Working for Nothing
The Failure of Prison Industry Programs
by Lucia Hwang
Up in San Francisco State University's procurement offices, a thick catalog sits on a small conference room table. Almost one-third of the catalog_more than 90 pages_is devoted to office, library and dormitory furniture with distinguished-sounding names such as the Heritage Line and the Vanguard Line. There is even one type of office modular system dubbed Century 2000. The catalog advertises page after shiny page of credenzas, executive desks, computer stations, bookshelves, lounge furniture and chairs. One sheet shows small squares of actual fabric swatches, boasting such colors as claret, vertigo, robin marine, and cameo.
This is not a custom furniture catalog, or even a Sears catalog; this is the California Prison Industry Authority (PIA) product catalog, from which all the California State University (CSU) schools are required by law to buy their furniture. A semiautonomous state agency, the PIA uses inmate labor to manufacture a wide variety of products that are sold to state agencies such as the Department of Corrections (CDC), the Department of Motor Vehicles, state hospitals and CSU. About 7,000 prisoners in 23 of California's 30 prisons sand and upholster furniture, grind eyeglass lenses and sew shirts and jeans. Inmate workers even butcher beef and make salami, chorizo, and hamburger patties at the PIA's meat processing plants. And, yes, they still do make license plates.
The benefits that the PIA claims to offer the state and its taxpayers are impressive. Inmates who work at these factories are not only kept busy and out of trouble but learn valuable work skills that will help reduce recidivism when they return to society, the PIA says. Meanwhile, state departments will be able to purchase (hopefully at below market costs) needed goods produced by inmate labor, and the revenues from these sales will in turn be used to sustain the PIA, thereby creating an inmate work program that costs taxpayers no money. In fact, the PIA's operations actually save taxpayers money, authority officials say, because the California Department of Corrections does not have to fund other programs to keep inmates busy, and PIA participants get one day off their sentence for each day they work, reducing the cost of housing them.
If these claims seem too good to be true, the California Bureau of State Audits (BSA), the Legislative Analysts' Office, numerous sources, and a four-month investigation by Third Force have determined that they are. According to an April 1996 BSA report, the Prison Industry Authority is not financially self-sufficient, but rather has lost more than $33 million over its 1 3-year history; overcharged its state customers about $12 million during the 1994-95 fiscal year for products of questionable quality that were usually delivered late; cannot show that it develops inmate work skills or reduces recidivism; fails to keep accurate accounting records; and overall is in serious need of reform. In short, the PIA has failed to achieve any of its programmatic goals. To add insult to injury, students at CSU schools who have seen their budgets cut and their fees raised repeatedly over the past decade subsidize the PIA_and by extension the prison system_simply by paying their tuition.
However, the PIA plays a critical role in the political battle over criminal justice in California, and its importance in that arena might outweigh its shoddy programmatic performance in the eyes of many state politicians. Under pressure to justify vast prison and law-enforcement expenditures, which are projected to reach $5 billion a year, or 18 percent of the state budget, by the year 2000, Gov. Pete Wilson points to the PIA as the mechanism by which he is going to make the prisons pay for themselves.
In fact, there is a national trend toward the rapid expansion of prison work programs as a way of offsetting the tremendous costs associated with having the highest rate of incarceration in the world. Some of them, such as the PRIDE program in Florida, apparently do work. Many others, however, suffer from the kinds of problems detailed in this report.
MAKING PRISONS PAY
If there is one thing conservative politicians hate more than liberal attitudes toward crime, it's the notion that criminals have it easy in prison: watching TV and eating three hot meals a day on taxpayers' money. For this reason, the California legislature, like other state legislatures around the country, passed laws in 1985 and 1992 that required all able-bodied prisoners to work, necessitating the expansion of the prison industries program to provide the necessary jobs.
Legislators created the PIA in 1983 as a successor to an older program, the California Correctional Industries Commission (CIC), because they felt that California's prison industries needed to be run "more like a business." To help the PIA become more businesslike, lawmakers granted the agency many of the powers a private corporation would hold and established an 11-member Prison Industries Board (PIB) representing government, labor, industry and the general public to govern the operations and finances of this "company." Perhaps most important, legislators allowed the PIA to receive its money from a continuous appropriation fund that does not need to be reviewed or approved by the legislature each year, meaning that the PIA has little oversight.
But unlike a completely private entity, the state audit report shows that the PIA enjoyed perks that no company could ever hope for:
The PIA's labor costs are dirt cheap: inmates earn between 30 and 95 cents per hour, and the PIA is not required to pay them for holidays or provide workers' compensation, sick leave, health insurance or other benefits.
The PIA pays only one to three cents per square foot to the Department of Corrections for factory and warehouse space, prices well below fair market rates.
The PIA does not pay local, state or federal income taxes.
The PIA holds a captive customer base: state agencies are required by law to buy from the PIA.
The PIA can set prices for its products at whatever levels it chooses, and the PIA's are often higher than those on the private market for comparable goods.
The PIA has received about $ 109 million in interest-free capital contributions (at market rates, the interest adds up to $54 million) from state general funds over its 13-year history.
LOSING MONEY
Despite these clear advantages, the PIA has lost money for 5 of its 13 years, though the agency's financial situation seems to be improving. According to a recently released Legislative Analysts' Office (LAO) report, the "PIA's financial performance has been uneven over the years but reached a historical high point in sales and net income in 1994-95." Last year the PIA recorded sales of $152 million and a net income of $9.9 million. The LAO was quick to qualify this success, however, adding that "the PIA's improved net income overstates its true financial performance" because it did not factor in the significant rent, labor and government subsidies mentioned above. State auditors, lawmakers and other government officials are beginning to seriously ask, At what expense to other state agencies and the original goal of helping inmates is the PIA making its profit?
State auditors contend that it is inappropriate for an agency like the PIA to generate any extra income at all. "From the taxpayers' perspective, one state agency cannot generate a 'profit' by selling a good or service to another state agency at a price above full costs," the BSA audit states. "Doing so is simply shifting taxpayers' funds from one agency to another." The auditors discovered that the PIA was compensating for factories that lost money by hiking up prices on the goods made at factories that were profitable. Because of this practice, the audit reported that state departments were paying a total of $12 million extra for PIA products during the 1994-95 fiscal year alone.
BAD PUBLIC POLICY
Fred Forrer, the state auditor who supervised the investigation, was concerned not only that the PIA's approach cost taxpayers millions of dollars but that large amounts of state funds were not being accounted for through the democratic process. "Is it good public policy for one state agency to essentially profit off another one and use it for its own programmatic goals?" Forrer said. "You are taking a lot of funding and allocation decisions out of the legislature and putting [them] in the hands of these people who control this program."
At many state agencies, procurement officers who actually have to deal with buying goods from the PIA have been saying the same thing for years. Numerous articles in publications such as the Orange County Register, the Sacramento Bee, and Forbes magazine have told stories of buyers at state agencies infuriated at being forced to buy a $230 chair from the PIA instead of a comparable $ 180 chair from a nearby office-supply store. Surprisingly, at a time when California is tightening its budget belt and many departments are having to make do with less funding, state customers must buy products from the PIA even if they can find a better deal elsewhere. The only time customers are excused from buying PIA products is after they go through the difficult process of securing a waiver from the agency. PIA will issue a waiver if it does not make a particular product or cannot make it by the time the customer needs it, but the authority will not issue one if a product it sells is available for a lower price elsewhere. Moreover, the PIA has traditionally been extremely slow in ordering, manufacturing and delivering its products, often taking more than two to three months to complete the process. The state auditors found that the PIA usually takes more than a month from the time it receives a purchase order for it to direct a factory to make the product.
The PIA's performance and policies hit the California State University system particularly hard. With education funds being cut back severely and schools having to respond immediately to students' needs for dorm furniture and staff's needs for office furniture, many of CSU's procurement officers are frustrated they must buy from the PIA. At a time when the state is budgeting more money for prison construction and expansion than for higher education, it seems ironic that CSU schools are shelling out the little money they have to an agency that is used to justify prison growth. (The current annual cost of California prisons is $5.6 billion, while the state budget for education in 1996 is $4.4 billion, according to the state Budget Committee.)
"I have a real difficult time buying from an agency that has a gun to my head," said a CSU commodities buyer who handles his campus' PIA furniture orders and asked to remain unnamed. "[The PIA] still makes a product that I can buy in the outside sector for a lot less money. In this day and age of cost effectiveness, it doesn't make sense to be required to buy products that are more expensive than you can afford. What if a department can't afford to buy a chair from them, what are they going to do? It's scandalous."
Kathleen Beasley, deputy executive director of the Little Hoover Commission, a government watchdog agency, and the project manager of a 1993 procurement report that included a study of the PIA and its customer relations, understands CSU's frustrations.
"Other state agencies are here year in and year out, and when they finally get a piece of furniture from the PIA, they think, 'Oh good!"' said Beasley, who heard from many disgruntled CSU purchasing officers while conducting the study. "But the CSU system does things like build dorms for students and buy things like beds and mattresses, which are pressures and deadlines that are real and have a real fiscal impact when products aren't delivered on time."
Perhaps the current situation would not seem as unfair if the PIA were actually using the revenues from these sales to create a self-supporting inmate work program that helped convicts learn enough work skills to prevent them from returning to crime. However, the BSA audit, legislative analysts, and several Prison Industries Board members and ax-members all say that these goals are not achieved under the current system. The PIA does not even track recidivism rates for its released workers, so it has no way of knowing if its programs are of any benefit.
From the point of view of prisoners themselves and prisoner advocacy groups, the PIA is a political boondoggle that exists primarily to justify ever greater expenditures on prison construction and law enforcement.
NO ACCOUNTABILITY
The BSA audit paints a portrait of an agency that suffers from gross mismanagement and a lack of clear direction and accountability. Although the Prison Industries Board is supposed to govern the policies and operations of the PIA, board minutes and interviews with members show the PIB is apparently never informed enough and doesn't hold enough authority to direct PIA operations. "The board does not even function," criticized Leonard Greenstone, an outspoken former board member who has been helping the CDC develop inmate-training programs for more than 30 years. "It does not have a vote, does not have a voice, cannot hire and fire, and cannot establish programs."
Some board members hardly come to meetings," said John Lungren, brother of California attorney general Dan Lungren and the international marketing director for the state's trade and commerce agency. "Or when they do, they pop in and out and conduct other business on the phone. They aren't really attentive. When people don't show up for meetings or don't say a word, you wonder why they're there."
In fact, nearly all the power in the PIA is concentrated in the hands of the man who is also director of the California Department of Corrections, Jim Gomez. Gomez is the chair of the PIA board and has the most to gain from the expansion of PIA activities. In a self-perpetuating cycle, a rising prisoner population means a larger market for PIA products (half of which are "sold" to the CDC itself), and a successful PIA justifies expanding the prison system. Either way, Gomez comes out on top. "Look at the dynasty that's growing," Greenstone said. "The bigger the industry, the more money and power Mr. Gomez has."
The general manger of the PIA reports directly to Gomez, thus undermining any oversight capability the PIA board might have. The LAO's audit found that the PIA board "does not effectively monitor the PIA operations. The board is not independent, provides insufficient input to PIA policy and performs weak budgetary review of the PIA."
Yet while the board is obviously not running the show at the PIA, no other part of the organization is willing to be held accountable for the PIA's performance, either. "We found through the course of our interviews that no one person accepts full responsibility for profitability of either products or industries," the audit states. Gomez himself, who refused repeated requests for an interview for this article, seems to be more motivated by his desire to increase the CDC's share of the California budget than in being accountable to taxpayers.
MOTIVATED FOR SURVIVAL
All organizations are highly motivated for organizational survival," state auditor Forrer said. "When they have these motivations, they may not always be acting in the best interests of the state or taxpayer.... It's a matter of emphasis and priorities. If [keeping accurate cost accounting records] was a high priority for the PIA, certainly they would have people brought in with that expertise. But it wasn't a high priority because they had a monopoly_they had free reign and could set prices where they wanted them_so they didn't need to focus on costs or controlling costs. Therefore cost accounting was not important."
According to CDC statistics, the California prison population will swell to approximately 350,000 by the end of the century_that is, 350,000 prisoners who will need programs and activities to help pass their time in prison more productively. But the audit seriously throws into doubt the PIA's ability to run those programs efficiently or effectively.
It's not a prison industry program," Greenstone said. "It's another program that government uses to hire bureaucrats. It's a taxpayer rip-off, and the Department of Corrections keeps getting more and more money each year in its budget."
Many legislators and officials recognize that the time is ripe for PIA reform. State senator Richard Polanco and assemblymember Marilyn Brewer have proposed legislation that would excuse state agencies from buying PIA products if the purchase would not be of "best value" for the agency, meaning that the PIA would have to include cost as a reason to issue a waiver.
Organized labor, which views prison industry in general as unfair competition for jobs, thinks the PIA should get out of manufacturing completely and concentrate on "demanufacturing" enterprises like recycling and sorting trash. Organizations such as the Prison Industries Reform Alliance (PIRA), a labor-supported national group of business, industry and labor representatives who believe prison industry programs should not displace regular workers, point to programs where inmates dismantle machines such as refrigerators and washers and dryers to either sell the parts or recycle them.
One of the problems we're finding is that prison industry is truly a government program that thinks it's a business, and it can't work like a business," PIRA president Susan Perry said. "There's too many restrictions, so it should quit trying to be one. If they are going to truly be a business, they should have to do everything businesses do: pay minimum wage, meet OSHA standards, pay pensions. But they can't do that_expenses would be too high." Perry admitted that recycling and sorting trash are not very marketable work skills, but she emphasized that those jobs could develop a work ethic in the prisoners just as well as other jobs could.
According to state senator Dan Boatwright, who is working with Polanco in investigating the PIA, some legislators talk about completely eliminating the PIA. These lawmakers aren't fighting for prisoners' rights, however, but rather want to see the implementation of chain gangs, with prisoners "break[ing] rocks into little pieces" or "pedaling bicycles 24 hours a day to generate electricity for the prisons."
"There's a lot of sentiment for getting rid of the PIA, period," Boatwright said at a May 2 legislative hearing on the PIA. "We have no recidivism figures. [The PIA] may be of no value."
One thing is for certain: California's prison population is exploding, and the same lawmakers who vote for longer and "tougher" sentencing laws will eventually have to justify the cost to taxpayers who have shown little interest in tax hikes and to students already angry over budget cutbacks. And there is always the issue of life after prison.
"These inmates need to make a wage when they get out or they'll go back to crime," John Lungren said. "I've walked through the prison yards and I've seen the empty stares and faces and the wasted lives. Is this what our country wants? And the legislature is indifferent. There will be those inmates who will be returned to society. Why not make an attempt to train them? We don't even make an attempt now."
Lucia Hwang is a recent graduate of the University of California at Berkeley. She worked as an editorial intern with Third Force over the past six months.
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