Schweiker's dual role and a question of influence

In 2005, former Pennsylvania Gov. Mark Schweiker earned $514,000 as president of the Greater Philadelphia Chamber of Commerce.

But he also had a side job that paid him an extra $90,000 a year: using his political connections to win business for Xspand Inc., a North Jersey tax-collection firm trying to break into the Pennsylvania government market.

It was easy money. Schweiker said he worked about "three or four hours" a week making calls and arranging meetings with local officials in Montgomery, Bucks and Delaware Counties. The deal ended last spring, when the company was sold.

Schweiker's moonlighting drew sharp criticism. A state chamber executive called it a conflict of interest. One veteran Republican tax official said Schweiker's work for Xspand went "against the best interests of the people of Pennsylvania."

Schweiker said he was proud to advocate for Xspand because it "saves local governments money."

"It was a well-compensated labor of love," he said.

Schweiker's contract with Xspand, a firm cofounded by former New Jersey Gov. Jim Florio, is one of several company documents, e-mails and sworn statements recently disclosed in a federal lawsuit brought by an Xspand competitor.

These newly revealed internal documents provide an unusually detailed glimpse into the politics of government contracting: how a firm got a law changed in Harrisburg to make its business legal over the objection of local tax collectors, and then used influential politicians to sell its services to cities and counties, particularly in Montgomery County.

The competing tax-collection firm, Municipal Revenue Services (MRS) of Erie, accuses Xspand of competing unfairly. In a recent filing, MRS attorney John M. Elliot alleged that Schweiker and others "repeatedly obtained confidential, non-public information" from politicians to win contracts.

MRS has cast a wide net, not only deposing Schweiker and Florio but also issuing subpoenas to a number of Republican politicians, including a state representative, a state senator, and several suburban officials.

An Xspand lawyer says the company acted properly. MRS is bitter about losing business and is using the courts to make wild and unsubstantiated allegations, lawyer David Fine said.

"It's a case in search of a theory," he said.

The state senator drawn into the the case, Dominic Pileggi (R., Delaware), called the allegations "outrageous, defamatory and cowardly."

Pileggi, once mayor of Chester and now Senate majority leader, said he gave company officials phone numbers of Chester contacts, and attended Xspand meetings with Chester City and Chester Upland School District officials. Both later signed deals with Xspand.

The state representative named in the case is Steven Cappelli (R., Lycoming), who sponsored the bill that allowed Xspand to do business in the state. He declined to comment.

That bill was largely written by Xspand, its lobbyist, Peter Gleason, said in an interview.

Gleason also ghostwrote for Pileggi a letter supporting the bill that Pileggi circulated to two Senate colleagues, records show.

In an e-mail to an Xspand executive after the bill was passed, Gleason forwarded invitations to fund-raisers for Cappelli and Pileggi: "In light of their role in championing our legislation through their respective bodies, not to mention Pileggi's follow-up assistance with Delco/Chester, I would recommend a contribution from XSPAND."

At least one Xspand executive subsequently gave each candidate $500.

That was not unusual, Gleason said: "Lobbyists make recommendations to clients on whether and where to make political contributions every day."

Told of the e-mail from Gleason, Pileggi said he did not know what the lobbyist was referring to and could not recall details of any Xspand-related contributions. As for the letter, Pileggi said he made some changes to Gleason's draft.

Xspand, based in Morristown, N.J., counts New York City and Los Angeles among its clients. It estimates that more than $12 billion in property taxes goes unpaid nationally every year. It typically offers to pay cities or school boards up front for their delinquent taxes, and takes a fee for helping to make collections.

A big part of Xspand's pitch is its ability to provide quick payments to struggling communities. One of Xspand's early contracts was in Camden, Florio's home base.

Schweiker said he was recruited to Xspand in the summer of 2004 by his friend Florio.

Paul Scura, who ran an Xspand subsidiary, Plymouth Financial Services, said the former Pennsylvania governor brought instant credibility for a New Jersey firm seeking business across the river.

Schweiker's "endorsement of the product gives those local government officials confidence in us," Scura testified.

"He functions as an influencer or essentially a salesperson," Scura said.

Schweiker signed the Xspand contract on Aug. 6, 2004. It required him to use his "extensive experience in the area of local and state governments" to win clients and help pass legislation in Pennsylvania.

Schweiker was also an Xspand board member, and received payment for his board duties in addition to the $90,000 a year. In some Xspand presentation materials, Schweiker was identified as a board member, not a consultant.

Schweiker and his lawyers insist the former governor was not a lobbyist.

"I'm not sure he was even advocating on behalf of Xspand as much as arranging introductions," said Marc Sonnenfeld, the chamber's lawyer.

Xspand lawyer Fine said: "He was helpful in Xspand's business efforts, that's fair to say . . . but I would be careful not to call him a lobbyist."

The contract set Schweiker's pay at $7,500 a month, or $90,000 a year, plus stock and a percentage of new contracts won, though he says he never received any commissions.

The contract included a "no-publicity" clause, but Schweiker says his work was no secret. In an interview last week, he said a news release was issued, though he could not locate a copy of it. There is no such release on Xspand's Web site, which has news announcements dating from 2003.

The Xspand Web site does, however, include a question-and-answer session with Schweiker in which he talks about the new law. The interview, dated fall 2005, does not mention that Schweiker was a paid consultant at the time.

Asked about this last week, Schweiker said he did not recall the interview and was not sure whether Xspand should have disclosed his role. But he added: "I'm not troubled by it because it's there to educate municipal officials."

Schweiker said that his work for Xspand was proper and served the public interest.

"I was delighted to help because they do a super job," he said. "At the end of the day, it helped the taxpayer, so what was not to like?"

Schweiker noted that he received permission to work for Xspand from the chamber chair at the time, William Sasso. Sasso said he read and approved Schweiker's Xspand contract, including his pay.

"I did a little investigation and had discussions with Gov. Florio," Sasso recalled. "I had no problem with Mark being involved but wanted to make sure the chamber's business was his first priority."

Barry Kauffman, executive director of Common Cause Pennsylvania, a frequent lobbying critic, said he saw no legal conflict in Schweiker's deal.

"They're both private entities, so if they don't think there's a conflict of interest, there's no conflict of interest," he said.

But Dave Kreider, vice president of the Pennsylvania Chamber of Business and Industry, said his chamber would never allow such an arrangement.

"It would be a major affront to our members," Kreider said. "It's too close an overlap with our mission and a conflict of interest. We represent businesses, not an individual business, let alone one from out of state that isn't even a member."

Susan McWilliams, a Pomona College political science professor, said that while there was no legal or ethical violation, "the numbers are astonishing."

"Why is Xspand paying him so much money for such an uncertain outcome?" she said. "They are paying for his political connections."

Schweiker began his first job for Xspand in the fall of 2004, shortly after he signed his contract. His mission: help Xspand change the state law.

The bill clarified that cities, counties and school districts could hire private firms - like Xspand - to handle efforts to collect overdue taxes. It also permitted cities to sell tax liens to private companies, so the cities could get the money up front.

County tax collectors throughout the state fought the proposal, arguing that it would take power from local officials and allow corporations to practice price-gouging. Local officials started a letter-writing campaign.

One of those letters came from Theresa Savage, director of the Bucks County Tax Claim Bureau. "It is imperative that this proposed legislation not be allowed to pass," she wrote to a state lawmaker.

Within days, Schweiker was on the phone to Charles Martin, chairman of the Bucks County commissioners. Martin soon wrote his own letter, saying Savage's letter was "not authorized." "I am sorry for any confusion this may have caused!" he wrote.

Hours after Martin sent his letter, Xspand's lobbyist forwarded a copy to company executives, along with a simple cover note: "Thanks to Gov. Schweiker."

Asked about this in his deposition, Schweiker - a former Bucks commissioner - said he was merely trying to help educate another local official.

"I reached out to Commissioner Martin and said, 'I don't know if anyone's had a chance - if you've been given a chance to understand what we're trying to have created here for local governments - can I take some time to explain to you how it can help?' "

In the end, the bill passed overwhelmingly in a legislature long reluctant to privatize government services. It became law in November 2004.

One longtime Republican Party official and tax official said she felt betrayed by Schweiker.

"I felt he was doing something that was against the best interests of the people of Pennsylvania," said Susan Koch, a former Republican leader in Schuylkill County who ran the tax claim bureau there for 18 years. "I felt it was unsavory that tax dollars were going out-of-state to New Jersey."

"We couldn't stop them. When you go to Harrisburg, money talks," said Susan Treas, director of the Snyder County Tax Bureau. "They had it, we didn't."