HomeMy WebLinkAboutAGENDA REPORT 1994 0105 CC REG ITEM 11IITL.A /Isr.
CITY OF MOORPARK
AGENDA REPORT
TO: The Honorable City Council
FROM: Donald P. Reynolds Jr., Administrative Services Manage
DATE: December 16, 1993 '
SUBJECT: Consider Contract Services for the Collection of
Outstanding Debts Related to the Emergency Response Cost
Recovery Program
Staff is recommending City acceptance of a trial agreement for
collection services in an attempt to collect outstanding debts
related to the Emergency Response Cost Recovery Program. The
collection effort currently involves 390 cases but will include
current cases as they evolve.
Background
The City initiated a collection effort for the cost of emergency
responses in an effort to recover the cost of police time
(currently set in Council resolution 93 -921) and the booking fee
($120) assessed to the City in 1990. The authority to pursue these
costs was granted by the State in 1985 as expressed in the
Government Code, Section 53150:
"Any person who is under the influence of an alcoholic
beverage or drug, or the combined influence of an alcoholic
beverage or any drug, whose negligent operation of a motor
vehicle caused by that influence proximately causes any
incident resulting in an appropriate emergency response, and
any person whose intentionally wrongful conduct proximately
causes any incident resulting in an appropriate emergency
response, is liable for the expense of an emergency response
by a public agency to the incident."
Currently, only one letter is beinq sent to the debtor making
reference to the above language.
On June 16, 1993, staff reported only 10% of the letters resulted
in payment which equals 90 of the money owed. The Council
authorized staff to only pursue cases where the person is found
guilty. The Moorpark Police Department has notified staff when
cases are dismissed by the courts, and this figure equals 2% of all
arrests made.
Currently, the City has handled 449 cases since January, 1991. Of
these cases, the following statistics show the City's need for a
more aggressive collection effort; 9 cases have been dismissed
(2 %), 29 persons have paid in full, (6.40), 21 persons are making
payments, (4.670), and the balance of 390 cases remain outstanding,
(86.85 %).
The value of the average case is $313, ranging from $1,066 to $225.
The City has billed for $140,528, and received $12,761, (or
approximately 90 of the funds).
Discussion
With a workload of 390 open cases in this program, staff began
serious consideration of either hiring in -house collection staff,
or contracting for this service. The volume of open cases which
equals between 5 and 10 per month does not justify the procurement
of needed software and the training of staff to create an in -house
collection effort. Therefore, on Monday, December 13, 1993, staff
presented two possible vendors for collection service to the Budget
and Finance Committee, (Mayor Lawrason and Councilmember
Montgomery). The Committee agreed that staff should try a contract
collection service.
Of the two vendors considered, one was selected based on the
following criteria: ease of administration, the percent to be
retained by the agency when a case is referred to collection, and
the up -front cost to the City to initiate the service. Both
companies are backed by ample insurance and other cities are listed
as references. Both companies offer a two tier system initiating
with letters, and progressing to a second tier of more aggressive
collection activities.
The preferred company will bill the City on a case by case basis,
rather than the other vendor's requirement that the City purchase
a block of cases and use these within a twenty four month period.
The preferred vendor's rate for the letter service is $7.00 per
case, and the other vendor offers 100 cases at $10 per case. The
second tier of collections is offered by the preferred vendor as
40% of the amount owed to the City, where the other vendor is
asking for 40 %, and if the case is not collected after three
months, it would increase to 500. Lastly, the preferred vendor can
work from existing computer print -outs, and the other vendor
requires a form to be completed for each case, (a modem was also
offered to the City from the other vendor if the City purchased 500
cases from them and this number is qreater than the City's needs
for a trial effort).
In discussing the details of the program with the preferred vendor,
it was explained to staff that "collection" means locating the
party, placing phone calls, followed by court processing if
necessary. Collection agencies are required by law to use
municipal courts to resolve these cases. This can be costly to the
debtor because when the amount owed is significant enough, the
court will pass the cost of the collection agency's court related
expense on to the debtor. The City can chose to take the debtor to
small claims court, and then pass the matter back to the collection
agency for actual retrieval of the funds via payroll. garnishments.
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It is the recommendation of both vendors not to enter into a letter
writing effort for cases more than nine months old, and this could
be extended to 16 months but the rate of return will be a lower
percentage. They estimate a minimum of 10% return on recent cases
using letters, and an additional 10% for those referred to
collections, for a total return of 300, (loo city invoices, 10%
letters, 10% collections).
Cost to the City
Attachment "A" attempts to define the City's cost, anticipated
revenue and the changes that would occur as a result of contracting
for collection services. In terms of cost, staff used 110" cost for
the current campaign of one letter being sent to each of the 449
cases, and based the contract letter campaign of $7 per referral,
and then used the average of $313 per case in calculating the cost
of the collection effort, (40% retained by the contractor, 60%
retained by the City) based upon the contractor's estimated 10%
response rate.
The top of the attachment describes the contract collection effort.
This portrayal of the program shows that an additional 51 cases
would be recovered with this program, increasing the City's revenue
by $10,468. The cost of the contract based upon these assumptions
is $6,033.
When portrayed in combination with the current effort of the City,
the analysis shows that the collection response rate would increase
from the current level of 50 responses out of 449 cases, (29 paid
in full, 21 currently making payments) , to 101 responses out of 449
cases. Gross revenue will increase from the current level of
$12,768 to 9 %, to $22,339 or 15.900, (which includes a deduction
for the cost of the collection effort).
The service for $7 per case described above, allows the City to
control which are sent to collection and also allows the City to
control which cases may go to court. If the City chooses to
automatically send the unsuccessful Letter attempts to collection,
the cost is $5 per case, or $315. Using the above mentioned
assumptions, the City would then retain an additional $126 of the
projected revenue.
Current letters being sent will also be included in the collection
effort, and staff will continue the trial for a period of six
months, or until the end of the fiscal year. By including current
cases, staff will be better able to identify how the system would
work under ideal circumstances with an anticipated fewer number of
delinquent referrals from the contract letter campaign to
collection. In March, staff will analyze success rates, and in the
first week of June, consider the extension of the services.
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Conclusions
Other cities have realized a 40% response rate to invoices for this
cost. It is the goal of Administrative Services to gain a level of
response closer to 50% of all cases; which may be realistic, if the
City can respond faster.
As the program's older cases are resolved, the cost to the City
will be less because the collections efforts would begin much
sooner than the efforts described in this report. This service
offers a quick follow -up that the City cannot currently provide,
and may provide a long -term solution to the City's largest debt
collection need. Only by testing these services can the City begin
to evaluate the cost and benefit of the Emergency Response Cost
Recovery Program.
Recommendation
Authorize the City Manager to enter into an agreement with
Collection Technology Incorporated, and initiate a collection
service for the emergency response cost recovery program.
Attachment "A"- Cost /Revenue Analysis of
Collection Service
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the Contract
ATTACHMENT "A"
COLLECTION PROCESS
1) All existing cases sent to Contractor
A) 63 cases to a letter campaign @ $7.00 each; 390 cases
referred directly to collections (contractor retains 40%
of the money collected)
B) After 60 days of the Contract Letter Service, staff
reviews cases and authorizes those being sent back to
collections
2) All new cases continue to receive the first letter from the
City
3) All new cases that become more than 30 days old are sent to
contractor for the letter service
4) The Contract Letter Service involves three letters over a
sixty day period- uncollected items are returned to the City
5) Staff reviews the uncollectible items returned from the
contractor- approves their referral for additional collection
effort, (contractor retains 40% of those items collected)
6) Additional Collection effort typically involves locating the
debtor and contacting them by phone. This effort may also
involve referrals to credit agencies if unsuccessful.
7) Unsuccessful cases in the Collection effort are again referred
back to the City-
A) City can choose to take them to civil court, or use its
own means to collect, or,
B) Refer them back to Collections for processing through the
Municipal Court system, (at no additional cost to the
City) . Contractor will follow -up on collections after
court with wage garnishments and other means if needed.
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