent account.
The amount and type of deposit varies:
1. Flat rate
2. An average monthly or bi-monthly bill
3. Twice the average monthly or bi-monthly bill
4. A multiple base rate of an average monthly bill.
Deposits are returned 3 ways according to this survey:
1. Full refund following 12 months with good record of
payment;
2. Deposit fee attached to opening account, and auto-
matically applied to final closing bill;
3. Full refund when final bill is paid.
In the event of a water shut-off for nonpayment, all those1
surveyed attached a service fee for turning the water back on.
-3-
Carlsbad currently charges $8.25, compared to the mean fee of
approximately $7.50, ranging from $3.00 to $10.00. In many
instances, a delinquency or penalty fee is added to an over-
due bill, and, in some cases, in addition to a turn-on fee.
This charge is determined by either a percentage of the bill
(Del Mar, Oceanside, HWD) or by a flat rate (VID).
Two thirds of the respondents employ outside collection agencies
in handling difficult outstanding bills following 90 days of
nonpayment. Collection agencies utilize extensive mail and
personal tracking techniques and typically retain 50% of the
due amount of the bill if successful, and return the remaining
amount to the city or company. Of the respondents who employ
collection agencies, some feel they are not noticiably successful
(Escondido) where as another (Cal American) estimates collection
efforts to be 75% successful. It is perceived as obtaining
money that had previously been deemed uncollectable.
Most respondents consider a water deposit for water service
as being feasible and workable. Residental accounts are
more frequently delinquent in payments than agricultural and
commerical accounts because of transient tenancy. This has
also made collection difficult due to the time period of up to
three months before shut-off is effected, and the whereabouts
of previous tenants are unknown. In such cases, a water deposit
applied to the final payment or returned after twelve months is
seen as a desirable means of compensation.
VI. Analysis.
Because the incidence of nonpayment in Carlsbad is currently
low, one must consider the necessity and cost of implementing
a water service deposit procedure. Managing the deposit will
require additional tasks of recording and accounting procedures,
combined with present collection efforts in the Finance Depart-
ment. The finance clerk will need to be knowledgeable of the
conditions, procedures and general handling of the deposit when
dealing with customers.
Other options that may be utilized or studied in addition to,
or instead of, a deposit system may be:
1) a tighter and more aggressive bill collection effort
involving procedural and follow-up changes in the Finance
Department.
2) to provide for personnel to be specifically in charge of
collecting outstanding bills, assuming the duties and respons-
ibilities of a comparable collection agency.
The first option would conceivably involve a minor reorganization
to accomadate a collection effort. The second option needs
-4-
further explanation. To provide for personnel to act as a
comparable collection agent would involve the formulation and
organization of a systematic mail and telephone campaign
designed to locate the account holder and apply pressure until
the balance of the bill is paid. This effort may reduce the
number of unpaid accounts and serve as an early warning of
impending consequences such as court proceedings against the
user. It may be necessary to create a new clerical position
in the Finance Department, or assign such duties to the present
staff. The additional clerical work and cost of implementing
such a program must be weighed against the benefits of recovered
revenue.
Part of the problem of nonpayment is that there is presently no
positive incentive for customers of water service to make timely
payments. Of greater concern is the situation of nonpayment by
a user who moves from the City, making collection efforts difficult.
The attachment of a deposit fee or an arrears charge to a delin-
quent account may alter the users bill paying habits, but does
not respond to the more important issue of preventing the incidence
of nonpayment and reducing the risk of uncollectable accounts.
Rather than charge a deposit fee following payment delinquency,
it may be more appropriate to extend the provisions of a
deposit to require the fee before the service is provided, and
refund the deposit after the customer establishes a good record
of payment.
The basis for requiring a deposit fee should be to both protect
the City from nonpayment and encourage timely payment. It is
upon this premise that the following options should be considered:
1) That the City adopt a resolution extending the provisions
of a deposit fee for water service to include first time recipents
who have not yet established a record of prompt payment. This
fee should be uniformally applied to owners and tenants alike,
depending upon who is listed as the recipient of water service
on the application.
The procedure of requesting a deposit for new accounts would
probably not offend established customers, and provide an incen-
tive for new customers to maintain a good record of bill payment.
It is important that the deposit procedure, if adopted, be
equally and uniformally applied to all first time accounts; other-
wise, the City may be accused of an unfair practice. An applicant
cannot be refused water service for reasons relating to a bad
credit record; however, a deposit fee charged in advance may deter
the nonpayment of a bill.
2) That a delinquency notice be sent to users after 10 days
following nonpayment of a bill for two months service. The
delinquency notice serves as a warning to the user and reminder
of the procedure for shut-off.
-5-
The Finance Department has indicated that the delinquency notice
would require additional staff time in the regular processing
of such notices. There is some question as to the immediate
need for such a procedure, and doubt as to whether the result-
ing benefits of more timely payment warrant the additional time
and clerical effort necessary to process delinquency notices.
3) That the Finance Department enforce the present provisions
for penalties and deposit fees set forth by Council Resolution
No. 5127, Section 11, requiring a deposit fee equal to an average
water bill for two months service, when a customer has been
delinquent in succession, or three times in any one calendar year.
This option requires no action by the Council, and a deposit fee
charged by the Finance Department shall be implemented when
appropriate.
VII. Implementation.
In determining whether a water deposit is desirable, the cost
and impact of its implementation should be considered. As
an advantage, the application form for new customer accounts
provides a space listed as "deposit" and can accomadate a
provision for a deposit. In addition to the application, the
City computer is programmed to accept a deposit in its "cash
receipts and adjustments journal" listings. When a new account
is opened, a deposit figure can be addid to the account number,
date, payments, etc., as such:
Acct. Date Payments Deposits Adj. Code Ref. No. Cash Rec. Cash Pep.
The read-out will provide the clerk with the date the deposit
was paid and indicate the conditions of the refund. Returned
deposits will then be recorded and dated.
In the event of a change of tenants, the Finance Department
should be notified and either accomplish a transfer of deposit
or subject the new resident to a deposit under the new name.
Deposits should be refunded only to the tenant or owner who
signs for the water service. If a deposit has been refunded,
and a change in tenants occur, the new user will be subject
to a deposit upon moving in, unless the owner of the residence
is the account holder, and the deposit is therefore applied to
his account and refunded accordingly. The owner should not be
eligible for a deposit refund if paid by the tenant, and the
tenant leaves without qualifying for the refund. The deposit
will then be forfeited to the City, and a new deposit charged
to the account for water service.
One method of applying a deposit may be to make it commensurate
with the average bi-monthly or monthly bill for service, or
-6-
with a standard fee based upon meter size. A deposit based
upon bi-monthly or monthly bill is advantageous as it is
equitably determined and can be adjusted with the anticipated
fluctuation of water cost and service. An example of this
method is shown on Table 3. This deposit fee is determined
by calculating the average monthly units of water consumed by
meter size, and multiplying this figure by the base rate for
water consumption. The monthly minimum stand by charge is
then attached, producing an estimate for water service with-
out the refuse disposal and sewage fee. The refuse disposal
and sewage fee is not included in the deposit schedule on
Table 3, because not all recipents for water service are
recipents of City Refuse and Sewage Service. See the Supplement
for a further description of Table 3.
The Finance Department has indicated that there is less need
in charging a deposit fee to water accounts with meter sizes
larger than 1%" for reasons of their limited number, local
permanence and long-term use of the service.
VIII. Conclusion.
Presently, the situation of nonpayment for water service is not
seen as an immediate or serious problem based upon the low figure
of uncollected loss for the last two fiscal years. It is the
conclusion of this study that a mandatory deposit fee for first
time applicants for water service is not necessary at this time.
However, it is not likely that the incidence of nonpayment will
decrease with the projected rise in the growth rate of the City.
It is recommended at this time that the Council take no immediate
measures to extend the present provisions for penalties and de-
posit fees under Council Resolution No. 5127, Section 11, requiring
a deposit fee equal to an average water bill for two months service
when a customer has been delinquent in succession, or three times
in any one calendar year.
A deposit procedure is feasible, but does have peculiar problems
in adapting to the present resolution in requiring the fee for
nonpayment "in succession or three times in any one calendar year."
First, the Finance Department does not keep a running record of
customer delinquency in successive nonpayment. To accomplish this,
the Department would have to record and maintain a list of customers
known to be delinquent; this would require an additional accounting
and record-keeping procedure. The cu-stdmei? may question the present
method of billing on the basis of 30-60-90 day increments and what
exactly constitutes "successive nonpayment".
Two options were presented in the analysis that could be utilized
or studied: 1) a tighter and more aggressive bill collection effort
by the Finance Department, and 2) to provide for personnel to be
specifically in charge of collecting outstanding bills, assuming the
-7-
duties and responsibilities of a comparable collection agency.
First, the Finance Department has, of this year, initiated an
extended effort to locate users with past due accounts who have
moved from the area. They have indicated that this effort has
had notable success in recovering some of the revenue. The
present staff has incorporated this effort in addition to their
other duties, with little additional cost. Secondly, assuming
that added personnel to act as a collection agent would be
necessary and desirable in handling difficult delinquent accounts,
it is evident by looking at the low percentage figure for nonpayment
that additional staff is not warranted at this time. When the
projected nonpayment dollar loss is compared to the cost of a
position salary directed to recovering that loss, the result would
not be cost effective (see Table 4.). However, the percentage or
amount of nonpayment may increase given the variables of increased
tenant transiency, the cost for water and service, and the rise of
consumption following a possible increase in the supply of water.
It is therefore recommended that:
1. The percentage of nonpayment and dollar amount be
monitored by the Finance Department and reported to the Council
in one (1) year, or in January of 1979.
2. The City be prepared to implement a deposit system if
the loss approaches the 1% figure against the total dollar
amount receivable for water service accounts.
In the event the City Council wishes to adopt a new deposit
procedure, it is suggested that the fee be:
1. based upon an average bi-monthly bill for water service;
2. uniformally applied to all new applicants for water
service to include homeowners, tenants and commercial accounts
alike;
3. refunded upon final payment, or applied to the last
monthly bill for service upon closing the account.
-8-
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Table 3 Description
Table 3 represents one method of calculating a deposit fee
for water service. The deposit figures represent the average
monthly and bi-monthly bill according to meter size. The
monthly minimum standby charge is then added to the average
units consumed from January 1 through July 31, 1977- a
period of 7 months. A random sample of accounts were chosen
and their average units of consumption were then averaged
with others of the same meter size. Seasonal variations,
occupancy, and nature of the account, along with other
variables affecting consumption figures must be taken into
consideration. Wider samples were taken from smaller sized
meters for the reason of availabilty; there are very few
accounts with meter sizes larger than 3 inches. Variations
in water consumption of the larger size meters were great,
resulting in an unrepresentative sample in applying these
to a deposit schedule.
The deposit figures are based upon an average monthly and
bi-monthly bill for water alone. Refuse disposal and sewage
fees, which are included with the charge for water service,
were not included in the deposit schedule because many:: accounts
do not receive these other services from the City. The fees
for refuse collection and sewage also vary depending upon the .
nature of the user, whether it be commercial, industrial or
residential. A deposit for refuse collection and sewage may
be included in the water deposit, or can be charged separately
based upon the minmum fee of $3.25 for refuse disposal, and
$2.00 monthly for sewage fee.
<*.Many of the cities surveyed indicated that the deposit based
upon an average bi-monthly bill is advantageous in protecting
against non payments for periods of greater than 60 days.
It is better able to cover the loss of water payment ordinarily
lost between the delinquent bill and the discontinuance of the
service.
Another type of deposit to be considered is an arbitrary
flat-rate fee, and made high or low depending upon the nature
and size of the account. This type may typically include
previously delinquent accounts or new ones that involve
considerable risk.
* 1 unit of consumption represents 100 cubic feet each.
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