Clearing the air is what it does best, boasts Envirotest Systems, the embattled operator of Colorado's new auto-emissions testing program. But the Arizona-based company under fire from residents faced with long lines and higher test fees does some of its best work in smoke-filled rooms.
Two years ago, before Colorado legislators even began debate on a centralized testing program, Envirotest hired one of the most influential lobbyists in the state to press its case. And though the company had the highest of three competing bids, the state's evaluation committee--which included the president of a business group that partnered itself with Envirotest in the proposal--unanimously awarded the high-rolling firm the seven-year, $140 million contract.
The company is led by Chester C. Davenport, a 54-year-old attorney and former transportation official in the Carter administration who has maintained a network of Washington contacts. Since Davenport acquired the company in 1990, Envirotest has come to dominate the growing field of emissions testing, climbing to the top by employing a business style that is alternately shrewd and brutal.
In the fall of 1993, when a rival company beat out Envirotest for an emissions-testing contract in Connecticut, lobbyists for Davenport's company went to the statehouse and convinced then-governor Lowell Weicker to demand a reversal of the selection made by his own motor vehicles department. When the department's director stood by the agency's choice--a company that was based in Connecticut and had tendered the low bid--an angry Weicker fired him and awarded the contract to Envirotest.
Now a groundswell of opposition to centralized testing in Colorado has the company fighting for its local turf. Already defensive following the stumbling start of the Air Care Colorado program earlier this month, Envirotest faces rebellion in the ranks of a formerly supportive legislature, where lawmakers are talking about either delaying the new testing system or killing it outright.
Envirotest, which has testing contracts in nine states and is competing for work in two others, is determined not to let that happen. And its sense of urgency in trying to squelch a possible uprising in Colorado has been heightened by events in other states as well as in Congress, where several bills have been introduced to delay or repeal federal requirements for centralized testing. After building most of the 85 testing stations called for in its contract with Pennsylvania, the company was set on its heels when the legislature there voted to postpone implementing the program until the end of March. Having apparently won the contract for New York City, the company has been forced to wait for the dust to clear from Governor Mario Cuomo's election upset before pressing the new administration to sign off on the deal. A New Hampshire program to be run by Envirotest has been put on hold by that state for two years due to concerns about public acceptance. And though Envirotest looks like the clear favorite to receive a testing contract in New Jersey, its prize there looks to be much smaller than anticipated, as the state plans a scaled-back program with fewer testing centers and less-expensive equipment.
The company is well equipped for what could be a bare-knuckles battle in Colorado. "They've hired every top-gun lobbyist in the state," says Senator Tom Blickensderfer of Englewood, vice-chairman of the senate appropriations committee, through which any bill to repeal the testing program must pass. Besides the well-connected lobbying firms of Wallace Stealey and Frank "Pancho" Hays, Envirotest has the political heavy hitters at Brownstein Hyatt Farber & Strickland minding its business at the Capitol.
Davenport's firm has earned a reputation for string-pulling wherever it applies for work. In Connecticut, Jesse Jackson touted the company as it pursued a contract with the state, pointing out that the company was organized by Davenport, who is black, and noting the presence of four minorities, including one woman, on its eight-member board of directors. Also singing the firm's praises was Washington attorney and former Urban League president Vernon Jordan, a Bill Clinton confidant whose law firm serves as Envirotest's general counsel.
The company has played the race card in Colorado as well. Its bid proposal repeatedly mentioned the firm's board membership and played up its commitment to using businesses owned by minorities and women. At the head of its roster of subcontracted minority companies was the public-relations firm of Burks Romero & Esposito. Envirotest's proposal made much of Burks' "proven competence, expertise and excellent reputation" and noted that if it received the state contract, it would pay the Denver firm $1.35 million for PR duties. According to the proposal, part of that money would fund Burks' efforts to line up still more minority business partners for Envirotest. But before the first car had rolled through an Envirotest smog stall, the company had parted ways with the minority-led firm. Envirotest spokesman Joe McKeon says his company normally shifts team members "between the start-up phase and the operational phase of a program."
The Envirotest proposal also trumpeted the company's financial strength, citing millions in cash assets and a line of credit from ING Capital, a Dutch financial concern. In 1994 the company had total revenues of $96 million and held contracts for ten of the sixteen centralized testing programs implemented in the U.S.
However, Envirotest's $200 million line of credit with ING Capital recently expired. Further clouding its financial picture has been a precipitous drop in the value of its stock. Apparently driven by investors worried about the uncertain status of centralized testing, the stock, which opened at $16 in its initial offering twenty months ago and climbed to $28 in the spring of last year, has fallen below $7 per share.
Envirotest officials insist those developments don't threaten the company or its program in Colorado.
Envirotest's reputation as the most aggressive player in the burgeoning field of emissions testing was earned primarily by the man who put the company together. And Davenport's business acumen may have a lot to do with the network of contacts he maintains in the nation's capital.
After graduating from the University of Georgia law school, Davenport went to Washington, D.C., in the 1970s, working first as a tax lawyer for the Justice Department, then as California Senator Alan Cranston's staff expert on banking, and finally as an assistant secretary of transportation for the Carter administration. Davenport, who did not return phone calls from Westword, told the Wall Street Journal last spring that he made his first million by joining with U.S. News and World Report publisher Mort Zuckerman to make real estate investments in the Washington area. In 1988 he joined Slivy C. Edmonds, an executive with a New York investment company, in forming Georgetown Partners, a "merchant banking" firm.
In 1990 Davenport and Edmonds were looking for companies that stood to benefit from pending federal legislation. At that time, the EPA was drafting regulations calling for states in violation of federal clean-air standards to set up "enhanced" emissions-testing programs using centralized facilities that could conduct "I/M 240" tests, so named because they require vehicles to be run on treadmill-like dynamometers for 240 seconds to simulate driving conditions.
Davenport and Edmonds settled on Hamilton Test Systems, a Tucson firm that had been in the auto-emissions testing business since the early 1970s and held contracts for inspection and maintenance programs in four states, including Arizona, the first state to require centralized emissions testing. With backing from a European bank, Davenport and Edmonds acquired the company for $51 million--before the EPA actually issued its new, more stringent regulations.
Asked by the Wall Street Journal about his prescience, Davenport replied, "It's my business to know these things." Slivy Edmonds told the newspaper that "Chester wants to be a billionaire." Her assistant says she now has a "policy against talking to reporters."
In 1992 Davenport went after another emissions-testing company. Hamilton Test's biggest competitor, Systems Control, held testing contracts in five states. In 1992 Davenport and Edmonds acquired it for $83.5 million, naming the merged companies Envirotest Systems Corporation the following year.
The second acquisition didn't go as smoothly as the first. "It was essentially a hostile takeover," says Laura Baker, marketing director for Systems Control, which was re-established by its CEO and a dozen senior engineers who bolted when Davenport bought the company. That group later reacquired the rights to the name. The new Systems Control, based in Sunnyvale, California, went up against Envirotest for the contract in Colorado, only to see its rival's bid snapped up by the state even though it was 25 percent higher.
"The company got a lot more aggressive when Chester took over," says Tom Collier, who worked in the marketing department of Hamilton at the time Davenport acquired it. "Chester is a forceful individual; he made the company grow," explains Collier, who now works for the Tucson Chamber of Commerce. "We really went after contracts." That meant intensive lobbying. "I was a regional marketing director, but what I was was a lobbyist," says Collier, who still holds stock in Envirotest.
The corporation's hard-charging personality has attracted like-minded investors. One of its largest shareholders, with a 13 percent stake, is Apollo Advisers, a $4 billion New York-based investment concern led by two former executives with junk-bond specialist Drexel Burnham Lambert. In 1992 Apollo took advantage of Gillett Holdings' bankruptcy to gain a controlling interest in the Vail and Beaver Creek resorts. Apollo doesn't have an office in Colorado; however, in bid documents submitted to the state in 1993, Envirotest emphasized Apollo's local ties.
The nose for insider information that seemed to serve Davenport so well in reading the EPA's intentions also helped his company get a leg up on the emissions-testing contract in Colorado. In February of 1993 Envirotest hired one of the state's most influential lobbyists, Wally Stealey. The lobbyist went to work, earning $2,100 per month until December 1994, when his tab jumped to $15,000. The extra money allowed him to bring in Pancho Hays and at least one other lobbying firm to make Envirotest's case at the Capitol.
Early in the '93 session, a bill creating an I/M 240 centralized testing program was sent to the House Transportation and Energy Committee. There it ran into unexpected opposition and was killed on a 6-5 vote. Mike Coffman of Aurora, then the vice-chair of the House committee but now in the Senate, opposed the bill. He says he resented the federal government telling the state how to clean up its air. "Also, there is no empirical data that shows I/M 240 is better than the old system of decentralized testing," says Coffman.
While Coffman was joined in fierce philosophical opposition to the proposed program by Charles Duke, now a senator from Monument, their allies on the six-member majority didn't feel as strongly. Representative Ron May of Colorado Springs, who held the swing vote during the hearing, says he voted against the bill because it would have put small-shop testers out of business. "I didn't want to see that happen," May says. But May was aware of the penalty that could await the state if it failed to adopt the EPA's favored program: the threatened loss of $380 million in federal highway funds. With that "big hammer" over his head, says May, he decided to vote for the bill if it could be changed to soften the blow against small testing shops.
The bill was rewritten to allow testing of older cars by small shops, and the legislation was given "late bill" status by the House speaker, allowing it to be resurrected. Such a maneuver is unusual, says Coffman, "but people felt they had to do it because the federal government would hold back highway funds."
The bill got its second hearing when it was returned to the transportation committee late in the legislative session. Committee chair Faye Fleming of Thornton seemed determined to usher it through, says Charles Duke. "She wouldn't let me speak," claims Duke. "I was going into the technical arguments on the problems with I/M 240, and she banged the gavel and recognized someone else. I filed a formal complaint with the speaker, but he took no action."
Fleming and May changed their votes and the bill moved on, 7-4. Fleming, who chose not to run in the last election, now works as a lobbyist--though not, she stresses, for Envirotest.
One of the people testifying in favor of the bill at its second hearing was a representative of the Automotive Service Association of Colorado, a trade group of 350 auto-repair facilities. James Tapp of Tapp's Garage in Denver was then president of the association, which supported centralized testing because its members believed the $9 testing fee awarded under the old tailpipe-testing program was insufficient compensation for garage owners who had to pay technicians to conduct the test.
"It was a money loser," says Tapp. "We were in effect supplementing that program for the state." Tapp and his association saw centralized testing as "a fair program" that would eliminate the conflict of interest faced by a garage that both tested a car's emission system and then repaired it if there was a problem.
With the support of Tapp's group, as well as that of such diverse parties as the environmentally oriented Colorado Public Interest Research Group and the Colorado Association of Commerce and Industry, the bill was passed into law. Bidding on the contract opened in August 1993, with proposals due that November. The three main competitors that submitted bids were Envirotest, Systems Control and Environmental System Products, the Connecticut company that won the contract in that state only to lose it when Governor Weicker fired his director of the Department of Motor Vehicles and gave the job to Envirotest.
(A subsequent investigation of the incident by the Connecticut Attorney General's office concluded that Weicker acted on "inaccurate information" when he rejected ESP in favor of Envirotest but that there was no violation of law. The information, furnished to Weicker by a lobbyist working for Envirotest, depicted ESP as financially unstable. Weicker, now a partner in a law firm in Bethesda, Maryland, maintains the information was accurate.)
The request for proposals issued by Colorado noted that the state would favor firms that promised to use Colorado businesses to provide products and services required to put the program together. And Envirotest's proposal touted a roster of Colorado firms and trade groups it labeled "Envirotest's Colorado In-State Partnership Team." That team included the Automotive Service Association of Colorado, Jim Tapp's group.
When the state began evaluating the bids in late 1993, Tapp was named to the five-member selection committee. He says he sees no conflict of interest in the arrangement. "We didn't know anyone from Envirotest," Tapp says. "Envirotest didn't have a presence in Colorado until they made their presentation [before the selection committee]. So there was no conflict at all."
Envirotest was an easy choice, Tapp adds, given its experience in the field, its financial soundness and the professionalism of its presentation. "They knew what they were talking about," he says. "They put on a heck of a presentation." The company's bid was the highest of the three, at $25.75 per vehicle tested. Systems Control proposed charging motorists $19, while ESP offered to do the job for $17.50.
In the end, the figures apparently made little difference to the committee. "We wanted the best program we could get for the community," says Tapp. "We wanted the Cadillac, and we felt Envirotest gave us that." The other five members of the committee, staffers from the state health department, the Department of Revenue and the Regional Air Quality Council, didn't disagree, voting unanimously for Envirotest.
The bid from Envirotest included a pledge to spend a sizable amount of money to "educate the public" about the testing program. The state required a public-relations budget of 17 cents per vehicle tested. Citing its experience that "successful programs allocate from 35 to 45 cents per vehicle test for public information," Envirotest proposed more than doubling the state's suggested amount, budgeting $1.9 million.
So far, that money has paid few dividends. Battling technical glitches that left some drivers waiting in line for two hours or more, Envirotest and state officials were already losing the battle for public support when talk-show host Peter Boyles of KTLK-AM arranged to send through the emissions test three cars that had been set up to fail. All three of the vehicles were given passing grades on the supposedly more rigorous and sophisticated I/M 240 test. After Boyles put his findings on the air, state officials were forced to reveal that they had been using a standard four times lower than that of the old tailpipe idle test--an intentional effort to mollify car owners peeved by the new program. The red-faced officials explained the program was in a "phase-in" period, during which standards would gradually be toughened.
Boyles's ploy still has Envirotest fuming. Spokesman Joe McKeon calls the incident "an outrage" and claims Envirotest personnel saw Boyles's mechanic disable one vehicle after it passed the emissions test. "I've listened to his show, and there's not a shred of truth in anything Peter Boyles says about the program," McKeon says. Boyles says he stands by his investigation. "The old test caught those cars," says the talk-show host. "Mr. McKeon's test did not. How am I a liar?"
Critics of centralized testing say there are other far cheaper and more efficient systems for monitoring auto exhaust. The choice of many who resent the EPA's preferred program is "remote sensing," a system invented at the University of Denver that uses an infrared beam to measure levels of carbon monoxide and nitrogen oxides in the tailpipe exhaust of vehicles passing by a roadside station.
"There's far more hard data concerning the merits of remote sensing as a method of cleaning the air than there is for centralized testing," says Glendale mayor Steve Ward, who has served on the Regional Air Quality Council and who formerly headed the governor's Alternative Fuels Task Force. Ward cites research comparing carbon-monoxide reductions in metro areas across the country. Areas where centralized testing was used showed no greater reductions than areas without such testing.
DU chemistry professor Donald Stedman, who developed remote sensing with research scientist Gary Bishop, says the equipment can accurately analyze emissions at a cost of 50 cents per vehicle. Detractors maintain that the device is prone to mistakes due to wind currents, the proximity of vehicles to one another on the road, whether the car is still cold from a recent start, and other variables.
The federal Clean Air Act of 1990, however, mandates that Colorado at least study the viability of remote sensing. One study will begin in the metro area this year, says Michael O'Toole of the state health department's air quality control division. Another will gear up in Greeley in 1996.
If those studies point to remote sensing as the wave of the future in emissions testing, Envirotest won't complain too loudly. Chester Davenport's company acquired the rights to Stedman and Bishop's technology last year.
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