title
IMPLEMENT TASK FORCE RECOMMENDATION FOR OWNER-ONLY BILLING ORDINANCE
recommended action
RECOMMENDATION
It is recommended that the City Council adopt an ordinance to address the issue of delinquent utility bills. The proposed ordinance would require the record owners of properties located in the City of Stockton who receive water service from the California Water Service Company to be the account holder for City of Stockton solid waste, sewer, and stormwater utility bills.
body
Summary
Due to utility billing changes in recent years, there is a significant increase in the number of delinquent utility accounts. As of the end of November 2018, more than $15 million is past due for utility services. Because utilities services are fully supported by established rates and customer payments, significant delinquencies jeopardize the long-term operation of utility services. In fact, the City of Stockton’s (City) solid waste contractors indicated potential legal action over the inability to collect amounts owed. It is recommended that the City Council amend the Stockton Municipal Code to improve the collection of utility rate payments consistent with the recommendation of the Utility Billing Task Force.
Certain properties within the City receive water service from the California Water Service Company (CalWater). These properties receive a bill for their water service from CalWater and a separate utility bill from the City for the stormwater, sewer, solid waste collection and recycling services it provides. Because the City does not provide water service to these properties, the City cannot shut off water service to secure payment when accounts are delinquent. As a result, the City experienced a significant increase in the number of delinquent sewer, solid waste collection, and stormwater utility accounts in the CalWater service area. The percent of past due accounts in the CalWater service area is approximately 17 percent (Attachment A).
In areas of the City not served by CalWater, the City provides water in addition to sewer, solid waste collection, and stormwater utility services. Charges for all utility services are collected on a unified bill for properties receiving water service from the City. When a unified utility bill remains delinquent for a specified number of days, the City terminates water service to the property to enforce payment. Shutting off water service is an effective means of securing payment of delinquent utility bills, and the percentage of delinquent accounts in the City water service area is below one percent.
On January 9, 2018, the City Council held a study session to discuss the significant increase in delinquent utility accounts. To address the significant delinquent utility service charges, the City Council directed staff to form a task force to discuss and study the issue. The task force recommended that the City proceed with recording liens and assessing charges on the property tax bill for delinquencies incurred by property owners. On March 20, 2018, the City Council approved Resolution 2018-03-20-1403, reaffirming and reenacting previously approved utility rates and service charges. This Resolution provided staff with the authority to collect property owner utility delinquencies through liens recorded by the San Joaquin County Assessor on the property tax roll under the authority of the California Health and Safety Code. However, the new resolution did not address situations where the utility account is in the name of another individual, such as a tenant. Consequently, staff is only able to address the approximately 20 percent of the delinquent accounts held by property owners. The nearly 80 percent of delinquencies remaining has not been addressed, and 17 percent of accounts in the CalWater service area are now delinquent and the past due amount exceeds $15 million.
The task force continued to meet and discuss the remaining issue of tenant delinquencies. Realtors, landlords and associations representing landlords opposed amendments to limit utility accounts to record property owners. Information was presented to the task force to clarify utility billing differences between the CalWater and City water service areas, the number of delinquent utility accounts, and the amount past due for utility services. The task force also discussed utility billing practices in other cities and that the City has no involvement in an owner’s decision to monetize a private property by operating a rental business. In addition, the task force also concluded that because the City has no involvement and receives no benefit from private property rentals, it is inappropriate for the City to assume the liability for delinquent utility accounts. The task force ultimately recommends requiring that only the record property owners in the CalWater service area be the account holder for sewer, solid waste collection, and stormwater utility services. The task force does not recommend changing the current billing practice in the City service area that allows both property owners and tenants to hold utility accounts due to the City’s ability to shut off water service to secure payment. The task force also recommends that implementation of the new owner only requirement in the CalWater service area be transitioned over 12 months and the City to require a deposit for each account. (Attachment B - Redline Option B Ordinance for Water Customer and Record Owner Billing).
Staff agrees that the most significant problem is within the CalWater service area and that transitioning utility accounts to owner only status over time is appropriate.
DISCUSSION
Background
The Stockton Municipal Code requires all properties in the City to “subscribe to and pay for” solid waste, sewer, and stormwater services. In areas where the City provides water services, the City may terminate that service when an account becomes delinquent. However, in areas where the City does not provide water services, it cannot terminate water service and must utilize alternative enforcement actions, including calling customers, tagging doors, and referring accounts to a collection service. These areas are in the CalWater service area. Despite the City’s efforts to collect delinquent utility service charges in areas where the City does not provide water services, the delinquency rate for City utilities in these areas is approximately 17 percent each month.
On January 9, 2018, a Council study session was held to discuss the significant increase in delinquent utility accounts, and as a result, Council directed staff to form a task force to study the issue. The task force recommended the City pursue delinquencies incurred by property owners by recording liens on their property. On March 20, 2018, the City Council adopted Resolution 2018-03-20-1403, reaffirming and reenacting the City’s previously-approved utility rates and service charges to bring the rates under the authority of the California Health and Safety Code. Pursuant to California Health and Safety Code sections 5473 et. seq., the City may elect to have its water, sewer, stormwater, and solid waste collection services charges, delinquent utility service charges and penalties collected on the San Joaquin County tax roll. For the City to avail itself of this authority, however, the account for the water, sewer, stormwater, and solid waste collection services must be held in the name of the record owner of the property where the respective service is provided.
In accordance with Resolution 2018-03-20-1403 and the direction of City Council, Administrative Services implemented the process to record liens on properties with delinquent utility service charges for accounts held by the owner of record.
Present Situation
Utility Customers with City Water Service
Approximately 54,000 utility customers receive a unified bill for City-provided services (water, sewer, stormwater, and solid waste collection) from the City. Less than one percent of utility water accounts remain unpaid each month. After a water utility account becomes delinquent more than 30 days after the billing date, the City can terminate water service for non-payment and will not restore it until all delinquent utility charges are paid. The City’s ability to terminate water service is a powerful mechanism to secure payment of all delinquent charges.
Utility Customers with CalWater Service
Approximately 38,000 customers receive a bill for City-provided utility services that excludes water service charges provided by CalWater. Under a prior agreement between CalWater and the City, CalWater agreed to bill and collect customers within its service area for the City’s sewer, solid waste collection, and stormwater utility services. Beginning in July 2015, the City assumed responsibility for billing and collecting these sewer, solid waste collection, and stormwater utility service charges. Historically, unpaid accounts were less than one percent of the delinquent receivable total, but since the separation of CalWater and City bills, the percent of delinquent accounts increased and the total amount past due is more than $15 million as of November 26, 2018.
Since the City cannot turn off the water for non-payment, the ability to collect sewer, stormwater and franchised solid waste hauler charges on accounts in the CalWater service area is significantly reduced and the long-term operation of the utilities is jeopardized. In fact, the City’s solid waste contractors have indicated potential legal action over the inability to collect amounts owed.
Actions to Address Property Owner Delinquencies
On January 9, 2018, Council held a study session to discuss the significant increase in delinquent utility accounts as an informational and discussion item. 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 collection of property owner delinquencies while it continued to explore how to collect tenant delinquencies effectively. On March 20, 2018, Council authorized staff to levy liens and collect property owner delinquencies through the property tax roll by approving Resolution 2018-03-20-1403. The Resolution reaffirmed and reenacted previously-approved utility rates and service charges, and provided staff with the authority to collect delinquent service charges, through liens and assessments on the property tax roll, where the account for the utility service or services is held in the name of the record owner of the property. Staff then notified 1,048 customers of their delinquencies, which totaled approximately $1.6 million. Staff ultimately recorded several hundred liens and sent around $1.1 million for collection through the 2018/19 property tax bill after the city held the required public hearing on July 17, 2018. Staff then notified another 500 customers of their delinquencies (worth $771,000) in October and the City’s intent to place a lien on their property. To date, the City collected $232,000 from that group. Staff then notified another 322 customers of their delinquencies in December worth $205,000 and the City’s intent to place a lien on their property. Any amounts remaining from the October and December efforts will ultimately be collected on the 2019/20 property tax bill. Staff will continue to issue lien letters on an ongoing basis.
Options to Address Tenant Delinquencies
The Task Force also met on March 23, 2018, and August 2, 2018, to discuss options on how the City could address tenant delinquencies, including in the CalWater service area. The following options were discussed:
Option A: Owner-Only Billing (fixed charges only) in all areas
Under this option, the City would send the property owner the bill for all fixed-rate charges (sewer, solid waste collection, and stormwater), while tenants would receive the bill for variable-rate charges (water).
Financial Impact:
For tenant accounts, the City would need to create bills for each location address in the City service area for the tenant (variable consumption) and owner (fixed charges). The estimated number of additional bills needed would be approximately 14,000 per month and would cost the City approximately $294,000 per year. Additional staffing may be required to handle the increase in customer call volume and in-person payments and questions. Collections would increase in the CalWater service area since the City could ultimately lien and collect delinquencies through the property tax bill. The City would collect tenant delinquencies through water shutoffs.
Customer Impact:
Current lease agreements may need to be modified. Vacancies between tenants may increase billing errors if the owner elects to start water service. Landlords may choose to pass the fixed charges onto the tenant via a rent increase.
Technological/Operational Impact:
Backdated billing errors may increase when tenants terminate water service, or there is a change of ownership, and the City continues to bill the owner. Fixing those errors is a manual process for the City. Additional staffing may be required to handle the increase in customer call volume and in-person payments and questions.
Option B: Owner-Only Billing in CalWater service area (status quo in City service area)
This option would retain the status quo in the City service area (separate owner and tenant accounts), but institute owner-only billing in the CalWater service area (for fixed-rate charges). Essentially, the task force recommends implementing the original staff recommendation on a more limited basis in only the CalWater service area.
Financial Impact:
This option should improve collections as the City can continue to enforce collection in the City’s water service area via water shutoffs and will have additional ability to collect in CalWater service area via a lien/property tax roll.
Customer Impact:
If a property owner owns properties in the City service area and the CalWater service area, the property owner may need to use different lease agreements. Property owners may choose to pass the charges onto the tenant via a rent increase or delegate responsibility for utility bill payment. The conversion to owner billing in only the CalWater service area may create ongoing confusion or billing errors as there would be different billings ruling depending on the water service provider.
Technology/Operational Impact:
The conversion would be approximately 12-18 months. As tenant accounts naturally turn over, they would convert to owner-only accounts. Whatever remains after that time would be converted by the City. Backdated billing errors may increase when tenants terminate water service, or there is a change of ownership, and the City continues to bill the prior owner. Fixing those errors is a manual process. Staff may receive more phone calls or in-person visits to resolve issues.
Option C: Owner-Only billing in all areas for all utilities (original City concept)
This option would institute record owner-only billing throughout the City for all services. This option was the original option staff presented to Council for discussion at its January 9, 2018, study session. While this remains the preferred option to ensure that rates will be collected to support utility operations, staff agrees that the priority is to address the high utility bill delinquency rate in the CalWater service area. The Task Force recommendation of Option B is acceptable.
Financial Impact:
Should improve collections as the City can collect via lien/property tax roll.
Customer Impact:
Lease agreements may need to be modified. The conversion to owner-only billing citywide may create temporary confusion or billing errors during the transition.
Technology/Operational Impact:
The conversion would be approximately 12-18 months. As tenant accounts naturally turn over, they would convert to owner-only accounts. Whatever remains after that time would be converted by the City. Staff may receive more phone calls or in-person visits to resolve issues.
Task Force Recommendation
On August 2, 2018, the Task Force met for the final time and decided to recommend Option B-Owner-Only Billing in the CalWater service area with two modifications: that the City phase in the implementation over 12 months and that the City collect deposits. The Task Force also had the opportunity to review and comment on the proposed ordinance.
The Task Force essentially recommends implementing the original staff recommendation on a more limited basis in only the CalWater service area. Because of the lack of unification of services (i.e., the City does not provide water service in the CalWater service area), the City is faced with distinct operational challenges. Because there is no unified billing system, and therefore no ability to terminate water service in the CalWater service area, the City has seen disparate rates of delinquencies. Consequently, the City must adjust its billing and contracting practices to directly address its operational challenges and reduce the disparity in account delinquencies. Option B, which permits only City water service customers or record owners to establish and hold service accounts, is the most effective way to address the City’s collections challenges with the least impact on current budget and operations. Option B recognizes the City’s unique needs in each service area and provides the greatest opportunity to collect utility service charges in both service areas.
Financial Summary
Over $15 million in utility service charges are past due, consisting of roughly $10.3 million in sewer service charges, $4.7 million in solid waste collection service charges, and $400,000 in stormwater service charges. Retroactively, it is difficult to estimate how much of this amount the City will recoup through collections. In the CalWater service area, 20 percent to 30 percent of the delinquent accounts are held in the name of the record owner of the property being served, and the City expects to recover most of that amount from the county tax collector. The remainder are tenant delinquencies that must be recouped through the City’s third-party collections agency.
Prospectively, the delinquency rate is also difficult to estimate, but the City of Sacramento indicates its delinquency rate is around 5%. Sacramento utilizes owner-only billing for its utility accounts.
The outreach and noticing associated with Option B will likely cost approximately $65,000 for fiscal year 2018-19 and would be paid evenly from the Water Enterprise Fund, Wastewater Enterprise Fund, Stormwater Enterprise Fund, and the Solid Waste and Recycling Fund. Sufficient appropriations are available and noticing would have no General Fund impact. Additional costs related to the transition in subsequent fiscal years will be considered and budgeted in those fiscal years.
Attachment A - Delinquency Rates - December 4, 2018
Attachment B - Redline Option B Ordinance for Water Customer and Record Owner Billing