It Must Be Nice To Be Government Owned

John H. FischerBy Dr. Rent

There will be political discussion in Madison this year, one that will probably not generate much press, but one that has landlord’s and municipal government’s closest attention, both parties waiting to weigh in.

The proposed new law has to do with municipal owned utilities.  In the Wausau area, electric and natural gas service are provided by Wisconsin Public Service (WPS).  However, the water and sewer service are provided by utilities created by the City.  Wausau Water Works provides water to Wausau residents, Weston Utilities to those living in Weston, etc.  In some communities (such as Shawano), the municipal utility also provides electrical service.

The city itself does not provide you with water, instead it is an agency owned and controlled by the city.  It may look like this is just splitting hairs, but it is legally a fairly important split.

For the most part, these municipal utilities have to play by the same rules as private utilities such as WPS.  They fall under the regulation of the Public Service Commission (for the most part, but there are some exceptions).

However, there is one tool that these utilities can use that companies like WPS can only dream about.  If a bill goes unpaid, the utility can ask its owner (the city – otherwise known as Guido) to have the past due water bill added to the property tax roll of the property as a special assessment.  That means that this past due utility bill will be a debt secured by the real estate that has priority over everything, including mortgages and civil judgments.  Wow, what a tool!  (I need a collection guy like Guido.)

You may be thinking… well that seems fair.  They need to get their money.  The problem with rental properties is that the property owner and the person who incurred the utility bill, not the same person.  A tenant can run up a $300 water bill.  Then leave without paying it, without leaving a forwarding address.  The City will try to send a final bill to the tenant, but when it comes back, they just send a copy of the bill to the landlord.  If, by late in the year, the bill has not been paid; there it is on the property tax bill.

The proposed law will not take away this power of using the tax rolls as collection.  It will, instead, make the utility make a bona fide effort to collect the bill from the party who really owes it before using that tool.

The way the system is now… if bill is unpaid, BAM-TAX BILL.  Why on earth should the utility make the responsible party pay if collection is that easy?  The proposal would put on the requirement that bills can only be put on the tax roll if they are a civil judgment against the person whose bill it is.

Wausau Water Works would have to try and locate the person, take them to small claims court, and get a judgment.  And maybe, in the process, actually collect some or all of the bill by making payment arrangements with the guilty party.  This is what every other utility (such as WPS) has to do.  If water utility has a judgment and isn’t getting paid, they will still have their secret weapon.

Will it create more work for the utility, possibly create lost revenues for bills they don’t obtain judgments on?  Yes, it probably will.  Will this create larger utility bills to recoup this cost?  Yes, it probably will (however, since they can still collect from the tax bill, I doubt it would be a significant cost increase).

Most importantly though, this law now makes the situation more fair.  Although land-owners will probably still end up paying most of these bills, at least the City had to make an honest effort to go after the responsible party.

Dr. Rent

P.S.  Madison landlords are currently facing a challenge on the municipal level.  The Sierra Club has approached the City Council, and they are seriously considering the proposal of requiring all lights in apartments either be Compact Fluorescents or LED’s.

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7 responses to “It Must Be Nice To Be Government Owned

  1. Pingback: Real Estate Blogging » Blog Archive » It Must Be Nice To Be Government Owned

  2. I can understand your position. Here is what I see coming from it:

    1. A lot of extra cost and administrative time involved getting small claims judgements that could greatly diminish or even outweigh the value of the collections that ultimately result from the activity, and…

    2. Passing the cost of unpaid bills to the other customers of the municipal utility to relieve the landlord of the obligation under current rules.
    I would have to think about whether this is a more fair system or not, but it would certainly be less effective than the current system for munis.

    With the job that I have and the elected position that I hold, I am in the unusual position of seeing it from both the investor-owned utility standpoint and from the municipal utility perspective, so I’m interested in hearing what others have to say.

    If it was decided to remove the burden from landlords, one ratemaking device that I might suggest would be to look toward “connection fees” as an effective way to recover the municipal utility’s cost. This charge is incurred when a new customer takes over an account. It may be only loosely attached to the actual cost to the utility of establishing the new account and physically connecting the customer.

    To the extent that rental properties would tend to have more account turnover as a group, more connection charges would be charged to them in aggregate. This makes some sense because beyond any demographic factors involved with owner-occupied vs. rental property, the risk of an unpaid final bill would tend to be multiplied by the number of final bills a given address accrues. I also think it is superior to devices like deposits for service — (whether collected by the landlord or the utility) — which could be justifiably seen as just another barrier to people accessing service and somewhat regressive.

  3. Something I know WPS does is charge deposits of new customers that they feel have a high default risk.

    The same could also be done here? This is only a problem with about 5-10% of tenants.

  4. It’s certainly worth a discussion. The good thing about deposits is that people who play by the rules get them back, unlike connection charges. The downside is that deposits require some level of administration. Perhaps a good solution employs some of both.

    Because they are generally smaller operations, many municipal utilities do not have sophisticated credit and collection operations compared to larger investor-owned utilities. It’s an area that is easily outsourced, however there are obviously costs to that, too.

  5. Jim,

    I do not mean to move the discussion, but is it hard to work where you do, and be the elected official that you are? Personally I would be there are some tough things that go on, and I bet that is hard. In both ways, the personal and professional, they sort of cross.

    I also think that your voting would be scrutinized due to your position. An elected official as the government liason for a Public Utility.

    I am trying to be as dancing as possible here, since I spent a good amount of time kicking you when that other thing happened.

    So, with respect, is it ever a conflict of interest to work for who you do, and be elected to the groups your elected to? Do you have to recuse yourself from votes?

    Again, I am just asking. No ulterior motive.

  6. It’s not a common problem, but it’s a question that comes up sometimes and I’m happy to answer it.

    Most city and county issues have nothing to do with utilities. In those rare occasions where they might, I secure legal opinions from the city attorney or the corporation counsel. (The standard is not whether it actually IS a conflict of interests, but whether it could APPEAR to be a conflict of interests.)

    Conflicts of interests most often have to do with situations in which a personal gain could be made from the exercise of a public office. Since utilities work in protected franchise areas, it eliminates competitive issues that could relate to public business in most cases. I have abstained from certain votes in the past such as the Arrowhead-Weston issue at the county. Voting on whether to approve a traffic light (that uses electricity) would not be a direct and substantial conflict of interests in either a legal or practical sense, as an example.

    Wisconsin Public Service doesn’t have policy positions on most municipal issues and so there is no hidden agenda. The company has an obvious stake in the economic well-being of its service area because it creates a strong base for its services. That is not really a CONFLICTING interest with municipal or county government so much as a COMMON interest in which many different interest groups in the community would work synergistically (including government, utilities, Main Street, MCDEVCO and a host of others.)

    The city’s ethics code is modeled after the state’s and it can be viewed here (just scroll down to the subtitle):

    http://www.ci.wausau.wi.us/citycode2.asp?id=3

  7. Thanks J Bone. I just imagined a guy like you having a conscience and what not, I sort of had a movie in my head. But its good that I am wrong.

    Vote away big dog Vote Away.

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