PRIDE Enterprises

More Businesses Victimized by Nevada Prison Industries

More Businesses Victimized by Nevada Prison Industries

By Bob Sloan

– Other Business owners complain of unfair competition –

When researching material for the Study of Nevada’s Prison Industry Program (released in January), I discovered that in addition to several steel fabrication companies, several other industries and manufacturers have come forward saying they’ve also been compromised by Nevada’s prison industry.  These businesses include; embroidery (Carson City), truck manufacturing (water trucks for construction use), auto restoration and repairing (classic cars) and companies involved in repackaging and/or resale of returned or refurbished goods.

In addition to those industries being victimized, any Nevadan that registers a motor vehicle, trailer or semi that requires a license plate is also being forced to contribute to the profits of the prison industry.

Under a contract with the Bureau of Motor Vehicles, the prison industry receives $.50 for every license plate “manufactured” and distributed in Nevada.  This fee appears to be in addition to the current contract between the NDOC prison industries and the BMV that sets pricing for the production of license plates.  Wording of AB 473 makes the payment mandatory and the money deposited to a dedicated Prison Industry Fund.  Vehicles requiring two plates (front and back) are charged an additional $1.00 per vehicle per year.

Sounds like small change for each vehicle owner – $.50 or $1.00 but with an estimated 2 million vehicles registered annually in Nevada the prison industries is expecting to receive a continuing windfall from this amended legislation.  When added to debts owed by private companies partnered with prison industries (2012 Accounts Payable and Outstanding were in excess of $600,000) the state owned and controlled “company” Silver State Industries continues to reap benefits from taxpayers.  They claim that SSI is self-sufficient and relies upon no tax dollars or appropriations for their operations, but what’s been discovered refutes that claim.  Could it be the license plate fees paid to the prison industries will be used to offset industry losses – at the expense of taxpayers who register their vehicles?

An unanswered question…since most consider registering their cars and paying for licensing a state “tax” for owning a vehicle, are Nevadans actually paying a $.50 cent tax per plate to the Prison Industries?

History

The story of Alpine Steel, LLC and their partnership contract with Nevada’s NDOC industries – Silver State Industries – has been in the news for months now.  When competing companies discovered Alpine had been using prison labor provided at or below minimum wages, they complained to the Governor and members of Nevada’s legislature about unfair competition.

Alpine had been contracting with the NDOC since 2006 to use inmates as a workforce in fabricating structural steel used in private sector construction jobs performed by the company. Due to the low labor costs, Alpine was able to respond to RFP’s and underbid all others for projects.

As the story evolved other issues began to rise to the surface identifying separate but factual concerns; unpaid wages to inmates and NDOC staff, unpaid utilities, unpaid taxes and unpaid lease payments by Alpine Steel.  In the end it was determined that Alpine owed the state nearly half a million dollars in unpaid operating costs.  Under the contract between NDOC and Alpine, there were no requirements for the posting of a performance bond or personal guarantee of payment should the corporation default.

The additional public admittance by NDOC Deputy Director Brian Connett that Alpine Steel had not been vetted for past financial or business practices prior to or during the contract(s) period brought to light that his prison industry operation had bypassed standard business practices when developing contracts with Alpine.

Hearings were held before Nevada’s Ways and Means Committee and the Board of Prison Commissioners (BPC) on the matter.  NDOC Director Greg Cox and Deputy Director Connett were questioned about the debt owed to the state by Alpine, on entry into the Alpine contract without any approval from the BPC and failures of consulting with private businesses and labor groups prior to initiating the steel industry operation.

Former Nevada U.S. Senator Richard Bryan came to the table at these meetings and proposed changes to protect Nevada’s workers, private businesses and protect inmate workers from further exploitation.

Proposed changes to Prison Industry Statute(s)

Apparently In response to concerns voiced by Governor Sandoval and his BPC and the proposal by Bryan, the Nevada Senate has proposed amending the state’s statute on prison industries through SB 478, filed on March 25th.  A hearing before the Senate Judiciary Committee is scheduled for Wednesday April 10th to discuss the proposed changes to NRS 209.

One important change to the statute would require any company wishing to participate in prison industry work programs post a bond to ensure situations such as that with Alpine do not reoccur with the state owed hundreds of thousands of dollars.

Other changes tighten the requirements for consulting private businesses that would be impacted by proposed industry products or services – and for consulting with unions and labor that may be adversely impacted by the labor of inmates. Costs associated with these consultations are borne by the company and not paid for with tax dollars and all new proposed industry or products will vetted by the Interim Finance Committee on Prison Industrial Programs.  Once that committee makes a recommendation, the proposed project is sent to the BPC where the Governor, Attorney General and Secretary of State will make the final decision.

Necessity for these changes

Thomson Water TruckIn addition to the Alpine prison operation, investigation revealed that a previous industry run in partnership between SSI and a private company resulted in the closure of at least one competing private manufacturer.  This was a project involving Thomson Equipment Company and SSI.  Thomson imported tanks and pumping equipment from foreign manufacturers and brought the materials to their prison industry facility where inmates assembled the Water Trucks.

Everyone has seen these trucks along highways and large construction sites where they’re used to spray water to keep dust down during construction.  A company that built the same trucks there in Nevada was forced to close those operations in 2006 due to the Thomson products being distributed through auctions and other outlets for as much as 30% less than the competing company’s pricing.  Workers were laid off and the company closed the division that manufactured the same products Thomson had begun selling for less.

“I either had to pay my workers much less or stop my operation to be competitive,” the company owner told me during an interview.  “I chose to close the operation down and not make any more water trucks.  With so many Thomson products dumped on the markets, I could ill afford to pay prevailing wages to my employees and continue to be competitive.

“I had no idea that those Thomson products were made using inmate labor.  I heard they were importing components from Asia and attributed the lower pricing to that.  If I had known at that time that I was forced to close and lay off good workers because prisoners paid minimum wages were used to undercut my pricing, I would have protested to state authorities.  I don’t know if protesting would have stopped it because from what I’ve read in the paper, the state is promoting prison industries.”

According to minutes of the Prison Industry Finance Committee, Thomson was bought out by a foreign conglomerate out of New Zealand and Australia.  They changed the name of the company to Silver Line Industries and began to import a huge number of tanks and other equipment from Hong Kong and elsewhere which the inmates of Nevada would transform into new truck products.  They stopped the prison operation a few years ago, but not before that operation caused the closure of competing Nevada businesses and put several workers on unemployment.  While the company put out of business by the prison industry paid prevailing wages to their workers, Thomson/Silver Line paid inmates minimum wage.

Shelby AmericanI interviewed owners of several car restoration companies in Nevada over the past couple of months.  They advised they were basically unaware of the car restoration industry run by SSI and had no idea they were competing against prisoners doing the same work on privately owned vehicles.  When I asked them about Shelby American’s use of inmate labor on the Shelby Mustang products, none of those interviewed had any inkling inmates were involved in that operation.  One said he had several acquaintances working for Shelby out by the race track in Las Vegas who assembled the Shelby line – and thought they were also manufacturing the parts used in the production.  A 2000 CNN article on Shelby American and a Wall Street Journal article about the restoration of a number of cars owned by private collectors was shown to one restorer.  The Shelby article revealed:

“Shelby American, manufacturer of the Shelby Cobra sports cars, pays Deere and a dozen other inmates at the facility an hourly wage to build every part of the car except the engine. Other workers at the Indian Springs penitentiary work for other private companies or the state restoring cars, beveling and staining glass windows, upholstering chairs and making bed mattresses.

”After five years of loyal service to his employer, the 63-year-old Deere earns less than $8,000 a year in his full-time job, gets no vacation or sick pay and is unlikely to ever be promoted.”

The WSJ story contained this information:

“The cases in question are cars—very cool vintage cars. They come in rough and battered, and inmates restore them to their original glory. It may be the penal system’s most unusual workshop…

“The auto shop’s present inventory includes 32 cars in some stage of restoration. Among them: two 1960s-era Corvettes, two 1960s Mustangs, a 1959 Thunderbird, a 1965 Malibu, a 1935 Chevy pickup and two 1969 GTOs.

“All kinds of customers bring their cars in. Barry Becker, a Las Vegas realtor, has had nearly a dozen cars restored by prisoners.

‘I just keep buying stuff I don’t need,’ he says. Among his prison-rescued treasures are a 1937 Dodge sedan convertible, a 1937 Dodge “Woody” wagon, a 1956 Nash Metropolitan and a 1941 Plymouth pickup truck

“A Las Vegas couple recently agreed to pay the prison $19,000 for a re-do of a 1973 Datsun 240Z, with a V8 engine installed. “Mom’s going to go to the store really fast,” says the shop’s director, Carl Korsgaard.

“Inmates, including a few murderers and lifers, have been trained to do everything from sanding steel bodies down to sewing upholstery. One upholsterer was born in Cuba, where Mr. Korsgaard believes he absorbed his countrymen’s talent for keeping vintage U.S. vehicles on the road.”

Corvette restored by SSIThe business owner exclaimed, “How can the state openly promote a program such as that?  By using inmates to restore or repair privately owned vehicles, they are taking work away from hard working business owners and our employees.  I haven’t committed a crime…my workers aren’t criminals and we need work to put food on the table and pay our bills, raise our kids.  How can the state justify doing something like this that they know hurts business owners like me and dozens of others trying to make a living restoring cars?”

I couldn’t honestly answer his questions.

In 2011 the owner of Billow’s Embroidery in Carson City, Nevada began protesting to the NDOC, SSI and ultimately to Governor Sandoval that his company was losing business due to direct competition with a prison industry doing embroidery.  His complaints included the fact that he had to pay fair wages, benefits and provide insurance for his workers, while the prison industry paid no benefits, insurance and only paid minimum wage.  This made their products and service pricing substantially less than Mr. Billow was able to compete against.

Mr. Billow was invited out to the SSI Embroidery operation and given a tour of the prison industries located at the prison.  He was asked to stop complaining about unfair competition as training of prisoners was important and necessary.

During the tour Mr. Billow described as a “dog and pony show” he was shown the prison’s printing industry shop.  Mr. Billow observed that inmates were being trained on and using antiquated AB Dick offset printing equipment.  He stated, “I learned printing while in school on that equipment decades ago.  I couldn’t understand how training inmates on such old equipment would prepare them for employment in the printing industry upon release, when they would know nothing about the digital and advanced printing machinery used in the private sector.”

Mr. Billow felt that the “tour” he was given was conducted as a way of demonstrating that he was up against a huge industry run by the state and that to continue to complain would be useless.  He said he felt that it was an effort into intimidating him into silence.

Jacobs Trading Company

bigjacobsAn ongoing industry run at the women’s prison facility operated by SSI, is a partnership with Jacobs Trading Company.  Jacobs is a national company that specializes in buying, refurbishing and repackaging returned or damaged products from retailer such as Wal-Mart and Best Buy.  Female prisoners are paid minimum wage for their labor.

The Great Recession was a boon for Jacobs Trading Co., the liquidation company in Hopkins MN. that bears the name of Irwin Jacobs, one of the state’s best-known businessmen. The company deals in overstocks, scratch-and-dents and returned merchandise and saw operating income rocket to $14 million in 2009 from $5 million in 2008.  Jacobs relies heavily upon prison labor for their repackaging operations.

Inmate workers receive the materials and repair if necessary and then remove all labeling, advertising and UPC coding that identifies the original manufacturer or retailer.  They then repackage and ship the refurbished products all over the country.  Recently Jacobs demanded SSI provide the money to expand their prison operation at the women’s prison.  Jacobs said they need another loading dock in order to put on a third shift and employ another eighteen female prisoners.

Rather than “request” the NDOC or SSI provide the new construction, Jacobs demanded that they do so, and threatened to reduce their operation to a single shift and lay off inmate workers if the state run department did not meet their demands.  Some refer to this as sharp negotiating others would call it a form of extortion.

Research revealed that Jacobs Trading Company has created an “empire” within the repackaging industry in the U.S.  Currently they operate in prison industry operations in at least six states.  Consider the following discussion that occurred fifteen years ago in reference to Jacobs Trading’s operation in Minneapolis – and legislation proposed to favor Jacobs’ use of inmate labor:

“Corrections officials are quick to cite a statewide labor shortage to justify deals such as the Jacobs bill. Employersare having trouble finding people to work, they point out.

But Neuenfeldt shoots back: “If Jacobs wants to bring 50 jobs to Wisconsin, it would be good to open up an operation in central-city Milwaukee or somewhere else in the state where we have high unemployment.

“And I would think that the business community, especially small business, would have some concern over businesses set up using prison labor, because if this guy pays a dollar an hour it’s pretty hard to compete with that,” he adds.

If the Jacobs legislation passes as currently written, Jacobs will indeed pay inmates $1 per hour, skirting a federal interstate commerce law that requires that prisoners working for commercial ventures be paid prevailing wage.

Federal law only applies to the production or manufacturing of a product,” says Steve Kronzer, director of Badger State Industries. “If they started repairing then it would be considered manufacturing, and then it would come under the federal law.”[1]

The Jacobs plan demonstrates the enthusiasm with which the Department of Corrections is expanding into the private sector–even at the expense of profits. “The whole reason for doing this thing is so the state gets money back to cover its losses for boarding these people,” says Neuenfeldt.

But, the labor rep says, some basic math shows that the savings would be minimal, possibly nonexistent.

The 50 inmates involved would be paid $1 per hour for 1,950 hours. This would cost Jacobs $97,500 a year in wages. Thus, each inmate would be paid about $2,000 a year. Fifteen percent of that would go to the corrections system, and another 5% would go to the victim-restitution fund. The state’s 15% comes to $14,625, plus an estimated $8,000 savings from wages the state would no longer pay the inmates who would otherwise be employed in other ventures. So the state gain would be around $27,525.

But the state would also have to pay for a supervisor, which the AFL-CIO estimates will cost $17,800. This brings the state’s take down to $9,725. Subtract the costs of facility adjustments and security measures, and “the Jacobs bill could even be a money-losing proposition,” says Neuenfeldt.

So why do it?

“You have to understand the mentality that goes on within the prison industries itself,” says Nick George, director of government relations for Wisconsin Manufacturers and Commerce. George served on a prison industries advisory committee that discussed the governor’s budget proposals.

“In prison industries, there is a mentality, and this is not unique to Wisconsin, of wanting to see their industries grow,” he explains. “They have a number of advantages over private industry, and a lot of the individuals who run these prison industries have an empire-building attitude.”

Several of these operations are identified as participating in the federal Prison Industries Enhancement Certification Program (PIE Program).  This program allows companies to use inmate labor to manufacture products sold and shipped across state lines – but only where the company pays prevailing wages to the inmates, consults with private companies performing the same manufacturing or services and with labor unions, prior to start-up of the industry.

While the Jacobs operation in Nevada is listed as a PIE Program participant, the inmates are not paid comparable wages.  They receive minimum wage or less for all job descriptions, regardless of years of experience or skill.

In other states Jacobs has failed to register these operations as PIE though the products received at those facilities cross state lines and finished products are shipped back across state lines.  Here is a listing of some of those current or former Jacobs operations:

  1. Nevada – Southern Nevada Correctional Center.

  2. Oklahoma – Eddie Warrior Correctional Center (not listed as PIE).

  3. Idaho

  4. North Dakota

  5. Indiana –  Bunker Hill,  and Rockville, Indiana

  6. Minnesota

Currently Nevada is the only “PIE” operation listed for Jacobs…yet as shown, they are operating in Oklahoma without listing it as a PIE industry.  In each of the foregoing states inmates are used as the sole workforce for Jacobs’ repackaging operations.  Jacobs does not use non-inmate labor in their repackaging operations.  Looking at the map of distribution centers operated by Jacobs, one finds that they are placed in areas where the prison industries are operating.  In a couple of those industry operations, Jacobs has acquired exclusive contracts with Corrections Corporation of America to use inmate labor and facilities under control of this private prison company.

Jacobs Trading and its owner, Irwin Jacobs have been in the news in a similar manner to Alpine Steel and owner Randy Bulloch over questionable business practices.  In 1997 Jacobs retail operations were sold to Petters Group Worldwide.  After failing to make payments for their purchase, the stores were ultimately shut down.

(It is interesting to note that Tom Petters, whose company had purchased the retail operations from Jacobs Trading, was recently convicted of multiple felony counts as part of a $3.65 Billion Ponzi scheme.)

In 2010 Irwin Jacobs came under intense scrutiny over investments made in a top boat company, Genmar.  It appears Jacobs urged investors to put money into Genmar before the company wound up in bankruptcy.  In the two years preceding that collapse, Jacobs and some of his investors received substantial “dividends” from Genmar as it was financially foundering.

Once the bankruptcy was final, Jacobs and one of his investor friends began buying Genmar back for pennies on the dollar, vowing to make it one of Jacob’s “best acquisitions ever.”

Corruption in Prison Industries

I mention Jacobs and the appearance of manipulating businesses and use of inmate labor, because a means of capitalizing off cheap labor permeates all the companies involved in prison industries.  Alpine Steel revealed that aspect to Nevadans recently.  Previously I wrote about U.S. Technologies that was formed for the specific purpose of using inmate labor in the PIE Program to provide a labor advantage to numerous companies acquired by U.S. Technologies.

Like Jacobs, UST formed exclusive contracts with CCA and/or Geo Group to allow them to operate at all facilities owned or managed by these private prison companies that have prison industry operations.

Board members of UST included many top names of the politically and financially powerful in Washington; George J. Mitchell, William Webster, General Alexander J. Haig Jr., etc.  In 2006 UST went belly up after the Chairman was indicted for embezzling over $20 million in investor funds.  The SEC devalued UST stock and the high profile Board members ran from any connectivity to UST as quickly as possible.

In Florida the prison industry corporation PRIDE came under fire for creating nine spin-off corporations to take advantage of the PIE Program and turn huge profits.  The entire executive staff was forced to retire once the scandal broke but that didn’t save four private companies that had been taken over entirely by PRIDE, putting the legal business owners into bankruptcy.

Beyond the cheap low cost labor, is the ability to secure equally cheap leases on state owned manufacturing facilities and as in Nevada, avoid paying the Modified Business Tax on employees.  Alpine secured a lease of 20,000 square feet of manufacturing space from the NDOC.  The contract charged Alpine $.26 cents per square foot for that property.  The average cost per square foot for comparable space in the private sector is $.68 cents a square foot.  Which means Alpine enjoyed a savings of $95,000 in operational expenses every year.

This “savings” to Alpine Steel reduced the potential revenue stream to taxpayers – for the lease of public owned facilities – to the tune of that same $95,000.  When we calculate savings realized by Alpine over the past 7 years that this contract with SSI existed, we easily determine that taxpayers lost more than $665,000 in potential revenue.  Between this loss of potential income and the actual amount owed to the state by Alpine Steel in unpaid debt and unpaid taxes, Nevada is out more than $1 million dollars.  Over the next four years Alpine’s owner has agreed to repay $438,000 owed in the unpaid debt without additional penalties or interest…but the income lost under the leases is gone and there is no provision for Alpine to repay the additional $38,000 owed to the Dept of Revenue for unpaid state taxes.

That $1 million dollars represents a huge loss to a state with high unemployment rates, a declining tax base and increasing government costs.  Nevada in effect subsidized one company’s operations to the tune of a million dollars over half a decade while the competing companies lost income and the ability to hire new workers due to that subsidization.  To me this is beyond unfair, it borders on the very definition of corruption.

Additionally, Jacobs Trading, JT Wholesale, the Embroidery industry and other companies that have left SSI; Shelby American, Thomson Equipment, etc. all have/had similar sweetheart leases on publicly owned facility spaces and inmate wage rates.  How much more in revenue was denied to Nevada’s taxpayers from these leases?  How many more Nevada workers were not hired because inmates were used instead?

So there is a lot of incentive for companies to partner with state run prison industries.  The temptation to realize huge savings off cheap labor, low cost leases, tax breaks, and no requirement to pay worker benefits is too attractive to companies already looking desperately for an “edge” in their respective markets.

When government administrators “help” by increasing the incentives for companies to bring their manufacturing and labor needs to prison industries, it further depresses the normal employment and sales markets.  Leases to the likes of Alpine Steel were made without approval or even review by the Legislature or the Executive branch of government.  The wage rates paid to inmates are likewise without review or question…all leading to the current situation in Nevada.

When we realize the numbers of industries, businesses and unemployed workers who continue to be harmed because of prison industry operation we begin to understand why Nevada jobs are becoming scarce, why private business sales are suffering and why new businesses are finding it more difficult to compete against a captive workforce supported by state subsidized operations.

The Senate Judiciary Committee is scheduled to discuss the proposed changes to Nevada’s prison industries this coming Wednesday.  I would encourage those who think they are or may be adversely affected by competition in your industry by prison labor, to attend and use this opportunity to voice your opinion.



[1] This is the loophole that Senator Bryan’s proposal to Governor Sandoval would close.  This would protect Nevada employers and workers before protecting workers and businesses in other states.  When SSI’s prison made goods are sold in Nevada, there is no protection to business or workers, requirements to consult with labor or competitors.  Only when SSI products leave the state, are workers and businesses in receiving states getting protection by requiring the inmates are paid comparable wages and consultation with labor was fulfilled.

NDOC & Silver State Industries – Meet the Exploiters – Expose on Prison Labor in Nevada Pt. II

Second in a Three Part Expose on Prison Labor in Nevada Displacing Workers

(Reposted from January 11th)

By Bob Sloan – Prison Industry Consultant

SSI GarmentWorking on the “Chain-Gang” was how prisoners were punished for their crimes in days gone by – and people who had been victims of crime were happy.

Then we became “civilized” as a society and changed laws, regulations and opinions that eliminated these hard forms of punishment and degradation.  Instead of harsh working conditions we made sentences longer, believing that to be more humane.  Parole was abolished; possession of a “joint” was enough for a mandatory five years in prison.

Problem was, all this incarceration was costing taxpayers ever more in corrections costs.  Lawmakers sought ways to reduce the ever-increasing expense of incarceration.

An idea was born: create prison industries where prisoners could be put to work to “earn their keep” and reduce the incarceration costs borne by taxpayers.  Soon another idea was floated, let private manufacturers gain access to the prison run factories and further reduce the expense of housing, feeding and providing medical care to prisoners.  Inmates can be taught work ethics, products made by them will cost us less and recidivism will be reduced…and once again the people were happy.

Problem is, this program has created more opportunity for crime and exploitation – of the prisoners themselves. Instead of prison populations shrinking, they grew.  This growth was due to more laws, stiffer sentences, the war on drugs and increasing penalties.  Alongside that population the prison industries grew even faster with more inmates came more job positions.

This labor force exists in a near vacuum; no voice, no representation, disallowed from unionizing (though today an estimated six hundred thousand to one million men and women are working in prison industries nationwide), sentenced to hard labor by courts.  DOC’s assign them to jobs, and if they have existing skills needed, they are put to work in prison industries.  Industry managers seek skilled inmates with long sentences in order to quicken production, maintain shipping schedules and dependability.

Court challenges under the Fair Labor Standards Act (FLSA) about wages and deductions are mostly denied with prejudice – meaning the plaintiff is prohibited from ever filing such claims in the future.

In Florida and Nevada (just two of nearly 40 states involved), percentages of what little wages earned are taken back and given to the prison industry to help expand or create new work programs.  This aspect itself violates one of the key tenets of the federal prison industry program referred to as the “PIE Program” and there are other more critical violations resulting in our jobs being lost to prisoners.

This expose will bring to light the existence of a national network of individuals, corporations, a private association, agencies and branches of state and federal government involved in exploiting inmate labor, profiting off that exploitation and pursuing the transfer of tens of thousands of jobs from communities to prisons across the country.  Nevada ranks high on the list of states involved in violating the trust of their citizen workers, small businesses and exploiting prisoners delivered into their care.

In Nevada the prison industries are managed by Director James “Greg” Cox and Deputy Director, Brian Connett.  Previously one individual held both of those positions as prison industry programs were developing back in the last quarter of the 1900’s – Howard Skolnik.  He set the stage for what is occurring today and now, Cox and Connett carry on in his stead.
Howard Skolnik

Harold Skolnik

Running an entire state prison system is a daunting task.  Housing, medical care, work programs, staffing, budgeting, and regulatory and Legislative compliance impacting prisons.  The Director of Nevada’s Department of Corrections is James “Greg” Cox.  He has deputy directors assigned to the various divisions of the DOC, and in general I believe that Director Cox and his Deputies are doing an admirable job.  The one exception to my observation involves the DOC’s Prison Industrial Program.

One of Cox’s responsibilities is the operations of the prison industrial work programs.   His Deputy Director for Industrial Programs is Brian Connett, in charge of running Silver State Industries (SSI) Nevada’s prison industries program.  Messrs. Cox and Connett are responsible for insuring that the prison industries are operated properly under state and   federal laws.

Cox and Connett

            NDOC Director, Greg Cox  |                        Deputy Director, Brian Connett

Supervising and operating Nevada’s prison industries involves approving new products, new factories, partnerships with private companies, and compliance with all applicable state and federal laws and regulations.   These are the responsibility of the Nevada Interim Finance Committee’s Committee on Industrial Programs.

For that committee to perform its duties properly, they obviously have to know and understand the parameters of the federal PIE Program’s mandatory requirements (1) that govern the use of inmate labor used by private companies.  Before they can implement any new projects, they must, among other responsibilities, notify existing competitive businesses as well as involved labor groups—after all, how can they judge whether a new prison industry will unfairly impact local labor or unfairly disadvantage competing businesses if they do not fully understand the provisions put in place by Congress to guard against such interference to free-market forces?

Unfortunately in an interview with a member of that committee, I was told he was not fully aware of the PIE Program’s mandatory requirements, and that concerned him.  He did not know that local businesses were required to be contacted prior to operational start-ups or production of new products.  More importantly, he had not been advised by anyone within NDOC or Silver State Industries that labor groups were also to be consulted.  How then can he serve on this committee without this knowledge?  How can the committee control the federal program in which Silver State Industries is participating – and how can it possibly certify to the federal government that it is, and will remain, in compliance with rules of which the members are unaware, as is required by law? This style of “consulting” is quite obviously insufficient to ensure compliance.

The federal program of prisoner training began with the passage of 18 USC 1761 in 1979. This law is known as the Prison Industries Enhancement Certification Program (commonly called PIECP or PIE Program).  (2)

Under this program Congress allowed private companies to gain access to inmate labor in order to “train” the inmates and provide skills which they could later utilize upon release.  Congress put in place nine mandatory requirements.  Failure to comply is supposed to subject violators to federal imprisonment for up to two years and/or a fine of $50,000.00 and loss of PIECP certification.

The Department of Justice outsourced policy determinations, enforcement, compliance reviews and investigations of non-compliance to a private organization in 1995–the National Correctional Industries Association.  The NCIA, (3) which is a trade group representing prison industries, their staff, employees, vendors, suppliers and companies using prison labor.  Since this transfer of program oversight, there have been a total of -0- prosecutions for violations.  As you read the following you will be appalled at how such a zero-sum figure is possible…
Once the NCIA assumed a duty of crafting policy for this program, they began to interpret the nine mandatory requirement in the light most favorable to their corporate members, (4) adjusting annual assessment determinations to reflect alterations designed entirely by them.  The NCIA made these alterations and the entire program was changed.

The mandated prevailing wage requirement was changed to minimum wage scale computed to the 10th percentile, and allowed these prison industries to institute a pre-training program where wages could be reduced to as little as $.20 per hour. (5)

In December, 2010 the BJA (Bureau of Justice Assistance) issued a Back Wage Policy (6) that unequivocally reinforced the prevailing wage requirement and refuted the wage assumptions made by the NCIA. (7)

The claim that lower wages are fair to “competitor manufacturers” is false.  Furthermore, in Nevada a high percentage of inmates working in the industry are serving long sentences or life terms (as reported by CNN) (8), meaning that the skills they are taught will likely never be applied in the private sector.

A Florida report containing research provided to Governor Scott by his 2010 transition Law and Order team found that 28% (9) of the prison workforce was comprised of lifers or prisoners serving sentences with ten or more years remaining until release.  So what transferable skills are they learning?

Silver State Industries has set the PIE Program maximum wage for all inmate workers at the 10th percentile of the state/federal minimum wage.  Unless the “prevailing wage” is set by the state OES (10) at minimum wage for all occupations in NV, the NDOC is out of compliance with the mandatory wage requirement.

The NCIA also determined that mandatory notification to local labor groups, unions and competing private businesses about new or existing industry projects or products, could be satisfied by informing local Chambers of Commerce, or advertising in classified sections of newspapers.  Compliance review personnel were told these requirements were already on file with the NCIA and had been verified (11) and would not be a part of the annual compliance review.

These changes resulted in a substantial reduction in wages to inmate workers, creating a huge and low paid labor force used to attract business owners seeking to expand operations or reduce labor costs.  The NCIA produced a video entitled “Cutting Through The Perceptions” (12) to be used in marketing prison labor to private companies.  By neglecting to pay proper wages and neglecting to notify labor and free enterprise, prison industries began to expand and grow quickly as one would expect.

As the video shows, this prison program is not for training, it is a way to provide skilled labor to private companies to reduce labor costs, increase production and avoid typical “benefits” they would have to pay to private sector employees.

This brings us to the current situation involving Silver State Industries and Alpine Steel in Nevada, and complaints lodged with the Board of State Prison Commissioners by XL Steel and others who have also complained about unfair competition and the loss of private sector jobs to inmate labor.

This all serves to show you how the PIE program has been manipulated, changed and altered to provide the maximum savings to companies involved in prison labor, while paying the least possible wages to a truly captive workforce.

Now that you readers understand the laws which are involved, I will document the specific violations committed in Nevada involving those regulating the state DOC and Silver State Industries.

Recent reports (13) from Las Vegas reveal it recently came to the attention of companies competing with Alpine Steel in the structural steel fabrication industry, that Alpine had been using prison labor as a means of undercutting all competitors on projects requiring bids.  Labor unions were unaware of the PIECP program.  Union officials had no understanding of the PIE Program or that they were to be consulted prior to the startup of any PIE project or industry.

It defies belief that SSI could have been reviewed by the NCIA in 2011 (14) and found in full compliance…except for one little conflict-of-interest kept from the public and apparently also from the Nevada legislature and the Board of State Prison Commissioners:  NDOC Deputy Director Brian Connett is also President of the NCIA (15) with a responsibility for ensuring, enforcing and certifying full compliance of all state prison industries to the BJA.

Harder yet to comprehend is how Mr. Connett has been able to enforce and certify industry-wide compliance, when he and Director Cox claim to have not known or understood the regulations while just now admitting SSI and NDOC are in violation?

The NCIA receives a sizable grant from the BJA (out of tax dollars) to perform compliance duties, essentially receiving a subsidy for self-oversight of an industry generating annual sales of $2.4 billion dollars. (16)

Under questioning by Governor Sandoval and others at a recent meeting of the State Board of Prison Commissioners, Director Cox admitted (17)that his “agency has not been performing necessary checks to ensure inmate work programs are not taking jobs from private industry workers.”  Mr. Cox went on to say, “The process has not been followed, it should have been.”

Mr. Cox indicated that, “he will develop regulations to require that prison industry programs be approved by the Prison Commissioners Board, chaired by Gov. Brian Sandoval.”

However, new regulations are not necessary.  Existing Pie Program regulations need enforcement and true oversight provided by someone other than those participating in the program.  SSI’s inmate workers for Alpine Steel are a prime example of the lack of enforcement.  Alpine pays inmates working as structural steel fabricators the state minimum wage of $8.25 per hour (18) and no benefits.  The Nevada OES sets the mean hourly wage for such skills at $17.63. (19)

Even using the NCIA’s 10th percentile rate, these workers should be receiving no less than $11.63 per hour.  Competing companies in the structural steel industry in Las Vegas and elsewhere in Nevada pay workers the median wage of $16.91 per hour plus benefits.  Without factoring benefits, private companies are thus required to pay more than double the rate paid by Alpine.  A serious disadvantage prohibited by the PIE Program wage requirement, and contrary to congressional intent.

When you multiply this discrepancy times the number of participating states, and times the number of inmates employed in the program, you can see and understand the massive wage savings provided to companies such as Alpine Steel and those discussed below.  It also helps to understand why so many of our jobs are “going to prison” literally.

Compliance problems are no stranger to Mr. Connett.  In his previous position as the PIECP Program Manager with PRIDE Enterprises, Inc. operating Florida’s entire prison industry, Connett cut corners similarly.  In the third and final segment of this expose to be published next week, I will introduce and discuss the documented corruption to which Mr. Connett was a participant. Suffice to say, Brian Connett brought a substantial amount of baggage with him to Nevada.

The controversy involving Alpine Steel is merely the latest in a series of problems with compliance by SSI.  Former NDOC Director Howard Skolnik was involved in a scheme involving inmate wage deductions when he served as Deputy Director of Industrial Programs.

In 1990 Skolnik petitioned the BJA  (20) for a determination that would allow Nevada to deduct 5% of all inmate wages earned and use those funds to expand prison industrial programs.  He was advised there were four approved deductions and no additional deductions could be imposed by his department.

This denial should have been clear and final, but in 1991 the Nevada legislature amended NRS 209.463 to allow for the 5% deduction Skolnik requested and the BJA ruled was impermissible. (21)
In 2003 Howard Skolnik advised (22) the Legislative ASSEMBLY COMMITTEE ON JUDICIARY that there were three deductions taken out of prisoner pay – 24.5% for room and board, 5% for victim restitution fund and a 5% deduction that went to a fund for the expansion of new industry programs.

Obviously the NDOC and Silver State Industries were intent upon creating a fund whether or not the controlling authority over this federal program permitted it.  In 2011 the Legislature “swept” $948,000 from this Capital Improvement Fund. (23)

Just as obviously inmates are being misused as slave labor, underpaid on PIE projects, with a maximum amount taken back as “deductions.”  The ongoing use of unauthorized and thus illegal deductions taken from inmate PIECP wages and then used as a slush fund by the Nevada Legislature, serves as out and out theft amounting to tens of thousands of dollars  (24)

This was all covered up in reports to the BJA through reviews conducted by Mr. Connett’s – formerly Mr. Skolnik’s – NCIA organization, allowing the 5% deduction to stand and certifying to the BJA that Nevada was in full compliance.

2008 NCIA Board

Both Connett and Skolnik held positions upon the NCIA board simultaneously in 2006 when Connett was the PIE Program Manager with PRIDE Enterprises in Florida.

Previously, Connett and the CEO of PRIDE also sat side by side on the NCIA board when PRIDE was committing acts later deemed illegal.

The Alpine/SSI partnership is not the only partnership that is being operated questionably in Nevada – and paying minimum wages.  Several other companies also have been given access to inmate labor and are possibly involved in displacing local workers and/or unfairly competing in the marketplace.

Thomson Equipment Company, Inc. (now Silver Line Industries, Inc.). Silver Line is owned by entrepreneurs out of New Zealand, Malaysia, and Thailand, partnered with a company in Oregon, to use inmate labor to manufacture or refurbish heavy equipment such as water trucks.

In March of 2006 the serving Deputy Director of Industrial Programs advised (25) the NEVADA LEGISLATURE’S INTERIM FINANCE COMMITTEE’S COMMITTEE ON INDUSTRIAL PROGRAMS that Thomson had been acquired by new owners in Australia and New Zealand – and water trucks were shipped from Bangkok for inmates to renovate.  (It was cheaper to use American inmate labor plus ocean freight costs than to use Thai labor!)

By 2008 when Mr. Skolnik was serving as Director of the NDOC, he and Mr. Connett advised (26) the same committee that Thomson had changed its name to Silver Line Industries.  Skolnik further advised as part of full disclosure that his daughter worked for the parent company in New Zealand.

It is unclear if Skolnik’s daughter secured her job before the 2006 acquisition of Thomson, or if that occurred after Mr. Skolnik was elevated to the Directorship of the DOC.   In either case this should have raised an issue of ethics to the members of the Industrial Programs Committee, had they been interested, a conflict-of-interest in the relationship between the NDOC Director and a family member working for a company operating under his authority.  Silver Line Industries ultimately withdrew from the PIE Program.

Another company, Jacob’s Trading Company (27) (JTC) partnered with SSI for years, but left SSI late last year.  JTC is an inventory liquidator for Wal-Mart and other large retailers.  Inmates remove bar codes, labels and other identifiers to the retailer then repackage the items and JTC sells the products through distributors to after market retailers.  Of course Wal-Mart denies (28) that they or any of their vendors or contractors uses inmate labor – period. These products are shipped back and forth across state lines, and thus come under PIECP authorization.  JTC’s operation in Nevada (29) is substantial:

“In Nevada, the entire JTC operation is housed inside the Southern Nevada Women’s Correctional Facility (30) in North Las Vegas. Jacobs is the only private employer of female prisoners in Nevada. In 2000, a female prison laborer working 40 hours a week kept just over half of what she earns. After several deductions mandated by the state prison department, she took in about $460 per month. That’s net pay of $2.67 an hour…”

Another company operating under the PIE Program was Shelby American, manufacturer of the Shelby Cobra sports cars.  Dozens of inmates at the facility received an hourly wage of at least the federal minimum to build every part of the car except the engine.  Shelby American has also closed operations with SSI but is still listed as a PIE Program participant under SSI’s certification.

In September 2012JTC closed operations at SSI’s facilities, and Like Alpine Steel, they left owing the state $115,819.44 in unpaid leases and other expenses.  According to the October figures provided to the Interim Finance Committee, SSI’s project failures have Nevada taxpayers on the hook for more than $600 thousand dollars in unpaid operating expenses or lease payments.

 There will be much more on Howard Skolnik and Brian Connett in the third and final article that will expose Mr. Connett’s efforts to avoid complying with PIECP requirements, as well as out-and-out theft of private companies while partnered with PRIDE Enterprises.   In one particular industry, Connett deliberately failed to register the industry as a PIECP operation with the BJA, resulting in prisoners receiving as little as $.20 per hour for their labor for five years…and huge profits for PRIDE and the companies partnered with PRIDE.

Last, I will further expose the NCIA and explain why they have been so successful in advancing an agenda of using inmate labor to enrich a handful of companies, their organization – at the expense of America’s taxpayers and struggling workforce.

FOOTNOTES AND EXHIBITS:

(1)https://www.ncjrs.gov/html/bja/piecp/bja-prison-industr.html

(2) http://www.nationalcia.org/piecp-2/piecp-final-guideline

(3) http://www.nationalcia.org/

(4) http://www.nationalcia.org/wp-content/uploads/Final-PIE-2011-Assessment-Summary-Report-Nov.-2011.pdf

(5)  The Training Wage Exception to the 10th Percentile Wage Floor

“BJA determined in 2006 that wages must be set at or above the 10th percentile, as defined by the State Department of Economic Security Agency. BJA takes the position that this is a “generous interpretation of comparable, yet still fair to competitor manufacturers because of the “lack of education, training, and experience typical of the inmate labor force.” The one exception to the 10th percentile requirement is that inmate workers may be paid a training wage that falls below the 10th percentile if “their employment agency provides express written agreement of a wage less than the tenth percentile for a limited training period.”

(6)  https://www.bja.gov/Funding/PIECPBackWagePolicy.pdf

(7)  It reads in part:    Background:
“18 USC 1761 (c), the statute authorizing the Prison Industry Enhancement Certification Program (PIECP), states that PIECP inmates must “have, in connection with PIECP work, received wages at a rate which is not less than that paid for work of a similar nature in the locality in which the work was performed. The Bureau of Justice Assistance (BJA) 1999 PIECP Guideline gives the State wage setting agencies authority to make wage determinations for PIECP workers that are comparable to those in effect for similarly situated workers.” (Emphasis mine)

(8) http://archives.cnn.com/2000/LOCAL/pacific/06/27/rjo.prison.work/index.html

(9)  http://www.scribd.com/doc/46041590/FL-Governor-Elect-Team-Report-on-DOC-and-PRIDE-2010

(10) http://www.bls.gov/oes/current/oes_nv.htm#00-0000

(11)  http://www.nationalcia.org/wp-content/uploads/09-10-PIE-Assessment-Report.pdf

(12)  http://www.youtube.com/watch?v=cUJHaELZQrc

(13)  http://www.lvrj.com/news/company-complains-prison-program-prevented-private-industry-jobs-183857541.html?login=y

(14)  http://www.nationalcia.org/wp-content/uploads/Final-PIE-2011-Assessment-Summary-Report-Nov.-2011.pdf   (@pg. 4)

(15) http://www.nationalcia.org/about/board-of-directors

(16)  http://www.phewacommunity.org/images/Presentation_to_the_Congressional_Black_Congress.pdf

(17) ibid. 13

(18)  http://www.dol.gov/whd/minwage/america.htm#content

(19)  http://www.bls.gov/oes/current/oes512041.htm
BLS - occupational wages(20) https://www.ncjrs.gov/pdffiles1/Digitization/132363NCJRS.pdf

(21)   NRS 209.463  Deductions from wages earned by offender during incarceration; priority of deductions.  Except as otherwise provided in NRS 209.2475, the Director may make the following deductions, in the following order of priority, from the wages earned by an offender from any source during the offender’s incarceration:

1.  If the hourly wage of the offender is equal to or greater than the federal minimum wage:

(a) An amount the Director deems reasonable for deposit with the State Treasurer for credit to the Fund for the Compensation of Victims of Crime.

(b) An amount the Director considers reasonable to meet an existing obligation of the offender for the support of his or her family.
(c) An amount determined by the Director, with the approval of the Board, for deposit in the State Treasury for credit to the Fund for New Construction of Facilities for Prison Industries, but only if the offender is employed through a program for prison industries.

(The same deduction is taken from the wages of inmates earning less than minimum wage.  Emphasis mine)

(22) http://www.leg.state.nv.us/Session/72nd2003/Minutes/Assembly/JUD/Final/1738.html

(23)  http://www.leg.state.nv.us/Interim/76th2011/Exhibits/Industrial/E062512A.pdf

(24)  http://www.leg.state.nv.us/Interim/76th2011/Exhibits/Industrial/E092111E.pdf
NV Dept of Corrections - Prison Industries Payroll Assessment(25  http://www.leg.state.nv.us/73rd/Interim/StatCom/Industrial/Minutes/IM-Industrial-20060313-1152.html

(26)  http://www.leg.state.nv.us/74th/Interim_Agendas_Minutes_Exhibits/Minutes/Industrial/IM-Industrial-042408-10093.pdf

(27)  http://www.jacobstrading.com/index.html

(28)  http://walmartfacts.com/reports/2006/ethical_standards/documents/Wal-MartStandardsforSuppliers.pdf

(29)  http://www.huffingtonpost.com/al-norman/walmart-prison-labor_b_2224743.html

(30)  http://archives.cnn.com/2000/LOCAL/pacific/06/27/rjo.prison.work/index.html

 

NDOC & Silver State Industries – Meet the Exploiters – Expose on Prison Labor in Nevada Pt. II

Second in a Three Part Expose on Prison Labor in Nevada Displacing Workers

By Bob Sloan – Prison Industry Consultant

SSI GarmentWorking on the “Chain-Gang” was how prisoners were punished for their crimes in days gone by – and people who had been victims of crime were happy.

Then we became “civilized” as a society and changed laws, regulations and opinions that eliminated these hard forms of punishment and degradation.  Instead of harsh working conditions we made sentences longer, believing that to be more humane.  Parole was abolished; possession of a “joint” was enough for a mandatory five years in prison.

Problem was, all this incarceration was costing taxpayers ever more in corrections costs.  Lawmakers sought ways to reduce the ever-increasing expense of incarceration.

An idea was born: create prison industries where prisoners could be put to work to “earn their keep” and reduce the incarceration costs borne by taxpayers.  Soon another idea was floated, let private manufacturers gain access to the prison run factories and further reduce the expense of housing, feeding and providing medical care to prisoners.  Inmates can be taught work ethics, products made by them will cost us less and recidivism will be reduced…and once again the people were happy.

Problem is, this program has created more opportunity for crime and exploitation – of the prisoners themselves. Instead of prison populations shrinking, they grew.  This growth was due to more laws, stiffer sentences, the war on drugs and increasing penalties.  Alongside that population the prison industries grew even faster with more inmates came more job positions. More →