HomeMy WebLinkAboutItem 06.oApril 4, 2011
Proposed Action
Item No.
RESOLUTION AMENDING THE 2011 SCHEDULE OF FEES
(RELATING TO CONVENIENCE FEES)
Staff recommends adoption of the following motion: Move to approve the Resolution Amending
the 2011 Schedule of Fees (relating to Convenience Fees).
Approval of the Resolution will result in implementation of convenience fees for on -line payment
of credit (and debit) card fees.
Overview
At the March 28 work session, the Council directed staff to implement "Convenience Fees" for
on -line payment of credit card fees. A $3.75 "Convenience Fee" will be applied for all on -line
utility credit card payments and a $2.50 "Convenience Fee" will be applied to all on -line
inspection permit credit card payments.
A convenience fee will not be applied for parks, recreation or arts center credit card payments
since the convenience fee could impact potential revenues and program participation.
Primary Issues to Consider
Should the City accept credit card payment for utility hills?
➢ If yes, who should pay the credit card fees? City or the customer?
➢ If the utility customer is responsible for payment of the fees, should the same payment
policy be applied to other on -line services such as permit fees, recreation program
registration and arts center performances.
Supporting Information
Denntselter, Finance Director
Financial Impact: Refer to details attached hereto Budgeted:
Related Documents (CIP, ERP, etc.):
Notes:
Source:
Merchant Service Fees
Convenience Fees
Primary Issues to Consider
Utility customers have been requesting the ability to pay for city services with credit card. In the
coming months, the City of Lakeville will have the capability to accept credit card payments for
utility bill payments.
Issues
C. Should the City accept credit card payment for utility bills?
o If yes, who should pay the credit card fees? City or the customer?
• If the utility customer is responsible for payment of the fees, should the same
payment policy be applied to other on -line services such as permit fees,
recreation program registration and arts center performances.
The reference to credit card payments is a generic phrase for "Merchant
Services" that applies to other forms of electronic payments including debit cards.
There are currently more than 200 different merchant service fees depending on type of
transaction (debit vs. credit card), type of card (example: rewards), level of security, type of
business and a host of other factors. Based on recent trends in the financial sector, we anticipate
that the number of fees and diversity of the fee structure will increase exponentially in the
coming years. In addition to the factors noted above, merchant service fees are dependent on a
number of transactions and the value of the transaction.
The merchant service rates for utilities are less than 1% of the payment (approximately $1.10 to
$1.20 of the average residential utility payment) assuming there are no "convenience fees" (refer
to section below entitled "Convenience Fees "). 1f the City Council concurs with acceptance of
credit cards for utility bills, we anticipate that approximately 5 — 20% of customers will utilize
credit card processing.
The question then becomes, who should be responsible for payment of the fee? The City of
Lakeville or the customer - through the collection of "convenience fees ".
Merchants (City) have the ability to charge a "convenience fee" to the customers who pay by
credit card. The VISA Merchant Services Agreement, however, has the following restrictions
which are an issue with respect to charging a convenience fee for City of Lakeville services:
C• Is applied only to non face -to -face transactions.
• Must be a flat or fixed amount, regardless of the amount of the payment due.
If the City of Lakeville implements a "convenience fee ", staff is recommending a convenience
fee of $3.75 per on -line transaction. However, if the average transaction is more than $150, the
convenience fee will increase. The convenience fee may be subject to change depending on
actual costs incurred. Convenience Fees charged by other utilities are as follows_
Other payment options
Xcel Energy
Dakota Electric Association (DEA)
Minnesota Energy Resources
CenterPoint Energy
$ 4.85
$ 3.95
$ 3.95
$ 3.00
The counter argument for "convenience fee" is that the City should promote practices (such as
inspection permit applications and recreation program registrations) which reduce staff time and
resources relating to entering and processing fees. Convenience fees are not equitable; the $3.75
convenience fee is charged universally to all transactions which mean the low dollar amount
transactions are paying a disproportionate amount of the actual cost of credit card processing and
are therefore subsidizing the high dollar amount transactions. Customers who pay on -line pay a
"convenience fee" however, customers who pay at the counter do not pay a "convenience fee."
Other payment options also have processing costs and attributes. The cost and associated
processing issues are therefore dependent on the method selected by the customer. The issue as
to whether (or not) to accept credit cards and whether (or not) to charge a "convenience fee"
should, therefore, take into consideration other payment option costs. The current payment
options available to utility customers are as follows.
Cash. There is little or no cost involved with payment by cash. Cash transactions, however,
must be made in person the City cannot transact cash transactions on -line.
Cheeks. The City's depository bank charges a fee of $.06 to $.09 per check depending on the
bank routing. The fee is per item — not a percentage of the transaction amount. Check payments
are usually accompanied by a utility stub which can be efficiently scanned and recorded to the
customer account.
On -line banking. The fastest growing trend is customer payment of utility bills using on -line
banking. The issuing bank provides a check (usually through a processor) to the City as directed
by the customer. The City's depository bank charges a fee of $.06 to $.09 per check depending
on the bank routing. The fee is per item — not a percentage of the transaction amount. Such
transactions, however, typically require more staff time to process because the issuing bank never
submits a bar -coded remittance advice. The City can obtain an electronic file of utility account
numbers; however, most of the issuing banks charge a fee for this service.
Automated Clearing House (ACH). Utility customers have the ability to enroll in ACH
payments whereby they authorize the City to draw funds from their accounts on specified dates.
The cost is $.10 per transaction, a $.10 daily hatch fee and a $15 monthly base fee. There is
nominal staff labor required because the account and payment information are posted
electronically to the customer account.
Ancillary issues
The city processes financial transactions at a number of locations. Utility payment policies and
procedures may have implications with respect to the other payment centers. The following is an
overview of the scope of City operations.
Locations
Credit
Volume Cards
Percent of transactions
Electronic
Cash Checks Transfers
1% 98%
Finance $ 30,000,000 1%
Liquor $ 14,000,000 92% 8%
Utility billing 8 8,000,000 1% 89% 10%
Inspections (at counter) $ 900,000 I% 99%
Inspections (on -line) 8 35,000 100%
Parks and Recreation $ 420,000 35% 12% 53%
Parks and Recreation (on -line) $ 195,000 100%
City facilities $ 40,000 2% 98%
The City currently does not charge a "convenience fee" for other on -line financial transactions
such as inspections pennits, recreation program registrations or arts center programs. If the City
Council concurs with implementation of a "convenience fee" for utility billing, does the City
Council wish to do the same for other on -line credit card financial transactions?
Parks, Recreation and Arts Center. Approximately 55% of all Park and Recreation fees are
paid with credit cards. On -line services reduce the amount of staff time required to process
registrations. In order to encourage customers to utilize the on -line system, there are currently
no convenience fees for the Parks, Recreation and Arts Center on -line payment system.
In staff's opinion, the convenience fee will exceed the price point for some customers. If such is
the case, the City is at risk for losing revenues.
Inspections. The Inspections Department provides on -line applications for those permits which
do not require submittal of a plan. Examples include electrical, plumbing, heating, air
conditioning, residing and reroofs which typically have a 840 to $90 fixed fee. While the e-
pennit revenue are significantly less than other permits (such as building permits), they represent
approximately 20 -25 °A of total inspections transactions. Credit card payments are not offered at
the counter.
The March 21, 2011 budget amendments eliminated all credit cards fees for the Inspections
Department effective April 1 unless a convenience fee is paid by the on -line permit applicant.
A "convenience fee" for on -line processing is recommended to be $2.50.
CITY OF LAKEVILLE
ATTEST:
RESOLUTION NO.
RESOLUTION AMENDING THE 2011 SCHEDULE OF FEES
(RELATING TO CONVENIENCE FEES)
NOW THEREFORE, BE IT RESOLVED that the following schedule of fees is hereby
amended as follows.
IV. GENERAL GOVERNMENT SERVICES
Convenience Fees — on -line credit card payments
A. Utility $3.50 / transaction
B. Inspection permits $2.50 / transaction
APPROVED by the Lakeville City Council this 4th day of April 2011.
Charlene Friedges, City Clerk
CITY OF LAKEVILLE
Mark Bellows, Mayor