The city has taken the burden off landlords for tenants’ unpaid water bills.
…the rest of the city’s water users will have to pick up the costs for unpaid bills…
It is debt that other water users would have to cover, according to a staff memo.
Amanda Lehmert
Crony capitalism
Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on close relationships between businesspeople and government officials.
Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.
M E M O R A N D U M
DATE: October 15, 2009
TO: City Manager’s Office
FROM: Allan E. Williams, Director
SUBJECT: Lien Law Reversal
City Council has requested Legal to draft a Resolution to reverse the long standing process the City of Greensboro has used to assure collection of water and sewer bills. This resolution is Item 43 on the October 20, 2009 Agenda, Resolution authorizing the waiver of past due utility liens. The Agenda Memo specifies that the costs are unknown; while the exact cost is unknown at this time the loss of this mechanism is expected to substantially impact the cost of water and sewer service to our customers through the write-off of bad debts on a level similar to other NC cities…
Lien Law Abandonment
Advantages
1. Removes losses to landlords in those few cases where tenant account balance exceeds $100 utility deposit and Water Resources cannot locate and collect from delinquent customer.
2. Lessens burden on landlords to charge sufficient security deposit to cover tenants delinquent account balance.
3. Removes burden on landlords to follow up with tenants that move out with delinquent utility account.
Disadvantages
1. Current system nearly eliminates write-offs; any other system would require deposits for all customers, property owners as well as tenants, to minimize annual bad debt expense.
2. Other municipal utility systems expect losses of from ½ to 1 ½% of sales revenue annually requiring increase in user rates or account sign-up fee and/or deposit
3. Current system helps underpin bond ratings
4. Lost investment in city processes that were designed to assist landlords
5. Cost to revise business processes for sign-up and deposit collection
6. Increase staff or contract with collection agencies to pursue increase in delinquent accounts.
Improvements to the System:
1. The City implemented a new utility billing system in 2004 that allows staff to give individual customer information system (CIS) numbers to named account holders which can include both tenants and property owners. This helps keep an archived history of a customer’s past account history with the City of Greensboro. This helps in recovering past due tenants’ utility bills, sometimes up to a year or more later.
2. The City has increased deposits to $100 for each residential tenant.
3. The change in 2008-09 from quarterly billing to monthly billing has helped shorten the cut off time for past due accounts and has helped limit the amount of past due bills.
4. A new online system will be implemented in December 2009 that will give landlords an additional tool in keeping up with their accounts. This system is being custom designed by the software vendor and will maintain security for the resident in accordance with North Carolina Privacy laws.
The Water Resources Department has invested a great deal of money and effort in our Customer Information and Billing System and business processes in an effort to help landlords deal with lien issues.
Lien Law abandonment impacts (What would happen):
1. Bad debt write-off will increase significantly from $12,000 per year to range of $640,000 to $800,000 annually for all customer accounts if Lien Law cannot be used to enforce payment of delinquent utility accounts (see other City comparisons below). This will lead to changes in the Collections process (increased staffing or use of credit agencies to recoup bad debt) and will lead to increased administrative costs and an increase in rates to cover the expenses. All customers will be impacted by the change in policy. This could be accommodated by:
a. Raising rates (user fees) of all customers
b. Increasing sign-up fee from $15 to $50-$75 for all accounts (this is a one-time non-refundable charge)
c. Increasing deposits dramatically for renters and collecting deposits from property owners.
2. Because property owners that rent residences realize they may have to pay outstanding City of Greensboro utility bills, they have a greater incentive to keep the property free of leaks and other problems. Removal of the lien law has the potential of leading to problems with low income housing in the rental community because landlords will no longer have an incentive to fix leaks if they believe they will not be held responsible for them.
3. Currently the City does not require a deposit from any property owner because of the lien law. Water Resources can also be a little more flexible with property owners concerning pay arrangements on outstanding bills because of the lien law. The removal of the lien law will generate revenue risks and lead to a potential tightening of policy. Water Resources may have to investigate running credit reports as many other cities do to determine deposit levels for our customers to help minimize risks.
4. This would have a negative impact on our bond rating since we have almost no bad debt write-off each year.
5. The City of Greensboro would need to change financial procedures to recognize the potential losses that would occur in revenue. This would include changes that would need to be made to the enQuesta utility billing software and financial systems in Collections and Accounting which would require adjustments to the computer interfaces that tie these systems together.
Comparisons to other Cities:
There is a reason why every other municipal utility in the State of North Carolina is envious of the City of Greensboro and the lien policy we have. Water Resources receives many inquiries from other utilities as to how the City was able to put liens on property and cut revenue loss because of their collections problems, especially in light of the current economy. It has been a State Statute since at least the 1950s.
Deposits, Set-up Fees & Bad Debt Expense of other Cities in State of NC
1. High Point
Credit checks are performed with each application to determine if a security deposit will be required. If a security deposit is required, it must be paid before service can be connected. All requests to start water service are subject to a $25 set-up fee.
$50 deposit for all residential customers for water service unless credit score of 750 or higher.
2. Raleigh
No deposit with a $50 sign up fee. Bad Debt Expense (Write-offs) has averaged $1,060,055 annually for past three years (1.0% of revenues)
3. Cape Fear Authority (Wilmington)
$50 sign up fee. Deposit without evidence of good credit is $200 for tenant.
4. Asheville
$55 sign up fee and $100 deposit for all residential customers unless good credit rating.
5. Charlotte
No deposit with a $32 sign up fee. Bad Debt Expense (Write-offs) has averaged $1,919,971 annually for past three years (0.8% of revenues)
6. Burlington
$20 sign up fee; Deposit is $75 for tenants inside city limits and $100 for tenants outside city limits.
7. Winston Salem –
$20 sign up fee. Upon initial service request, all customers, excluding governmental units and industrial customers, may be subject to a credit evaluation to determine if a deposit will be required for service activation. Based on the result of the credit evaluation, a security deposit of up to $150 may be required. Bad Debt Expense (Write-offs) has averaged $1,546,684 annually for past three years (2.6% of revenues).
8. Durham
$50.00 deposit for all customers initially unless they present a letter of credit from another utility. After initial set-up, customers are charged an additional $50 deposit each time they are disconnected, up to $250 total deposit. Bad Debt Expense (Write-offs) has averaged $833,000 annually for past three years (1.5% of revenues).
9. Cary
Sign up fee of $18 applied to first bill. Residential customer deposit of $60.
10. Greensboro
Sign up fee of $15. Deposit of $100 for residential tenants; commercial tenants pay a deposit based on estimated consumption. Minimal write off of revenues (approximately $12,000 annually), a portion of which is subsequently collected.
10/21/09
Crony Capitalism in Greensboro: Privatize the Gains, Socialize the Losses (Update, Water Resources Memo Excerpt)
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