Steller: City's embrace of warranty company raises questions

2014-06-29T00:00:00Z Steller: City's embrace of warranty company raises questionsTim Steller Arizona Daily Star Arizona Daily Star

The letter stinks of a scam: A shady-looking city of Tucson logo sits at the top, and city manager Richard Miranda’s photocopied signature is at the bottom.

In between, it asks you to sign up for a water-line insurance program, offering you a convenient way for you to part with your money, month after month, year after year.

The offer, it says, “is the only service line protection program for homeowners endorsed by the National League of Cities and the Tucson Mayor and Council.”

It goes on in bold italics: “During this initial enrollment campaign the Water Line Repair Program is available for $4.75 per month or for a one time discounted annual payment of $52 dollars — a savings of almost 10%.” All that’s missing are the exclamation points!!!

It’s got to be fake, right?

Nope, it’s real.

The city’s unprecedented deal with a warranty company has hit home for Tucsonans, landing in our mailboxes last week. For many of us, it was followed by a separate come-on letter for the same sort of warranty service from a different company, American Water Resources of Arizona.

In truth, the city’s letter is not a real hard-sell effort, even though it seems scammy in this age of marketing tricks. The offer is for you to send Service Line Warranties of America what amounts to an insurance payment on the water line between your house and the water main. A later letter will make a similar offer for your sewer line. Those are your responsibility.

If they go bad, the company brings in a plumber to do the repairs and you avoid a one-time payment that could reach into the thousands.

The product may be worthwhile, especially for people who own older houses whose water or sewer lines haven’t been replaced. Danny Smith, a plumber with Cal’s Plumbing, said houses built in the 1950s or 1960s generally have galvanized steel pipes that may rust and break, whereas newer houses have PVC pipes that are unlikely to deteriorate without some outside force breaking them.

“It’s sporadic, just like anything else. I replaced two water lines this week,” Smith told me. “It’s a fairly common problem.” 

More than 150 other cities already endorse the same product, and Tucson expects to get about $150,000 per year for its endorsement. The National League of Cities also gets a cut for its endorsement and marketing of the products.

Tucson’s endorsement raises big questions. Among them: Should the city use its name to market any private company’s product? If so, where does it end? At its most absurd extreme, the city could even sell naming rights to Tucson itself. “Welcome,” the new street signs might say, “to the City of Raytheon, brought to you by Vantage West Credit Union.”

Perhaps the most important questions are: What is the city’s obligation to ensure the endorsed product is good, that the company is legitimate, that the city is getting the best deal possible, and that the city’s customers are also getting a good deal?

The story of how the city landed this deal does not inspire great confidence on that point. Council member Shirley Scott, a longtime participant in the National League of Cities, got a visit last year from a former president of the league and a representative of the company that sells the warranty, she told me.

The idea sounded good, she said, so she asked city staff to do due diligence. The program checked out as a good deal for customers and the city.

“I would not have brought this forward if I had any question about the integrity of all parties,” she told me last week. “Because of the nature of the National League of Cities, and its credibility and stature, and the city’s due diligence, I believe this is a good opportunity.”

The league and the city tout the company’s A+ rating with the Better Business Bureau. However, what that brought to mind for me was a company I wrote about in 2011-2012, ARS Rescue Rooter, after the Attorney General’s office sued that company for consumer fraud.

In short, ARS used hard-sell tactics to make customers afraid they needed to do expensive repairs. Once, years ago, one of that company’s workers stayed in my backyard till well after dark and tried to convince us we needed to spend six or seven thousand dollars replacing sewer pipes. Never did it, and so far we haven’t needed to.

ARS Rescue Rooter, now defunct, always was careful to address the complaints of customers who went to the BBB, so its rating, even as it ripped people off, was A+.

City officials seem confident the league’s favored warranty company is the good guy.

“What tipped the scales for this particular company was the affiliation with the National League of Cities and the potential revenues,” Council Member Karin Uhlich told me last week.

In short, the city is depending on other entities — the league, the Better Business Bureau — to ensure the city is lending its name to a good company. Let’s hope it turns out to be so for Tucson residents who buy the policies.

Once the city takes the plunge into this sort of arrangement, it raises another issue: Is this the best deal the city can get? In this case, our council took the first warranty company to walk in the door at Scott’s office. Is there another one that would pay the city more? One that would charge the customers less?

“The City Attorney and the Procurement Director have determined that the warranty program contract is not covered by the Procurement Code and a competitive solicitation process is not required,” assistant city manager Martha Durkin said in a memo to the mayor and council.

Myles Meehan, the senior vice president of a competitor company called Homeserve, wishes Tucson had done a request for proposals before entering its three-year deal with Service Line Warranties of America.

After hearing of the city’s new deal, “We were perplexed,” Meehan said. “We didn’t have the opportunity to come in and speak with the city, and provide a better service for the residents and for the city.”

American Water Resources is also clearly competing for the same business with its coincidentally timed letter. It would seem that if we’re going to go this route, we should check out whether these competitors could give a better deal in terms of what they pay the city as well as the service they offer customers.

Uhlich agreed, but cautioned, “If we do run it through procurement, the downside is that there are costs associated with that.”

But she added, “These things should be vetted and kept in some kind of competitive arena so we’re sure there’s not self-dealing or lack of good fiduciary responsibility.”

Accepting the first endorsement deal that walks in the door isn’t a way to do that.

Contact columnist Tim Steller at tsteller@azstarnet.com or 807-7789. On Twitter: @senyorreporter

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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