November 22, 1999

To: Policy and Finance Committee

From: W. A. Liczyk

Chief Financial Officer & Treasurer

Subject: Accounts Receivable - Largest Debtors

Purpose:

This report provides information on outstanding receivables related to property taxes.

Financial Implications:

N/A

Recommendation:

It is recommended that this report be received for information.

Background:

At its meeting held on July 27^th, 1999, Council adopted the following amendment to Clause No. 1 of Report No. 5 of the Audit Committee, headed "1998 City of Toronto Consolidated Financial Statements" requesting the Chief Financial Officer and Treasurer to submit a report to the Policy and Finance Committee on the following:

" (1) the name of the 20 largest debtors who have had outstanding balances for more than one year;

(2) an age analysis of the receivables as at December 31^st, 1998;

(3) a source analysis (i.e. how the receivables arose, for example refuse disposal, tax, parking revenue, etc.) of the outstanding other receivables as at December 31^st, 1998; and

(4) what steps the City can take to reduce the balance of receivables."

Comments:

The largest outstanding receivable that the City has relates to property taxes. Each year the City bills over $4.6 billion in tax revenue, of which $2.5 billion is for municipal purposes. The largest outstanding tax receivable account is approximately $9.0 million. In comparison, the largest outstanding water account, which corresponds to the City's next largest receivable area, is only $139,000. Given that property taxes represent the City's largest receivables, this report provides information on the top 20 property tax accounts with outstanding balances of more than one year, an age analysis of tax receivables as at December 31^st, 1998, and an overview of the steps the Department takes to collect these outstanding accounts.

Appendix A lists the 20 properties in the City with the largest outstanding taxes, of more than 1 year, as of October 7^th, 1999. Given that privacy legislation restricts us from identifying the debtors' name or information which can lead to the identification of such personal information, Appendix A simply identifies the properties as 1 through 20, with no reference to name, property location, or assessment roll number. All of the properties listed are "business" properties, most of which are in the "Commercial" property class. These 20 properties total $61.9 million in taxes outstanding or 15% of the City's gross tax receivables as at October 31^st, 1999. Of these properties, 2 are currently registered, 3 can be registered as of January 1^st, 2000, one property can be registered now, and 2 properties have payment arrangements so registration is currently not required.

Appendix B provides an age analysis of outstanding property taxes (business and realty) as at December 31^st, 1998, with a comparison to outstanding taxes as at October 31^st, 1999. These receivables arose as a result of taxes levied against the real property. In addition to the actual levy, additional costs have been added to the account in the way of penalties and interest (as prescribed by statute and by-laws of the City of Toronto), and in some cases, charges have been added for other costs such as returned or NSF cheques.

Procedures are in place to ensure that collection efforts are commenced as taxes become overdue. Collection efforts include, but are not limited to, the following.

i. Assignment to an internal revenue collector 5 days after an instalment due date. Revenue Collectors contact the taxpayer by telephone and/or letter to arrange suitable firm payment arrangements.

ii. Scheduled meetings with the taxpayer(s);

iii. Property title search and contact with interested parties on title (e.g. Mortgagee)

iv. Business properties (Commercial, Industrial and Multi-Residential) where no suitable payment plan is successfully arranged are issued to a Bailiff, pursuant to section 400 (1) of the Municipal Act. If the Bailiff is unsuccessful in the recovery of taxes, a Notice of Attornment of Rent is issued pursuant to section 384 (1) of the Municipal Act.

v. In the case of Business Occupancy Taxes, if a Bailiff is unable to make suitable payment arrangements, they may be instructed to serve a Notice of Seizure of goods and chattles. In the event that the business leaves the assessed address, the account is assigned to an external Collection Agency for skip trace collection methods.

In the case of realty taxes, municipal tax sales proceedings can commence once taxes have been in arrears for three years (for lands with a building) or two years for vacant land. It is the Finance Department's policy that tax sales proceedings are only commenced after all other collection efforts have been exhausted. If staff are unable to achieve payment or a firm, suitable repayment plan to address the arrears of taxes, they proceed with the steps as outlined in the Municipal Tax Sales Act (the "Act") to collect the tax arrears. The debtor has one year from the date of registration of a tax arrears certificate on title of the property, to pay the cancellation price which includes all of the taxes levied, any interest/penalties and costs. Failing payment within that year, or the entering into of an extension agreement, where the Treasurer is satisfied that the legislation has been substantially complied with, the City is required to proceed with a public sale of the property.

Following is a summary of the steps taken prior to registration an account and throughout the registration process:

1) review by manager to ensure all collection efforts have been exhausted;

2) conduct a search of title to the property;

3) prepare and register a tax arrears certificate;

4) prepare and send notice of registration to owner(s) and all interested parties;

5) prepare and register the statutory declaration (verifies that step 3 above was completed);

6) within 30 days, after 280 days from registering the tax arrears certificate, send a final notice to all interested parties;

7) prepare and execute a statutory declaration, which does not need to be registered, (verifies that step 4 above was completed); and

8) if payment is received, prepare and execute a cancellation certificate.

Additionally, although not prescribed by legislation, staff attends at the property to try to speak with the owner and if unable to make contact, speak with neighbours to determine the whereabouts and situation of the owner. At the time of attendance, if staff is able to talk to the debtor, they advise of the next steps that will be taken if no suitable payment arrangements are made. In addition, they observe the property by looking for any environment concerns. Proceedings under the Act are reviewed carefully by senior finance staff.

Conclusion:

The largest outstanding receivables that the City has relate to property taxes. Each year the City bills over $4.6 billion in tax revenue, of which $2.5 billion is for municipal purposes.

The Finance Department has a team of revenue collectors who actively pursue collection of outstanding receivables. In the case of property taxes, the Municipal Tax Sales Act stipulates that tax sale proceedings can commence once taxes have been in arrears for three years (for land with a building) or two years for vacant land.

Contact Names:

Giuliana Carbone

Director, Revenue Services Division

Phone: (416) 392-8065

Fax: (416) 395-6811

Email: gcarbone@toronto.ca

Al Shultz

Director, Accounting Services Division

Phone: (416) 397-5240

Fax: (416) 397-0835

Email: ashultz@toronto.ca

Margo L. Brunning

Manager, Collections/Receivables,

Payments and Regional Customer Service

Phone: (416) 395-6789

Fax: (416) 395-6703

Email: mbrunnin@toronto.ca

W. A. Liczyk,

Chief Financial Officer & Treasurer

APPENDIX "A"