Bargain for taxpayers or pay-to-play?

When a New Jersey-based tax-collection company wanted to break into the Pennsylvania market, it brought on Republican heavyweights and took aim at Philadelphia's suburbs.

With former Gov. Mark Schweiker and a well-connected lobbyist on the payroll, Xspand Inc. set out to pitch the company to their Republican friends on the Montgomery County Board of Commissioners, Thomas Ellis and James Matthews.

It worked. Xspand took over the county's delinquent-tax collections in February 2005 and won a deal in Norristown that same year.

County officials say they saved taxpayers money and reduced the size of government.

But a competitor, in a federal lawsuit, says the Montgomery County deal was tainted by insider dealings and improper sharing of confidential information. County Democrats say the no-bid deal is a classic example of a pay-to-play culture in the state's largest Republican-controlled county.

"This is like that underground government that nobody sees," said Ruth Damsker, the Board of Commissioners' lone Democrat, who voted for the Xspand deal but now questions how it came about.

The county didn't seek other proposals - no bids are required for professional-services contracts in Pennsylvania. Instead, the county negotiated with Xspand for a year and signed a four-year, $600,000 deal allowing it to take over collections of unpaid property taxes.

In January 2005, hoping to help close the deal, Schweiker called Ellis and Matthews.

A competing firm, Municipal Revenue Services of Erie, complains in a lawsuit that the commissioners shared confidential information with Schweiker - even telling him how the vote would go, days before it happened.

In February 2005, two days before the vote, Xspand's Charles Smith sent an e-mail to Xspand lobbyist Gregg Melinson and company executives:

"Gov Schweiker spoke w Matthews today who said . . . xspand will be [r]etained" to take over tax collections.

According to Smith, Schweiker also reported that Damsker would object, saying the deal was "not in the public interest," and that county Treasurer Garrett Page remained opposed.

Matthews and Ellis denied any improper behavior. Matthews said he never told Schweiker how the vote would go. Ellis said that no one else was offering to provide the kind of service Xspand did, and that the exchange of information was appropriate for a negotiation.

"We did everything right," said Ellis.

Schweiker, too, says his conversations were appropriate. If there had been a formal bidding process, it would be "highly improper" for a public official to reveal such information, he said in a deposition.

Since the deal, Ellis has received at least $2,500 in campaign contributions from an Xspand executive and Melinson's law firm.

"This is the problem with campaign finance, period," said Ellis, who says it may be time to ban contributions from vendors such as Xspand.

"Oftentimes, the people who are willing to give you money are the people who do business with the county," Ellis said.

After signing the Montgomery County deal, its first in the state, Xspand approached Norristown. The municipality was on the verge of bankruptcy, and had already passed a resolution authorizing the council to negotiate a deal with MRS.

Melinson set up an Xspand meeting in Norristown with two key players. One was municipal administrator Matthew Bradford, who formerly worked at Melinson's law firm, Drinker, Biddle & Reath.

The other was Joseph Vignola, former Philadelphia controller, who in 2003 was appointed by Gov. Rendell to be Norristown's financial overseer.

At the time, Vignola also was executive director of the Pennsylvania Intergovernmental Cooperation Authority, Philadelphia's fiscal watchdog. Melinson was on PICA's board of directors, making him one of Vignola's bosses.

In an interview, Vignola said it didn't occur to him that his boss' seeking a contract in Norristown was a conflict or gave an appearance of impropriety.

"Is there an appearance? There can be the appearance," Vignola said. If he had to do it again, he said this week, he would not have participated in meetings with Melinson.

Vignola said he liked Xspand's terms because the company offered to buy tax liens outright, while MRS would hold Norristown responsible for uncollectible liens. Norristown eventually chose Xspand over MRS.

Melinson did not return three phone messages and an e-mail seeking comment.

In a deposition last year, Melinson said that he didn't lobby Vignola and that the information he got from the county wasn't confidential.

"If someone asks me to find out what's happening in Montgomery County," Melinson said, "my practice would be to find out as much as I can from as many people as I can."