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.
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.
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.
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.
“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.
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.
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.
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 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 studyof 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.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.
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.
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.