On July 18th, I wrote that sources were telling me that Rural/Metro was in trouble. Rural/Metro is a major Scottsdale based company that in the past has been covered extensively by the Republic. Yet the paper has been totally silent on this story. Since I first mentioned the story over a week ago, I've been posting updates as other media outlets have picked up the story. Now it looks like the company may actually go under...without a word from the state's paper of record.
Ambulance company Rural/Metro Corp. is facing its own emergency call to avoid recording one of the fastest defaults by a private-equity-owned company.
The ambulance and firefighting service operator, bought by Warburg Pincus LLC in 2011 for $728 million in cash and debt, last week missed an interest payment on bonds sold to pay for the acquisition. The company, which also has been struggling with declining payments from patients, will default unless it makes the $15.6 million payment within a 30-day grace period, said people familiar with the situation.
Rural/Metro's fast descent into financial distress underlines the perils of debt-fueled buyouts, even in recent years when low interest rates have enabled many companies to cut the costs of debt and push back due dates.
I've been conducting my own version of the Razzie Awards. Sure, I could come up with positive awards like Best Campaign, or even Best Hair, but it's more fun to point out the worst ads, biggest liars most blatant hypocrites. Yesterday I pointed out the worst campaign piece of the year so far. Today I'll move on to the most blatant liar.
First, take a look at this series of signs and then read David Leibowitz's justification for them.
The grouping is designed to manipulate the casual observer into thinking that the three signs on the left are for Karlene Parks and the three signs on the right are for Sal DiCiccio. Notice that the three on the left are composed of two independent signs "Firefighters Support Karlene..." and "Paramedics Support Karlene..." Then the red sign is an actual Karlene Parks sign. The fourth sign is the only DiCiccio sign. The two on the far right are hit signs that were installed by the same group that put up the Firefighter and Paramedic signs. The hit signs say "Lobbyists Support Sal..." and "Developers Support Sal..." Notice that the hit signs use the same font and color scheme as the actual DiCiccio sign.
For the voter who just gets his information from signs, the grouping is designed in order to make it look like the firefighters are putting up signs for Karlene and the Lobbyists are putting up signs for Sal. Naturally, the voter is going to be somewhat offended that a group called "Lobbyists" and "Developers" are putting up signs that say DiCiccio is "Our Guy" and "Our Man."
So upon even cursory examination, it's easy to see that the entire sequence is essentially a lie. The lobbyists didn't put up the signs. None of them said Sal is "Our Guy" and despite the fact that the independent group copied, DiCiccio's font and color scheme, and arranged the grouping to look like three Parks signs and three DiCiccio signs, the grouping is really one DiCiccio sign and five Parks signs.
Republic reporter Dustin Gardiner asked former Republic reporter David Leibowitz about the signs and got this response.
“The signs are accurate,” said David Leibowitz, a PR consultant working with the group. “Campaign-finance reports make that abundantly clear ... and yet he holds himself as some paragon of virtue.”
That's the lie of the year and unfortunately Gardiner didn't follow up and point out that Leibowitz is full of it. The signs are not accurate. The signs were not put up by lobbyists or developers and they never said Sal is "our guy". The signs are designed to be part of an elaborate lie and Leibowitz knows it.
Fortunately, Leibowitz and the firefighters have been so heavy handed that they have damaged their credibility and the credibility of their clients. Parks is likely to get crushed and will be forever linked to one of the dirtiest campaigns in state history.
As for Leibowitz, it will be interesting to see if he works again after the DiCiccio fiasco. Maybe he could change the spelling to Lie-bowitz. But I guess that would be too obvious.
It's impossible to predict what is going to happen in the economy, but I think there are three possible scenarios...We bounce along the bottom for 20 years like Japan has been doing, or we have a post WWII type growth surge, or we have a sovereign debt laden crash into a second depression. Or naturally, we could have something in between. I'm comfortable predicting that range, because I think it includes the entire range of possibilities. If I had to pick the most likely scenario, it's bounce along the bottom for a couple years before a big crash. But that's just me.
What if something even more fundamental were happening? Here's an interesting article opining that the last 200 years have been an accident. We had the first industrial revolution in England and as it was winding down, we had a second industrial revolution in the United States and now that's winding down....with nothing to replace it.
Then, perhaps, the global economic slump that we have endured since 2008 might not merely be the consequence of the burst housing bubble, or financial entanglement and overreach, or the coming generational trauma of the retiring baby boomers, but instead a glimpse at a far broader change, the slow expiration of a historically singular event. Perhaps our fitful post-crisis recovery is no aberration. This line of thinking would make you an acolyte of a 72-year-old economist at Northwestern named Robert Gordon, and you would probably share his view that it would be crazy to expect something on the scale of the second industrial revolution to ever take place again.
“Some things,” Gordon says, and he says it often enough that it has become both a battle cry and a mantra, “can happen only once.”
I'm not sure that I agree, but it makes for interesting reading.
Rural/Metro Fire Department recently opened a new firehouse in Sahuarita and is building a second, but its parent company missed a $15.6 million bond payment last week and in May received a strongly downgraded credit rating from Moody’s Investors Service.
Rural Metro has a de facto monopoly that the Legislature created by accident, but is maintained by an army of lobbyists. One of the problems with monopolies is that they are by definition the only game in town. So it's going to be really awkward if RM's financial problems start to affect its service.
If service is disrupted, you can be sure that folks on the left will complain about capitalism, competition and corporations. However, let me be the first to say that RM's statutorily maintained monopoly in no way resembles capitalism or competition.
It's hard to write a good hit piece. Going negative looks easy and when done right, it can be very effective. However, if you write a bad hit piece, you can blow up your client. There are three major mistakes that amateur consultants tend to make--any one of them is fatal to your client. I call them "File Under Sasquatch", "Waking the Giant" and "Get the Cuffs". An over zealous campaign consultant can make one of these mistakes and a real amateur can make two....if you want to see an ad campaign that manages to make all three mistakes, you need to check out the attack pieces that the firefighters are running against Sal DiCiccio.
The first mistake in amateur hour is "File Under Sasquatch". That's when a piece is so outrageous that it looks like a National Enquirer parody. Check out the hit piece at the left and then compare it to these. Click the picture to enlarge it, and you will notice that it's full of outrageous allegations "22 Felony Counts" $750,000 in fines...paired with weasel words (that I have circled) like "may" and "could" together with "accused" and "can never be sure".
I especially like the trick with the picture. When the consultant juxtaposed "Felony Counts" with the picture of Sal with his right hand raised, he is implying that DiCiccio was in court. Of course, it's pretty obvious that since his left hand is on a Bible, that he's taking the oath of office.
Real Sasquatch stories are meant to be entertaining. They are so outrageous that they are fun, but you know that they are so over the top that they are essentially parody. The consultants for the firefighters don't seem to understand the difference and have therefore ruined the credibility of the candidate they are seeking to support.
The next mistake is "Waking the Giant." That's what happens when you send out a piece that's so misleading that newspapers make your misrepresentations the story. Since the newspapers reach a lot more people and since they are credible with insiders, a consultant who writes a piece that the newspapers take time to rebut does his client a lot of damage.
So, one group of political opponents accuses DiCiccio of breaking the law. Another, the firefighters, use those accusations to try to create the impression that DiCiccio is a crook. Meanwhile, no one in an official capacity has alleged or concluded that DiCiccio did anything wrong.
It’s no surprise that the firefighters would come after DiCiccio. He’s long taken aim at the city’s public employee unions, questioning employee pay and benefits and the unions’ power at city hall. A campaign aimed at unseating him is fair.
But these mailers? Not so much.
More people will see the Bob Robb and Laurie Roberts articles than will see the mailers, and what's more important is that Robb and Roberts affirm what people already understand. DiCiccio is taking on the unions and the unions are responding by just making stuff up.
A Maricopa County judge on Tuesday sharply criticized a lawsuit filed by three Phoenix residents who have accused Councilman Sal DiCiccio of sweeping campaign-finance violations related to a non-profit corporation he created.
Ouch. I mean seriously, that's going to leave a mark.
While "File under Sasquatch" and "Waking the Giant" are fatal mistakes, and they are likely to dramatically shrink your nascent campaign consulting business, they are unlikely to have legal ramifications. However, if you make the 3rd fatal error, you have a serious problem. That's why I call it "Get the Cuffs."
It turns out that the group behind the mailers may be in a bit of legal trouble.
State elections officials have determined there is “reasonable cause” to suspect that a left-leaning advocacy group behind a series of attack ads directed at Phoenix Councilman Sal DiCiccio is violating campaign-finance laws.
Campaign finance law is really tricky, but for some reason, newbies seem to think that they are experts. Try not to cringe too much as you read this do-it-yourself legal analysis
Ken Chapman, chairman of the group and former director of the Maricopa County Democratic Party, has said they’re following the law. He contends his group’s issue-advocacy efforts are not aimed at influencing the council election — their mailers don’t directly mention the race or urge residents to vote against DiCiccio — and therefore not subject to campaign-finance reporting laws.
Why is it that consultants think that if they don't use the word "vote" that they aren't writing campaign pieces?
Here's the response from an actual lawyer in the Secretary of State's office. Rather give an ad hoc opinion on what the law should be like Mr. Chapman did, the lawyer from the SOS quotes, you know, the actual law.
“Each of the examples of the literature issued by (the group), from the mailers to its website, saldliar.com, make a general public communication referring to a clearly identified candidate that in context has no reasonable meaning other than to advocate the defeat of the candidate,” Chan wrote.
Dude, Prepare to Be Boarded. That's not going to end well.
So there you have it. The firefighters and their hapless consultants spend a ton of money on hit pieces that are so extreme that they serve as a parody, and the pieces were so outrageous that the media was compelled to come to DiCiccio's defense. DeCiccio is actually in much better position after the pieces than before...and Karlene Parks is in much worse shape than she was before. After all, the poeple who get the mailer will naturally assume that they are associated with her campaign.
Then, in addition to blowing up Ms. Parks and boosting DiCiccio, the group's Do-it-yourself legal team has the real lawyers from the Secretary of State's office (and soon the Attorney General's Office) polishing a proctoscope.
That's why politics isn't for amateurs...Kids, Don't Try This at Home.
Last week I reported that Scottsdale based Rural Metro had missed a major bond payment. KJZZ picked up the story yesterday, but there's still no coverage in the Republic. Here's the KJZZ article.
Scottsdale-based Rural/Metro fire and ambulance company said it recently missed an important payment on a bond. Rural/Metro Corporation said it is working to address the outstanding debt and is developing a new business model. The private ambulance firm serves millions of people who need 911 services in rural areas of Maricopa and Pima counties as well as in 20 other states. A recent report from Standard and Poors said the company faced a $15 million bond payment due on July 15.
But in a written statement, Rural/Metro spokesman Daniel Moore said, "Our board and management team recently elected not to make the interest payment for our unsecured bonds by the July 15 deadline.” He added, “Rural/Metro continues to take action to align our operations and capital structure with the realities of our business."
Rural/Metro has suffered a series of setbacks in the past few years. The firm replaced two CEOs and laid off 90 employees during a restructuring effort in April. Then, Moody’s downgraded Rural/Metro’s bond rating to “junk status” in May.
In my previous post, I wrote that Scottsdale based Rural Metro is in serious trouble. That story is starting to break in the mainstream press. But even though it's a national story about a local company, I have yet to see local coverage. Here's an article from the San Jose Mercury News.
The private ambulance company serving Santa Clara County's nearly two million residents is in dire financial shape, according to market reports and industry insiders, reporting millions of dollars of losses and struggling to pay its bills.
Scottsdale, Ariz.-based Rural/Metro Corp. missed a crucial bond payment this week, sending county officials scrambling to make sure backup plans are in place, should the situation deteriorate and a new provider is needed in a hurry.
"Obviously their current situation -- regardless of how you look at it -- is troubling, to say the least," said the county's Chief Operating Officer Gary Graves. "When their debt is downgraded to junk, that's not a good thing."
I disclosed earlier that I've been working on some ambulance licensing issues at the Legislature, so I've been paying quite a bit of attention to Rural/Metro, but not blogging much about it. Now it appears that the company is in some financial trouble and the story is likely to break out anyway, so I might as well write about it.
Moody's Investors Service downgraded Rural/Metro Corporation's ("Rural/Metro") corporate family and probability of default ratings to Caa2 from B3. In addition, Moody's lowered the senior secured credit facilities to B3 from B1 and the senior unsecured notes to Caa3 from Caa2. The ratings outlook remains negative.
The story took an interesting twist in the last couple weeks when RM reshuffled its local lobbying team. The move was surprising because the team is highly talented and has generated good results, so it looks like a fairly desperate cost cutting move.
Now sources are telling me that RM missed a large bond payment this week and may be moving toward bankruptcy protection.
I mentioned earlier that RM essentially has a monopoly on private ambulance service because state statute makes it almost impossible to get an ambulance license and then the company bought all the competitors. If RM goes under, we will get one more example of why state sponsored monopolies are a bad idea.
In the previous post I agreed with Bob Robb's assessment that Governor Napolitano left a surprisingly small mark on Arizona history. I offered one bill that I thought was an exception, but by and large, I think Robb is exactly right.
Let me expand on his point a bit. One of the reasons that Napolitano has no legacy is that she destroyed the Democratic farm team on the way out the door. Even her supporters will tell you that Janet's number one priority was...Janet. By resigning in 2009 and skipping the last two years of her term, she not only allowed the Republicans to erase her legacy, but she also handed the Governor's office to Jan Brewer. So instead of AG Goddard and SOS Brewer facing off for an open seat with Napolitano providing as much behind the scenes support as possible....Goddard faced an incumbent and had very little financial or logistical support.
Had Napolitano used those two years to continue building the Democratic Party, organize an orderly hand off and place her supporters in key positions, she could have generated a legacy that would have lasted a generation...just like Bruce Babbit's legacy has lasted a generation.
Ironically, that approach probably would have been better for her in the long run as well. Who knows, maybe instead of running DHS, she could have been on the Supreme Court. As it is, she will be remembered for her mass deportations and invasive airport screening. At least she will be remembered for something...after all, now one remembers her here.