Did Florida overpay for private prison contract?
For the past several years, Florida prison officials have used an opaque pricing scheme that inflated payments to a private prison company operating Lake City Correctional Facility, costing taxpayers millions of dollars in excess charges instead of producing the promised savings, according to an independent financial audit by a Miami Beach state legislator.
Rep. David Richardson, a Democrat and retired forensic auditor, investigated seven years of state payments to Corrections Corporations of America (CCA), now known as CoreCivic of Tennessee, and concluded the pricing scheme approved by the Florida Department of Corrections resulted in at least $16 million in overcharges over the past seven years and was either the result of massive government ineptitude or a calculated fraud against taxpayers.
“The award of this contract under the terms and conditions provided was a colossal government failure,” Richardson wrote in a nine-page summary of his findings, which he made available to the Herald/Times. “... It represents nothing more than government waste and abuse. It is surprising that so many government employees and entities could be involved in these matters and the price estimating trickery went undetected.”
Richardson, who has been on a one-man crusade to bring accountability to Florida’s troubled prison system, delivered a copy of his two-inch briefing book and a summary of his report to Florida’s Chief Inspector General Melinda Miguel. He asked Miguel to conduct an investigation into potential criminal violations surrounding the Lake City Correctional Facility contract, as well as the six other Florida prisons operated by other vendors. This is the only prison CoreCivic now operates.
“It appears to me that certain individuals were grossly incompetent,” Richardson wrote in a letter to Miguel. “If their actions were intentional, then they have participated in a scheme to defraud the state government.”
The review of contracts, billing statements, and payments to the Lake City prison that houses 894 youthful offenders found that the contract, which was supposed to save state money, resulted in the state’s paying millions for air-conditioning at the facility, which was built by the state and then leased to CCA. The contract also appears to create ghost charges for personnel that were reimbursed, gave CCA four times more for education and substance-abuse education than the state spends to run the same programs in state-run prisons, and inflated occupancy rates to raise reimbursement, Richardson alleges.
Those payments were legal because they were negotiated in the contract, so I have not detected any wrongdoing on the part of the contractor but it certainly appears to me that there is some wrongdoing on the part of state government officials.
State Rep. David Richardson of Miami Beach
“The contract clearly cost the state government more money than if they had just done the work themselves,” Richardson said. The “gross errors in the pricing of the contracts resulted in significant overpayments to the contractor. Those payments were legal because they were negotiated in the contract, so I have not detected any wrongdoing on the part of the contractor but it certainly appears to me that there is some wrongdoing on the part of state government officials.”
Miguel would not comment Wednesday on whether she will investigate. Richardson said he urged her to “consider locking down certain email accounts immediately.”
Richardson said he briefed CoreCivic’s lobbyist, on his findings. They were paid based on pricing estimates compiled by the Florida Department of Corrections and written into a contract negotiated by the Department of Management Services, which provides oversight of private prisons. DMS has renewed the contract three times, most recently in June. When reached by the Herald/Times, each of the parties said they were not prepared to comment.
‘Hard to believe’
Richardson said he’s not convinced that state officials acted alone. The pricing irregularities are too glaring, he said, and the excess costs add up to more than what the state would have paid if the prisons were still run by the state.
“It is hard for me to believe that so many individuals could have been involved with the award, management and oversight of this contract, but yet no one apparently identified what I believe to be very basic errors in determining a fair and reasonable contract price consistent with applicable state law,” the letter said.
Legislators authorized the Department of Corrections to contract with private prison vendors to run state prisons as long as the contract demonstrated a 7 percent annual savings over operating a similar state-run facility. But they also moved the oversight of the contracts from the agency that knows prisons to the agency that handles state leases, DMS.
As that happened, the pricing scheme the agencies negotiated with CoreCivic compensated the company for costs that far exceeded the cost of operating a state prison, Richardson found.
“To say that the award of this contract and the use of a private prison contractor to operate this facility saved Florida taxpayers money is a complete farce,” he wrote in his report.
Since August 2015, Richardson has visited 70 state correctional facilities, taking advantage of a state law that allows state legislators to enter any state prison at any time for review and inspection. Few lawmakers before him have done that and, even as Richardson has made headlines with his efforts, no one has shown the same interest in prison inspections.
Richardson first focused on the record of violence at youthful offender facilities like Lake City. After a year of alerting the agency to problems, he succeeded in persuading FDC Secretary Julie Jones to close Lancaster Correctional to youthful offenders and move them to other facilities that could reduce inmate violence and staff abuse.
He first visited Lake City Correctional Facility Oct. 22, 2015, and made a follow-up, unscheduled visit Jan. 19, 2016. It is the only youthful offender prison operated by a private contractor. He asked DMS and FDC to brief him on how CoreCivic was compensated and they handed him a one-page spreadsheet entitled “Financial adjustments to enable DC to operate Lake City.”
As he reviewed the numbers, the obvious overpricing “jumped off the page” at him, he said.
He requested additional documents, conducted additional reviews and concluded that the numbers used to set the price the state paid “are inaccurate and cannot be supported by any reasonable view of the facts.” Instead of saving money, taxpayers were paying amounts “that far exceed the 7 percent savings,” he said.
Richardson said he found that the way FDC calculated the per inmate per diem rate was by comparing the cost of running the state-run Brevard Correctional, which also housed youthful offenders, and then adding the cost of additional programs, such as substance abuse programming and education.
But Richardson said the comparison was not exact, since CoreCivic was allowed to operate a new, more efficient prison and then was also given extra money for air conditioning, personnel, programming as well as an annual 3 percent increase.
“Most FDC facilities do not have air-conditioning, but the more modern Lake City facility is fully air-conditioned. Given that the purpose of using private prison operators is to save the taxpayer money, it appears ill advised to compensate the contractor for amenities that do not exist in public facilities,” he concluded in his report.
He noted that FDC told them that in subsequent contracts with other prison vendors, the agency left out the air-conditioning add-on, but it never went back and adjusted the CoreCivic contract to exclude it.
FDC also paid CoreCivic 45 cents a day per inmate for “additional support positions,” Richardson found. He was told the department would have “to hire additional personnel to oversee this private prison operator” but to Richardson that didn’t explain why the state should be paying more to the private operator.
“Of course that explanation makes no sense,” he said. The purposes of the cost estimate was to “identify costs to the contractor, not to the Department of Corrections. They weren’t planning on paying the vendor for those positions at all, so it was flawed logic.”
The contract also assumed that 60 percent of the inmates at Lake City would receive some sort of educational programming, much more than the 10 percent inmates receive on average at state run facilities. While the state paid $3.62 per inmate per day at Brevard Correctional, the contract called for paying CoreCivic $9.85 per inmate each day — or about $3.2 million in the first year for those costs, Richardson’s report said.
The education cost was based on calculation made by a Prison Per Diem Work Group that was comprised of members of the House and Senate appropriations staff and the auditor general. But the agency went beyond the group’s findings to add a 3 percent annual increase to those costs, resulting in a per diem increase of 335 percent more than the state was paying comparable prisons, Richardson concluded in his report.
Richardson then alerted the House Appropriations Committee staff before the budget was finalized last spring. He sought a meeting of Florida’s auditor general, who told him his staff did not believe it had the authority to question the baseline pricing established in the contract. Neither attempted to make any changes to the existing contract, and it was renewed for a third time in June.
Jim DeBeaugrine, who was a longtime legislative budget analyst and served as chairman of the prison per diem work group that was assigned to come up with the price of prison operations to serve as a guide for contracting, said there were frequent disputes about whether the agency was overstating or understating the true costs of prison operations.
“The fact that a forensic accountant would have questions doesn’t surprise me at all,” he said Wednesday. The work group has since been disbanded, but he says it served a good purpose.
“It wouldn’t be a bad idea to add some outside independent review process to periodically take a look at how things are being counted,” DeBeaugrine said. “A lot of it is a judgment call. A lot of it is disagreement. It’s not anything sinister. Honorable people can disagree.”
Florida has had a tumultuous history with the private prison industry.
Unlike state-run prisons, the contracts with the private companies guarantee a 90 percent occupancy rate, pay them per inmate, per day, and allow them to charge more for extra services and programs. Proponents say private prisons save money because they are more efficient and better managed. Opponents say their profit motive provides an incentive not to give inmates gain time, which increases costs, and their lower wages and benefits lead to staff turnover.
In 2012, then Senate budget chairman Joe Negron, who is now president of the Florida Senate, authored a budget amendment to “privatize the management and operation of all correctional facilities.” The proposal died in a close vote in the Senate.