Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
CC:
Date:	May 21,  2007
RE:	Write-off of Receivables

Background 

The City Commission is requested to authorize the write-off of certain water, sewer, sanitation and miscellaneous receivables deemed uncollectible by the Finance Department.  The period covered is January 1, 2005 through December 31, 2005.  The total requested write-off is $122,015.31 for 742 utility billing customers and $103,161.00 for 72 miscellaneous receivable accounts.

Analysis

In order to fairly present the financial position of the City of Lawrence, the Finance Department performs an annual review of the status of its accounts receivable.  Since the Department has the capability of disconnecting delinquent active accounts within two months, uncollectible utility accounts are typically unpaid final bills of our inactive customers.  The number of utility accounts is less and amount to be written is about 7.0% more than the previous year.  The uncollectible miscellaneous receivables are primarily uncollected billings for building inspections and sanitation roll-offs.  However, the amount to write-off in 2007 includes about $89,300 charged to Richard Graham & Associates for costs related to the Memorial Park Cemetery.

The Finance Department has reviewed the utility accounts to determine if the customers have relocated to another service address within Lawrence.  Delinquent notices have also been sent and the accounts have been turned over to the State set-off program and our collection agency.  The collection agency will continue to pursue the accounts.  Approximately 87% of the amount of utility accounts written off was owed by residential renters.

The amounts written off in 2002, 2003, 2004, 2005, and 2006 were $72,026.30, $113,136.65, $189,083.87, $110,407.49, and $114,018 respectively.

Recommendation

The amount of utility account write-offs represents about .35% of billed revenues.  This amount is within the normal range for not-for profit utilities according to an AWWA study.  However, the amount of utility accounts receivable that is current is less than 77%. This is significantly less than the AWWA average of 90%.  The City of Lawrence charges a one-time late fee of 2%, the AWWA recommends a 5-10% late fee and a 12% continuing interest charge on past due balances.  The late fee in Lawrence may not high enough to encourage customers to pay by the due date.  The table below shows the late fee for some area utilities.  The Interest column refers to interest charged monthly on any past due balance.

Utility	Late Fee	Interest
Aquila	2%	No
Westar	2%	No
Olathe	5%	No
Topeka	0%	No
Jo Co #1	5%	No
Lawrence	2%	No

Another finding of the AWWA study was that higher fees and deposits do not lower write-offs.  The current deposit requirement in Lawrence is rather complex.  There is no deposit for residential owners unless they develop a bad credit history.  Residential renters are charged an initial $40 deposit.  The deposit increases to their two month average bill if the account becomes delinquent.  The Finance Department recommends an immediate deposit of $120 for residential renters.  Because of our large student population, the number of renters in Lawrence is higher than the typical utility and a higher deposit may lead to lower write-offs.