Brian Connett Chairman of the NCIA

Nevada Continues to Struggle With Prison Industry Law

Nevada Continues to Struggle With Prison Industry Law

By Bob Sloan

The Nevada Board of Prison Commissioners (BPC) made up of Governor Brian Sandoval, Attorney General Catherine Masto and Secretary of State Ross Miller, met early on the morning of October 15th to discuss key issues involving the state’s Department of Corrections.  On the agenda was a “hot topic” involving the prison industrial program’s perceived unfair competition with private businesses.  Since last year controversy has surrounded the use of prisoners to compete with Nevada’s unemployed and against companies producing the same products in the private sector.

The NDOC Director presented proposed new administrative regulations for approval.  These “AR’s” covered a gamut of issues from installing trailer/RV spots at remote facilities to use of restraints on pregnant prisoners during labor, housing new hires who cannot find housing locally, and compliance with federal standards on prison rape elimination.  Not much new was learned from attending this Board meeting with one exception – withholding proposed AR 854, “Prison Industrial Program.”  Director Cox advised the Board that he was not presenting this one AR until he could confer with former Senator, Richard Bryan on language contained in the proposed regulation.

This proposed AR was in response to an ongoing controversy involving a partnership contract between Alpine Steel, LLC and the NDOC’s prison industries division.  Nearly a year ago steel companies discovered a competing business, Alpine Steel, LLC had partnered with the NDOC prison industries since 2006 to use inmate labor to manufacture or fabricate structural steel components.  This partnership included low cost facility leases, low paid inmate workers and utilities provided at reduced state rates.  In effect the NDOC was knowingly subsidizing the operations of one private company with tax dollars which provided a distinct advantage for Alpine over competing businesses.

During the investigations that followed, it was learned Alpine had been in serious default for years.  It had not been paying wages to inmates or NDOC staffers, lease and utility payments were in arrears and the state was owed nearly $500,000.  Alpine eventually agreed to a forbearance agreement to repay the money owed to the state and purportedly paid the back wages due to inmate workers.

In June of this year Alpine defaulted on that agreement and the state was awarded a summary judgment of $428,208 plus 1 ½% interest on the debt.  Alpine also surrendered its contractor’s license and is no longer bidding on projects (though their website is still advertising and offering services).  These developments came after new legislation (SB 478) was proposed to strengthen current laws on prison industry operations, providing more oversight and transparency involving prison industry operations.  Additionally wording was inserted to protect competing businesses from being disadvantaged from the use of prisoners as a cheap labor force.

Senator Bryan became involved early on, suggesting changes to the state’s law(s) pertaining to oversight, control and operation of the prison industry program that would eliminate any unfair competition with private manufacturers from the use of prison labor and protect private sector workers.  At last month’s BPC meeting Director Cox stated Senator Bryan had reservations or concerns about one section of the AR, feeling it would not provide the proper protection(s) to private sector companies if/when new prison industry projects were implemented.  Director Cox advised the Board he planned on conferring with Senator Bryan to rewrite AR 854 and present a modified version of it to the Board at the next BPC meeting on December 10th.

Cox advised the objection voiced by Senator Bryan and others was the ability of the Deputy Director to both enact and vet new programs by determining the impact – if any – upon businesses and labor.  Cox indicated Senator Bryan wanted that provision modified.

Senator Bryan is correct in objecting to or having reservations about that proviso.  These precise duties were the Deputy Director’s responsibility previously and as demonstrated by the Alpine situation, he handled them poorly.

 

TRANSPARENCY

Prior to the scheduled meeting a copy of the actual NDOC/Alpine Steel contract was received and researched.  In reviewing the contract and form submitted to the Nevada Board of Examiners several critical issues were immediately noticed.

Deputy Director Connett renewed Alpine Steel’s prison industry contract in 2011.  On the prepared form provided to the Board of Examiners, Connett informed Alpine was chosen because it had been contracting with the NDOC since 2006 with “satisfactory performance.”

There was no mention the company was in default on the old contract as the new one was submitted for official approval.  The form and contract itself were prepared and submitted by Connett – who obviously knew Alpine was in default and went forward without disclosing that fact to the Board of Examiners, the Legislature or the BPC:

 

satisfactory performance

Board of Examiners Contract Form on Alpine Contract 5/11

 

Additionally, Connett certified that the “contracting agency” (the NDOC) would not be providing worker space to Alpine, no Nevada State employees would be assisting Alpine under the contract and the state would not incur an “employment liability” if Alpine’s contract was terminated for failure to “perform.  Each provision initialed by Bulloch:”

Alpine NDOC Contract excerpt

from 2011 Alpine/NDOC Contract

In December 2012 the BPC requested the NDOC to stop all Alpine Steel operations at the High Desert State Prison and take steps to recover the outstanding money owed to the state.  On December 22nd, 2012 Director Cox officially closed the Alpine Steel fabrication operation.

Following the closure and during negotiations to recover the debt owed by Alpine it was learned that more than $438,000 was owed.  This sum included; $143,224 for past due wages to NDOC officers and another $115,270 in “rent” on agency space for workers:

forbearance excerpt 1

From Alpine Forbearance Agreement

Another important provision contained in the contract was the wage scale to be paid to the inmate workers.  The contract provided inmates were to be paid “the prevailing wage rate for the type of work performed”:

Alpine - prevailing wage requirement

2011 Alpine Contract Section 8.6

As I reported in February, Nevada’s Occupational Employment Statistics set the prevailing (median) wage for structural steel fabricators at $16.91 per hour worked:

NV OES struct steel fab

2012 NV OES Website

Yet the NDOC allowed Alpine to pay prisoners the minimum hourly wage for their labor.  From 2006 through 2012 when the operation was closed down, inmates were paid as little as $5.25 per hour to a high of $8.25 per hour regardless of knowledge, time on the job or experience.  Paying inmates less than ½ the scale paid to workers in the private sector allowed Alpine to underbid competing private sector companies for labor projections on projects.  Obviously this important contract provision was ignored by Alpine and the NDOC.

Just as obviously state employees were “assisting” Alpine in the performance of its duties by supervising the inmate workers in a facility space rented to Alpine by the NDOC – and Alpine was delinquent in paying wages to those officers.

Whether considered an “employment liability” or not, the fact that Alpine defaulted on paying officers more than $100,000 in wages meant the state had to pay those wages with tax dollars – and that is a liability.

Realizing how deeply indebted Alpine was, Legislators, Assemblymen, Interim Finance Committee on Industrial Programs members and a BPC member all voiced concerns at the amount owed by Alpine and worried about collecting the huge debt.  Official requests were made to Connett and Director Cox to secure a personal guarantee on the debt from Alpine’s owner, Randall Bulloch.

In September and October 2012 IFC members: AllenPuliz (manufacturing representative), Assemblyman John Ellison, Mike Magnani (labor representative) and Mr. Aguilera (business representative) all requested Alpine Steel’s owner provide a personal guarantee on payment of the debt owed by his company.  This request was made directly to Mr. Bulloch at the October 2012 meeting:

“Mr. Puliz asked if the pay back proposal had a personal guarantee or a guarantee from Alpine Steel. Mr. Bulloch said it was strictly a guarantee from Alpine Steel. Mr. Puliz stated he was a businessman and constantly provided personal guarantees. He asked if Mr. Bulloch was willing to do a personal guarantee on the debt owed to the state.”

Bulloch’s response was:

“…(He) was not prepared to provide a personal guarantee, but he would have further conversations with Mr. Connett to discuss other options.”

At the October meeting, Mr. Nicolas C. Anthony, Senior Principal Deputy Legislative Counsel, Legal Division, summarized the statutory authority and duties of the Committee on Industrial Programs.  In his summary the Deputy Legislative Counsel informed the Committee that their duties were “advisory” only:

”The Committee contains both members of the Legislative Branch and the Executive Branch due to separation of powers. Since the Committee only functions as advisory in nature, any recommendations made by the Committee have no official capacity…

“…Final programs and contracts, including leases of space, were established and entered into by the director of the Nevada Department of Corrections (NDOC) pursuant to statute, which was a function of the Executive Branch and not a function of this Committee…

“…Mr. Anthony indicated the recommendations of the Committee were purely advisory in nature. Mr. Anthony said its advisory recommendations can be submitted to the IFC, full legislature, or director of NDOC. If a recommendation was provided to the director of NDOC, it must pertain to new programs or the review of existing programs’ profitability within the first three years.”

In other words, the IFC Committee can only make “recommendations” to the Director or Deputy Director on new programs or review existing ones – and their recommendations carry absolutely no weight.  Neither Cox nor Connett would be bound to implement the recommendations of the Committee tasked with direct oversight of prison industry operations.

Legislative and private sector members charged with review of prison industry programs were prohibited from forcing the NDOC to seek a personal guarantee on the debt owed the state or formally request Bulloch post a personal guarantee.  The hands of the Committee were effectively tied.

With the NDOC circumventing the requirement that all industry projects be submitted to and approved by the BPC and ignoring the recommendations of the IFC, the agency was operating independently without any genuine oversight.  It appears the 2011 contract with Alpine, though provided to the Board of Examiners for approval, was never submitted to the BPC as required and the Board had no knowledge of the contract or actual operations of Alpine.

In January Connett ignored all calls for a personal guarantee from Bulloch.  Instead, he negotiated a forbearance agreement that allowed Bulloch to shirk personal responsibility for Alpine’s debt to the state.  The agreement also did not include; interest on that debt, a fine or penalty for defaulting on the contract and allowed Alpine to repay the past due money in small monthly payments over several years – and let Alpine’s owner off the hook for any debt owed.

On January 11th, 2013 Attorney General Masto’s office agreed to this proposed deal and Bulloch’s personal property and wealth were thus “officially” protected in case of any default in the future.

At the BPC meeting nine months later, the Governor and other members learned Alpine Steel had very quietly run up a tab of more than $450,000 with the NDOC’s apparent acquiescence and then defaulted on the negotiated and personally lenient repayment plan.  The Board questioned NDOC Director Greg Cox and Connett about the Alpine debt and both were forced to admit Alpine was indeed in full default.  When the Governor asked point blank the total amount owed, Connett stammered and said that though he did not have the “exact figure” he thought the amount was in the “neighborhood of $468,000.”

To anyone following this story it was readily apparent that default was more than likely in the case of Alpine Steel.  Already facing substantial IRS tax liens, litigation from creditors and outstanding state tax liens, Alpine was in dire financial straits when Connett negotiated the forbearance agreement and the Attorney General approved it.

When I forwarded questions to the NDOC and the AG’s office as to who/which agency negotiated the forbearance agreement without pursuing a personal guarantee from Bulloch, both responded the information was “attorney client privileged” refusing to answer.

On the important question as to actual ownership of the Alpine equipment seized and being held by the NDOC as collateral, both NDOC and the AG’s office again cited attorney client privilege and refused to provide any information on value or legal ownership (a third party now claims ownership of some of that property).  On the question of sale or disposal of that equipment to pay down the judgment amount, both again cited attorney client privileged information, refusing to answer.

In June of 2012 the prison industry financial records showed Alpine was $347,778.11 in arrears on payments to the NDOC.  Yet with at least this amount owing, Connett still did not call the contract in default or cease operations.  Instead he kept the operation open – over the recommendations of the IFC – and over the next six months Alpine ran up another $67,131.78 in bad debt.

In the end the taxpayers are out hundreds of thousands of dollars and any effort by lawmakers exercising oversight to attempt to fully inform and protect the taxpayers by guaranteeing the debt would be paid, were ignored by state actors at the highest levels of the NDOC – and ultimately, the Attorney General’s office.

Even when all the owed money and failures to enforce contract terms were made public, both of those agencies cite attorney client privilege in an effort to deny taxpayers any information on which agency or individual bears responsibility for negotiating away their rights or interest in recovering the money lost by the prison/Alpine operation.

Connett bears responsibility for forcing Alpine’s inmate workers to perform duties for Alpine without receiving wages – slave labor?  Bulloch and Connett admitted to the IFC that Alpine owed prisoners $78,000 in unpaid wages and only after the story became public did Bulloch finally pay those wages in September and October 2012.

If the NDOC paid the owed inmate wages out of department funds, they did so without legal authorization and in direct violation of the terms of the Alpine contract.  In either case though the inmates finally got paid, the balance of nearly half a million dollars is now the responsibility of taxpayers to reimburse.

This is why the legislature proposed, passed – and Governor Sandoval signed – SB 478 to strengthen oversight, require posting of security, bond or personal guarantees on proposed new prison industry projects; to protect inmate workers, local businesses, workers and taxpayers equally.  It is also why Senator Bryan had reservations concerning the wording of proposed AR 854.

CONFLICT OF INTEREST?

After the last BPC meeting concluded, several questions remained unanswered.  One is why Deputy Director Connett continued to allow Alpine steel to default from 2009 through 2012 without taking any steps to cure the default or stop the operation as allowed under the agreenent?  The contract has specific actions to be taken within 30 days of any default yet Connett failed to initiate any of the provisions called for in the contract when a default was triggered.  This lack of action led to more and more debt piling up that ultimately has cost the state.

Some have conjectured that possibly there was some form of corruption involved in the relationship between Bulloch and Connett, suggesting a possible “quid pro quo” situation.  There is no evidence to support this theory, no document or verifiable statements made by third parties have surfaced to sustain such a speculation so it remains just that – an unfounded speculation.

However, what isn’t speculation is the fact that Nevada’s prison industry program has been operating like an uncontrolled private venture with company executives avoiding any accountability or responsibility to shareholders for their actions.  Only in this case the “venture” had access to unlimited funding with tax dollars and the “shareholders” are Nevada taxpayers.

One of the worst elements of this default was the forcing of prisoners to work for a private company without wages – especially at a scale below that required under the contract.  Cox and Connett not only have a duty to the taxpayers to not waste the department’s appropriations, it also has a duty to not exploit prisoners in their care, custody and control.  Inmates have no choice in their work assignments and cannot simply walk off the job when not paid.  These NDOC officials made a conscious decision to force prisoners to work for this private manufacturer without pay which financially benefited Alpine substantially

None of the concerns voiced by the legislature, administration and media address the fact that prisoners in state custody were made to work for a private company without pay.  This wasn’t working in the laundry; kitchen or cleaning up the prison…this work was for a private company that profited from that forced labor.

Since Connett’s appointment as Deputy Director, several key and important changes began to take effect.  One was an immediate increase in debt owed to the NDOC.  Contractors such as Alpine began falling behind on lease and other payments indicating a failure by the NDOC to enforce contract provisions and cure such defaults.  The industry’s accounts receivable (outstanding or uncollected accounts due) rose sharply to nearly $1 million dollars in uncollected income and in 2010 Connett turned over $800,000 of that outstanding debt to a collection agency to attempt to recover.

When Connett assumed control of the prison industry it had a “contingency fund” of $1.5 million dollars to work with.  Since 2008 this fund has been used to the extent it now contains only $500,000.

With the Nevada prison industry oversight authority limited to nothing more than an “advisory” body, the NDOC continuously ignored the Committee’s recommendations and operated as it wished.  The agency began to successfully bypass the legislative requirement that the BPC review all new or proposed industries, further hiding industry operations.  This led to the NDOC operating the prison industry program without oversight, legislative controls or interference.

Contributing to this portrayal of the state’s faltering prison industry program is the real possibility that Deputy Director Connett’s duties to the people of Nevada and the NDOC have been compromised due to a concurrent position he holds with the National Correctional Industries Association (NCIA).

The NCIA is a trade association that actively lobbies at the federal, state, and local levels for continued funding for the expansion and effective administration of prison industry programs and conversely, opposes legislation that would adversely impact correctional industries programs.[i]

Collectively this group represents the largest and most active advocacy in support of continued use (and expansion) of prisoner labor and maintaining inmate wages below the fair minimum wage – as shown in the below “Resolution” adopted by the NCIA in 2010:

NCIA Minimum Wage Resolution

From NCIA Library – Last Accessed 3/10

Compliance with this resolution is demonstrated by Connett’s establishing actual wages paid to Alpine’s inmate workers at or below the minimum wage, in direct violation to the terms of the NDOC contract’s prevailing wage provision.

Individual citizens, companies and others in opposition to prison labor used by private companies find themselves face to face with this large and influential group operating as a trade/lobby organization with more than forty state prison industry administrators sitting upon the NCIA Board.

Connett NCIA position

From NCIA website: http://www.nationalcia.org/

Connett is the current Chairman of the NCIA Board while also serving as Deputy Director of Silver State Industries and as such he has one foot in each camp.  As Chairman of the NCIA Connett has a duty to expand prison industry operations, keep companies partnered with each state prison industry operation and limit the wages paid to inmate workers.  It would be detrimental to the NCIA to have to disclose that in his own state Connett had to pay inmates a prevailing wage or had to close a prison industry.  This could be one reason Connett failed to act responsibly, refusing to take any curative actions when Alpine first began to default.

There may be other theories as to why Connett failed to enforce the terms of the Alpine contract and spent time and energy attending Committee meetings and legislative hearings in an attempt to keep the Alpine operation open – in spite of numerous calls to close it down and the growing debt to the state.  Unfortunately to date, no one has been able to secure any response on the “why” from Connett or Director Cox, who continue to cite attorney client privilege on all questions posed on this topic.  Though the media has posed those questions, the BPC, IFC and legislature has not.

Several requests for documents and information have been made to the NDOC and Director Cox in an attempt to gather information necessary to establish precisely the reason for Connett’s actions.  As this article goes to publication, there has been no response from the NDOC – other than citing attorney client privilege – from Director Cox or Deputy Director Connett (who is also the NDOC Public Information Officer).

NDOC public relations officer

As the Deputy Director, Public Information Officer and the Chairman of the NCIA, Connett has a vast amount of power and influence.  He is able to choose new industry programs, decide the material released to the public about proposed or existing programs…and he holds a key position in the private agency overseeing, determining and enforcing policies and standards involving all prison labor and industries in the U.S.

As the DD, Connett failed to enforce compliance to protect the agency and taxpayers when Alpine began to default and in the end he attempted to withhold public information about Alpine’s failures while publicly applauding  the use of prison labor to manufacture steel components for the SkyVue Observation Wheel.

Responses to questions sent to Director Cox come from Connett as the PIO.  Each official response to queries for this article has come via email without Connett’s name or signature affixed.

The BPC, IFC Committee, Board of Examiners and lawmakers rely upon data, compliance certifications and other information provided to them by the NDOC Deputy Director.  The DD has a duty to advise these Committees, Boards and lawmakers with full, factual information for those bodies to use when making critical decisions regarding prison industries; new projects, status of existing operations and contract compliance.  Connett has demonstrated he is willing to withhold critical information and facts from these official bodies when it benefits his operations.  Under his authority there has been little transparency in prison industry operations.

As shown, Connett simply has “too many dogs” in the hunt to remain the sole authority selecting new programs, or determining the impact upon private sector workers and businesses from his industry operations.  Those important determinations should be made by others with no personal involvement riding on the outcome.

Failing to provide full facts to Boards and Committees, or withholding important information that is significant when considering prison industry expansions is negligent and as demonstrated can result in a huge loss to the state and taxpayers.  It also can result in underpaid inmate workers being used to lower operating expenses by one company to the detriment of his/her competitors – even working them without pay for extended periods.

NCIA Bylaws require any company partnered with a prison industry using inmate labor to become a member of their organization.  This may explain DD Connett’s continued support of an NCIA member company by his attending numerous meetings and hearings where he urged administrators and lawmakers to continue to allow Alpine to operate once the company’s defaults became public.

Hopefully the language of AR 854 will contain sections allowing for a committee or board to make determinations as to the impact upon competing businesses and labor when new industries are proposed or considered.  Having those important tasks in the hands of the one individual – or agency – seeking to implement any new contract or anticipated new industry truly is a case of the “fox guarding the hen-house…”

To avoid any appearance of impropriety the NDOC should operate under joint authority of the BPC, IFC and legislature.  The prison industry has to operate within the parameters set by those state bodies without deviation and under tight oversight provisions.  Continuing to allow the NDOC and prison industries to operate without requiring adherence to recommendations made by responsible legislative and control authorities, makes another Alpine-styled situation a real possibility.

It is now generally known and accepted that the SkyVue wheel is a stalled project that may never be completed.  Bulloch’s claim that he had this contract sewn up and would pay back his outstanding debt to the state once the project started in earnest was a promise he would not have been able to fulfill.  It is likely that if the BPC allowed Alpine’s prison industry operation to remain open as Connett suggested, the state could now be on the hook for millions more in unpaid debt from Alpine as prisoners manufactured components for the SkyVue project.

In this case it was half a million lost through the NDOC Deputy Director’s failure to apply available cures to a single contract’s defaults.  It could easily have been millions more if local business had not raised the alarm last year and organized labor had not joined forces with them.

As the Alpine story has shown us all, a lack of adequate oversight will result in Nevada’s workers, businesses and prisoners to suffer.  Taxpayers bear the burden of making up losses that accrue in the absence of true oversight and firm controls.  Without proper oversight the NDOC and its programs can operate in a fiscally irresponsible manner without fear of consequences.

Next month Director Cox will present the BPC with new finalized Administrative Regulations pertaining to operating the state’s prison industry program(s).  It is hoped that those regulations will provide genuine safeguards to protect everyone (staff, inmate workers, private businesses, unemployed workers and taxpayers) from exploitation such as that which occurred with Alpine Steel.


Nevada Ways and Means Committee Weighs in on Prison Industry Battle

The Result of Bureaucrats’ Operating as Businessmen

By VLTP Executive Director, Bob Sloan

In the continuing saga of Nevada’s Silver State Industries (SSI), the Legislature’s Ways and Means Committee held a hearing this past Friday, March 8th to discuss the budget of the Nevada DOC which includes state prison industry operations.

Critics of the industry program have found traction with the discovery that Alpine Steel, a private company, had access to inmate labor, subsidized facility leases and even with those subsidized benefits owed the state more than $400,000 in accrued debt.  In late 2012 when this story first broke, it was discovered that Alpine also owed inmate workers back wages to the tune of $78,000.  Because inmates are “assigned” to industry jobs by the NDOC, they were prohibited from simply quitting or asking for a reassignment due to not being paid.  They worked for an extended period without receiving any compensation for their labor – or if they were paid the wages did not come from their employer, Alpine Steel.

Connett and Cox pix

On Friday morning Committee members had an opportunity to question two top NDOC officials, Director Cox and his Deputy Director in charge of prison industries, Brian Connett.  Those in attendance described the meeting as tense between lawmakers and corrections officials.

Once this story broke in the media, Alpine made the necessary back wage payments to the inmate workers – but continues to owe the state for delinquent lease payments and NDOC staff salaries.  One Assemblyman asked the Deputy Director if the state had paid those salaries, and if so had Alpine repaid the outstanding wages.  The response was a half-truth, with Connett responding, “The back wages have all been paid.”  In fact those wages are part of the total $415,000 owed by Alpine.  The wages already paid are those owed to inmate workers – not NDOC staffers, which remain outstanding.

At times lawmakers displayed exasperation as they attempted to extract factual answers from Cox and Connett, who had difficulty answering direct questions related to prison industry operations; failing industry programs, financial losses and low cost leases of public facilities to private companies.

Cox and Connett were even less open about the situation involving Alpine Steel’s use of inmate labor to compete against other businesses in Southern Nevada, or the huge sum owed by Alpine to the NDOC for back lease and DOC staff payments.

Though lawmakers voiced concerns of the impact upon workers in the private sector and competing businesses, Cox and Connett did not seem to share those concerns, instead advocating that inmates need training while incarcerated to help reduce recidivism.  The irony of turning prisoner training over to a company with a history of questionable business practices – IRS tax liens ($668,000+), $415,000 in back lease and DOC staff salary obligations, unpaid state taxes (new Nevada Dept. of Taxation lien for $37,000 filed within the past month against Alpine’s owner, Randy Bulloch), lawsuits for money owed to creditors (F&M Steel and Pierce Aluminum) and is in litigation over unpaid worker’s compensation claims ($84,716 owed to Explorer Insurance Co.) – was apparently lost on Director Cox.

After all the controversy, debt owed to the state and concerns of both Nevada’s organized labor, workers and private businesses, Cox appeared openly insensitive to both issues by advising Committee members if Alpine’s business picked up, he would reopen the metal fabrication shop at High Desert State Prison to the company! This is indicative of a bureaucrat who genuinely believes he can make such decisions without consulting higher government or legislative authorities.

The general attitude of both was that inmate training was more important than the possible loss of jobs to Nevada’s unemployed steel workers, the potential for lost tax dollars or the impact upon businesses competing with Alpine Steel – or any of the half dozen other companies operating under joint venture contracts with Silver State Industries.

At one point Connett indicated that some of those complaining had been offered a chance to “partner” with the prison industry and had declined, seeming to suggest those businesses shared responsibility for any damage resulting from competition from prison industry operations…because they didn’t take him up on the offer.

Some answers provided to the Committee were enlightening, if incomplete.  Director Cox stated,”the cold hard facts are now that we have to aggressively look at what industries are not turning a profit.”

In addition to losses sustained by prison industry operations, the administrative office is operating in the red ($165,000+ over past two years), the industries’ furniture and metal, auto, upholstery and drapery shops have lost hundreds of thousands of dollars during the past few years.  Collectively Silver State Industries lost $81,597 in 2011 and $237,793 last year overall.

In 2010 the prison industries turned over more than $800,000 in accounts receivable to a collection agency and currently SSI’s past due AR account is in excess of $600,000.  In the budget discussion it was disclosed that the prison industry arm of the NDOC had a reserve fund of $1.5 million which due to continuous losses has been reduced to half a million.  If forced to absorb Alpine’s debt, the reserve fund will be exhausted.

David Bobzien, D-RenoIn response to the dwindling reserve, Assemblyman David Bobzien, D-Reno voiced concern that when that reserve is exhausted, the prison industry would begin to dip into the general revenue fund, saying, “This is a clear track into the dirt, and without substantial retooling, it’ll be in the hole”

 

 

Catherine Cortez Masto, Michael Sprinkle, John Hambrick

Bobzien and Assemblyman Michael Sprinkle, D-Sparks, questioned Cox about whether industry programs would be cut and what the department would do to get its industry program on a sustainable track.

Cox said he’s “very pessimistic” about future revenues and that “when resources go, of course programs will go.”  They were unable to get Cox to provide them with definitive responses or propose solutions to cure the industry’s financial woes.

Assembly Speaker Marilyn Kirkpatrick

“It appears that at some point the reserves are going to run out, but in the meantime, it’s a loss-loss across the state,” Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, said, weighing in.  Kirkpatrick also had difficulty getting straight answers to some of her questions on business management issues and as to whether the prison industry program is really about training or rather a work program, putting inmates to work for privately owned companies at the expense of non-inmate workers.

Big House ChoppersIn supporting the prison industry operations, Connett pointed to the “Big House Chopper” program.  An industry created by Howard Skolnik when he was in Connett’s position.  While using that program as an indicator of the work inmates were capable of and alluding that this industry was successful, he failed to advise the Committee that he closed that program two years previously:

 

“Mr. Magnani said some time ago the motorcycle production was shut down, there was some motorcycles that Prison Industries was attempting to sell online. Mr. Magnani requested an update to the status of the built motorcycles. Mr. Connett informed the Committee that three motorcycles were for sale. Prison Industries was looking at reducing the price based on the current market. The motorcycle operation has been discontinued.”

Prison Industries manufactured a total of five motorcycles.  Two of those were sold in a “sweetheart deal” to one of Connett’s other prison industry companies, Thomson Equipment.  Despite vigorous advertising on eBay and other outlets, the remaining three have now sat for several years without any interest shown by potential buyers.  Another example of funds wasted to advance a prison project that has eaten away at the profits generated by other industries – both in dollars spent for materials as well as advertising.

Clearly referring to the motorcycle industry, the Deputy Director exhibited these half-truths to the Ways and Means Committee in an attempt to justify the need and usefulness of continued “training” of prisoners – whether the industry providing the training is viable or not.  In the case of Big House Choppers, it is long gone.

Examinations of the financial statement(s) for SSI for 2011-12 reflect that traditional prison industries such as farming, ranching, license plates, prison garment(s) and printing were all profitable.  It is the industries operating in partnership with private companies that are failing; metal shop (Alpine), drapery, automotive and upholstery for example.

Not only are these failing industries losing money, they are the ones negatively impacting upon private workers, potential workers and suppressing expansion of competing Nevada businesses.  These are also the industries that have been receiving substantial tax and lease benefits that are denied to competing businesses, resulting in an unfair advantage.  Companies using inmate labor do not appear to be paying Nevada’s Modified Business Tax, which further depletes the tax base while increasing potential corporate profits and disadvantaging their competitors.

Another issue of contention was the lease agreement between SSI and Alpine.  In 2011 Alpine was in arrears yet Connett authorized a lease contract that provided 19,000 square feet of manufacturing space at the unbelievable rate of $.26 cents per square foot ($5,000 per month).  The Nevada average for such space has been depressed due to the recession, but is currently at $.68 cents per square foot.  For the same square footage a private company would pay $12,990 per month in the “free world.”  This saved Alpine as much as $95,000 a year in operating expenses.  Assemblyman Bobzien called the Alpine lease an “unfair subsidy”.  There was no question as to how many of the other companies partnered with SSI were receiving similar low cost leases.

All of the losses described above, lead to more than an “appearance” of total mismanagement.  It is assumed that Greg Cox was chosen as the Director of the NDOC based upon an ongoing career in corrections.  He wasn’t chosen for his business acumen.  Putting him in charge of overseeing contracts, leasing arrangements and other commercial business decisions appears to be well outside his expertise.  Between them, Cox and Connett have made decisions that have negatively impacted taxpayers, private businesses and Nevada’s workers – yet when called before a legislative body to explain those decisions, they exhibited their lack of actual knowledge and experience in business practices.  Making matters worse they demonstrated they were willing to blunder through and by making statements claiming they would reopen the prison metal industry to Alpine Steel…and claiming Alpine Steel deserved a lower lease rate because of the difficulties of getting materials in and out of the prison and transportation logistics.

Again it needs to be said that those are matters for someone higher along the government chain to consider and make the final decision on.  It is unrealistic to allow a Deputy Director or Director to enter into binding contracts and leases that reduce the revenue streams from leasing state owned property or facilities.  It is also unrealistic to give Cox or Connett the authority to waive payments owed for leases, salaries or materials owed to the state.  By assuming these duties, these bureaucrats were gambling with taxpayer money, betting on Alpine Steel and similar companies to ultimately become viable and repay debts owed – debts they allowed to accrue and are now having difficulty justifying.  All can now see they lost that wager, with Alpine Steel and other companies owing NDOC more than $600,000 collectively.

 

Danny ThompsonIn the public discussion period following the questioning of Cox and Connett, Danny Thompson, executive secretary treasurer of the Nevada AFL-CIO discussed the impact upon non-inmate workers on the outside from contracts such as that between SSI and Alpine.  He brought up the issue of safety to Nevada citizens that travel over or under a bridge spanning Interstate 15 that was constructed using prisoners in a “training program”. He said Alpine Steel produced steel girders for the construction project at the North Fifth Street Bridge in North Las Vegas and he questioned whether strict certification requirements for such projects were complied with in the training of inmate workers.

Thompson also called into question whether the materials used in the project met strict industry, state and federal specifications as to stress, weight and other factors involving materials used in the project – and wanted to know if inspections were conducted properly.  He also expressed concerns over the Wet ‘N’ Wild theme park project where Alpine was the structural steel contractor, saying he worried about the safety of children and families who would be visiting the park where inmates in training made many of the steel components.

CONWAY ROBERT PDA member of the Iron Workers Union, Local 433, Robert Conway also spoke, stating he had three hundred and fifty qualified iron workers without jobs, while the state was helping provide inmate welders for Alpine at wages far below the prevailing wage.  He also voiced concerns over the safety issues raised by allowing inmate steel workers to fabricate steel components used in public projects.

In response to criticism from Committee members and the public, Alpine owner, Randy Bulloch appeared via teleconference from Las Vegas and issued a statement in response to Thompson’s concerns, claiming that inmate workers were in fact certified as required.  He denied the use of structural steel components manufactured by Alpine in the bridge project and added that he had copies of material inspections and specs.  Bulloch spoke about his company in general terms but made no effort to defend the use of prison labor in the manufacture of structural steel used in his business.  It should be noted that Alpine Steel makes no mention on their website of the use of prison labor in manufacturing steel components, or that the company is involved in helping train prisoners.  That factoid is noticeably absent – as it is with TJ Wholesale and Jacob’s Trading, two other companies partnered with SSI and leasing facilities from the NDOC.

What wasn’t posed to Connett and Cox in the questioning by the Assembly Committee was the issue of a potential conflict of interest involving Nevada’s prison industry and compliance oversight.

The trade group, National Correctional Industries Association (NCIA) provides oversight over all prison industries in the U.S. and of late, internationally.  The NCIA does this under a grant from the Bureau of Justice Assistance.

This trade group advocates and lobbies on behalf of companies, corporations and organizations involved in prison industry operations, supplying those operations or benefiting from the labor of inmates.  Connett is currently serving as the  Chairman of the NCIA and thus able to make determinations as to whether his actions and thus SSI are in compliance with prevailing laws.

Many of the questions posed to Cox and Connett by the Committee members arose due to a comprehensive study I conducted for the non-profit Voters Legislative Transparency Project (VLTP) organization. As Executive Director with an interest in prison industries, I have been involved in researching and investigating prison industry programs for more than a decade.  In January VLTP submitted the study of Nevada’s prison industries to members of the Nevada legislature, Governor Sandoval, AG Masto and Secretary of State, Ross Miller.

In that report many of the deficiencies and issues discussed Friday were presented along with documentation supporting the conclusions and recommendations made.  The questions posed by Committee members indicates they had all read the study and wanted answers to the questions raised by the research.

One observation made during the research phase of compiling the study, is that it appears that Cox, Connett and the NDOC are attempting to run the state department of corrections as a “business” rather than a state agency.  Partnering with businessmen and women who deal daily in matters of profit/loss and market share, the NDOC is woefully unprepared, as the accounts receivable and low-cost lease to Alpine demonstrate.  Director Cox, Connett and the NDOC seem not to understand that any losses arising from these partnerships between SSI and private companies are ultimately borne by Nevada’s taxpayers.  This already happened in 2010 when Cox’s predecessor, Howard Skolnik applied for a Supplemental appropriation from the Legislature due to losses incurred from recession and reductions in prison industry income.

With more than a million in uncollected debt since 2010 and lost streams of revenue due to sub-par leases, industries losing hundreds of thousands of dollars annually, the NDOC is being critically mismanaged.  As a state agency, it is the taxpayer who will be left making up the lost revenue from this lack of management.

One recommendation made directly to the Governor was that Nevada adopts the in-place mandatory guidelines of the Prison Industries Enhancement Certification Program (Pie Program).  This program allows joint ventures between private companies and state prison industries.  It provides a way for private enterprise to have access to inmate labor and to distribute products across state lines, sell to the U.S. government in amounts exceeding $10,000 and to sell those goods in consumer markets.

The Pie Program has nine mandatory requirements and four of those developed by Congress for this program include:

  • Wages. Authority to pay wages at a rate not less than that paid for work of a similar nature in the locality in which the work is performed.
  • Non-inmate worker displacement. Written assurances that PIECP will not result in the displacement of employed workers; be applied in skills, crafts, or trades in which there is a surplus of available gainful labor in the locality; or significantly impair existing contracts.
  • Consultation with organized labor. Written proof of consultation with organized labor prior to program startup.
  • Consultation with local private industry. Written proof of consultation with local private industry prior to program startup.

Nevada is already participating in this program and has Pie Program operations running in the prison industry.  Those businesses appear to be operating without financial losses to the state or SSI, in compliance with the mandatory requirements and thus, not exhibiting any of the problems the non-Pie Program involving Alpine is.

Adopting these regulations would ensure consultation with competing businesses, labor groups, and unions ensuring inmates are paid the required prevailing wage.  Since the NDOC deducts 24.5% of the gross wages paid to inmate workers, the amount taken through this deduction would increase and those funds would be used to offset the costs of incarceration. Combine adopting these guidelines with genuine oversight provided by the Nevada Board of Prison Commissioners, chaired by Governor Sandoval and I believe this is a solution to the existing problems experienced by the NDOC.

Continuing to allow a private non-profit trade association to oversee the state’s prison industries in the face of the controversy that has erupted while they had such oversight duties, is asking for more trouble.  As the head of the NCIA Connett has demonstrated he lacks the desire to enforce compliance and he is willing to put the interests of that organization above his responsibilities to the state.