Study finds downtown businesses were undercharged $180,000 annually for trash collection

photo by: Mike Yoder

The 800 block of Massachusetts Street is pictured on Nov. 17, 2015.

Billing errors resulted in the city of Lawrence undercharging downtown businesses for trash collection by $180,000 per year, a consultant study has found.

The city hired MSW Consultants to review the trash rates downtown and propose a new rate model. The City Commission will receive that report as part of its meeting Tuesday. City staff is asking the commission to determine what action should be taken regarding the past billing discrepancies.

Though the consultant report does not provide the cumulative amount of uncollected trash fees due to the billing errors, it would amount to hundreds of thousands of dollars. The consultants determined the majority of the errors date back five years. However, after doing an analysis of how much it costs to collect trash downtown, consultants are not recommending that the city back-bill downtown businesses.

The consultants also reported on the sources of the billing errors, and the main issue that caused the errors was not previously identified by the city.

When the city originally discovered the errors, city officials previously told the Journal-World that the city found that some of the errors occurred because some downtown businesses were mistakenly not bumped out of the $23 per month base rate, which is charged to a vacant business. Downtown businesses share dumpsters and are charged one of five rates based on square footage and use, with restaurants and bars being charged higher rates. The city charges the base rate while a shop is vacant.

However, while the consultants noted that erroneously applied base rates were one of the reasons businesses were being incorrectly charged, they were not the main reason. The consultant report states that city records show that the billing errors for “over 100 accounts” date back to a billing system conversion that occurred in 2013. Last year, auditors also pointed to that conversion as the primary cause of the city failing to collect nearly $700,000 in payments for land leases, building leases and other miscellaneous agreements.

There are 185 businesses that fall under the downtown trash rates, and the consultant report states that 143, or 77 percent, are being billed incorrectly. Of those incorrectly billed accounts, 127 were undercharged and 16 were overcharged. The billing mistakes total a net revenue loss of about $15,000 per month, or about $180,000 annually.

The consultants found that the amount charged to downtown businesses covered city costs, and they therefore are not recommending the city back-bill businesses to recover underpayments. The report states, though, that it is “justifiable” to correct billing errors and that if the city chooses to retroactively correct the errors it should also include credits where appropriate. It states the city could consider options of recovering various percentages of lost revenue, basically splitting the differences with the account holders.

The city discovered in April that it has been undercharging the majority of downtown businesses for trash collection. City Manager Tom Markus previously told the Journal-World the errors came to the city’s attention after the city announced its rates for its pilot recycling program and downtown business owners questioned why those rates were so much more than their trash rates.

Consultants are recommending that the city move away from the rate model that relies on square footage and use as the determining factors for trash rates for shared dumpsters downtown. The consultants are recommending a new rate structure that determines charges based on the type of business, size of container and frequency of collection. As part of its Tuesday meeting, the commission will also consider the proposed rate structure, which would go into effect in November if approved.

The Journal-World has reached out to the city for comment, but calls were not immediately returned Friday.

The City Commission will convene at 5:45 p.m. Tuesday at City Hall, 6 E. Sixth St.

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