Should cities endorse private companies for cash?
PLANO — The letter that recently arrived in James Choate’s mailbox immediately got his attention. It displayed the city of Plano's official logo and was signed by the city manager.
"I kind of glanced at it and thought this is pretty serious," he said. "I better read it."
That’s exactly the point.
The letter, however, wasn't from the city. It was an advertisement from a private company that had purchased the right to use Plano's name and logo.
"I thought it came from the City of Plano," Choate said. "It doesn't feel right."
In January, Plano's City Council approved a controversial new idea to raise money. For the first time, the city has — in effect — sold its endorsement to a private company.
Here’s how the deal works.
The company, Service Line Warranties of America (SLWA), sells warranties for about $6 a month to homeowners to cover sewer line repairs under homes, something cities generally don't cover.
SLWA approaches a city and offers to buy the right to use the city's name and logo in mailed advertisements.
In return, the company uses the city's logo and sends out a letter from the city manager praising the service. The company is also promoted on the home page of the city's Web site.
After cutting the deal, Plano got $63,730 up front plus a 12 percent cut from every new customer in Plano who signs up.
That could add up to almost $100,000 for the first year and possibly grow to up to $236,000 in annual revenue for the city.
"I am very pleased to tell you about a program available," the letter begins, adding SLWA "could potentially save you a lot of money."
The letter makes clear the service is optional, yet it fails to mention that the city received money for its endorsement.
The letter — sent to all of Plano's 70,000 homes — is signed by Bruce Glasscock, Plano's city manager.
"We’re not selling our name, our logo," Glasscock insisted to News 8, preferring to call the arrangement a "partnership."
"We’re sponsoring. We’re, in a sense, endorsing that product," the city manager explained.
When asked what makes this company better than others that offer the same service, Glasscock appeared to be stumped. "I didn’t do the vetting, but they were vetted nationally," he said.
SLWA admits it prefers using cities’ names and logos in its advertising because that pulls in more customers.
Documents promoting the service from the National League of Cities and presented to Plano's City Council admit that "the city address drives a very high 'open-rate' and the city seal and signature lend credibility to the offer, thus driving a much higher enrollment rate."
Brad Carmichael, a vice president at SWLA, said residents "put a lot of faith and confidence in the city, so when they get a solicitation from the city, it gives them more confidence."
“It’s not in any way deceiving,” he added.
Yet, the partnership made Carrollton city leaders uncomfortable enough that they recently opted out after one year.
"We just felt like it was easier to let the market take its course," said Ashley Mitchell, a service manager at Carrollton who handled the contract. "There are so many other companies offering the same thing, we felt like it was confusing to our citizens... they can use other companies."
SLWA, which is also known as Utility Service Partners, is based in Canonsburg, Pennsylvania, south of Pittsburgh. It's been in business since 2003, but did not start approaching cities for endorsements until 2009.
Since then, it has entered into partnerships with 125 cities across 26 states, including 20 in Texas.
The company says it has been vetted and approved by both the National League of Cities and the North Central Texas Council of Governments.
No one is questioning the quality of its service, and the company says both the homeowner and city win if people sign up. Often residents don’t realize the city won't repair sewer lines that break between the house and the street.
"It's just a way to educate the homeowner," said SLWA manager Brian Davis. "Nearly 150 cities have done their homework and nearly all have decided this is a good program."
But not every city decides to take SLWA's money, and the terms are not always consistent.
Carrollton said it did not receive an up-front sum like Plano. SLWA only paid Carrollton the 12 percent cut, which amounted to about $10,000 for the first year, according to Mitchell.
"We weren’t doing it for the money," Mitchell said. "It wasn’t worth the confusion it was causing our citizens."
Duncanville agreed to lend the company its name and logo, but instead asked the company to pass the savings on to customers. That city didn't receive any money, so the company agreed to lower its prices for Duncanville residents.
"Some cities choose not to accept the royalty," Carmichael said. "There will be more savings on their part."
But Glasscock said Plano needs the money. Projections show the city facing a $13 million budget shortfall in the next two years.
"This new approach is a new, innovative way to raise revenue without having to go to fees and taxes," Glasscock said. "This is a new area cities are getting into because of the challenges of revenue."
He said the city may consider selling its endorsement to other companies. "We're looking at other opportunities where there will be mailers."
Yet city leaders admit any additional mailers will likely be a lot clearer, and will include information revealing that it is a paid endorsement.
"We have heard from our citizens that are a number that would like more transparency in the letter," said Mark Israelson, Plano's director of policy and governmental relations. "It will be something we look at the next time it goes out."