Arizona Correctional Industries Partnering with Private Sector Companies

Bill Branson – Arizona Correctional Industries – State of Arizona

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Background

In 2004, Arizona Correctional Industries expanded their inmate labor programs for private sector partnerships. By entering into a contract with Arizona Correctional Industries, private sector companies commit to the parameters set by the government agency to provide inmate labor. The location of the work force varies from work locations on the institutional property, such as telemarketing centers, manufacturing or off-site locations for agricultural needs and services. Contract employers are given training to understand the policies and expectations related to this unique labor force to ensure the safe and orderly operation of their business; training is renewed annually and reflective of topical issues.

Problem

Many of the ventures were born as a result of the private sector needing to fill a void that was not being filled by free-world labor. Private sector companies entrepreneurial enough to engage in a contract with Arizona Correctional Industries reap many benefits. Specifically, they are given the opportunity to employ an affordable work force that is eager to learn and earn their way to being independent. Inmates working in the program benefit from making a higher wage that contributes to their ability to save for their release. Additionally, inmates acquire in-demand occupational skills and experience which increase employability and decrease recidivism, as demonstrated through empirical studies. Only inmates with good work and disciplinary records are considered and evaluated based on criteria that private sector companies utilize. The benefit to the state is perhaps the most noteworthy. Through inmate wages, the state recovers costs associated with Room & Board; Alcohol & Treatment Funds; Vocational Training and Restitution (to citizens, courts, etc.). In light of the unprecedented fiscal crisis being felt throughout the nation, these programs have provided relief to the State for an unavoidable public safety function—the incarceration of inmates.

Currently, Correctional Industries has 19 private sector companies as partners. In Fiscal Year 2010, inmates provided 2,079,731 hours of inmate labor through these contracts.

Solution

Many states have correctional industries; however, our program is unique, based on the exceptional strides made to enhance partnerships with the private sector. The constructive use of inmate time and labor has a direct and positive impact on the State budget. One of the most impressive benefits was reported in a comprehensive evaluation of inmates participating in rehabilitation programs while in custody that demonstrated Correctional Industries to be the most effective at reducing recidivism by 31.6%. At the core of our program is an understanding that the majority of inmates will be released into our communities, so offering them opportunities to be productive citizens is to our advantage.

Correctional Industries has many successes with manufacturing, service and agricultural industry partnerships. Amongst the various manufacturing operations, the largest United States common carrier trucking company has a repair facility at one of our institutional sites. To their credit, this operation employs inmates in the rebuilding, repairing and refurbishing of every vehicle that requires these services nationally. This is a multi-million dollar operation and the training that inmates receive is invaluable.

In our service industries, our leading partnership employs 250 female inmates utilizing the most recognizable names in software and hardware. The company is nationally recognized for customer support, lead generation, and updating customer data/information. This company has been the most progressive in transitioning their well-trained inmates from incarceration to release. They have successfully employed nearly 100 ex-offenders, making them well-paid, productive citizens.

Correctional Industries successfully incorporates a progressive business approach to government including a state recognized quality program that continues to improve with the mentoring of world-class programs and companies, such as Intel.

Programs that closely resemble ours are Washington Correctional Industries and Colorado Correctional industries. These organizations also employ inmates, but have the advantage of a government-imposed mandatory use law that obliges state entities to contract products and services with them. There is not another program in the country that has partnered with the private sector in such a diverse way, and at the same time competed on a level playing field with the private sector.

Costs

Correctional Industries Private Labor Contract Program is an adaptation of the federal program that Congress created in 1979 (Prison Industries Enhancement Certification Program – PIECP) to encourage states and units of local government to establish employment opportunities for prisoners that closely parallel private sector work opportunities. PIECP exempts agriculture and services industries. Congress imposed wage and benefits requirements in order to create a level playing field with private industry because the inmate-made goods would be entering private interstate markets. The federal guidelines were also implemented to reduce idleness in prison environment, while assuring no civilian workers would be displaced from their jobs. Ultimately the goal was to enable the inmate workforce to acquire marketable skills that would increase their potential for meaningful employment upon release.

Congress determined that a total of 50 jurisdictions may be certified under PIECP. Each certified program must be determined by the Director of the Bureau of Justice Assistance, U.S. Department of Justice, to meet statutory and guideline requirements. As of June 30, 2009, 42 jurisdictions were certified. Arizona Correctional Industries (ACI) was among the first group of programs to be certified in 1984, along with California, Idaho, Kansas, Minnesota, Nevada and Utah. Currently ACI has only one Prison Industry Enhancement Certification Program, but has adapted the federal program to the State of Arizona’s mandate to employ the inmate workforce in meaningful and marketable job skills.

The changes that were required for ACI’s labor programs centered on interstate commerce. By seeking labor programs that were headquartered in Arizona, with sales restricted to intrastate (Arizona only) commerce. ACI programs replicated the wage requirements for non-PIECP programs by instituting a wage that mirrored the federal minimum wage. However that wage was paid to Arizona Correctional Industries to help fund the inmate work programs that were outside the private sector classification. ACI has programs that are referred to as “Owned and Operated,” meaning that all of the financial requirements are met by ACI’s operating budget. Since ACI is no longer state funding-appropriated, sufficient net income must exist to insure the programs’ survival. Inmates in the non-PIECP programs are required to make a minimum wage of $2 per hour, but the average wage is typically $3-$4 per hour.

Arizona statute requires that all inmates that are making $2 per hour will have deductions of 30% to offset the cost of their incarceration. In addition, thirty percent of the prisoner’s wages will be deducted for court ordered restitution. In Fiscal Year 2010, the room and board deduction (30%) was $2.2 million. Since the inception of the ACI private sector programs, over $16.5 million has been deducted from inmates’ wages for room and board that goes to the State’s General Fund.

Since ACI does not receive state-appropriated funds, the company must be self-sufficient. What is even more impressive is that with annual sales over $33 million, ACI is not allowed to have a commercial banking relationship. This means no line of credit, no leveraged inventory or capital equipment, and no financial safety net. Prior to 1992, ACI was appropriated but consistently operated at a net loss. The Arizona Legislature mandated self-sufficiency and ACI has achieved a profit every year except 2003. ACI also has to finance all capital improvements from retained earnings. Monthly and even daily cash flow analysis is a critical component of executive management’s focus. In 2010 ACI had a record net income of $3,544,048. The previous year was also a record year with a net income of $2,965,596. In 2008 the net income was $595,575, and in 2007, earnings were $649,873.

The program utilizes business methods to establish partnerships that are providing some much needed relief to the fiscal responsibilities of the citizens of our state. Furthermore, the Arizona State University WP Carey School of Business has estimated that our Correctional Industries (Owned & Operated and Private Sector Partnerships) has contributed $186,424,774 to the state economy, resulting in the creation of over 1,774 new jobs.

As previously noted, Correctional Industries programs are recognized as reducing recidivism amongst inmates who participated in the work program. We have witnessed many successes of inmates that participated in the program and have gained employment with the private sector partner upon release or been successful utilizing their newfound skills to seek employment opportunities.

Legislation

The program started in 1979 when federal legislation was enacted to provide a level playing field between inmate labor programs and the private sector. The Prison Industry Enhancement Certification Program (PIECP) was created to encourage states to establish employment opportunities for offenders. Our Correctional Industry program was established in 1968 when the state legislature established guidelines for the creation of a governmental unit, under the direction of the Director of the Department of Corrections that could employ inmates. The legislation that speaks specifically to our program is:

A.R.S. § 41-1622. Correctional Industries; establishment; purpose

Arizona Correctional Industries may purchase raw materials, components and supplies for use in the manufacture of products for sale or provide services. In support of its retail operation, correctional industries may purchase or consign items for sale to the public that are produced by other state correctional industries or by inmates who are incarcerated in facilities that are located in this state but that are outside the custodial responsibility of the state department of corrections.

Arizona Correctional industries shall pay all obligations in accordance with section 41-1624 at any location under the control of correctional industries. The industries or enterprises shall be conducted for the employment of prisoners for the purposes of manufacturing or producing such articles or products or providing services as may be needed for the construction, operation, maintenance or use of any office, department, institution or agency supported in whole or in part by a state or its political subdivisions or for sale to the public.

41-1623. Powers and duties of director:

The director or his designee shall, when necessary, conduct market research, establish marketing procedures and develop product specifications for sale of Arizona correctional industries products to public agencies, the public and private industry.

Our correctional industry program had its initial start in the mid 1990’s, but began to accelerate in 1998 with the integration of three private sector partnerships. The three new partnerships included a well-known automobile auction company, the leading chicken egg producing facility in the state, and a new telemarketing call center that targeted leading technology companies to assist with lead generation. These three programs became the basis for the procedures, policies, and systems that would help our program successfully grow by 700% to date.

Applicability to Massachusetts

ACI’s program is replicable throughout the United States and there has even been interest in our program internationally. Thirty-one other states do not have a program that allows inmates to work for private sector companies. The value to other state governments is three-fold:

First, in tight economic times, this program helps alleviate some of the high costs of incarceration. Thirty percent of the wages earned is returned to the State’s General Fund. Though this equates to roughly $1 per inmate hour worked, the hard cost savings is nearly 10%.

Secondly, products that are manufactured, or services that are provided, have significant benefit to the State. An independent study from Arizona State University states that the financial contributions ACI made to the State’s economy in 2010 was $186,424,774. These contributions come from two areas: the actual raw materials and services that ACI purchase from Arizona businesses and the staff required to meet the purchasing demands of ACI. It is also estimated that considerable consumer expenditures were generated as a result of ACI-related employment. This would have a positive economic impact on any of the states that established similar programs.

And third, inmates learn valuable skills. The skills are not only job related, but also skills of civility, punctuality, responsibility, and teamwork. The learning skills are harder to quantify, but the impact is equally important to the community that will receive the inmates upon release.

Massachusetts currently has a program that employs 300+ inmates. By expanding inmate labor opportunities for private sector partnerships, the state of Massachusetts can positively impact the fiscal responsibility of incarcerating inmates by contributing to the General Fund through inmate wages, as well as further reduction of recidivism through demand occupation experience. The program has had a positive and lasting impact on individuals currently incarcerated and their successful transition back into society as our neighbors, co-workers and/or community members.

Conclusion

Correctional Industries successfully incorporates a progressive business approach to government including a state recognized quality program that continues to improve with the mentoring of world-class programs and companies, such as Intel. Recently, ACI has initiated an Executive Quality Program to certify six executives as Lean Six Sigma Green Belts through Purdue University. Upon completion of the program several of the executives will enroll in the Lean Six Sigma Black Belt Certification. We are always striving for improving the quality of our products, processes and customer service.

In addition to improving our current program, we are always seeking opportunities to expand our internal and external business opportunities.

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