Instead of refundable deposit, those without credit now pay non-refundable fee
New residents — especially young families coming from apartments — are increasingly likely to have to fork over up to $125 before hooking up to municipal utilities here.
The fees, which have little to do with the cost of connecting services, go beyond merely guaranteeing payment. Deposits did that. The new fees aren’t returned, as they used to be, once a customer has established a record of paying utility bills on time for 12 months.
In Marion, the fee is essentially a non-refundable penalty for not already having established credit.
Unlike other cities charging the fee, Marion — which also appears to have the highest fee in the region — will waive the charge, just as those charging refundable deposits do, if a new resident can prove having paid utility bills on time in the past.
Those who can’t prove timely payment, especially if they move from house to house within Marion, can end up paying the non-refundable fee repeatedly.
In one case, a resident had to pay Marion’s fee three different times — a total of $375.
Officials contend that the primary reason for switching from refundable deposits to non-refundable fees was to simplify bookkeeping, but they also acknowledge that the fees are a new source of income.
“It was a headache with the bookkeeping that was required,” Peabody’s city administrator, Stephanie Ax Lago, said. “It wasn’t profitable. It didn’t make sense,”
Hillsboro, McPherson, Salina, Florence, and Wichita still use refundable deposits. What they charge to hook up utilities is refunded — with interest — after 12 months if payments are made throughout the year.
Marion, Goessel, Peabody, Burns, Newton, and El Dorado all have switched to non-refundable fees.
Marion’s appears to be the largest — $125.
Burns charges a $100 non-refundable fee. Peabody and Goessel charge $50 and $40, respectively. Newton charges $30, and El Dorado charges $15.
Those cities provide water, sewer and trash services but do not provide electric service, as Marion does.
Outside Marion, Westar Energy charges customers a $5 non-refundable connection fee — a fee that, unlike municipal fees, must be approved by state regulators and is based on the actual cost of connecting service.
“There’s a trend toward moving toward connection fees instead of deposits,” said Brad Mears, assistant executive director of Kansas Municipal Utilities. “Typically these fees are just to recover the cost of turning on services and setting up accounts.”
Mears said it was “unusual” to have large fees, such as Marion’s, that seem designed to insure payment and can be waived with proof of good credit history.
In cities that charge refundable deposits, the fee typically is based on projected utility bills. McPherson, for example, requires a deposit equal to double the average bill over the past 12 months. Salina and Wichita, which do not provide electric service, also charge account origination fees that range from $15 to $17.50.
Marion switched from a $150 refundable deposit to a $125 non-refundable fee in 2007.
It is the only city surveyed that does not charge every new resident seeking to have his or her name on a utility bill.
Marion waives its non-refundable fee if a resident produces proof of on-time utility payments for the previous 12 months.
Such proof is impossible to provide if the resident lived in an apartment were utility costs were included in rent. New residents coming from such situations cannot escape the fee no matter how good their credit.
Lisa Adame, who with her family moved to Marion from Southern California more than seven years ago, had to pay Marion’s fee because she had rented her previous home and her name was not on her previous utility bill.
Like many new residents, she was shocked that Marion’s fee was non-refundable.
“It should be applied to your bill or you should get it back,” she said.
Until 2007, Marion residents did get their deposits back. That year, utility clerk Becky Makovec told the city council that calculating interest that accrues on each deposit required extensive bookkeeping.
The council unanimously approved switching from refundable deposits to non-refundable fees “simply because of bookkeeping,” she said.
Bookkeeping wasn’t an issue, however, in Hillsboro, which continues to refund its utility deposits.
Utility bookkeeping is “pretty standard,” Hillsboro billing clerk Mona Hein said. “The computer solves the interest out for us.”
The state sets the interest that accrues on utility deposits. It currently is 0.31 percent annually — or less than 47 cents on a $150 deposit like what Marion used to collect.
Hillsboro and Marion both use utility bookkeeping software that dates to 1999.
According to Hein and Makovec, both cities regularly update their systems with software upgrades, but Makovec said Marion’s system might work differently from Hillsboro’s.
“Every city uses different software and not all cities can afford all the modules,” Makovec said. “Not everything is computerized.”
She added, however, that she did not know whether, in 2007, Marion had the same module Hillsboro did to calculate interest.
Makovec said city auditors also recommended switching from a refundable deposit to a non-refundable fee.
Auditor Scot Loyd of the city’s accounting firm of Swindoll, Janzen, Hawk, and Loyd said his firm had made no specific recommendation to Marion in its annual reports for the two years before the city made the switch in August 2007.
Loyd said that if a recommendation had been made it probably would have been in a blanket notice sent to more than 50 cities his firm represents.
Any recommendation would have been based on a fee study his firm conducted seven years before Marion made the change, he said.
He added that a recommendation to impose fees instead of deposits would not have included a waiver, as is done with deposits, for those who can prove good credit with a previous utility.
“We would typically not impose a non-payment clause,” Loyd said.
He said switching from deposits to fees made financial sense for many cities, especially small cities, and for newly constructed homes.
People without good payment records often create greater rebilling costs for cities, according to Niki Christopher, staff attorney at the Kansas Consumer Utility Ratepayer Board.
However, Christopher said, utility fees and rates “disproportionally fall on the least able to come up with them.”
“Frankly, I don’t see why the administration of deposits is all that unwieldy,” she said. “There are a lot of disadvantaged people on fixed income who find coming up with an adequate deposit very difficult.
“It’s a perennial problem, especially in this economy. I am convinced that making utility service hard to get is not good for the community in general.”
State-regulated utilities cannot charge non-refundable fees in excess of actual hookup costs, but municipalities are not bound by the same regulations, Christopher said.
“I can say with certainty that no regulated utilities would get away with doing what Marion is doing,” Christopher said. “A regulated customer retains an ownership interest in the deposit, and only when the customer leaves with an arrearage owed can the utility seize the deposit, unless the customer asks the utility to apply it to the final bill.”
Mayor Todd Heitschmidt and City Administrator Roger Holter said they had not received any complaints about Marion’s fee.
The city charged its $125 fee a total of 36 times in 2014, bringing in (after deducting sales tax) $4,145 in revenue. Since 2010, the fee was paid 164 times and raised $18,929 for Marion.
Heitschmidt stressed that the fee does not apply to anyone who produces a good credit history with a utility company over the previous 12 months.
“If you have good payment history, you don’t have to pay the fee,” Heitschmidt said. “If you don’t have a good payment history, you’re going to have to straight up pay the fee.”
Heitschmidt acknowledged that some people with good credit couldn’t produce proof of 12 months of on-time payments with a previous utility company.
“Not everyone’s situation is black and white,” Heitschmidt said. “Maybe we’re at a point where we need to look at that, to make sure we’re doing what’s appropriate. It’s probably not a bad idea to do an analysis of that.”
This newspaper has been assisting in that analysis by providing details of its survey of practices in neighboring communities.
Heitschmidt said Marion must be “competitive” with surrounding cities, especially as Marion pushes to attract young people and families.
“We do want young people to bring their families here,” Heitschmidt said. “If that fee is something that could be an issue, we need to revisit it.”
Marion’s fee affects not only new residents but also those moving within the city.
One resident said the fee “has become a normality around here” as she and her husband have moved their growing family to different houses in the city over the past several years while struggling to pay their bills on time.
Altogether, because they have been unable to prove 12 consecutive months of on-time payment, they have paid the fee a total of three times.
Because Marion’s fee is based on credit history, it could be covered by state and federal credit laws. However, experts on such regulations with Kansas attorney general’s office and the National Consumer Law Center declined to comment on the fee’s legality.
Editor’s note: Reporter Ed Pilolla, whose utilities were previously included in his rent, paid Marion’s $125 fee when he moved here last summer.