Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
Date:	May 28, 2008
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, 2006 through December 31, 2006. The total requested write-off is $140,042.00 for 890 utility billing customers and $97,410.77 for 44 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 148 more and amount to be written is about 14.7% more than the previous year. The average amount to be written-off is $157. Two of the largest accounts were Imperial Garden ($2200) and Legends Apartments ($1500). The uncollectible miscellaneous receivables are primarily uncollected billings for building inspections and sanitation roll-offs. However, the amount to write-off in 2008 includes about $87,750 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. Over 85% of the amount of utility accounts written off was owed by residential renters.

The amount of utility write-offs from prior years is shown in the table below:

Year	2003	2004	2005	2006	2007
Amount	$113,136.65	$189,083.87	$110,407.49	$114,018.00	$122,015.31

The amount of utility account write-offs represents about .39% 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 74%. This is significantly below 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. The initial deposit is the amount required prior to establishing service. The delinquent deposit is an additional deposit that is required if the account develops a history of bad credit.

Utility	Late Fee	Interest	Initial Deposit	Del. Dep.
Aquila	2%	No	No	2 months
Westar	2%	No	Yes	2 months
Olathe	5%	No	$40 or good credit	$40
Topeka	0%	No	No	No
Jo Co #1	5%	No	No	2 months
Lawrence	2%	No	$40	2 months

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.

Recommendation

No change in the current deposit requirement is recommended at this time. However, the City Commission may want to consider raising the late fee or adding interest to past due bills to encourage customers to pay their bills on time.