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Funny Business

Collection agencies are generally not that hard to find. Most of the time, in fact, they're hard to get away from, given that their purpose in life is to be so ubiquitous, so in your face that people who've avoided paying off debts finally succumb and put that check in the mail.

But Municipal Collections Inc., which the city of Houston has contracted with to round up in excess of $60 million worth of overdue traffic and parking tickets, doesn't fit that easy-to-locate pattern. The suite in the Southwest Freeway office building that's supposed to be its official address displays no signage. And the company isn't listed on the office building's directory.

Still, given its history, the fact that Municipal Collections has all the visibility of a Stealth Bomber might be appropriate. By the time the company had arranged with the city to track down ticket scofflaws it had already used four different addresses and phone numbers -- and this from a firm that, at least in the eyes of Harris County and the Texas Secretary of State's office, didn't even exist until three weeks before the City Council decided it was the right company to round up lost revenue.

Yet despite the company's short and peripatetic life, it managed to beat out a number of better established collection agencies for the city's business, and for a deal that has the potential to earn some $2 million annually for the lucky contractor. Nearly two years after he lost out to Municipal Collections, Terry Simonds, president of Houston-based Universal Fidelity Corp., still has questions about how the contract was let. He wonders about how, once Municipal Collections entered the competition, the rules of the game were changed. And he can't help but notice that the increase in ticket collections that was supposed to flow from the new contract has not been around 25 percent as promised, but has hovered closer to 4 percent. The difference to the city is some $4 million a year.

"This thing," Simonds says, "stunk right from the beginning."
"This thing" began in late 1992, when staff members from the Municipal Courts Administration Department met with several companies interested in submitting proposals for a newly created multi-million dollar revenue contract. The city had decided to split its ticket collection business into two parts. Previously, all late tickets had been collected by Lockheed Information Systems Corp., but now Houston officials felt that income would be increased if traffic and parking fines up to 210 days delinquent were pursued separately from fines more than 210 days overdue. Lockheed declined to bid under the new arrangement, and the older tickets, or "old warrant cases," were turned over to San Diego-based West Capital Financial Services Corp.

Still at issue, though, were the "new warrant cases," and it was those that the court staff had gathered to discuss. As the meeting began, the president of one Houston collection firm announced, "Look, if this is going to be just another good ol' boy award and we're all not playing on a level playing field, don't waste my time."

Assurances were made that everything was on the up and up, and ten proposals were submitted, a number of them from established local and national collection firms who detailed exactly how they would carry out the new contract. But when the smoke cleared, the municipal court administrators had given their nod of approval to the fledgling Municipal Collections Inc. Several things distinguished Municipal Collections' pitch from the others, not the least of which was that, at the time, the company wasn't registered in Harris County or with the secretary of state's office. In other words, it didn't officially exist. That registration wasn't filed until March 10, 1993 -- just three weeks before City Council approved the recommendation that the company be awarded the contract.

But Municipal Collections had other distinguishing characteristics as well, chief among them the connections its principals had with the city and the administration of Mayor Bob Lanier. According to Municipal Collections' proposal, the company's principals included:

* William E. Wells, a municipal courts judge from 1983 to 1988.
* Peary Perry, a Lanier campaign worker and private investigator who for years had done security work at apartment buildings and financial institutions owned by the mayor. Perry's role as a source for a Channel 13 story on an insurance scam that put a serious dent in the mayoral bid of Lanier's 1991 runoff opponent, Sylvester Turner, is an element of Turner's pending libel lawsuit against the television station.

* Clyde Wilson, the locally renowned private investigator who in 1991 identified himself as the initial source of the Channel 13 story but who, according to a court deposition by a station employee, had suggested the station contact Perry for information on the insurance scam.  

According to its proposal, Municipal Collections would start up for the express purpose of pursuing new warrant cases. The proposal cited Wilson's flair for tracking down absconders, Wells' experience and expertise with municipal courts, and Perry's role as a collection company owner -- though according to Perry's resume, at the time Peary Perry & Associates had no collections experience but had only done corporate and insurance-related investigations.

The proposal also failed to note that though Wells had been a judge, in 1989 he had been indicted on 20 counts of embezzling the Social Security checks of an elderly woman for whom he had been appointed guardian. In January 1990, Wells pleaded guilty to a single count, received five-year's probation and was ordered to pay $21,000 restitution. In 1993, Wells was disbarred.

Its principals notwithstanding, on several important fronts Municipal Collections clearly failed to meet the requirements the municipal courts administrators had set up when asking for proposals. For one thing, it didn't have the required five-years experience in collections and payment processing. Also, it couldn't produce the required three years worth of CPA-audited financial statements.

Failure to meet such basic qualifications should have eliminated Municipal Collections immediately. But in the middle of the proposal process, the very standards Municipal Collections had trouble with were changed. An addendum to the rules under which proposals were accepted replaced the five-year requirement with "demonstrated sufficient knowledge and experience." Proof of financial stability was also revised, from three years of audited statements to documentation that showed the business could stay afloat for one year.

The company also seemed to have some technical deficiencies. It apparently had no computer system -- a requirement for a modern collections business -- though it submitted photocopies of an elaborate network from what appeared to be a textbook or manual. Moreover, it was difficult to determine where Municipal Collections did business. Yet a municipal courts evaluation committee found that the company met or exceeded requirements in all of some 40 categories save one -- customer satisfaction. On March 31, 1993, with five council members absent, City Council voted unanimously to give the new warrant cases contract to Municipal Collections.

Only one council member, Eleanor Tinsley, had thought to question the recommendation of Municipal Collections. On March 29, she had met with Larry Miller, director of the Municipal Courts Administration Department, and asked for more information on the company's financial situation. But in a letter to Lanier dated the day after Municipal Collections was given the City Council's stamp of approval, Tinsley complained that Miller hadn't provided her the information she wanted until after the vote. And when she did get the information, the mention of a mystery woman with no apparent relation to the company only raised more questions in Tinsley's mind.

"The financial information presented seems to be a statement of the net worth of an Elsie V. McCrae," Tinsley wrote Lanier. "Yesterday morning in Council, Mr. Miller mentioned a Ms. McCrae as one of the principals in the firm. That was the first I heard her name.... Needless to say, I am curious as to what relationship Ms. McCrae's income statement might have to the fiscal viability, legally, of Municipal Collections Inc...."

It's unclear whether Tinsley received an answer from Lanier; she and the mayor both failed to return phone calls from the Press. But Tinsley aide Madeleine Appel says that the councilwoman no longer has concerns about the contract.

Former councilman Jim Greenwood was absent when the votes for Municipal Collections were cast, but he did take part in the discussions about the contract. When asked if Council was told about Wells' conviction for embezzlement, Greenwood said it was not and that it was the first time he had heard of it. "I did not know that," he says. "Certainly, if that information had been made available, questions would have been raised and it would have been appropriate to ask Mr. Wells to explain the circumstances." (Wells did not return phone calls requesting comment.)

Larry Miller, who has worked for the municipal courts for 27 years and took over as director of administration for the department in 1991, says he was "shocked" to learn that Wells was a convicted embezzler. "Good Lord, I was not aware of that," Miller claims. "Of course it would have made a difference [if we knew]. You'd certainly have to suspect a man's character if he's been convicted of a felony."

Another area in which Municipal Collections has raised some questions is its compliance with the city's Minority and Women-owned Business Enterprise program. When seeking the "new warrant cases" contract, the company touted its efforts to involve minorities, invoking the names of a half-dozen minority-owned businesses, several with politically-connected owners, and claiming it planned to "greatly exceed" the goal of giving minority subcontractors a 19 percent share of the contract.  

But owners of several of the minority-owned businesses Municipal Collections claimed a connection with say the firm hasn't followed through on its promises. According to Municipal Collection's minority participation plan, Tejas Office Products, Inc., a company owned by Lupe Fraga, brother of Councilman Felix Fraga, stood to earn as much as $12,000 per month as a subcontractor. But after the city signed off on the deal, Lupe Fraga says, Municipal Collections "[forgot] about that nice little arrangement they made."

Fraga says he has received only a small fraction of the work Municipal Collections said it would offer. Since January, he says, his firm has been paid a grand total of $322 by Municipal Collections. Diva Garza, owner of International Team Consultants, a personnel agency, said that Municipal Collections used her company's name in its proposal, then negotiated with her in less than good faith. "They wanted me to [provide personnel services] at a price that wouldn't even have covered my costs," she says.

Despite those fallings outs, Municipal Collections, according to City Attorney Benjamin Hall, remains in compliance with the Minority and Women-owned Business Enterprise program by virtue of its arrangement with Bayou City Enterprises, an African-American-owned company. A clause in Municipal Collections' contract guarantees Bayou City 19 percent of the work. Bayou City is supposed to take care of "hiring, training and overall management of payment processing, notice generation and tracking plus associated materials, supplies and equipment." That's quite a lot for a company that, like Municipal Collections itself, didn't exist until just before City Council approved the collections contract. And while Bayou City's principals -- John W. Davis, Ray Shackelford and Walter Strickland -- are experienced attorneys, none of their resumes reflect any personnel or collections experience.

Indeed, when contacted by the Press, Davis seemed unwilling -- or unable -- to discuss the subcontract with Municipal Collections. "I wouldn't want to get into anything that, shall I say, nit-picky," says Davis, who's the uncle of Councilman Judson Robinson III and includes among his list of clients the mortgage company owned by Robinson's family. "I don't want to specify ... uh ... uh ... you know, work varies, and I wouldn't want to get into commenting on that. I'm sure we're doing our share of the work."

Despite all the questions, municipal courts administrator Miller says Municipal Collections has been productive. "The fact remains the choice has been a very good one," Miller says. It has been for Municipal Collections, anyway. In the 18 months since it won its contract, the company has been paid more than $2 million.

Meanwhile, the city's return has been significantly less than it had hoped. In a March 18, 1993, memo to City Council, Miller said Municipal Collections was projecting a 25-percent increase in net revenue to the city, an increase that would have calculated out to nearly $6.5 million a year. But when the figures came in for fiscal year 1994, which ended June 30, it was found net revenue to the city increased by just 4 percent, or nearly $4 million less than projected.

Of course, you could try to call Municipal Collections to find out what happened. But if you did, you'd be out of luck. The company's phone number isn't listed in the directory.


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