Friday, May 29, 2009

Attack on in-prison employment based on phony claims of harm

With all the bills dying at the Texas Legislature, it's a shame to see ones making it through that do more harm than good, which IMO is the case with HB 1914 placing greater restrictions on the small number of "prison industries" programs (PIE) through which private employers pay inmates to work in a commercial business, allowing inmates to contribute to victim compensation, child support payments and even their room and board. PIE has 200-300 working inmates at any given time - only five companies currently participate.

The bill was spawned after claims by Sen. Robert Nichols and an East Texas company Lufkin Trailer when they claimed one of the prison industry programs had undercut their price and put them out of business. As I wrote the when the bill was heard in the House, however, this turned out to be an entirely false representation.

Unlike grandstanding statements to the newspapers, public companies must make statements to the SEC, in this case their 2008 corporate 10-K filing, for which they suffer criminal penalties if they're not truthful. And in those corporate filings, where they're required to list their primary competitors, the PIE-involved company wasn't even on the list:
The companies with the highest market share are Great Dane and Wabash, along with several other large manufacturers like Utility, Stoughton, Fontaine, Vanguard and Hyundai. [Lufkin Trailer] does not have a significant market share in the trailer market.
So Lufkin Trailer's competitive disadvantage wasn't really with a small shop working out of a Texas prison, it was with international manufacturers participating in an utterly globalized market. Blaming the tiny bunch of trailermakers in the PIE program was nothing but a PR excuse for a publicly unpopular decision that the company really made for other reasons. Contrary to their claims in the press that competition from prison labor had caused their demise, in their official SEC documents, the company blamed the closure of their trailer division on:
reduced activity in the home and road construction markets as well as reduced profitability from higher fuel prices. In 2007, industry order rates and backlog for flatbed trailers decreased over 40% and for dump trailers over 25% compared to 2006 levels. In the fourth quarter of 2007, industry order rates and backlog for flatbed and dump trailers decreased almost 50% compared to the fourth quarter of 2006. Due to these market conditions, in January 2008, the Company announced the decision to suspend its participation in the commercial trailer markets and to develop a plan to run-out existing inventories, fulfill contractual obligations and close all trailer facilities during 2008.
No mention of competition from prison labor at all, though if it's really that big a deal they are required by law to disclose their competitive disadvantage. I just don't buy it. If this was as big a problem as Sen. Nichols and Lufkin Trailer claim, the company would be legally obligated to disclose the issue in their SEC filings. But they never did.

The only silver lining in the bill is that it mostly leaves alone current PIE program participants, but it places fairly radical restrictions on any new programs. That probably means we won't see Texas' program expanded any time soon. According to the Cherokean Herald:

H.B. 1914 will help stop job loss and unfair competition by:

  • eliminating sweetheart deals and requiring businesses using prison labor to pay a fair market value for use of facilities
  • moving oversight of the program from the Prison Industry Oversight Authority to the Texas Department of Criminal Justice (TDCJ) board
  • preventing TDCJ from approving contracts resulting in job loss anywhere in Texas
  • allowing employers to submit a sworn statement that their business would be hurt and jobs could be lost by approval of a specific prison industry contract
  • requiring job and product descriptions be specific so employers can recognize a prison industry contract that would unfairly threaten their business
  • creating notification for area businesses and posting information about programs online
  • notifying the state senator and state representative in whose districts the project would be located
Those so-called "sweetheart deals" are being misrepresented. TDCJ gives employers low rent in the PIE program to entice any employer to work there at all. Working in a prison involves its own discomforts and anxieties for the free world workers who participate. Plus, their employees' work is subject to disruption by lockdowns, disciplinary actions, and any number of other common prison occurrences that are entirely out of the control of both the worker and the employer. For example, last fall's lockdown searching for cell phones resulted in immediate, unplanned work stoppages for PIE units that free-world companies don't have to face. So by eliminating incentives, only charities, not businesses, would ever consider working with the PIE program.

Meanwhile, the "notification" requirements are an attempt to drum up opposition. But a "sworn statement" that a PIE program might harm their business is not remotely the same as demonstrable proof that's the case, though the bill seems to imply it should be accepeted as such. As shown above, in the example spawning the rule, the claim about this program putting Lufkin Trailer out of business was demonstrably false, at least according to the company's sworn statements to the SEC.

Personally I wish they would scale this bill back in conference committee or else the Governor should veto it outright - not that I'm holding my breath. HB 1914 is a solution looking for a problem and it harms a (small) program with a solid track record of improving inmate behavior and reducing recidivism for its participants.

12 comments:

Anonymous said...

Grits, Sorry man, but you cannot surprise us anymore. It is not surprise that the legislature is punishing PIE efforts. I think it goes deeper than some back water trailer company. They are passing laws for punishing inmates and freemen alike to forward their own political agenda, and if it helps a few companies with in-roads, all the better.

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Anonymous said...

The death of the PIE program can be blamed on the former TDCJ Director of Correctional Industries Mr. John Nelson.

The dirt with this program goes deeper than just Lufkin Trailers claim of unfair trade practices. Unique Performance in Farmer's Branch is a classic example of the PIE program failures. If the failures related to this program ever came to light, you might be surprised. Someone in TDCJ is very ignorant for trying to save this program in the Senate. There are lots of skeletons in the closet with this program.

You might look into the current inventory tax status of some of these PIE operators. These companies are not exempt from local property tax or state taxes.

sunray's wench said...

Those who complain about the PIE programme are no doubt the same who insist on locking every offender up for life (if they cant execute them all) but also complaining equally loudly that they dont want their taxes spent on keeping all the offenders in prison. I guess they are also the same people who blindly vote for Gov Perry and his supporters every time too. Someone really needs to sit them down and explain basic economics to them. Then perhaps they can contribute to the solutions instead of endlessly whining about the "problems".

gndlf1 said...

As a Prison Industry insider, I have been aware of the Direct Trailer/Lufkin Trailer Division battle since early in 2008. Those who put forth the opinion that Lufkin Trailer did not identify Direct Trailer as a competitor in SEC filings, is right...and wrong. I'm sure if they had known where the unfair competition was coming from when they filed their SEC documents they would have gladly provided it.
Lufkin did not know Direct Trailer existed or was a competitor in their market prior to making the decision to close their Trailer Division. They had heard rumors that there was a new trailer manufacturer in their locality, but had difficulty identifying the business or where it was located. Only after an in depth investigation did they discover Direct Trailer's existence. Once they were identified and Lufkin looked closer they discovered it a joint partnership between the Texas Prison Industry and Direct Trailer under the federal PIECP program.
The "Mandatory" federal PIECP Guidelines were not followed by Direct Trailer and the Texas Prison Industry.
There are 9 mandatory requirements a prison industry must meet prior to receiving certification from the Bureau of Justice Assistance (BJA). Any prison industry put into operation requires the prison industry to: 1] check with local businesses or manufacturers who produce similar products and get them to sign documents stating the operation would not cause a loss of private sector jobs if opened, and; 2] they must meet with local Unions and Organized Labor groups to determine if the impact upon local employment. In both cases, the Unions and competitors must sign documentation stating the operation will not unfairly impact the labor market in the locality where the prison operates.

These PIECP program requirements can be found here: http://www.nationalcia.org/wp-content/uploads/2008/09/pie-final-guideline.pdf.
Obviously, if the two mandatory requirements were complied with prior to allowing Direct Trailer to begin operations at the prison, Lufkin would have been contacted by the PIECP Coordinator and been given an opportunity to argue against the operation. The same holds true for the Unions. If they were contacted and given an opportunity to respond prior to the actual date of operational start-up.
Neither were given the opportunity to address the operation and were deliberately kept in the dark as to the trailer manufacturing operation that was opening right in their backyards.
The PIECP program exists to "Train" inmates in contemporary skills, utilizing current technology and equipment so that they are more likely to be employable upon release - rather than return to prison. It is not designed to be used by private industry businesses to amass huge profits. If the industry breaks even at the end of the fiscal year, makes no real difference as long as the primary mission of training and job placement are met and prison recidivism declines. What it was/is not designed to do is become unfairly advantaged over private sector competitors in fulfilling their mission goals. For too long PIECP prison industries have neglected mission goals in favor of profits - to the detriment of the private sector competitors and inmate workers alike.

Bob Sloan,
Prison Industries Consultant

Gritsforbreakfast said...

Bob, I don't know one way or another whether notification requirements were fulfilled (or what a "prison industries consultant" does, for that matter). But you still haven't demonstrated that Direct Trailer was remotely as big a factor in LT's demise as the much-larger outfits listed in their 10-K.

It's really not logical to expect us to presume without evidence (beyond LT's post hoc say so) that Direct Trailer's competition significantly harmed Lufkin Trailer, particularly in what everyone acknowledges is a globalized market dominated by much larger companies listed in the SEC filings. I just don't buy it, especially given the reasons listed for closing their facility in their 10-K.

Gritsforbreakfast said...

BTW, Bob - I just realized these quotes were from their 2008 10-K which was just published this year, so they knew everything you're saying about the PIE program when they filed this document with the SEC. The difference is, there are criminal penalties for misrepresentation in SEC documents, as opposed to media statements or blog comments.

Anonymous said...

Scott,

I have to agree with Mr. Sloan on this one. I sat through the testimony on this and am also a PIECP insider.

It all comes down to this.

The Texas PIECP did not follow Federal guidelines. Anderson County, the location for the Direct Trailer PIECP, was a labor surplus area.

I have nothing against inmates gaining job skills through the PIECP, but it should not be done in areas that are already economically depressed and have a labor surplus. This is not my opinion, this is Federal law. Texas violated Federal law. Texas is lucky Lufkin Industries, Bright Coop Trailer, and the thousands of unemployed East Texans are not suing them for this.

The Direct Trailer PIECP was not the downfall of Lukfin Industies Trailer. Direct Trailer had an unfair trade advantage by renting a TDCJ 700,000 sq ft warehouse for $1 a year. If you do your homework you will find that the President of Direct Trailer, John Nelson, was also a former TDCJ Industries Director.

PIECP is a way for TDCJ insiders to steal public resources or rent them for $1 a year.

Gritsforbreakfast said...

RE: "Texas is lucky Lufkin Industries, Bright Coop Trailer, and the thousands of unemployed East Texans are not suing them for this."

Here's why I think that's HIGHLY unlikely: Lufkin Industries filed its 10-K with the SEC (quoted in the post) AFTER it found out about Direct Trailer and had been lodging complaints with Sen. Nichols, etc.. So if they had that information and DIDN'T include it in their published reasons for making that decision, it's Lufkin Industries that violated federal law. Unless, of course, they didn't include the allegations because they're not factual, which would make better sense of the situation.

As I said, I have no knowledge whether Direct Trailer complied with notice requirements. That's a very different argument than saying that COMPETITION from Direct Trailer caused LT to close. The latter claim does not hold up to scrutiny.

Bottom line: Unless you're claiming Lufkin Industries knowingly flouted SEC rules by failing to acknowledge a significant competitive disadvantage to their shareholders, I'll take the version presented in their 10-K about what happened over LT's media pronouncements or the word of blog commenters, even self-proclaimed "insiders."

Anonymous said...

Scott,

I'm not arguing that Direct Trailer was the down fall of Lufkin Trailers, it was clearly not. This fact was acknowledged by Lufkin Trailer's CEO Mr. Smith.

The fact remains under Federal Law you can not operate a PIE program in a "LABOR SURPUS AREA." Anderson County was a labor surplus area.

This Federal law was enacted to encourage companies to use the labor surplus first, before going to the prisons for labor. The fact remains that people in Anderson County and other areas of East Texas need jobs, even low paying jobs.

In Anderson County the only major employers a convict has to choose from after leaving prison are TDCJ and Wal-Mart. TDCJ is not going to hire them and Wal-Mart is too busy hiring former TDCJ officers.

It would have been nice if Direct Trailer opened a plant is Anderson County that hired convicts getting out of prison.

Remember convicts getting out of prison need jobs too. I would rather see these companies employ people being released from prison, then people in prison. Thats what keeps them from returning.

If we need to expand anything it is the TDCJ TCI programs that gives offenders job training skills. TDCJ needs to go back to some of the programs that Dr. George Beto enacted. These programs work and help out schools, parks, hospitals, and other public institutions with cost reduced items manufactured in Texas prisons. TCI is a win-win program that is not driven by greed or profit factors, unlike PIECP.

Anonymous said...

Offenders working while inside prison do provide some nice slave labor that legit businesses could in no way compete against. Not with illegals demanding at least $7.00 an hour.

Offenders need to learn a trade, or perhaps fine tune there school skills. Having them on hoe-squads, while politically popular for idiots like Perry, does nothing to ready them for the real world.

gndlf1 said...

There's a bigger picture here, Scott. I understand your position that Lufkin failed to identify Direct Trailer in their '08 SEC filings. I can't explain a reason for this other than Direct Trailer was not perceived as a "competitor" to their industry when filed.
The oversight for the PIECP program is provided under federal grant to the National Correctional Industries Association (NCIA). Every prison industry participating in PIECP has one or more administrators or management personnel who are members of the NCIA, sit on the Board and perform inspections of other PIECP facilities. So in essence, they oversee themselves and as a consequence fail to find any fault with the sister operations nationwide.
Anonymous said Mr. Nelso was a former TDJC employee that later opened Direct Trailer...this mirrors exactly what was done in Florida. PRIDE of Florida (prison industry) partnered with several private businesses under the PIECP program. Once PRIDE gained proprietary information, customers and their partner's equipment, they booted the partners, kept the equipment and continued to provide products to the ex-partner's customers, utilizing the original shipping labels and all.
This happened to ATL industries in Atlanta. They are still tied up in the Florida Courts, with ATL trying to get their equipment back.
When ATL was booted from prison property PRIDE's Industry Manager and a partner, formed two for-profit corporations to take over ATL's position in the processing of food products. The same thing occurred with a Torque Converter business and a Citrus partnership. PRIDE now operates all three as PIECP programs.
ATL found the food being processed and shipped to super markets, schools and institutions was contaminated with rat urine and feces. They went to the USDA with pictures, affidavits and other documents trying to recall the food products before anyone became ill. The USDA refused to allow the voluntary recall.
I cite the foregoing so others will understand that the PIECP program is being abused nationwide by for-profit businesses and the industries themselves for profit. The inmate training and job placement has been replaced by profit seekers.
The net result is the loss of hundreds, if not thousands, of private sector jobs that are adding to the unemployment situation. Senator Nichols and Lufkin's attorneys were the first to fully review the program and PIECP guidelines and hold the TDJC and Direct Trailer's feet to the fire. I expect to see much more of this kind of furor over the PIECP program and prison industries in the near future.
I believe two wrongs don't make a right. Lufkin's failure to file paperwork with the SEC about Direct Trailer's competition causing their closing, was wrong - if they had full knowledge of that operation at the time of the filing. However, the PIECP Participants are doing so much in violation of the program guidelines and federal law, that regardless of how they got nailed, it is about time it happened. If it was a violation of one federal law that brought about the exposure of violations of other federal laws - nationwide - I applaud Lufkin and Senator Nichols for their part in forcing legislation that will protect other private sector jobs in Texas.
And as to what a Prison Industries Consultant does...they work with prison industries and private sector business, in an effort to advise both as to the laws applicable to their operation(s)so they don't wind up in a situation like Lufkin and Direct Trailer...

Bob Sloan