Title
Resolution Regarding Approval of the Highland Park Bad Debt Recovery Credits Methodology and Approval of Schedule of Member Partner Bad Debt Recovery Credits #2023-1 Totaling $1,000,000
Body
Agenda of: June 28, 2023
Item No.: 2023-234
Amount: $1,000,000
TO: The Honorable
Board of Directors
Great Lakes Water Authority
FROM: Suzanne R. Coffey, P.E.
Chief Executive Officer
Great Lakes Water Authority
DATE: June 28, 2023
RE: Resolution Regarding Approval of the Highland Park Bad Debt Recovery Credits Methodology and Approval of Schedule of Member Partner Bad Debt Recovery Credits #2023-1 Totaling $1,000,000
MOTION
Upon recommendation of Nicolette N. Bateson, Chief Financial Officer & Treasurer, the Board of Directors (Board) of the Great Lakes Water Authority (GLWA), adopts Resolution #2023-234 to:
1. Approve the Highland Park Bad Debt Recovery Credits Methodology;
2. Authorize staff to apply credits totaling $1 million in the first quarter of FY 2024 as outlined in the above methodology and related Schedule of Member Partner Bad Debt Recovery Credits #2023-1; and
3. Authorize the Chief Executive Officer to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND
In accordance with contractual terms for service, Member Partner communities are responsible funding bad debt expense. Over an extended period of time, Member Partner communities have been charged for bad debt expense related to partial non-payment by the City of Highland Park. Simultaneously, litigation with Highland Park has occurred as it relates to water, sewer, and industrial waste control service charges. Extensive writings and communications are available related to these matters. The purpose of this memo is to focus on positive recent developments between the City of Highland Park and GLWA where both parties entered into an “Interim Agreement” which includes the following excerpted provisions:
• “Highland Park agrees to pay and deliver to GLWA $1,000,000 by June 9, 2023, subject to city council approval at the Highland Park city council meeting on June 5, 2023. This amount will be applied to the Judgment in the 2014 Case or to a settlement if one is reached by October 1, 2023.”
• “The Parties understand the State intends to file a position statement with the Court in the 2014 Case stating its support for the stay of proceedings and explaining why the State is involved and intends to participate in the efforts to resolve this matter and reach a resolution. The Parties will work in good faith toward a comprehensive solution to all issues.”
JUSTIFICATION
The City of Highland Park made the $1,000,000 payment on June 9, 2023 as agreed. Given that this payment is in relation to aged balances for which Member Partner communities funded via a bad debt expense line item in the service charges calculation, it is appropriate to credit their accounts in a consistent manner. Further, it is anticipated that resolution of this matter may result in additional payments. For this reason, a Highland Park Bad Debt Recovery Credits Methodology and a Schedule of Member Partner Bad Debt Recovery Credits #2023-1 have been prepared for consideration by the Board of Directors.
Highland Park Bad Debt Recovery Credits Methodology
Last year, GLWA asked its charges and financial consultant from The Foster Group to document an analysis of amounts that had been directly included in Water and Sewer Charges to GLWA’s first-tier Member Partners related to Highland Park bad debt. That information was subsequently utilized to inform all first-tier Member Partners of such amounts. The framework established by that analysis was widely shared and reviewed with Member Partner communities. It was also anticipated at the time that allocation of future bad debt recovery for payments related to Highland Park services would align with that analysis. See attached memo from The Foster Group which provides further details.
The overall allocation is 87.4% Sewer System and 12.6% Water System based on a proportional share of what was included in previous years’ charges for services to first-tier Member Partners. Also attached to that memo was a schedule which identifies a percentage for each Member Partner community. It is recommended that these percentages be established as a key element of a “Highland Park Bad Debt Recovery Credits Methodology” to expedite the handling of future credits, acknowledging that the actual credits would not be applied without Board Member approval due to the budget impact and that it is considered a charge setting decision requiring five affirmative votes for approval.
Schedule of Member Partner Bad Debt Recovery Credits #2023-1
Consistent with the methodology described above, a schedule of “Member Partner Bad Debt Expense Recovery Credits #2023-1” is recommended to be applied to the August 2023 bills for July 2023 services. This timing will allow for setting up this credit mechanism in the billing system and communication and engagement with Member Partners.
BUDGET IMPACT
The financial impact of reimbursing Member Partners for recovery of bad debt is largely neutral for GLWA. The budget impact spans multiple fiscal years of bad debt accumulation whereas the bad debt recovery credit is in future years. The annual budget impact is manageable and will be reflected in budget amendments for the first quarter of FY 2024.
COMMITTEE REVIEW
This matter was reviewed by the GLWA Audit Committee at its meeting on June 26, 2023. The Audit Committee unanimously recommended that the Great Lakes Water Authority Board of Directors adopt the proposed Resolution #2023-234 to:
1. Establish the Highland Park Bad Debt Recovery Credits Methodology;
2. Authorize staff to apply credits totaling $1 million in the first quarter of FY 2024 as outlined in the above methodology and related Schedule of Member Partner Bad Debt Recovery Credits #2023-1; and
3. Authorize the Chief Executive Officer to take such other action as may be necessary to accomplish the intent of this vote.
SHARED SERVICES IMPACT
This item does not impact the shared services agreement between GLWA and DWSD.