Monday night’s budget session shined a light into Henderson’s fiscal hole and revealed part of the problem: The city booked a $160,000 loss last year on uncollectible water bills.
“Last year was the biggest amount ever written off as uncollectible,” Finance Director Traig Neal told City Council members. He said those uncollectible accounts are taken out of the fund balance at the end of the year.
“That’s depressing,” said Bernard Alston, the chairman of the council’s Finance and Intergovernmental Relations Committee.
“It is,” Neal said.
The finance director said two problems combine to build up that deficit.
First, renters who owe money on their water bills move out without paying and without leaving a forwarding address, and the city has no way to find them.
“If they up and leave, there’s nothing we can do about it,” Neal said.
A person must pay at least a portion of an old bill to open an account at another address, but many people avoid that problem by creating the new account in someone else’s name.
The second issue is that the city doesn’t know when people walk out on their accounts. The water-billing office has a smaller staff than it once did, and Neal said the staff has been slow to notice water accounts with no activity. The minimum monthly charge on a city utility account is $42, plus a $12 late-payment fee each month, so if it takes three months to realize that the water meter hasn’t moved and the account needs to be closed, the account has piled up $162 in charges that eventually will be written off as losses, even though the account didn’t actually cost the city anything more than the paper and postage for the bills.
Neal said it would not be cost-effective to try to track down each scofflaw.
“It would almost pay us to hire a collection agency and give a certain percentage of collections,” council member Mike Rainey said, suggesting a 75-25 split in the city’s favor.
Council member Ranger Wilkerson said the city had discussed hiring a collection agency in the past, but the idea went nowhere.
“It works as long as they understand we don’t have to pay them anything else,” Alston said.
Neal said the city already has enrolled in a program under which Henderson submits a list of its debtors to the state, and if any of those people are due state income tax refunds, part of the money goes to the city.
Still, Neal computed that the $160,000 represents a bad debt ratio of only 3.3 percent, which Rainey and Alston said isn’t that bad.
“It’s been a lot lower than that,” Neal said. “I’m hoping it will go down.”
The council members discussed ways to ensure the total goes down.
“The point is to do all we can to lessen bad debt or enhance recovery,” City Manager Eric Williams said.
Neal said he has the supervisor in the water office keeping a closer watch for inactive accounts.
He also mentioned that some cities charge large deposits to set up water accounts. If the account holder skips out on a debt, the city at least has the deposit to apply against the amount owed.
Henderson used to require deposits, but switched to nonrefundable setup fees. Those fees totaled $42,000 this year, Neal said, so he has doubts about whether a switch back to deposits would make up enough of the bad debt to be worth the loss of the setup income.
Harriette Butler, one of Henderson’s leading owners of rental housing, suggested that the city work with property owners so that they notify the city as soon as tenants move out, thus preventing inactive accounts from piling up charges. “I certainly think they would be happy to share that information.”
Butler agreed with Williams that fewer than 10 landlords handle more than 80 percent of the rental housing in the city, and the city manager said it shouldn’t be tough to set up a system that works with at least those property owners.
Wilkerson asked Butler whether property owners are liable for the unpaid utility bills of their ex-tenants. She said they are not.
Lonnie Davis expressed the hope that as the Code Compliance Department becomes more active, it will spot more problems related to water stealing, water leaks and vacancies where water accounts remain active, all of which will reduce the annual toll of uncollectibles.