Hutchinson City Council agreed Tuesday to contract with a Topeka company to try to collect unpaid utility bills.
In this context, the council approved an order allowing the assessment of the collection costs against the debtor.
Although the move is expected to result in an increase in debt collected, it could also significantly increase the debt individuals owe due to these fees and potential legal costs.
While the city uses debt collection for the municipal court, it currently only uses the Kansas Debt Offset Program on utility accounts.
Administered through the Department of Administration, this program can leverage monies the State of Kansas owes individuals or businesses, such as tax refunds or state salaries, against debts that these entities owe to the state or participating municipalities. The program charges a fee from city receipts.
Data shared by Chief Financial Officer Angela Richard showed the city sent some $331,000 in utility debt to state clearing from 2019 through 2021. Of that amount, less than $49,000, or about $15 %, were returned to the city.
The difference in dollars
A written submission from the contractor, Collection Bureau of Kansas Inc., also known as CBK Collections, said it had increased average collections from 20% of outstanding debt to 40%. He does this through collection letters, phone calls and wage garnishments in court.
The company notes that it has an in-house legal department, and a “very important aspect is that the lawsuit perpetually preserves the statute of limitations (on the debt).”
But while debt recovered through state compensation adds 19% in fees, an example shared by CBK showed with legal fees, fees, and using the compensation program, the original debt can more than double.
In the state compensation program, a debt of $300 increases to $357. Through CBK, however, if the recovery results in legal costs and it continues to be cleared, the total bill is now nearly $610.
Richard explained to council that a notice is sent to a utility customer when a bill is 20 days past due. Then, 21 days after that, a power outage may occur.
“So during the process there are two months of bills before closing (the account) for non-payment,” she said. “We try to work with the customer by offering payment terms, extended payment terms, or connecting them to resources, such as churches, DCF (Kansas Department of Children and Families) or KERA (Kansas Emergency Rental Assistance ).
“If there is no response to this, we send them a notice and hand over the debt to the Kansas compensation program. They garnish tax returns, lottery winnings, and sometimes wages if paid by the state.”
By passing the ordinance allowing it to collect fees, the city will not have to bear that expense, Richard said. CBK already does the collection for the municipal court.
The ordinance covers all city utilities, including water, sewer, storm water and garbage. With the agreement, the city can select which cases to send for collection, for example, not sending those who are only overdue on stormwater fees.
“And we control the schedule,” Richard said. “We can still wait 60 days before sending it to CBK. And they’ll try to get it back for 45 days before turning it over to their law firm. They have those 45 days to catch up before it goes into garnishment.
In response to a question from council, Richard said she did not know what percentage of accounts could be collected, but currently less than 100 a month is going to compensation, some of which is just storm water.
Mayor Jade Piros de Carvalho has expressed concern that people with utility debt do not have access to utilities “in their next home”.
Richard said they were already working with people entering city utilities who had previous debt, asking them to pay at least half of the debt up front. They also work with churches to get people excited.
“I rely on your expertise for the most efficient collection, but it’s always a concern for me if people don’t have water,” Piros de Carvalho said. “I’m not saying it’s the city’s responsibility to fix this, but anything we can do to work with those in trouble would be nice.”
“We don’t try to sue those who struggle and want to work with us,” Richard said. “We try to prosecute those who leave town without paying their bill.”
Sides of the coin
Councilwoman Sara Bagwell, an accountant at a local debt collection company, said it was important to “recover more of our funds”.
“For anyone who drops a bill and doesn’t pay it, someone has to pay it,” Bagwell said. “It’s the taxpayer. For me, if we use more tools to recover some of our funds, I would be interested. I’d like to get a report in a year to see how it’s going and what kind of difference it’s made.
“It’s hard for me to do this,” Councilman Steve Garza said. “It’s yet another burden for people who can’t pay their water bill. On the other side, I’m a commissioner and I have to watch over the city.
“I’m more suspicious of people who can afford it and have chosen not to,” Councilman Jon Richardson said. “I don’t have much sympathy for people in that position. I think some people can’t afford it and need a helping hand, but there are also people who avoid paying.
After the meeting, the mayor said that the increased debt due to fees and costs “gave me a lot of down time”, but she also acknowledged that joining the contract “is going to take a huge burden off administrative for our staff”.
“I know that there are a very small number of people who take a lot of time on the collection side,” said Piros de Carvalho. “I get it. I understand it’s lousy time and very inefficient. We just have to be careful and watch the results.”
“We have to do everything we can before we go down this road” of putting it back for collection, she said. “I don’t want people who are just having trouble being sent to a collection agency. I really want this to be limited to people who are trying not to pay a bill. But I don’t know how you do that.