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APPROVE A RESOLUTION REAFFIRMING AND REENACTING PREVIOUSLY APPROVED UTILITY RATES AND SERVICE CHARGES TO PURSUE PROPERTY OWNER UTILITY ACCOUNT DELINQUENCIES
recommended action
RECOMMENDATION
Staff recommends Council approve a resolution reaffirming and reenacting previously approved utility rates and service charges.
It is further recommended that the City Manager be authorized to take such other actions as are appropriate to carry out the intent of the resolution.
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Summary
On January 9, 2018, Council held a study session to discuss the significant increase in delinquent utility accounts. At the study session, Council directed staff to form a task force to study this issue. The task force recommends the City pursue property owner delinquencies while it continues to explore how to collect tenant delinquencies effectively.
Staff recommends Council adopt the attached resolution reaffirming and reenacting previously approved utility rates and service charges, which will allow delinquent utility charges to be collected via liens and assessments on the property tax roll if the utility account is in the name of the property owner.
The recommended action makes no change to the process for collecting delinquent utility accounts from tenants. Until another solution is developed for tenant delinquencies, the City will continue current collection efforts that culminate in sending accounts to its third-party collections agency.
DISCUSSION
Background
The Stockton Municipal Code (SMC) mandates all properties in the City “subscribe to and pay for” solid waste, sewer, and stormwater services (SMC sections 8.04.020, 13.12.100, and 13.16.160). The SMC is generally structured around a single unified bill for water, solid waste, sewer, and stormwater services. The enforcement action prescribed in the SMC for delinquencies for such services is to shut off the water service. However, many City residents live outside the City water utility service area and are customers of a private company, California Water Service Company (Cal Water). Turning off water service is not available to the City as an enforcement action to compel payment for other delivered utility services in the Cal Water service area.
The City adopted a policy in 1997 to hold property owners liable for utility bill delinquencies, whether the account was in the name of a property owner or a tenant. The California Apartment Association and San Joaquin County Property Owners Association challenged the policy in the case of California Apartment Association v. City of Stockton (2000) 80 Cal.App.4th 699 on the grounds that the policy violated state law. The City contended in part that the applicable state statute did not apply to Stockton because it is a charter city. The California Court of Appeals determined that the law did apply to charter cities. Consequently, the City is prohibited from collecting delinquent charges of a tenant, under an account established by the tenant, from a property owner.
Subsequently, the City entered into a billing contract with Cal Water in 2001 so that all utility services (water, sewer, stormwater, and solid waste) in the Cal Water service area (39,000 accounts) could be billed together, and water service could be shut off on delinquent accounts to compel payment. The Administrative Services Department (ASD) continued to provide utility billing service for approximately 55,000 utility customers within the Stockton water service area. In July 2015, the Cal Water billing contract ended, and ASD resumed billing responsibility for the 39,000 accounts in the Cal Water service area.
Since that transition, the City experienced increased unpaid utility charges in the service area outside of its water utility. The City has limited ability to enforce collection of delinquent utility service charges because it cannot shut off water service in areas it is not a water provider. When the delinquent utility service charges are submitted to a collection agency, the City receives a minimal amount of the overall amount due and owing. The uncollected costs owing to the City’s stormwater and sewer accounts, and to the waste haulers, is nearly $11 million and needs to be addressed by the City on a systematic basis.
In enacting the provisions of the Health and Safety Code, the Legislature found and declared that: Californians want their governments to be run efficiently and economically and that public officials should avoid waste and duplication whenever possible; and it desired to control costs by reducing the number of separate bills. It is more efficient and economical for the City to enforce the collection of delinquent service charges by placing a lien on the property for which delinquent service charges and any penalties are due and owing. Collecting delinquent service charges on the tax roll benefits all ratepayers by improving the City’s ability to reduce outstanding balances, and collect costs for delivered utility services consistent with approved rates.
SMC Chapter 13.04 allows the City, after proper notice to the record owners of property, a hearing for objections and protests, and approval by the City Council, to collect City water delinquencies through liens and assessments on the property tax roll. However, these collection procedures have not been utilized for other utility services. Instead, when sewer, storm, or solid waste accounts are left unpaid, the City notifies the customer several times, tags the property, then sends the delinquent accounts to its third-party collector.
Present Situation
Utility Customers with City Water
Approximately 55,000 utility customers receive a unified bill for services (metered water, sewer, stormwater, and solid waste) from the City. Less than 1% of these accounts remain unpaid each month. After a water utility account becomes delinquent more than 30 days, the City can terminate water service for non-payment and will not restore water service until the customer pays all delinquent utility charges. The City’s ability to terminate water service is a powerful mechanism to secure payment of delinquent charges.
Utility Customers with Cal Water Service
Approximately 39,000 customers receive a bill for City-provided utility services excluding water (which is provided by Cal Water). Historically, delinquent utility accounts were less than 1% of the receivable total, but since the separation of Cal Water and City non-water utility bills, approximately 15% ($413,000) of non-water utility service charges remain unpaid each month. Because the City cannot turn off the water for non-payment, its ability to collect sewer, stormwater and franchised waste hauler service charges on accounts in the Cal Water service area is significantly impacted and results in uncollected costs. Approximately 9,000 active utility accounts are delinquent, with about one-third of the delinquencies being owner (as opposed to tenant) delinquencies.
Current and Near-Term Actions:
The City performs the actions listed below to collect on delinquent non-water utility accounts. In addition, the City’s current financial system requires staff to manually close a delinquent customer account before it is sent to the City’s third-party collection agency. City staff then must open another account in that customer’s name to retain the account information because it is neither practical nor desirable to suspend sewer and solid waste service. The manual nature of these processes and the others listed below are not cost-effective or viable as a long-term solution to permanently address delinquencies, especially since thousands of non-water accounts remain delinquent.
1. Call customers with delinquent accounts. The City had been manually calling approximately 400 customers each month to alert them to their delinquencies. The City recently implemented an automated solution that enables the City to make approximately 360 calls per day to delinquent accounts and links customers to the online payment system if they choose.
2. Tagging doors. City staff has been leaving door tags letting occupants know they are delinquent and that the possible consequences of delinquency could include credit impact if the customer does not pay the overdue amount. The City has been tagging approximately 300 customers each month and has tagged all properties with balances greater than $1,000. Staff are now in the process of tagging those properties with delinquencies greater than $300. If there is no response after 30 days, then the City closes the account and issues a final bill before sending it to collections.
3. Collections. If there is no response 25 days after the City issues the final bill, then the City sends the first delinquency notice. If there is no response after 15 days, then a final delinquency notice is sent. If the customer does not respond within ten days, the City sends the account to collections. Staff have closed over a thousand high-value accounts and sent them to the City’s third-party collections agency.
4. Hire temporary employees. The City has hired several temporary staff to assist with these manual processes.
5. Improve mailing/billing information. The City added “This is a Bill” to the mailing envelopes to ensure customers understand the piece of mail is an important document that needs to be opened and addressed.
Long-Term Action:
Record owner delinquencies to lien and tax roll
On January 9, 2018, Council held a study session to discuss the significant increase in delinquent utility accounts. At the study session, Council directed staff to form a task force to study this issue.
The task force held its first meeting on March 8, 2018. In addition to City staff and a community/ratepayer representative, the task force consists of representatives from the following organizations:
• Northern California Rental Property Association
• Central Valley Realtors Association
• Waste Management
• Republic Services
• California Water Service Company
At its first meeting, the task force recommended the City pursue property owner delinquencies while it continues to explore how to collect tenant delinquencies effectively. Consistent with that recommendation, staff recommends that Council approve a resolution reaffirming and reenacting previously approved utility rates and service charges and providing staff the authority to collect property owner utility delinquencies through liens and assessments on the property tax roll. If approved by Council, public outreach would commence so affected ratepayers will understand the process described above. These efforts will include mailings, bill notices, phone messages, and information on the City’s website.
The process to generate an annual property owner delinquency assessment list that the City would submit to San Joaquin County would be as follows:
• Staff would generate delinquency report in the spring and submit it to the City Clerk.
• The City Clerk would file the report, mail a notice to the record owner of each parcel receiving utility services, and publish a notice of a public hearing where the record owners will have an opportunity to protest their charges or pay what is owed to avoid collection through the tax roll. (Written notice to record owners is only required the first year in which the City decides to collect delinquent charges and penalties on the tax roll.)
• Upon Council approval, the final report would be sent to San Joaquin County by early August.
• Delinquent utility service charges and any penalties would be included as a supplemental assessment on the next property tax bill sent out by the County, which has two installment payment dates due November 1 and February 1.
• The full amount of any delinquent utility service charges and penalties becomes a lien on the property and will be recouped upon a sale of the property.
Because liening and sending delinquent accounts to the tax roll is manual workload, the City will focus on sending high-value record owner delinquencies to San Joaquin County in 2018 for collection on the 2019 property tax bill. The City will strive to lien and send the maximum number of delinquent accounts to the County this year. All delinquent accounts will be sent to the County in 2019 for collection on the 2020 tax bill.
The recommended action makes no change to the process for collecting delinquent utility accounts from tenants. Until another solution is developed for tenant delinquencies, the City will continue current collection efforts that culminate in sending accounts to its third-party collections agency.
FINANCIAL SUMMARY
Nearly $11 million remains unpaid, consisting of roughly $7 million sewer, $3 million solid waste and $1 million stormwater. Nearly $3.8 million of the total are owner-of-record delinquencies, so the City could expect to recover most of that amount from the county tax collector. The remainder are tenant delinquencies that will be processed through the City’s third-party collections agency.
The outreach and noticing outlined above will likely cost approximately $10,000 for Fiscal Year 2017-18 and would be paid evenly from the Water Enterprise Fund, Wastewater Enterprise Fund, Stormwater Enterprise Fund, and the Solid Waste and Recycling Fund. Sufficient budgets are available.