The city of St. Louis isn’t known for making smart business deals with out-of-towners. Those of us ancient enough to date back professionally to the 1980s and ’90s are acutely aware of this.
In that era:
A fellow from New York named Harold Glasser convinced the city government that handing $300,000 to his Miss Universe Pageant would put us on the world map. It didn’t.
A fellow from Pittsburgh named John Connelly bought and sold us our treasured Admiral riverboat at least twice. That didn’t work out so well, either.
A fellow from Beverly Hills named Harry Ornest bought and sold us back our beloved Arena and the Blues hockey franchise, netting something like a $20 million profit in a handful of years. At least the team is still here.
A fellow from New Jersey named Ralph Ingersoll Jr. convinced the civic elite and some big advertisers that his dynamic new daily St. Louis Sun would make us a rocking two-newspaper town again. It lasted just a matter of months. Now we’re barely a one-newspaper town.
Believe me, I could go on.
So forgive my cynicism when a letter arrived indicating that a law firm from San Antonio, Texas, was representing the city of St. Louis. That’s right: Official business from the city of St. Louis had been transmitted to me by Linebarger Goggan Blair & Sampson LLP of San Antonio.
This was no press release, mind you, as it had been sent to me in my off-camera role as a law-breaking average citizen. The “notice of unpaid traffic code violation” informed me politely—and with no threat whatsoever—that I had run afoul of one of the 25 red-light cameras that now guard city intersections.
I was told how to pay my $100 and provided a toll-free number for questions. It was more of a late-reminder notice than the sort of threatening missive one might expect from a collection law firm.
Actually, it was a late, late-reminder notice. I had forgotten about the ticket from November 2008, but somehow it took the city—and its collection agency—nine months to send an overdue notice. It turns out Linebarger receives accounts at the six-month overdue mark.
Initially, I wasn’t sure if I should pay it, seeing as how one news story stated that some aldermen weren’t paying these tickets, and another reported that a judge was suing to throw out the whole program. Plus there was the little detail that the city admitted it failed—for many months—to follow its own ordinance requiring the posting of signs advising of the presence of cameras.
Still, I have paid the ticket just because I should, and I would have done so had the city simply reminded me earlier. Chalk up $25 lost to the city. The experience begs a few questions:
Why would St. Louis engage this law firm from San Antonio to send out such a simple document? Is the city’s postage meter broken? Is the computer system down? Why on earth wouldn’t the city collect its own tickets? Why doesn’t the city send out overdue notices before turning the account over to Linebarger at the six-month mark?
And if there’s really a good reason to outsource this basic business function, has St. Louis developed a lawyer shortage that I hadn’t heard about?
I smell another bad deal with out-of-towners.
It turns out that Linebarger’s red-light camera business is only a small part of its lucrative collection contract with the city. The firm does all collections—paid at 25 percent of receipts—on overdue debt for the city courts, including $18 million in past-due debts going back to those 1980s.
Scott McGlasson, Linebarger’s Kansas City partner who handles the St. Louis account (another out-of-town angle), says his firm’s expertise in collections gives the city a resource to collect money that would otherwise “fall through the cracks.”
“Governments are being asked to do more with less all the time because of budget cuts,” McGlasson says. “It’s a huge, huge job keeping up with all the delinquent accounts. Our effort has certainly been successful for the city.”
St. Louis is hardly alone in this.
Linebarger is quite a success story, having sprouted from humble origins to become a national leader in the business of outsourced collections for governments around the country, boasting of gross receipts totaling $1 billion annually for more than 1,900 public clients. “The firm is now a major player in public-sector collections,” beams its website.
The major player did have a partner plead guilty for bribing a San Antonio councilman to win the city’s tax-collection contract. Last year, Chicago’s inspector general had Linebarger forfeit a $33 million traffic-ticket collection contract over having funded an out-of-state trip for a key government official.
BusinessWeek prominently featured these difficulties and others in a March article titled “Are Private Debt Collectors a Bad Bet for Cities?” with the subtitle “Studies find municipalities are more cost-effective using their own people. And there’s less palm greasing.”
The magazine cited a study by an IRS taxpayer advocate tracking two outside firms that had made $7.5 million in commissions on $37.5 million in collections. The advocate’s conclusion: Had the IRS spent the same $7.5 million to retrain existing staff, it would have netted $250 million. The IRS ended the outsourcing program for collections.
The article also had some local interest for Missourians. It reported that Montana had canceled a contract with GC Services of Houston “after a wave of taxpayer complaints.” As a result, it claimed to be taking in more than four times as much revenue-per-dollar spent than with the outside firm.
“Complaints have gone way down and cost-effectiveness way up,” said Montana revenue director Dan Bucks. As the article goes on to note, “GC Services—which recently won a piece of an estimated $1 billion contract to handle debt collection efforts for the state of Missouri—didn’t return calls or e-mails for comment.” (My emphasis.)
Will we be doing this article again? Yikes.
Ron Smith will have none of this negativity. He is the city’s director of operations, and he is passionate in his defense of the city’s decision to put out for bid millions in collection activity. “We weren’t successful in our efforts to collect overdue revenue, so we made the decision to outsource to assist with those collections,” Smith says. “I think it was a very good decision.”
I don’t. Without doubting Smith’s assertion that city employees weren’t doing a good job collecting money, another set of solutions comes to mind: Hire better employees, improve the collection system, or both.
Here’s a radical idea: If the skill set of collection firms is so special, hire someone with experience at a collection firm.
Contracting out collections might make sense for a small city that doesn’t have large enough collections or the infrastructure to handle the task internally. A city the size of St. Louis has no such excuse.
Smith says a committee of representatives from the offices of the mayor, comptroller, and aldermanic president, as well as the city counselor, chose three firms—two local ones and Linebarger—from a group of 16 that had responded to a request for proposals in October 2007. Once the three co-awardees were selected, it was left to the mayor’s office to divvy up the work.
One local firm, The Outsource Group, received the collection business of the city’s Division of Forestry. The company had done such work for the city before, Smith says. As to the city-court collection business, Smith says letters were sent both to Linebarger and the other co-awardee, the Clayton-based firm of Kramer & Frank, the area’s largest law firm specializing in collections. To hear Smith tell it, Linebarger appears to have outhustled its local competitor.
“Quite frankly, when we notified the two firms, Linebarger contacted us right away with a detailed plan; they were enthusiastic and wanted to know when they could start working with us,” Smith says. “Kramer & Frank just sent us information about what they’d done in other cities.”
Smith says Kramer & Frank would be receiving other city-collection work. The firm declined to comment for this story.
Even accepting the bad assumption that the collection function needed to be outsourced, why not keep the business in the city—or at least the metropolitan area? That concept is embodied in many places by local-preference ordinances, which Smith says exist in the city only for the purpose of buying health insurance.
Smith says Mayor Francis Slay supports the concept of local-preference ordinances, but that it was felt the collection business would be best spread around, and he noted that two of the three awardees were local. But the whole concept of local-preference awards is that if two or more bidders are comparable, the award goes local. How can an out-of-town bidder win in a tie?
This is the same city that decided—how might we say it?—to entice giant law firm Bryan Cave to stay put downtown by inequitably forgoing large sums of city earnings taxes. Is it not a tad ironic that it can’t give preference to local interests in the collection of millions of dollars of its own citizens’ debts?
It’s all part of our strange problem with out-of-towners.
Indeed, St. Louis’ most colorful corporate-desertion story involves Linebarger’s own hometown of San Antonio. In 1992, Southwestern Bell CEO Ed Whitacre uprooted the company headquarters from its long-standing St. Louis home and moved it to San Antonio.
This was a devastating blow to St. Louis—the forerunner of many it would suffer—but what made it legendary was the widely held belief that a significant factor in the decision to move was Whitacre having been snubbed for St. Louis Country Club membership.
Whitacre is now famously chairman of General Motors, but he still calls San Antonio home. One suspects he has been quite accepted in San Antonio’s finest country club, and it wouldn’t be surprising if that club’s membership also includes principals from Linebarger Goggan Blair & Sampson.
Can you imagine the discussion about St. Louis over drinks on the veranda?
SLM co-owner Ray Hartmann is a panelist on KETC Channel 9’s Donnybrook, which airs Thursdays at 7 p.m.
