Funny Business II

Lavonia Gill went to the Municipal Courts Administration Building almost a dozen times to pay a traffic ticket she received in 1990. But on each occasion, after standing in a long line with others who have been issued citations for everything from speeding to feeding zoo animals, Gill was unable to give the city of Houston her money. That's because the courts administration had lost its record of the ticket, even though Gill still has the crumpled citation.

"They said they have searched and searched," Gill says. "I'm standing there with it in my hand, and they're telling me they can't find it."

Recently, Gill learned that her ticket, issued to her for following too closely behind a police car, was back on the books and that she would have to pay the $300 fine. That news came as a relief, since Gill had been told there was a warrant out for her arrest while she was unsuccessfully trying to square her debt.

In an attempt to correct such inefficiencies and at the same time increase revenue to the city, Mayor Bob Lanier decided in 1992 to split the process of collecting delinquent tickets between two companies -- one to collect on "new warrant" cases delinquent for less than 210 days and a second to pursue "old warrant" cases more than 210 days overdue.

In terms of producing new income for the city, however, the two-contractor system has been, at best, a disappointment: net gain from collections for the city's 1994 fiscal year, the first in which the city split collection duties, fell short of projections by about $1.5 million. Revenue for fiscal year 1995, which ends June 30, is expected to be about $2 million below initial projections, though higher court costs imposed in 1993 by the Legislature are partly to blame.

But while taxpayers have reaped little added benefit from the revised collection method, the arrangement has paid off for friends of the Lanier administration, specifically Municipal Collections Inc., the company that won the "new-warrant" contract in March 1993 and since has been responsible for the lion's share of revenue. ("Funny Business," Houston Press, November 3, 1994.) Most recently, minority subcontractor Bayou City Enterprises was removed from the new-warrant contract after an audit by Controller George Greanias determined the firm had collected more than $400,000 in fees while another company did the work. Bayou City, which is owned by three politically connected lawyers, had been given an unprecedented guarantee to receive 19 percent of the fees generated from the city's contract with Municipal Collections in a deal worked out by then-city attorney Benjamin Hall and Dave Walden, Lanier's co-chief of staff.

Now, the Press has learned that the city's contract with Municipal Collections is something of a family affair. The firm's collection manager is Verna Fletcher, sister to the wife of Larry Miller, the chief clerk and director of the city's Municipal Courts Administration Department. Miller directed the process that led to the awarding of Municipal Collections' contract. He is responsible for administering the contract -- which includes approving invoices -- that has paid his sister-in-law's employer almost $3 million since June 1993.

Miller also does the hiring for the municipal courts department, and on February 2, 1993 -- while he and the city legal department were negotiating the contract with Municipal Collections -- he put Verna Fletcher's husband, Ken Fletcher, on the city payroll as an assistant municipal courts manager.

Miller says there's nothing in the law that would have prevented him from hiring Ken Fletcher and that he "cleared it with all parties," including Lanier's office and the city's personnel division. "He is not related to me by blood," Miller says, "so that clears the ordinance."

Miller insists that no conflict of interest "that I'm aware of" has resulted from his sister-in-law and the wife of one of his employees working for a contractor doing city business through his depart-ment. He describes Verna Fletcher as "good friends" with William E. Wells, one of the original principals in Municipal Collections. Miller, who's worked for the city for 27 years, is also acquainted with Wells, a municipal court judge from 1981-88. (Wells reportedly relinquished his share of Municipal Collections prior to a story in the Press revealing that he had pled guilty in 1990 to embezzlement and theft of a woman's Social Security checks.)

Miller says Wells hired Verna Fletcher to manage collection activities for the city contract "before I even knew it. I don't think I probably would have gone along with that, but it was a done deal and hell, I'm not going to tell the guy who he could hire and who he couldn't. I told him that it didn't look particularly good and I certainly didn't want anyone thinking it was a put-up deal."

Maybe it wasn't, but the selection committee under Miller's supervision appears to have manipulated the city's "request-for-proposal" process to Municipal Collections' advantage. Municipal Collections was one of ten companies that responded to the city call for proposals in late 1992, even though it was so new it hadn't registered to do business in Texas or Harris County. But Municipal Collections insisted its "local ownership [and] expertise" made it the best candidate.

That local ownership had some intriguing connections to Lanier. In addition to Wells, two of the other original principals in Municipal Collections were private investigators Peary Perry and Clyde Wilson. Wilson has identified himself as the source for a Channel 13 story that raised questions about whether Lanier's 1991 runoff opponent, Sylvester Turner, was involved in an insurance scam. Lawyers for Turner, who is suing Channel 13, have suggested that Perry was the ultimate source for the story.

Perry, president of Municipal Collections, worked for Lanier during the '91 campaign and previously had performed security work at financial institutions and apartment buildings owned by the mayor. Wilson told the Chronicle in January that he bowed out of Municipal Collections in 1993 when former city attorney Hall insisted Bayou City Enterprises receive 19 percent of the contract, but Perry, in a deposition for Sylvester Turner's lawsuit against Channel 13 given in March 1994, testified that he used Wilson as a "consultant" on the collections contract.

But despite Municipal Collections' connections, the city's original requirements for the successful bidder presented immediate problems for the company. Most vexing was a stipulation that a proposal wouldn't be considered unless the bidder had five years' experience in the collections business and was able to provide audited financial statements for the last three years of its operation.

Miller's selection committee removed those barriers when, a week after the original invitations for proposals were sent out, an addendum was issued changing the experience requirement from five years to a demonstration of "sufficient knowledge and experience." The addendum deleted the need for CPA-audited financial statements and replaced it with "financial statements sufficient ... to finance costs of personnel, facilities and equipment."

Today, Miller says he is "real fuzzy" on the addendum because he didn't write it. He did recall that none of the firms bidding on the collection contracts had enough experience. However, the city received proposals from a number of established collectors, including Universal Fidelity, a national firm with offices in three cities, and Dan B. Haggerty & Associates, which, according to its proposal, had ticket-collection contracts in New Orleans, Mobile and four other cities.

Yet, in mid-January, Miller informed city officials that the selection committee had decided Municipal Collections and West Capital were the best firms to handle the two contracts. Municipal Collections' proposal was sent to City Council along with Miller's recommendation in mid-March. It was unanimously approved on March 31, 1993. But the Council awarded the contract without having gotten proof of Municipal Collection's financial health from Miller's selection committee, according to an April 1 letter from City Councilwoman Eleanor Tinsley to Lanier.

Tinsley told Lanier she didn't see Municipal Collections' financial information until several hours after the Council vote. But she still had some concerns.

"The financial information presented seems to be a statement of the net worth of an Elsie V. McCrae [sic]," Tinsley wrote. "Yesterday morning in Council, Mr. Miller mentioned a Ms. McCrae as one of the principals in the firm .... There is no resume in the response for a Ms. McCrae nor any explanation of what her role might be."

A Tinsley spokeswoman told the Press in October that the contract eventually passed muster with the councilwoman. The financial statements Tinsley received were those of Elsie V. McRae of McRae Exploration and Production Co. According to the oil firm's vice president, Michael Nall -- who is also Municipal Collection's assistant secretary -- McRae holds stock in Municipal Collections, whose only client is the city of Houston.

McRae did not return calls seeking comment. But if she heard the same pitch Larry Miller gave to the Council, she had no reason to doubt her investment would pay off. In a March 18, 1993, memo, Miller waxed enthusiastic about Municipal Collection's potential, saying the company's contract would produce about $1.5 million in new revenue -- a 25 percent increase -- to the city in its 1994 fiscal year. But, from June 1993 to July 1994, according to city reports, the combined efforts of Municipal Collections and West Capital resulted in just $477,000 in new revenue. Factor in the roughly $300,000 Bayou City was paid during that same period for doing nothing and the city's new revenue increased by less than 4 percent.

That's not all Municipal Collections' fault. West Capital, which has the "old-warrants" contract, didn't meet its goal, either. But in December, Miller -- with help from then-city attorney Hall, who was privately trying to negotiate a subcontracting deal for a company owned by Nation of Islam minister Robert Muhammad -- threatened to cancel West Capital's contract with the city.

At the time, Miller said he was pleased with Municipal Collections' performance but found West Capital's unacceptable. But Miller offered little to help West Capital perform to his standards. Some of his actions, like including Perry on his municipal courts improvement committee, while excluding West Capital officials, seem petty. Others appear to be matters of poor management.

For example, West Capital cannot get updated addresses and telephone numbers for scofflaws from Municipal Collections. That means when Municipal Collections fails to collect on a ticket and it is passed on to West Capital as an old-warrant case, West Capital has to retrace Municipal Collections' steps to get the updated information.

Then there is Miller's handling of ticket assignments. From July through December, he reduced West Capital's collection assignment by more than 500,000 tickets. Until then, the firm had been averaging about $120,000 a month in revenue for the city. Since fewer tickets to collect means fewer opportunities to generate revenue, the result was a 60 percent drop in West Capital's contribution to the city. In the meantime, Miller raised the revenue goal for West Capital to $175,000 a month.

Miller has since reassigned the tickets to West Capital, and the revenue has increased accordingly: projected gain to the city from the company for March is $173,000. But the reassignment still doesn't include any updated information on ticket scofflaws. Miller says that while his department gets the new information on tape from Municipal Collections, its computers aren't programmed to forward it to West Capital. Miller says the possibility of passing the updated information on to West Capital has been discussed.

Meanwhile, West Capital has begun attending meetings of the courts improvement committee -- a year after it was formed. "They just didn't get pulled in for some reason," is Miller's explanation of the earlier exclusion.

But that's small consolation to the company: In January, Miller informed West Capital that its contract with the city would end in June. The selection process for a replacement has already begun. West Capital did not submit a proposal.

Meanwhile, Municipal Collections learned last week from Miller that the city will be automatically renewing its contract.


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