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Warranty program raises questions among KC water customers

Updated: 2013-06-04T13:44:09Z

By MIKE McGRAW

The Kansas City Star

In a city where water rates have soared, Kansas City is urging homeowners to voluntarily shell out another $120 to cover water and sewer leaks in their own yards.

In a May 13 letter to 170,000 water department customers, City Manager Troy Schulte urged residents to take advantage of a warranty covering residential water and sewer line leaks “for the exceptional price of $120 per year to residents who enroll by June 27.”

The program, which is being used in a number of cities, including some locally, is a partnership between City Hall and a private Pennsylvania company. It covers repairs on sewer or water pipes between a home and the underground connection to city-maintained water and sewer mains.

What Schulte’s letter doesn’t say is that the city gets a 10 percent royalty on all sales.

In fact, the city’s take in the deal could top $400,000 if 20 percent of residents purchase the plan. City officials say the money will go to assist residents who can’t afford to keep their water on –– an expense the city covers now on its own.

The company, Service Line Warranties of America, has a good track record, city officials say, and the plan could save homeowners thousands of dollars.

But the May 13 pitch letter, which includes the city’s official logo, is causing confusion among some residents and outright skepticism among others.

“I really don’t like the city partnering with a private company and besides, in 50 years as a landlord, I’ve only had to replace a water line one time,” said Russell Correll, a longtime city resident and landlord.

One local expert on municipal government also expressed concern.

“This distresses me a little bit,” said Jered Carr, director of the Cookingham Institute of Urban Affairs at the University of Missouri-Kansas City. “I am not entirely surprised; cities are looking for revenues wherever they can find them, but the city is a little too close to the company here for my taste.”

Despite the confusion and the criticism, it’s a fair deal, said city spokesman Danny Rotert.

Rotert, who said he is considering buying the plan himself, added, “No one is required to buy this service and if residents can find the same service for less money, they are free to do so.”

The Pennsylvania company has similar arrangements with 172 other cities across the country including Phoenix, Atlanta and Milwaukee, although Kansas City is alone in Missouri. In Kansas, the company already has partnered with 11 companies, including Roeland Park, Prairie Village and Edwardsville.

But some cities, including Edwardsville, forego the royalty payments. “We were offered a cut, but we declined it in order to reduce the rate they charge our citizens,” said Edwardsville City Manager Michael Webb.

Signing up

Brad Carmichael, vice president of business development for Service Line Warranties, said about 25 percent of potential customers nationwide sign up for the voluntary program, which uses local licensed and bonded plumbers for repair services and gives customers an 800 number to call.

Although area cities say the warranty program itself hasn’t generated many complaints, some residents here and elsewhere are edgy about their city partnering with and endorsing a private company and queasy about city hall getting a piece of the action.

After residents of Plano, Texas, got a similar letter, Plano resident Judy Hairston fired off an angry email to city hall.

“It is quite clear that the city of Plano engaged in deceptive means to raise money,” she said.

“When our city government begins to do our thinking for us, telling us what we need (that is, telling us everything except what they are making out of the deal), we are in big trouble!”

After the backlash, Plano offered residents refunds.

Last fall in North Little Rock, Ark., Mayor Pat Hays, was a bit taken back when he opened his mail and found that he had received a letter from himself –– a letter he had never seen.

It was a sales pitch from Service Line Warranties, with North Little Rock’s logo across the top.

The city had agreed to partner with the company, which jumped the gun and sent out a letter over the mayor’s signature without running it by him.

“When it appears that I endorse it –– when I didn’t, and I don’t –– that angers me,” Hays told a local newspaper at the time.

The company blamed the glitch on a “miscommunication.”

The company’s marketing plan raises additional questions.

It pays administrative or franchise fees for endorsements from regional government coalitions and from the National League of Cities. In fact, many cities around the country signed up with the company after the National League of Cities endorsement.

But Greg Minchak, a spokesman for the league, declined to say how much his organization is paid by Service Line Warranties. Company officials also declined to reveal those figures.

The company also got an endorsement from the North Central Texas Council of Governments, an Arlington, Texas-based coalition of cities and counties.

After a competitive bidding process, the council recommended Service Line Warranties to their government members. In return, Service Line Warranties pays the coalition $800 each time one of its member cities adopts the program.

Sales pitch

Kansas City officials didn’t do their own study of comparable plans, some of which cost less, before the sales pitch went out over Schulte’s signature and an endorsement from Mayor Sly James.

Instead, city officials entered into a contract with the company based on the competitive bid done by the Texas government coalition.

The Kansas City program covers water and sewer line repairs up to $4,000 plus an additional $4,000 for public street or sidewalk cutting, if needed. Residents can buy a water line warranty alone for $61 a year, or coverage for both their water and sewer lines for $120 a year.

City Councilman John Sharp, who originally proposed that the city look into the plan, said he thinks it’s a good deal and plans to purchase the warranty himself.

“Before I introduced the resolution to authorize the city manager to look into this plan, I talked to city officials in other cities and they all were very complimentary,” Sharp said.

“The rates they are offering are good rates considering the age and condition of some of our water and sewer lines.”

Ben Demaline, general manager of Roto Rooter Services Co. here, said the warranty program could be a good deal for some homeowners “as long as they know that the $4,000 cap may not cover the whole job.”

He said a typical service line replacement can cost from $4,000 to $7,500, depending on the depth and length of the line.

“I could see how this could benefit some homeowners but not others,” he said.

To reach Mike McGraw, call 816-234-4423 or send email to mcgraw@kcstar.com.

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