Horror Stories
Corrections
Communities across the country have experienced the tragic and costly downside of for-profit prisons. The following examples, from 1999 and 2000, are illustrative:
The lack of training, low wages and poor benefits in for-profit prisons are dangerous
In New Mexico, state consultants concluded in a 500-page report that Wackenhut was partially at fault for a riot in August of 1999. About 120 inmates at a Wackenhut facility initially participated in the riot, but it quickly spread to include about 400 inmates. The riot left 13 Corrections Officers (COs) injured and an inmate and a guard were killed. Two of the injured COs were state corrections officers who were at the prison to provide training. The consultants blamed the state for placing violent gang criminals in the company’s medium-security prison, but they also denounced Wackenhut for lack of staffing, inexperienced supervisors, low pay and high turnover. The CO who was killed was making only $7.98 an hour. Low wages and benefits paid by for-profit corrections firms can attract workers who would not be qualified to work in a public correctional setting. To compound the problems in New Mexico, published reports also reveal that Cornell Corrections knowingly hired convicted felons to work as guards inside Santa Fe County’s juvenile jail. (Albuquerque Journal, August 1999; Miami Herald, April 2000,)
Incidences of sexual misconduct have been reported
In Florida, five guards at a Wackenhut work-release facility in Fort Lauderdale were fired or punished for having sex with inmates in the summer of 1999. Though no charges were filed, the local sheriff planned to renegotiate contract terms with Wackenhut.
In Texas, Wackenhut lost a $12 million annual contract in the fall of 1999 and was fined $625,000 for not abiding by the contract to run a state prison, the Herald reported. The company barely kept the minimum number of guards required in the contract. According to the newspaper, 12 former guards were indicted on charges of having sex with female inmates. The female inmates filed civil complaints claiming they had been raped at three Wackenhut prisons in Texas. (Miami Herald, April 16, 2000)
Juvenile facility has serious problems
On April 6, 2000 Wackenhut surrendered control of its juvenile prison in Jena, La., a week after the U.S. Justice Department accused the company in a lawsuit of beating boys, using tear gas indoors, spraying the boys in the face with pepper spray and not providing adequate education and counseling. A Louisiana corrections official and representatives of Florida-based Wackenhut Corrections Corporation told a juvenile court judge Tuesday they don’t know how long the state’s temporary takeover of the embattled 276-bed Jena Juvenile Justice Center will last. The state seized control of the prison in the midst of negotiations to settle civil-rights lawsuits targeting the Jena facility and four other juvenile prisons, including one in Baton Rouge. The state and Wackenhut agreed to enact sweeping reforms at the Jena center in a temporary settlement of the suits. (Capital City Press, April 23, 2000; Sunday Advocate, April 23, 2000; Sunday Metro Edition, April 23, 2000; Baton Rouge, La.)
Private prisons can be bad neighbors
As Wackenhut tried to sell Hernando County, Florida, on its latest project, at least two county commissioners worried that Wackenhut and other private prison companies have balked at paying promised property taxes once they settled into a community. Wackenhut officials say they are not obligated to pay property taxes at the two prisons they operate in Florida because the prisons are owned by the state, an argument critics dispute. (St. Petersburg Times April 23, 2000; Hernando Times April 23, 2000)
Social Services
The privatization of social services has led to many fiascos, including the following:
Lockheed Martin child support enforcement automation contract canceled
Lockheed Martin promised California an automated child-support enforcement system by 1995 at a price tag of $99 million. In November 1997, the state scrapped the project; the system was severely flawed and still far from complete, and its estimated cost had ballooned to over $300 million. At the point of cancellation, only 23 of 58 counties were served. (Los Angeles County had its own system, on which Lockheed staff also worked.)
The state did not actually spend the entire $300 million; however, it paid Lockheed Martin nearly $50 million, and both the state and counties spent millions more to implement the system. Lockheed and the state ended up embroiled in court and arbitration proceedings to determine how much the firm could collect, and each party blamed the other in the media.
A Lockheed official confessed that the system had been a nightmare. "We started finding ourselves with system failures, things happening that we didnít know why they were happening," the companyís Audrey Rowe said. Lockheed’s liability for the contract failure and cost overrun was capped at $4 million; taxpayers had to pay for the difference. (Computer World, May 26, 1997; Dallas Morning News, May 17, 1997; Los Angeles Times, February 15, 1997; Orange County Register, November 16, 1997; Sacramento Bee, May 2, 1997 & March 9, 1998; San Diego Union-Tribune, February 4, 1997 & May 2, 1997; San Francisco Chronicle, June 10, 1997)
Citigroup distribution of benefits via ATM cards results in poor service, anti-competitive behavior, a loss of state control and no savings
According to a New York Times exposè, New York and 28 other states hired Citigroup, the parent company of Citibank, to provide welfare benefits to about 12 million people via ATM cards. The system was supposed to help the poor participate in the mainstream economy, but they were charged fees other customers did not pay, and services were very limited; the firm cut off access for a time to the largest ATM networks in the Northeast. The contract itself was enmeshed in legal wrangling between Citigroup and rival vendors.
Citigroup’s hold on this market gave it a tremendous advantage as it pursued additional contracts. Corporate rivals questioned Citigroup’s dominance in this field, accusing the company of "using its control over the flow of welfare money to steer customers away from their ATMs," as the Times story reported. Welfare officials, meanwhile, found themselves with little authority to tell the company to mend its ways. "I really don’t have any authority at all to direct them one way or another," a frustrated state official admitted.
Federal welfare officials once projected administrative savings of $250 million a year from this project, plus savings expected from reducing fraud, but neither category has materialized. Meanwhile, Citigroup tried to buy a key competitor in the electronic benefits business, prompting the Justice Department to intervene on anti trust grounds. As the Times put it, "the emerging system has pitted profits against service in a way that has created new vulnerabilities for millions of welfare recipients across the country." (The New York Times, August 16, 1999)
Maximus performs poorly but receives a hefty contract increase
Maximus won a contract from Connecticut to process payments to child-care providers, as part of a program to help poor parents pay for child care. A state audit estimated that almost 10 percent of payments made under the contract were in error, and that more than 10,000 of 17,000 bills submitted by providers were paid over a month late. Moreover, as the Hartford Courant reported, the state found itself vulnerable to large price increases:
"Maximus renegotiated a 50% increase in its fee just three months after the state had threatened to fire the company over problems with the launch of the privatization effort. While the [state] auditors’ review found that the state...followed proper procedure in renegotiating the contract, they said [state] welfare officials had no choice but to agree to Maximus’ demands because the company had threatened to pull out. The state did not have adequate provisions in its contract with Maximus to prevent the company from simply walking away from the $12.8 million job, the auditors said, nor did the state have a back up plan to provide the child-care services it is obligated to offer."
Maximus’ ability to obtain such a large increase is particularly troubling given that its initial bid claimed it could operate at half the cost of the only other bidder. This is a case where initial cost estimates were dramatically low, and where the state apparently found itself dissatisfied with Maximus’ performance, but still vulnerable to its pricing demands. (Hartford Courant, February 28, 1998, March 6, 1998, and July 18, 1998)
Mississippi takes back control of TANF case management and job placement
Mississippi began privatizing some welfare-related services shortly after the passage of welfare reform in 1996. Under a three-step process, state Department of Human Services (DHS) staff continued to determine eligibility and decide work requirement exemptions. The next step was a private case manager, who evaluated client barriers to employment, and the final step was a job placement contractor, also a non-government entity.
An account of the case in a welfare policy journal pointed out that "While...DHS was responsible for success, it had no actual authority or means of ensuring quality and compliance with policy objectives with its privatized components. The two privatized components appeared to focus on their particular tasks rather than overall program success. Monetary reward to [private] agents, rather than quality of skills or services given to the client, the [Mississippi State] study found, became the focus of assistance."
To regain some level of control, DHS began rebidding contracts much more frequently, even on a monthly basis. That brought new problems. "The costs associated with contract renegotiation and performance monitoring to prevent substandard service grew substantially. DHS also wanted to eliminate the contracting of case management agents because they were experiencing high turnover rates caused by job stress, a lack of proper education and training, and the problems of starting up a new program," the journal said. (Welfare to Work, April 1999)
G&S Associates loses a TANF job placement contract due to lack of experience and questionable connections with city officials.
G&S Associates, owned by a dentist named Arthur Stubbs and his partner, Sheila Gaither, won a contract that could have been worth as much as $6.6 million had it not been canceled by skeptical officials. The firm turned out to have little or no experience in job training, placement or welfare case management — its tasks under the contract. Also, Stubbs had a close connection with the D.C. official in charge of contracts, and reference letters that G&S used in its application were from other firms Stubbs owned or co-owned.
G&S was referred 1,500 welfare recipients, but only worked with 200, and only placed 30. The minimum number of placements was supposed to be 125. (G&S disputes the number of placements verified by D.C. government oversight officials.)
A. Sue Brown, at the time the head of D.C.’s Income Maintenance Administration, rents her home from Stubbs himself, and the wedding of her niece was held in Stubbs’ home. For evident reasons, this was seen by oversight officials as a less-than-arm’s-length relationship.
Stubbs and Gaither have also run group homes for mentally retarded and developmentally disabled individuals and have come under fire for problems in that area. A Washington Post article described how one client, whose death has now provoked public controversy and a multi-million-dollar lawsuit, met his end in one of the pair’s 14 group homes:
"Brandenburg [the deceased man] was tranquilized in a staff mix-up, grew acutely ill and, surrounded by caretakers, slowly died without treatment. His body was washed, moved by Stubbs into the basement, and cremated without autopsy...His caretakers altered the time and circumstances of his death in records they submitted to the city, house documents show." (Employment & Training Reporter, September 13, 1999; The Washington Post, March 25, 1999, August 11, 1999, November 2, 1999, and December 5, 1999)
Private child welfare agencies waste funds and neglect kids
To keep up with a large influx of children into the child welfare system, Illinois began contracting with small, primarily non-profit agencies (many connected to churches) to provide foster care services, in theory until adoptions could be arranged. State audits and a Chicago Tribune investigation turned up a broad array of abuses in many group homes.
A case in point is the set of homes run or overseen by the Reverend William Rucker and his wife, Miavria. Starting in 1994, their agency placed children referred by the state into various foster care settings. In 1998, the state removed the last of these children, amid auditors’ findings of $3.4 million in unexplained or improper spending. As the Tribune put it, "companies such as Rucker’s raked in public funds while passing youngsters down to a little-monitored netherworld of subcontractors who installed rows of cots in their houses and ran group homes that differed little from the orphanages of the past."
The Tribune pointed out that two years before the final child was taken from the Ruckers’ network of homes, "state officials stopped referring children to the Rucker agency and 31 similar private companies because they held youngsters in unsafe conditions or failed to represent them in court, arrange for visits with their families or secure them stable homes." Children were often shifted through many homes and case managers, increasing their chances of falling through the cracks and decreasing their chances of being adopted.
The Tribune described one child for whom the Ruckers were supposed to arrange a good foster home. When he was taken from a Rucker agency group home and placed with his eventual adoptive family, he was "in clothes that were too small and rotted at the crotches and underarms, with busted toys, no favorite blanket, no book, no note. At 3 years and 2 months, he offered only the beginnings of sentences. He wore diapers. The first time he soiled himself, he asked Schmidt [his adoptive mother] if she was going to whip his butt."
Other dealings between the Ruckers and the state were also highly questionable. Their child welfare agency used state money to contract with a for-profit leasing firm and a for-profit maintenance firm; the Reverend Rucker served on the board of directors of both firms. Moreover, the Rucker agency’s own accountant, Jesse J. Ivy, audited the agency’s books (versus an outside auditor). None of these relationships were disclosed to the state.
The Rucker case was not isolated. As noted above, 31 other private agencies were found to have placed children in unsafe conditions or failed to provide them mandated treatment or supportive services. Bruce A. Boyer, an attorney from a child advocacy center at the Northwestern University Law School, put it like this: "With privatization, my experience is that, overall, the quality of services being delivered to kids has gone downhill." The Tribune itself pointed out "a fundamental collision between the traditional mission of child work — to normalize youth and move them out of the system — and the profit motive, which seeks to keep them in." All too often, children were kept but not cared for. (Chicago Tribune, September 26-28, 1999)
Lockheed Martin and Maximus paid $4.5 million for child support collection, only collect $207,000, and end their contracts early
Lockheed Martin and Maximus were hired by Florida to streamline records and collect child support from "deadbeat" parents. Virtually all of the $4.5 million paid to the two companies, though, came not from collections, but from fees paid for each case the firms closed. A Tallahassee Democrat investigation pointed out that many closures required little effort on the firms’ part or duplicated existing state processes; the firms’ lowest case closure fee was double what the state Department of Revenue estimated to be its costs.
The companies "argued that they needed closure fees to cover start-up costs — an investment they promised would lead to support collections," according to the Democrat. As it turned out, the investment did not pay off, but at the outset, the state gave in on the issue, "paying up to $55 for ëquick close’ cases resulting from simple data cleanup and up to $300 for cases that required extended work." When the firms started billing, though, state workers suspected them of "taking advantage" and described the fees as "freebies."
For instance, Lockheed and Maximus made extensive use of the state’s FLORIDA computer system, which automatically closes some cases (for example, when a child turns 18). The firms initially billed the state at their maximum levels on those cases ($300 for Lockheed, $290 for Maximus). The state ultimately paid for 2,000 such cases at the lower rate of $50 to $55 each, and for thousands of other highly questionable cases.
This two-year privatization was projected to collect $104 million in child support, mostly on behalf of welfare recipients. Only $207,000 of actual support money was collected, a minuscule share of the projection. Meanwhile, the state paid $4.5 million in closing fees.
The Democrat report speculated that Lockheed and Maximus may have thought to cover their operating costs with the closing fees, and to generate profits from actual collections, but they found collections to be expensive and difficult. Some "deadbeat" parents were literally deceased, while many more were unemployed, jailed or otherwise unable to pay.
The problems with collections created perverse incentives in the for-profit context. The worse the collections picture looked, the more urgently the firms focused on closure fees — the very fees that were a drain on the state, but did little or nothing for children. As a Maximus official bluntly conceded, "We had to try to recover our costs, and that was [by] closing cases." In the end, both firms ended their contracts early, unable to make a profit. (Associated Press, December 29, 1998 and January 15, 1999; Chicago Tribune, January 27, 1999; Palm Beach Post, February 8, 1999; Tallahassee Democrat, April 3, 1999; Tampa Tribune, January 5, 1999)
School Services
School districts across the country have experienced problems with contracting out. The following examples, from 1999 and 2000, are illustrative:
Laidlaw bus contract not renewed
The Lincolnshire-Prairie View School District 103, Illinois, decided in 1999 not to renew its school bus contract with Laidlaw Transit, Inc. A survey of parents showed inconsistent bus service including persistent late arrivals. The school district brought bus services back in-house instead. According to the school superintendent, "even with start up costs of $75,000 to $100,000 and operating costs of $650,000, the district still expects to spend about $20,000 less than it did last year with Laidlaw." (Highland Park News, October 14, 1999; Chicago Daily Herald, October 31, 1999)
ServiceMaster contract terminated because of quality problems
After only 18 months, the Palm Beach County School Board, Florida, decided in 2000 to terminate its $4.5 million annual contract with ServiceMaster, Inc. The cancellation cost the school district, about $1.8 million, including almost $1.2 million it was required to pay for the company’s equipment. Problems with the contract materialized early. After the first year of the contract, even though the school district had spent $4.2 million more on maintenance than the previous year, only 10 percent of about 40 principals surveyed said they were pleased with the quality of services. Many principals stated that schools were dirty, and short of personnel, equipment and supplies. It took six months for ServiceMaster to implement a computer program system designed for dispatching personnel and even then it was not available to all schools. (The Palm Beach Post, January 18, 2000, February 2, 2000)
Sodexho Marriott contract discontinued
The Wenatchee School District, Washington, decided in 1999 to accept a committee recommendation to not renew its food service contract with the Sodexho Marriott Corporation, thereby ending a contracting relationship that spanned 15 years. According to one school board member, in addition to complaints about the quality of the food, lack of continuity was another problem with Marriott. Over the past 10 years, the school district had a new manager from the company about every 18 months. (The Wenatchee World, May 11, 1999)
School bus companies investigated
In 1999, the Connecticut State Attorney General began an investigation of several school bus companies to determine whether any of them conspired to limit competition for school contracts in violation of antitrust laws. The investigation was undertaken following information obtained from residents and public officials in Stamford that "there may have been meetings, discussions or other arrangements" between Laidlaw Transit Inc. and the DATTCO bus company "relating to prices, bidding or division of territories." The investigation is continuing. (Connecticut Post, August 18, 1999)
Payments withheld from Laidlaw
In an attempt to deal with buses that were consistently late and to respond to dissatisfied parents, the Charleston County School District, South Carolina withheld $238,000 from its October 1999 payment to its contractor, Laidlaw Educational Services. According to disgruntled parents, students were regularly late getting to school and returning home on certain routes. As a result, students participating in the free breakfast program were arriving too late to eat. One angry parent reported that Laidlaw had disconnected its parent hotline and employees answering the company’s regular phones were unresponsive. (The Post and Courier, November 6, 1999)
Contract renewed despite concerns
In 1999, the school board for the Pekin Elementary School District 108, Illinois narrowly approved a renewal of its food service contract with ARAMARK Corporation for another year despite one school board member feeling like they had been "taken advantage of." ARAMARK, the only company that submitted a bid, charged the school district about $100,000, or 11%, more than the previous year. The director of finance and operations suggested at the board meeting that there would not be sufficient time to find adequate alternatives if the bid was not accepted. (Pekin Daily Times, June 30, 1999)
Problems with Laidlaw contract
According to a special master appointed by federal judge to help Washington, D.C., resolve transportation and other special education problems, at least one of every 10 special education students in D.C. missed significant parts of their morning classes during the first two months of 2000. The District contracted in 1999 with Laidlaw Transit Inc. to transport students to schools with special education programs. Within the first few months of the 1999-2000 school year, the transportation director for the school system submitted paperwork to the city that cited more than 1,000 missed routes. The contract with Laidlaw includes a $50 penalty for each missed trip. In addition, the company hired and put on the job at least 40 of its 200 bus drivers who had been charged with serious criminal offenses without determining the dispensation of their cases. In at least four cases, the drivers had been convicted of crimes. On driver was convicted of possession of crack, marijuana and a bomb. Another driver had four convictions in 1993 and 1994 for traffic offenses. He was also involved in two bus accidents in 1998. (The Washington Post, November 5, 1999, April 3, 2000)
Contract extended despite concerns
The Orleans Parish School Board, Louisiana, extended a no-bid contract for custodial services and groundskeeping to ServiceMaster Inc. in 1999 despite complaints about unsanitary bathrooms and grass left unmowed. The $1.2 million, six-month extension was approved because there was not enough time to seek competitive bids. One board member admitted, "I accept some responsibility because I could have reviewed the ending date of the contract…and I wish I had." (The Times-Picayune, May 18, 1999)
Bus company pays district for inadequate service
In the first year of its 1999 three-year, $3.6 million contract with the Valley Transportation Company, the Woonsocket Education Department, Rhode Island, discovered the company was operating fewer than the 32 buses required by the contract. Presumably, this shortage contributed to complaints made by several parents regarding inadequate bus service. The bus company ultimately provided the school district with a $12,411 credit. (The Providence Journal, February 16, 2000)
Custodial contracts raise serious concerns
According to school officials at Chicago Public Schools, private custodial crews have stolen computer equipment, and one firm, now barred from future contracts, hired convicted felons to perform cleaning work. In addition, a $35 million cleaning contract originally bid in the summer of 1999 had to be rebid at a later point in time because the Board of Education was concerned that the firms had been talking to each other about pricing. (Chicago Tribune, November 17, 1999)
Public Works
Examples of problems experienced when public works is privatized include the following:
BFI pays $1.5 million for illegal dumping of medical waste
In June 1998 a Maryland subsidiary of Browning-Ferris Industries (BFI) agreed to pay $1.5 million in penalties for illegally dumping contaminated wastewater into the District of Columbia’s sewage system. The penalty is the maximum that could be levied in such a case, according to federal prosecutors.
The charges stemmed from a two year investigation by the FBI at a Northeast Washington processing plant owned by Browning-Ferris. Dozens of FBI agents, wearing surgical masks and yellow protective clothing, raided the site to collect evidence in April 1996.
The plant had been a major shipping point for medical waste from area hospitals. Waste materials included vials, syringes, body parts, and blood. Because of poor handling procedures, the waste sometimes spilled from trucks and mixed with rainwater and melting snow. At other times the waste would end up in storm drains, where it would flow to the sewage treatment plant and later be discharged into the Potomac River.
A BFI spokesperson said that the company chose to settle the case "in the interest of putting this two-year old situation behind us. BFI vigorously maintains our subsidiary committed no wrong."
In a related case, the former manager of the BFI plant pleaded guilty to similar violations of the Clean Air Act. (The Washington Post, June 2, 1998)
Public employees bail out Waste Management in Washington D.C.
Twelve trucks from the Washington, D.C. Department of Public Works were dispatched to collect bagged leaves from several Washington neighborhoods in December 1998. The leaves were to be picked up weeks earlier by Waste Management, Inc., the private contractor responsible for the leaf program.
A Waste Management spokesperson acknowledged that the company had not done the work, but blamed inexperienced subcontractors for the problem. The company was paid $132 per ton to dispose of the waste. In total the city estimated the project would cost over $600,000.
The city imposed fines of $25 for each household missed by Waste Management. (The Washington Post, December 12, 1998)
Waste Management fined $756,000 in discrimination suit
In May 1999 Waste Management agreed to give as much as $756,000 to five women and ten minorities who were turned down for truck driving jobs in Illinois and Indiana
The charges followed a routine review of Waste Management hiring practices by the U.S. Department of Labor. According to the review, these applicants were denied jobs despite having qualifications that were equal to or better than males and non-minorities who were hired. (The Wall Street Journal, May 4, 1999)
