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Study of Nevadas Prison Industries

NDOCs Prison Industries Facts, Research and Analysis on Statutory Compliance

By Bob Sloan, Prison Industry Consultant and Executive Director, Voters Legislative Transparency Project, Inc.

The following represents an independent study and report on operations conducted by the Nevada Department of Corrections (NDOC), Prison Industrial Program operating as Silver State Industries (SSI). The factors considered and studied are those involving the use of convicted state prisoners in competition against private businesses and the impact upon those companies. A secondary concern is the state laws, provisions, legislation and federal regulations allowing the practice of inmate labor usage by private employers. A third and important factor considered is the lack of effective oversight provided at all levels; local, state and federal. In developing research containing facts and statistics, a review of applicable state and federal laws, regulations and mandated requirements involving Nevadas use of prisoner labor were reviewed. Documents including: minutes of meetings of the Nevada Interim Finance Committees Committee on Prison Industrial Programs (PI Committee); statistics, documents and materials from the Bureau of Justice Assistance (BJA) and the National Correctional Industries Association (NCIA); minutes of meetings of the PRIDE Enterprises board of directors; official reports of the Governor of Florida, Inspector Generals Office; and the Florida Department of Corrections Inspector Generals Office. Other documents used and relied upon to form the basis of the findings, are communications between the report author and Julius Dupree, Policy Advisor of the (BJA) and documents provided from the BJA through FOIA requests. Also reviewed were news articles, videos or reports quoting officials or relating material, facts or figures involving Silver State Industries and/or NDOC Director James Greg Cox, Deputy Director Brian Connett and former NDOC Director and Deputy Director of Industrial Programs, Howard Skolnik. This report was funded by the Voters Legislative Transparency Project, Inc. (VLTP) a non-profit Indiana corporation. No government or corporate funds were used in research or compilation of this report. The author is an acknowledged authority on prison industries and facility privatization in the United States with several state reports issued and recipient of a 2011 Sidney award for socially conscious journalism for his work involving prison labor.


Glossary Acronyms & Abbreviations


American Correctional Association Alpine Steel, Inc. Bureau of Justice Assistance Board of Directors Board of Prison Commissioners Department of Justice Florida Department of Corrections Fair Minimum Wage Inspector General Jacobs Trading Company, Inc. National Correctional Industries Association Nevada Department of Corrections National Institute of Justice Office of Justice Programs Nevada Prison Industries Capital Improvement Interim Finance Committees Committee on Prison Industrial Programs Prison Industries Enhancement Certification Program see PIECP above Prison Rehabilitative Industries and Diversified Industries, Inc. (Florida) Shelby American SkyVue Observation Wheel project on Las Vegas strip Silver State Industries


This report on the activities of the NDOC Silver State Industries has been compiled due to recent concerns voiced by Nevada private citizens and private companies involving the use of inmate labor by private companies licensed and/or incorporated and operating in the state of Nevada and foreign companies using Nevada prisoners as employees or non-employee laborers. Complainants have asserted that the statutes of Nevada and the federal government relating to prison industries and competition with private enterprise and non-inmate labor, lack transparency and are being violated. Individuals, businesses and other interested parties inquired as to the legality of using inmate labor by private and/or independent private sector companies partnered with SSI. They wished to know the law(s) and regulations pertaining to the use of inmate labor by NDOC/SSI industries for the purposes of manufacturing goods, or providing services to public consumers. A valid concern was ongoing competition between private sector businesses and those operating through SSI. Additionally they requested information upon wages paid to inmates, deductions from inmate wages, benefits provided to state prison inmates working in industrial programs and what, if any, benefit the citizenry of Nevada received from allowing inmate labor to compete with non-inmate workers in the public/private sector. A final request was the impact, if any, upon non-inmate workers in Nevada as a result of inmate labor used by private companies operating in the free markets of Nevada, and particularly Las Vegas.

Research determined that the primary program allowing the NDOC an ability to provide inmate labor to private companies, is rooted in a federal program titled the Prison Industry Enhancement Certification Program, commonly referred to as PIECP or Pie Program. This program has strict compliance requirements in order for a state to participate and provide prison facilities and labor to private business. Only upon certification of compliance with nine mandatory requirements does the Department of Justices, Office of Justice Programs issue a certificate allowing state prison industries participation in PIECP. Subsequent annual reviews are mandated to insure continued compliance. Legislative: In the case of Nevada, documents and extensive research developed reflect that the state and specifically SSI, is in violation of at least three of the nine mandatory requirements mandated by 18 USC 1761, et. Seq. These violations involve; 1. Improper wages paying inmates working in the program less than mandated, and: a. Illegal wage deductions violation of 18 USC 1761(c)(2);


b. Failure to enforce inmate voluntary participation requirement to wages earned and wage deductions through Nevada legislative provision that allows deductions in the absence of documentation of voluntary prisoner agreement for such deductions and deductions from wages not authorized by the federal statute; 2. Failure to properly notice and consult with local labor unions or labor groups prior to starting new projects in the locality of prison industry factories, or where manufacturing new products or product lines were occurring violation of 18 USC 1761 Final Guideline; 3. Failure to properly notice and consult with private sector competing companies or businesses prior to starting new projects in the locality of prison industry factories, or where manufacturing of new products or product lines were occurring violation of 18 USC 1761 Final Guideline. 4. Oversight of inmate work programs involving private sector companies employing inmates is deficient and needs serious improvement. Members of the Committee are not completely familiar with PIECP or the mandatory requirements of the program. 5. A serious and critical conflict of interest issue between SSI and the oversight authority of PIECP has existed since 1995, rendering certain activities of SSI and determinations of compliance suspect. 6. NDOCs Deputy Director of Industrial Programs, Brian Connett, was previously the Manager/Director of the PIECP Program and Bid Administration with Prison Rehabilitative Industries and Diversified Enterprises (PRIDE Enterprises). In those capacities, several actions taken by Mr. Connett involving inmate work programs under PIECP were later determined to be in violation of 18 USC 1761(c) and Florida statute 946.523 and 946.502. Current work program activities involving SSI are similar to those having occurred previously in Florida under Mr. Connetts authority. 7. Actions taken by the Nevada Legislature regarding authorized use of inmate wage deductions appears to be in violation of controlling Nevada statutes. 8. Sections of Nevada laws addressing inmate labor do not comport with federal counterparts and requirements involving PIECP. 9. Erroneous statistical information relied upon by the BJA, DOJ, National Institute of Justice (NIJ) and other agencies tracking inmate labor have been submitted by SSI, skewing important data. Financial: SSI and the PI Committee have not followed protocol regarding actions to be taken if/when individual SSI industries have/are failing, causing the SSI to operate at a deficit. In the case of Alpine Steel and other private partnerships, SSI has advanced an interest free subsidy to by allowing companies to fall behind on payments due SSI. In the case involving Alpine Steel, Inc., SSI has allowed the company to continue to operate while running up a huge debt for non-payment of operational expenses; rent, utility costs, staff salaries and inmate wages. Currently that single company owes the state in excess of $400,000.00. Recently SSI reported Alpines owner has repaid $78,000 that was owed in back wages to inmate workers, but no effort has been made to reduce the


remaining outstanding debt(s) or offer of a personal guarantee for payment from Alpines owner, Randy Bulloch. Mr. Bulloch has indicated that his company will come current on the debt owed to the state once the SkyVue Observation Wheel project in Las Vegas advances. However it was recently reported that the SkyVue developer, Howard Bulloch (brother of Alpines owner) has financial problems with the project. Contractors and creditors have filed liens against the project in amounts exceeding $3 million dollars. With these issues it is unlikely Alpine will be able to pay off the debt from this project and Howard Bulloch has publicly stated Alpine never had the steel contract for the project. Additionally Alpine and its owner have outstanding liens against them from: the IRS for $668,543.02; suppliers for $28,530.12 (1 in current litigation); and are in litigation for an additional $84,716.30 in unpaid worker compensation premiums to Explorer Insurance. Records indicate that this partnership between SSI and Alpine is absent any binding contract or agreement(s) that could be used to recover the debt. Deputy Director Connett is hesitant to close the operation down and defending that decision by informing the Committee that more inmate jobs would be lost and unless Alpine is allowed to continue operations, the ability to collect the current debt is reduced. SSI has the ability to apply the allowed standard interest rate to outstanding or uncollected debts, but that has not been utilized in Alpines case and no record of it on other AR debts owed over 30 days. Another issue of concern is industries continuing to operate at a loss. Nevada law requires that the prison industries must result in an annual profit for the department (NRS 209.461[4]). According to figures provided to the Committee1, in the past two fiscal years, SSI has shown net losses of $81,597 (2011) and $237,792 (2012). News reports and minutes of meetings held by the Committee; report that another $415,000 is owed to SSI by Alpine alone. Several individual industries operated by SSI are losing money as is the central office; Central office NNCC Furniture & Metal SDCC Auto & Upholstery ESP Drapery Prison Ranch -$130,471 (2012 -$9,895 (2012) -$148,394 (2012) -$5,343 (2012) -$132,408 (2012) -$35,359 (2011) -$149,696 (2011) -$193,994 (2011) -$92,805 (2011)

For fiscal year 2012 SSI shows an outstanding accounts receivable balance of $614,200.20. This amount includes the Alpine debt. At the very least, these figures reflect poor management. An example is the Ely Prison Drapery operation. This maximum security prison houses 1,150 inmates and currently there are 16 inmates (0.01% of the population) assigned to jobs in the drapery industry. Deputy Director Connett was questioned about possibly closing this industry (and SDCC Auto upholstery) and responded that he


kept the industry open because it served as an incentive for inmates to behave, knowing that they could not participate in the industry program without a clean disciplinary record.1 Such losses outweigh any potential benefit derived from more than 1,000 inmates vying for only 16 positions many of which have been filled by the same inmates for several years. The Committee has a duty to recommend closure of industries that are underperforming financially, but they continue to allow the Deputy Director to influence that duty. The actions described above disadvantaged local private sector companies and have unfairly impacted employment of non-inmate workers and thus are having a negative influence on local economic and employment factors. Situations such as the debts owed by Alpine and other companies put taxpayers in jeopardy as well, if such large debts and losses are unrecoverable.


In Nevada and other states today operating under PIECP and other inmate work programs is extremely difficult. As is an understanding of and compliance with the terms of such complex programs. The training of prisoners is a necessity in helping them change their minds, lives and employment decisions. Success of such programs benefits society as a whole but should not have a negative impact upon non-inmate jobs or workers. To comprehend how to navigate through the maze of laws, requirements and maintain an equal balance between training of prisoners and protecting business operation in the private sector is a real challenge. It would be best if questions or concerns posed were responded to by those with full knowledge and responsibility of the program and an ability to make necessary changes when real controversies arise. Ultimately these responsibilities are vested in the Bureau of Justice Assistance (BJA) operating under the authority of the Office of Justice Programs (OJP). There are multiple parties participating in the PIECP, each with a different purpose for involvement: businesses wanting lower wages and a dependable workforce; prisoners who want to learn while earning an income as small as that may be; taxpayers who want reduced crime and lower recidivism; workers who dont want their wages decreased or jobs lost altogether to prisoners, and; non-participating business who desire a level playing field where they can compete fairly against those using prison labor. Each actor has an important view and interest that should be acknowledged and respected by the other participants. Nevada law provides that every program employing offenders will have an insignificant impact upon the number of jobs available to Nevada residents.2 Structural steel companies in Las Vegas have objected to the lost opportunity to employ workers due to the competition from the structural steel industry operated by SSI3. The NDOC may consider that number insignificant, but with the state unemployment rate hovering at 10%, those workers who lost that opportunity would not consider their loss as insignificant. In a government run program enacted by congressional action(s), it is expected that the rights of all involved will be considered and steps taken to insure each has an equal say and protection from exploitation by others. It is not simply an expectation of fairness, rather the actuality of fairness that makes an effort such as the PIE program successful. This was the congressional intent when PIECP was enacted. Outsourcing or privatization of this government program to a single interest participating in the program opens the door to the temptation of exploitation. With regard to something as important as prison industry that has as much as $2.5 billion in annual sales on the line, the inducement to exploit for larger profits is a reality. In a capitalistic society it is inevitable. America if nothing else
2 3

NRS 209.461(2)(c) In news articles former Senator Richard Bryan acting as legal representative of a local steel company, stated his client had to deny employment to as many as 20 workers, at an hourly rate of at least $17.00 per hour.


is a nation built through capitalism with entrepreneurs seeking any advantage available in a competitive market. This is the nature of the beast that is competitive business. Supervisory authority of the PIECP was transferred from the BJA to the National Correctional Industries Association in 1995 along with a substantial taxpayer grant to perform the duties of compliance and policy determinations, annual reviews and enforcement assistance. The NCIA is a trade association that actively lobbies at the federal, state, and local levels for continued funding for the expansion and effective administration of the PIE program and conversely, opposes legislation that would adversely impact correctional industries programs.2 For the foregoing reason(s) it is nearly incomprehensible that the federal oversight and control agency in charge of such an important program would hand off oversight and policy determinations to one group actively participating in that program. American workers and competing businesses as well as taxpayers find their interests take a back seat to a single participant given such authority. The NCIA is used as a screen to hide ongoing policy and statutory violations by submitting audits to the BJA as evidence of compliance with governmental standards by program participants who all hold membership in the auditing authority. Mr. Brian Connett, NDOC Deputy Director and currently the NCIA President, issued a statement on behalf of the NCIA, revealing that there are currently 1,022 prison industries in operation in the U.S. today. There are 6,612 industry staffers in those industries and more than 100 companies using an inmate workforce totaling more than 91,000.3 The NCIA and Connett represent the interests of this huge group taking part in the PIE Program.

Collectively this group represent the largest and most active advocacy in support of continued use (and expansion) of prisoner labor and maintaining inmate wages at or below the fair minimum wage. Individual citizens, companies and others in opposition to prison labor used by private companies find themselves face to face with this large and influential group operating as a trade/lobby organization. This conflict of interests is at the core of the current situation there in Nevada, with a powerful trade association backing the use of inmate labor in competition with private businesses. Their efforts are enabled by the current head of that group also serving as the head of the Silver State Industries who 8|Page

has one foot in each camp. This is compounded by the fact that the Committee with authority to oversee the Nevada Prison Industries, knowing Mr. Connett is President of the NCIA, having congratulated him for his advancement. In subsequent meetings, the Committee then relies upon the data, compliance certifications and other materials provided by the NCIA as proof of Nevadas observance of the rules of participation. The governments decision to outsource oversight of the PIECP to the trade group representing the interests of the participating prison industry members is difficult to understand. In terms of issues of today, this choice would be tantamount to outsourcing the duties of the ATF to the NRA then expecting that private association to enforce strict gun regulations. It has not worked with the prison industries and the NCIA, and it certainly would not today with the NRA in that same situation.


Historical Data
In order to fully comprehend the subject matter of inmate labor usage by private companies and how this affects Nevada, it is necessary to first understand the federal program that is used to authorize prison labor in the private sector and in this case, the actions of one of the principals in a previous position involving prison labor. The Prison Industry Enhancement Certification Program (PIECP), codified at 18 U.S.C. 1761(c)4, was first authorized by the Justice System Improvement Act of 1979, Pub. L. No. 96-157, 93 Stat. 1215. 61. PIECP relaxed federal statutes pertaining to interstate transportation and sales of prisoner made goods and sales to the federal government5 in excess of $10,000.00. In enacting PIECP, Congress carved out a huge exception to the Ashhurst-Sumners Act6. PIECP was expanded further in 1984 under the justice Assistance Act. In 1990, the Crime Control Act authorized the Programs continuation indefinitely in fifty jurisdictions. The Program deregulated many of the federal prohibitions on the use of penal labor in manufacture of products introduced into interstate commerce.7 While the program did not repeal Ashurst-Sumners, its effect was to nullify the Acts application to prison industries that are operated under a certified PIE program. PIECP allows each state and county jails to set up specific program models contracting out inmates to private businesses directly, or manufacturing products in-house for sale to private companies. In order to be certified, the state operated programs must meet mandatory criteria8 established by Congress. Most of the conditions set forth by PIECP are centered on alleviating; exploitation of inmates and unfair competition for companies not utilizing prison labor with a corresponding negative impact on the local labor markets. These mandatory provisions are: 1. Eligibility. Authority to involve the private sector in the production and sale of inmate-made goods on the open market. 2. Wages. Authority to pay wages at a rate not less than that paid for work of a similar nature in the locality in which the work is performed. 3. Non-inmate worker displacement. Written assurances that PIECP will not result in the displacement of employed workers; be applied in skills, crafts, or trades in which there is a surplus of available gainful labor in the locality; or significantly impair existing contracts. 4. Benefits. Authority to provide inmate workers with benefits comparable to those made available by the federal or state government to similarly situated private-sector employees, including workers compensation and, in some circumstances, Social Security. 5. Deductions. Corrections departments may opt to take deductions from inmate worker wages. Permissible deductions are limited to taxes, room and board, family support, and victims compensation. If victims compensation deductions are taken, written assurances that the deductions will be not less than 5 percent and not more

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than 20 percent of gross wages and that all deductions will not total more than 80 percent of gross wages. 6. Voluntary participation. Written assurances that inmate participation is voluntary. 7. Consultation with organized labor. Written proof of consultation with organized labor prior to program startup. 8. Consultation with local private industry. Written proof of consultation with local private industry prior to program startup. 9. National Environmental Policy Act (NEPA). Written proof of compliance with NEPA requirements prior to program startup. (this was added in a 1999 final guideline) These are mandatory provisions, not options. As shown, they include a requirement that inmates be paid fairly at the prevailing wage paid to non-inmate workers in industry markets. Participation in the program must be voluntary, and private industry and Unions/labor groups are required to be consulted about any possible adverse affect implementation of a program may have on sale of similar products and labor markets. The certification is to be carried out by the Bureau of Justice Assistance (BJA). Despite potential benefits of the Pie program to both employer and inmate, there have been numerous instances of recorded abuse of program requirements. One of the most prevalent has been continued findings of inmate workers not receiving prevailing wages.9 Prisoners are unprotected by the Fair Labor Standards Act and rights, especially a guarantee of fair wages, are governed by the PIECP requirements.10 Though employers are required to pay market wages, which for unskilled workers might be low, inmate wages are found to be kept at minimum levels regardless of experience or acquired efficiency. Often employers pay far below minimum wage, keeping inmate workers in training by transfers to other industry departments and paying them accordingly. PIECP was created to address interstate transport of prisoner made goods between states or other countries and sale to the U.S. government. Partnerships between state prison industries and private companies are not allowed unless accomplished under authority of the PIECP certification, whether products are sold locally or across state lines or national borders. In most states this kind of partnership or joint ventures - allowing the use of inmate labor by nongovernment entities, is prohibited absent PIECP participation and certification. PIECP participating industries have adopted an interpretation of exempting prison made goods from PIECP requirements when products made are delivered to an address within state borders. This loose interpretation of PIECP laws allows companies access to prisoner labor and industries to produce products without compliance with wage, consultation with labor or other program safeguards. Once the products are delivered locally, they can then be shipped out of state by the customer and PIECP mandates avoided altogether. These abuses of PIECP have resulted in the displacement of more costly non-prison workers in Texas, Mississippi, Alabama, Washington State and California.11

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Silver State Industries Compliance Determinations

Consultation with Organized Labor: Federal PIECP law requires consultation with local unions or similar labor union organizations prior to start-up of any project exempt under the Pie program:12 The note following 18 U.S.C. 1761, although not codified, is public law and adds two additional PIECP requirements on certified prison industries. The note requires participating prison industries to consult with local union organizations prior to initiating any project qualifying for a 1761(c) exemption. Also, the qualifying applicant must ensure that paid PIECP inmate employment will not result in the displacement of employed workers, or be applied in skills, crafts, or trades in which there is a surplus of available gainful labor in the locality, or impair existing contracts for services. Mike Magnani representing labor on the PI Committee (1987 present) was contacted for this report. Mr. Magnani stated he was unaware of any requirement that unions or local labor groups were to be consulted prior to initiation of new industries, partnerships or product lines developed by SSI. He indicated he was aware of the Pie program, but had little understanding of it except private companies were allowed to contract with SSI and use prison facilities and inmate labor. It was further his understanding inmates were required to be paid minimum wage for this work and he had no knowledge of a regulation requiring payment of prevailing wages to inmate workers. Mr. Magnani stated he was unaware of any requirement that SSI was required to consult with competing businesses. With the foregoing statements regarding a lack of notification, I reviewed the latest (2011) PIECP Compliance Assessment findings.13 Between June 27th and 29th, 2011 seven (7) of SSIs industries had been reviewed for compliance. Though Nevada is not named individually, a blanket determination as to consultation(s) with labor and private industries was issued in the NCIA review: 7. Consultation with Organized Labor (@pgs 10-11) Federal law requires that representatives of local union central bodies or similar labor union organizations have been consulted prior to the initiation of any project qualifying for any exemption created by this section Certificate Holder to contact all relevant unions, not just a single union which may or may not be the most directly involved in the production of items similar to those produced in a PIECP CAC. In addition, if there is no local labor union, the State organization must be informed in its stead. (emphasis added) Findings: This mandatory criterion is among those reviewed by NCIA as part of its designation process. Certificate Holders either sent letters to the relevant unions or had written records of advisory board meetings where organized labor was represented. 12 | P a g e

Consultation with Private Industry: Currently in Las Vegas, companies in the structural steel fabrication industry complained to the PI Committee and the Board of Prison Commissioners (BPC) that a competitor Alpine Steel, Inc. had been using inmate labor without the knowledge of anyone in the industry. When contacted, representatives of Southern Nevada Welding, XL Steel and JC Steel all stated they had not been contacted, notified or consulted about the prison industry program and Alpine Steels access to inmate labor. As noted previously, PIECP requires private industry be consulted in addition to organized labor. In the instant case involving Alpine, records indicate this company has been in partnership with SSI since 2006. Yet, competitor companies received no notice or consultation and thus were kept uninformed of Alpines use of inmate labor at a wage substantially below the wages paid by Alpines competitors. In addition the products manufactured by inmates at SSI were comparable to the products and services provided by Alpines competitors. Under the PIECP Guideline, participants are instructed:14 8. Consultation With Local Private Industry PIECP CACs (individual industries) must: (A) consult with representatives of local business that may be economically impacted by CAC production prior to beginning operations, and (B) provide adequate information about the contemplated PIECP participation such as, at a minimum, an identification of the scope of the intended CAC and projected initiation date as well as an explanation of the fact that consultation is required and comments are invited. CACs should retain documentation reflecting provision of adequate consultation. (emphasis added) Three companies directly competing with Alpine Steel assert they were never notified or consulted in violation of the above mandatory PIECP requirement(s). Again the 2011 Assessment report was examined to determine if the SSI industries were reviewed for compliance with this requirement: 8. Consultation with Local Private Industry [A]pplicants must consult with representatives of local businesses that may be economically impacted by CAC production prior to beginning operations and lays out minimum criteria for that consultation. Findings: This mandatory criterion is among those reviewed by NCIA as part of its designation process. All jurisdictions either sent letters to the local chamber of commerce or included representatives of local private industry on a correctional industries advisory board. Some

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jurisdictions did both. In a small number of cases, the department of corrections publishes its intentions to initiate a new PIECP CAC in a local newspaper. (emphasis added). From this assessment it would appear that SSI properly noticed the competing businesses and labor yet interviews of those in each, reveal none had any prior knowledge of Alpine or other companies participating in this program. Displacement: PIECP mandates that no project will result in the displacement of employed workers, or negatively impact skills, crafts or trades where there is available gainful labor in the locality or impair contracts for services (see quote above and fn #12). Again, the 2011 compliance review was consulted and the findings were: 3. Displacement The PIECP statute requires that a PIECP project not "result in the displacement of employed workers, or be applied in skills, crafts, or trades where there is a surplus of available gainful labor in the locality, or impair existing contracts for services..." Findings: This element was reviewed and verified for all Certificate Holders at NCIA headquarters as part of NCIAs designation process. Displacement documents for all CACs were compiled and reviewed and all CACs were found to be in full compliance at the time of designation. (emphasis added) Wages: In every compliance review following the issuance of the final PIECP Guideline in 1999, wage compliance determinations have been the most problematic. In 2011 there were fewer cases of non-compliance but the issue is still in flux. The PIECP Guideline is specific in requiring the payment of wages to prisoners working in the program that mirror the wages paid to non-inmate workers for comparable skills, experience and job descriptions: 2. Inmate Wages: PIECP inmate workers must receive wages at a rate which is not less than that paid for work of a similar nature in the locality in which the work is to be performed. This requirement benefits society by allowing for the development of prison industries while protecting the private sector labor force and business from unfair competition that could otherwise stem from the flow of low cost, prisoner-made goods into the marketplace. PIECP participants must, therefore, implement the prevailing wage requirements under like conditions

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experienced by private sector competition. Toward this end, the following requirements are applicable: (A) Section 1761(c) requires that the PIECP wage amount be set exclusively in relation to the amount of pay received by similarly situated non-inmate workers. In deriving the appropriate PIECP wage, 18 U.S.C. 1761(c)(2) does not allow other cost variables to be taken into consideration, such as unique expenses incurred as a result of undertaking production within the prison environment. (B) Prevailing wage verification must be obtained by the appropriate state agency which determines wage rates (usually the Department of Economic Security). (C) When making PIECP prevailing wage verifications and annual re-verifications, the responsible state agency should recommend the utilization of a non-inmate wage scale which will not result in the displacement of non-inmate workers performing similar work in the relevant locality. (D) The PIECP prevailing wage must be received by those inmate workers performing notable tasks necessary to produce and/or transport goods in interstate commerce (E) The prevailing wage must be verified prior to the initiation of PIECP participation. Annually, thereafter, the PIECP participant must re-verify the adopted wage to ensure that it continues to be comparable to wages paid for work of a similar nature in the locality in which the project is located. (F) If no such verification can be obtained from the State Department of Economic Security, or other similar department, the PIECP participant is responsible for establishing a reasonable prevailing wage. (emphasis mine) Enforcement and wage rates have both been altered due to privatization of oversight duties by the BJA. Though the OJP and BJA still insist prevailing wages be paid, the NCIA has lowered the wage rates considerably yet continue to certify that all industries are in compliance with wage laws. From the same 2011 compliance review the NCIA reported several purported changes to the wage structure and actual wages paid to inmates in the program: The PIECP statute requires that inmate workers be paid "at a rate which is not less than that paid for work of a similar nature in the locality in which the work is performed." BJA's administrative Guideline for PIECP sets out procedures for determining the appropriate wage under various conditions. The Guideline expressly states that wage determinations must be made by State Department of Economic Security (DES) agencies. Certificate Holders must redetermine wages annually on or before the date the previous wage update was made. In November 2006, BJA further specified that because of an across-the-board change in how 15 | P a g e

wage data is reported by employment agencieswages for PIECP inmate workers may not fall below the tenth percentile (unless their employment agency provides express written agreement of a wage less than the tenth percentile for a limited training period).

a. The Training Wage Exception to the 10th Percentile Wage Floor

BJA determined in 2006 that wages must be set at or above the 10th percentile15, as defined by the State Department of Economic Security Agency. BJA takes the position that this is a generous interpretation of comparable, yet still fair to competitor manufacturers because of the lack of education, training, and experience typical of the inmate labor force. The one exception to the 10th percentile requirement is that inmate workers may be paid a training wage that falls below the 10th percentile if their employment agency provides express written agreement of a wage less than the tenth percentile for a limited training period. Because the wage cannot legally fall below the Federal or State minimum wage (whichever is higher), training wages must by definition fall somewhere between the Federal or State minimum wage and the 10th percentile (see PRIDE and Connett history section) The only mention of Federal or State minimum wage rates being the legal lowest boundary for workers in the Pie program is in reference to training wages. PIECP requires prevailing wage rates in all industries, job descriptions and for all skill sets. Only in instances where the state OES has set no rate for a job description, can the PIECP participating industry use the state or federal FMW as the wage for that particular job. Yet, in Nevada and several other jurisdictions participating in PIECP, the maximum wage ceiling set by prison industry operators is FMW to the 10th percentile. Standard wages are set at the FMW. In each instance in Nevada, inmates in this program are receiving minimum wage for their labor. This is corroborated separately in two articles published ten years apart:16 LAS VEGAS, Nevada (Las Vegas Review Journal) -- Lloyd Deere was one of three employees who started up a custom car manufacturing shop in 1995 in an Indian Springs warehouse about 45 miles northwest of Las Vegas. After five years of loyal service to his employer, the 63-year-old earns less than $8,000 a year in his full-time job, gets no vacation or sick pay and is unlikely to ever be promoted Of the 370 prisoners employed, 250 make products that will sell on the open market -- to private businesses rather than Nevada state agencies. They are guaranteed minimum wage of $5.15 an hour. The facts, figures and pay scale data for this article was provided by then Prison Department Assistant Director Howard Skolnik in 2000.

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More recently, Deputy Director Connett advised the PI Committee17 of an article published by the Wall Street Journal18 about Nevadas prison industry program, which he described as positive. In this article, inmate wages were reported as: For inmates who have to pay them, 5% of their wageswhich top out at $5.15 an hour, according to Mr. Fullerare garnisheed for deposit into Nevada's victims-compensation fund. Unless restoration of vehicles is restricted to those owned exclusively by residents of Nevada, this operation qualifies as a Pie program. Jacobs Trading Company mentioned in the article distributes products worldwide and is a Pie program that paid FMW to workers. As reported to the public in these two articles spanning ten years, Nevadas inmates employed under PIECP have seen no increase in wages, while in the private sector minimum wages increased from $5.15 to $8.25.19 Alpine is purportedly paying inmates workers between $7.25 and $8.25 per hour worked. Nevada OES wage figures for similar work involving structural steel fabrication sets the prevailing wage substantially higher and the tenth percentile figure rate is considerably above what is paid by SSI:

Even using the NCIAs 10th percentile rate, Alpine workers should be receiving no less than $11.63 per hour. Competing companies in the structural steel industry in Las Vegas and elsewhere in Nevada pay workers the median wage of $16.91 per hour plus benefits as prevailing wages, confirming the OES established rate statistics and corroborating complaints of unfair competition. Without factoring benefits, private companies are thus required to pay more than double the rate paid by Alpine in labor.

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Historically the BJA has consistently required inmates working in PIECP operations receive prevailing wages. BJA Policy Advisor, Julius Dupree responded to a formal inquiry regarding the statewide payment of minimum wage in lieu of prevailing wage (see PRIDE and Connett history section): Mr. Sloan, Please see below for responses to the questions that you posed to BJA regarding the Prison Industry Enhancement Certification Program. 1. Q: Does the industry wide payment of state or federal minimum wages to inmate workers - regardless of job description - in Florida (PRIDE Industries) satisfy the prevailing wage requirement of the PIECP Guidelines? A: No, not unless the minimum wage is shown to be the rate which is not less than that paid for work of a similar nature in the locality in which the work was performed. 18 USC 1761( c )(2). 2. Q: When otherwise prohibited by state law(s) from selling prisoner made goods to the public, private sector manufacturers or retailers, does PIECP participation and partnership with a private sector business override state law and allow sales of prisoner made goods to otherwise restricted customers and consumers within the state of manufacture without following the PIECP guidelines? A: I have no authority to address, or knowledge about specific state law requirements or the enforcement of state laws relevant to prison made goods. Participation in PIECP serves to except the designated prison work pilot project from the Federal criminal law prohibition set forth in 18 USC 1761(a). I suggest that you take you state law concerns to state law enforcement authorities, i.e. the State of Florida Attorney General. Sincerely, Julius Dupree Julius C. Dupree, Jr. Policy Advisor U.S. Department of Justice Bureau of Justice Assistance In a Back Wage Policy released by the BJA in December 2010 the agency again and unequivocally reiterated the governments position on PIECP wages4:20 18 USC 1761 (c), the statute authorizing the Prison Industry Enhancement Certification Program (PIECP), states that PIECP inmates must have, in connection with PIECP work, received wages at a rate which is not less than that paid for work of a similar nature in the locality in which the work was performed. ..

See: compliance Enforcement section on Florida/Brian Connett.

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For further information on this policy, contact Julius Dupree at or 202-514-1928.(emphasis added) The foregoing responses from the PIECP Policy Advisor reinforce the position of the BJA: prevailing rather than minimum wages are legally required. From 1979 through the present this is a requirement that is supposedly strictly enforced. Under the current outsourcing of oversight of PIECP (see section on conflict of interest herein) many of the mandatory criteria have been altered, ignored or amended by non-government organizations representing corporate interests. These changes have diluted the wages paid to inmates working in the program and resulted in a measurable and distinct disadvantage to competing private manufacturers. Prisoner Wage Deduction(s): Nevadas statute regarding deductions taken from the earned income of Pie program inmates are in conflict with key controlling federal statutes governing inmate wages and allowable deductions. Several key and mandatory federal statutory provisions are either ignored or altered in such a way as to disadvantage the inmate workers and enrich Nevadas prison industry program. As documented below in at least one situation, NDOC and SSI were specifically noticed by a formal BJA ruling that a deduction requested pursuant to the PIECP statute was prohibited and would violate the terms of participating in the program. Current Nevada statutes reflect that the formal federal determination was ignored and the prohibited deduction provision implemented. This is an important aspect since violation subjects the violator to arrest and potential substantial fine and/or imprisonment. Violations of PIECP are punishable by a $50,000.00 fine and up to two years in prison: Whoever knowingly transports in interstate commerce or from any foreign country into the United States any goods, wares, or merchandise manufactured, produced, or mined, wholly or in part by convicts or prisoners, except convicts or prisoners on parole, supervised release, or probation, or in any penal or reformatory institution, Constitutes a crime, punishable by a fine of not more than $50,000, a prison term of not more than 2 years, or both.21 18 USC 1761(c)(2) limits the number of allowable deductions that can be taken from inmate wages, to a total of four that cumulatively cannot exceed 80% of the gross wage. With the exception of the tax deduction, the other three are considered optional but if taken, the deductions must be used for the purposes stated. Sub-sections (a-d) identify those deductions as: (2) have, in connection with such work, received wages at a rate which is not less than that paid for work of a similar nature in the locality in which the work was performed and shall be limited as follows: (A) taxes (Federal, State, local);

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(B) reasonable charges for room and board, as determined by regulations issued by the chief State correctional officer, in the case of a State prisoner; (C) allocations for support of family pursuant to State statute, court order, or agreement by the offender; (D) contributions to any fund established by law to compensate the victims of crime of not more than 20 per centum but not less than 5 per centum of gross wages. (emphasis added) Nevada statute NRS 209.46322 sets and controls allowable deductions taken from inmate earnings. Provisions for taxes, room and board (24.5%), family support and victim crime/restitution (5%) deductions are listed as allowed deductions. The Nevada statute identifies additional deductions that can be taken from the earned wages of inmates working in Industrial program(s). Subsection (1)(c) provides: 1. If the hourly wage of the offender is equal to or greater than the federal minimum wage: (c) An amount determined by the Director, with the approval of the Board, for deposit in the State Treasury for credit to the Fund for New Construction of Facilities for Prison Industries, but only if the offender is employed through a program for prison industries. Subsection (2)(b) has an identical provision: 2. 2. If the hourly wage of the offender is less than the federal minimum wage: (b) An amount determined by the Director, with the approval of the Board, for deposit in the State Treasury for credit to the Fund for New Construction of Facilities for Prison Industries, but only if the offender is employed through a program for prison industries. The percentage set by the Director of the NDOC for deductions taken for crediting the fund for new construction of facilities or prison industries is set at 5% (see chart below). This deduction is illegal under the federal PIECP statute for inmates working in PIECP. Nevada was made fully aware that such a provision was prohibited under the PIECP statute in 1991.23 Former head of the NDOC, Howard Skolnik was Project Director of SSI at that time and he requested a formal ruling from the BJA and OJP on a deduction to fund industry operations: Howard Skolnik, Project Director, Nevada State Industries, contacted ACA staff regarding the number of allowable deductions that was permissible under certification. Mr. Skolnik requested a formal ruling as to whether a five percent deduction from the gross income from all inmates could be legislated with the five percent going into a fund that could only be used for construction of new industry programs. Our response to Mr. Skolnik was that the certification limited the number of allowable deductions to 20 | P a g e

four, with total deductions limited to not more than 80 percent of the workers' gross wages. ACA staff indicated that funds collected by the Department of Prisons for the cost of incarceration (room and board) could be used for construction of additional prison industries space, but that no other additional deductions could be imposed by the department. Copies of our correspondence were provided to Mr. John Wilson, Assistant General Counsel, Office of Justice Programs. (emphasis added) In defiance of the formal ruling requested by Director Skolnik, the Nevada Legislature amended the provisions of NRS 209.463 that year to add additional deduction allowances from inmates working in industrial program(s). This action calls into question whether lawmakers were properly advised by Mr. Skolnik of the formal ruling by the BJA against this deduction? This 5% taken from inmate wages may appear to be inconsequential, but cumulatively in 2010-2011 inmate wages were reduced by $187,234.0024 (see chart below). In 2010 the legislature swept $948,000.00 in funds from this Prison Industries Capital Improvement (PICI) fund.25

Reallocation of those funds by the legislature is allowed by statute5 but defeats the stated purpose of the funds and results in fewer inmate work programs/positions. It also results in a 5% tax upon inmates, where the funds deducted were diverted to cover costs of operations or services normally paid for with tax dollars. Inmates who voluntarily agree to allowable deductions (as required by NRS 209.461(1)(b); The Director shall require as a condition of employment that an offender sign an authorization for the deductions from his or her wages made pursuant to NRS 209.463, were denied the benefits associated by this diversion of funds.

This taking of such funds was in violation of the stated purpose of NRS 209.192 which provides; The money in the Fund must only be expended to house new industries or expand existing industries in the industrial program to provide additional employment of offenders or for any other purpose authorized by the Legislature.

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Finally, PIECP requires program participation be voluntary and inmates must sign agreements to wages and deductions and those agreements kept on file: Title 18 U.S.C. 1761(c)(3). PIECP inmates must also participate on a voluntary basis and must have agreed to the specific deductions made from gross wages pursuant to 18 U.S.C. 1761(c)(2), and all other financial arrangements resulting from participation in such employment. NRS 209.461 Duties and powers of Director; requirements for programs for employment of offenders, subsection (1)(b) violates the voluntary agreement provision of 18 USC 1761 (c)(2) with a loophole provision that deductions may be taken without a signed authorization from workers: The Director shall require as a condition of employment that an offender sign an authorization for the deductions from his or her wages made pursuant to NRS 209.463. Authorization to make the deductions pursuant to NRS 209.463 is implied from the employment of an offender and a signed authorization from the offender is not required for the Director to make the deductions pursuant to NRS 209.463. (emphasis added) Clearly state statutes need attention and possible amending to comport with federal statutes or the PIECP certification should be withdrawn until such time as NDOC and Nevada make the necessary adjustments to come into complete compliance with the federal mandates.

Compliance Enforcement:
Conflict(s) of Interest - NCIA: When Congress enacted PIECP in 1979, one primary concern was a balanced and level playing field between private and prison industry competitors. To address this concern they implemented the nine (9) mandatory requirements listed previously. If full compliance with those safeguards is not maintained, the resulting effect would be to tilt the scales in favor of prison industries by; lower labor costs, reduced operating costs from bulk purchases of materials and shipping costs due to volume of products shipped. This enforcement of the tenets of PIECP is critical and congressional intent was to monitor the program closely. The DOJ was originally assigned this task and transferred that duty to the Office of Justice Programs (OJP) which subsequently handed responsibility off to the BJA. In accomplishing compliance enforcement, the BJA recruited the American Correctional Association (ACA) to assist in developing rules, establishing regulations and analyzing public, business and participant input to create policies. In 1995 the BJA transferred compliance and program advisory duties related to PIECP from the BJA and ACA to a private organization; the National Correctional Industries Association (NCIA). The choice of the NCIA was a curious one in that this association is a Baltimore-based trade group noted for representing the interests of prison industries, their employees, vendors, suppliers and 22 | P a g e

companies using inmate labor:26 Allowing self-oversight and compliance enforcement duties of any program to the participants operating within the program, creates a unique situation that can result in abuses. PIECP is such an important government program; allowing prison industries to enter free markets and compete for business, that constant and vigilant scrutiny provided by the controlling government agency is a must. The BJAs PIECP program brief describes the duties of the NCIA under a taxpayer grant: The National Correctional Industries Association (NCIA), the professional organization for prison industry employees, provides technical assistance for this program. Under a grant from BJA, the NCIA staff of volunteer correctional industry professionals assess programs for compliance with program requirements and provide onsite and telephone technical assistance to programs that are not in compliance. The NCIA provides application forms and instructions to states and county jails wishing to become certified, performs mandatory annual compliance reviews6 and prepares review assessments on new applicants and existing industries for the BJA. It also collects and correlates data on; number of industries, products manufactured, companies involved in partnerships, number(s) of inmates employed, types of industry certification and comprehensive figures on wages paid and deductions. These statistics are then disseminated to the BJA, OJP, DOJ, Bureau of Justice Statistics and the National Institute of Justice. Each agency prepares biannual or annual reports on prison industry operations which are then made public. The data is thus critical and important to dissemination of grants and funding for related programs. Conflict(s) of Interest SSI and DD Connett: As the Deputy Director of Industrial Programs, Mr. Connett is responsible for providing correct statistics of inmates working in industries, wages, etc to those correlating PIECP data for Nevada and subsequently forwarded to the NCIA. On at least two occasions the annual data reported by SSI were erroneous resulting in incorrect data being provided to the NCIA and included in their annual reports.27 The errors were substantial and Mr. Connett indicated he did not know which figures were correct or how numbers of workers were determined: Mr. Connett reviewed the number of inmates that worked from July 2009 through February 2012 (Page 33, Exhibit A). Mr. Connett said the NCIA directory reported 170 inmates working in NDOC facilities in FY 2011, however, there was actually 493 inmates in the program.

Annual review requirements have been changed by the NCIA to every two years and no longer perform site reviews on most industries, instead relying upon desk assessments where only the paperwork submitted by industries are examined for compliance.

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Sarah Coffman, Program Analyst, Legislative Counsel Bureau, further clarified that the report under question was a nation-wide report provided by Silver State Industries as part of its response to Committee questions from its March 23, 2012, meeting, not the NCIA report (Page 29, Exhibit A). According to this report, Prison Industries employed 1,293 inmates in its industrial programs in FY 2010 versus 535 inmates as reported by the Department (Page 33, Exhibit A). Mr. Connett replied he did not recall where those numbers came from, since Prison Industries had not had that many workers in years. Senator Parks asked if the 1,293 inmates reported working in FY 2010 included the culinary, laundry and other core facilities. Mr. Connett responded he was unsure, he did not recall how that number of inmates was determined. The figures reported by the NCIA were more than 60% below actual figures given by Mr. Connett for FY 2011. Additionally the figures for FY 2010 were identified as also being incorrect. Research does not show corrections were made of the NCIA data released for 2010 or 2011.28 Accordingly no determination can be made on which of the figures used were correct. The issues of conflict(s) of interest involving the NCIA and SSI are acerbated by a duality of positions held by Deputy Director Connett: serving as NDOC Deputy, and; concurrently as President of the NCIA.29 Mr. Connett serving as both program participant and as President of the board of the organization charged with oversight of the activities of SSI and within that scope of the actions of the Deputy Director himself presents a huge conflict of interest. This conflict was not restricted to Mr. Connett. Prior to his selection as Director of NDOC, Howard Skolnik as the Deputy Director of Prison Industries was a member at large of the NCIA, sitting alongside Mr. Connett who was then representing Florida (PRIDE):

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PRIDE Enterprises, PIECP and Brian Connett

PIECP & PRIDE 19992002: Prior to becoming the NDOC Deputy Director of Industry Programs, Brian Connett was the PIE Program Manager with PRIDE Enterprises in Florida which operates the entire Florida prison industries. PRIDE is a private, non-profit corporation operating as an arm of the Florida government. Mr. Connett was with PRIDE for several years before leaving suddenly in 2007 and subsequently appointed to his current job with the NDOC almost immediately (June 2007). In 1999 prison industry work programs were expanding all across the U.S., as model legislation from a DC based think tank7 went out to every state, urging each to join with Florida in this innovative program. This groups legislative membership represented every state and numbered in excess of 2,000. Their corporate membership exceeded 500. They were very successful in getting passage of this legislation nationally. In Florida, lawmakers enacted state legislation allowing expansion of the Pie program and transferred the PIECP certificate from the Department of Corrections to PRIDE. Provisions PRIDE had lobbied for were ultimately included in new laws adopted to allow use of inmate labor by nongovernmental bodies: 946.523 and 946.522. To capitalize upon the new legislation, PRIDE created Industries Training Corporation (ITC), a nonprofit corporation. ITC in turn created Labor Line Services; Labor Line, Inc.; and Global Outsourcing and formed private partnerships to create Florida Citrus Partners and Diversified Supply Management. All of ITCs board members were either current or former board members of PRIDE. The two companies appeared to be one, a relationship later described by some as corporate nepotism when this prison industry monopoly was found illegal and broken up by the Governor.30 During Mr. Connetts tenure with PRIDE his duties included control of the corporations PIECP operations statewide. While with PRIDE between 1999 and 2007, Mr. Connett was a member of the NCIA. PRIDE CEO, Pam Davis served first as Chairwoman of the NCIA board then as Treasurer serving alongside Connett for some years. As in the instant situation in Nevada, the NCIA had oversight over the Pie program operations conducted by PRIDE. In each annual compliance review between 1999 and 2005 PRIDE was always certified by the NCIA to be in full compliance. PRIDE loaned their nine (9) spin-off companies a total of $19 million in start-up and operating capital and granted no-bid contracts to them worth another $18 million. In addition to ITC, Ms. Davis and other PRIDE executives assumed duties within the various spin-offs as Directors, CFOs, COOs, and

Prison Industries Act, authored by the American Legislative Exchange Council (ALEC):

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several members of the PRIDE BOD were also owners, directors or executive staffers. In those capacities, each received salaries, bonuses and perks.8 The purpose of the spin-off companies was to allow more aggressive business practices that were not limited by PRIDEs mission or hampered by federal wage and nonprofit guidelines. They were created in an effort of establishing a for-profit operation under PIECP.31 The spin-offs were used to establish partnerships with private companies under the Pie program, utilizing PRIDEs PIECP certificate as authorization. Between 1999 and 2002, PRIDE or the spin-offs actively marketed the Pie program to businesses in Florida and other states. One of the spin-offs (Global Outsourcing) bought an existing Utah prison industry operation outright; paying $2.5 million to purchase Northern Outfitters, a for-profit corporation.32 The most peculiar fact about this acquisition was that no Florida prisoner ever stitched one stitch of a Northern Outfitter outfit. This PRIDE subsidy used the labor of prisoners at the Utah State Prison near Salt Lake City under a PIE program certified by the NCIA and BJA. Mr. Connett was responsible for managing Floridas entire Pie operation(s); negotiating contracts with private companies, product development, inmate wage rates and ensuring PRIDE and the affiliated spin-offs complied with the complex Pie programs requirements. PRIDE, ITC or Global formed PIECP partnerships with five private companies during this period and in four, litigation ensued; 1. 2. 3. 4. 5. ATL Industries, Inc., Custom Converter Sales, Inc., Value Line Converters, Inc., Man-Trans, LLC, and (this partnership was dissolved and settled before court action). Fresh Nectars, Inc., (settlement after litigation. Terms undisclosed by court).

As the Pie Manager, Mr. Connett was instrumental in negotiating contracts between private companies and PRIDE or their affiliates and determining whether the products made or services provided qualified as actual Pie operations and if so, whether they would be operated as customer, employer or manpower (service) industries for purposes of PIECP. Ultimately Mr. Connett provided information to PRIDEs general counsel on some operations, allowing him to make the official determinations. In one well documented case, Mr. Connett described the contract between PRIDE and ATL Industries as a service industry to the counsel; informing that the actual work was a toll processing operation to be performed by a food processing industry (PRIDEs Union Foods). Mr. Connett claimed inmates would receive bulk meats from ATL, grind and chill as required then package and ship back to ATLs Atlanta facility. The processing would not include the addition of other ingredients or result in the creation of new products from raw materials and would not enter into interstate commerce.

PRIDE CEO, Davis received an annual salary of $236,000 from ITC in addition to her PRIDE compensation.

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Based upon the information provided by Mr. Connett, PRIDEs counsel determined this operation would be considered a service industry similar to the ones involving Custom Converter Sales and Value Line. As such, it would similarly be exempt from PIECP certification and considered in compliance with Florida and federal statutes.33

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Mr. Connett personally knew the information he provided on the ATL contract was erroneous at the time he sent it. Months prior to the letter, ATLs owner, Larry Stone was approached by a PRIDE marketing rep who advised PRIDE could partner with an out of state private business to perform a full processing operation under the federal PIE program. Processing included adding spices, flavorings, textured vegetable protein, fillers and preservatives to create an assortment of new products including breaded patties and sausages. Additionally, Mr. Connett was aware that once the products were manufactured, they were to be shipped nationwide directly from PRIDEs Union Foods Industry. PRIDE and Mr. Connett knew ATL Industries had substantial contracts with various agencies of the U.S. Government, and if sales to these agencies exceeded the $10,000 threshold were prohibited unless performed under PIECP. PRIDE was provided with a complete list of customers, addresses, phone numbers and important contact information by ATL so PRIDE would have correct shipping data to be used in distributing ATLs products. 34 28 | P a g e

Since 1979 sales to the U.S. government in excess of $10,000.00 requires workers manufacturing those products must be paid at least minimum wage for their labor (Walsh-Healey Act).35 PIECP exempts prison industries from prosecution under Walsh-Healey, as long as the products are made by prisoners receiving at least the federal minimum wage. The foregoing description of the work was fully outlined in the contracts Mr. Connett negotiated between PRIDE and ATL.36 As the Pie Program Manager and as a long time member of the NCIA, Mr. Connett was fully aware that shipping prison made goods via interstate commerce, without proper labeling (identifying the product as originating in a penal facility) and under the authority of the PIECP pilot project, was illegal and a violation of federal statutes. He was also aware that sales in excess of $10,000 to ATLs government customers required payment of at least minimum wage or exemption under 18 USC 1761s PIECP provisions. If this food processing operation was not identified as a Pie industry, all parties could be subject to prosecution, substantial fines and imprisonment. Yet he misled PRIDEs counsel and upon receipt of the determination by the attorney, PRIDE approved the contract as non-Pie and failed to apply for certification or even inform the BJA of the new industry operation. Prior to start-up, PRIDE had to provide the complete list of products, ingredients added, processing detailed and other procedures to the USDA for approval, so everyone from PRIDE to the USDA were fully aware of the processing requirements, products made and addition of ingredients to create new products made with inmate labor prior to commencement. In an interview with ATL President, Larry Stone, Mr. Stone stated emphatically that at all times during negotiations and for the length of his relationship with PRIDE all parties understood the contract was a Pie program where PRIDE paid the inmate wages, paid taxes, provided whatever benefits were required and handled all PIECP matters. The pricing of processing of ATLs products were based upon PRIDEs operational and labor costs as the actual employer. Labeling of products produced for ATL included the ingredients and contains PRIDEs USDA assigned EST number (18506) showing the products were manufactured at PRIDEs Union Foods Industry.37

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Packing materials cartons, corrugated cardboard boxes used in shipment of ATLs products, were manufactured by other inmates working at PRIDEs MCI Box Factory and again, were not paid PIE wages for the work. Mr. Stone advised he was asked by PRIDE to use their containers as it would help in training additional inmates. Mr. Stone paid for these products via separate invoices submitted to ATL by PRIDE. Records of PIECP industries listed by PRIDE show that though this Box factory is listed, it declared 0 inmate workers through 2006.38 In April 2002, Custom Converter/Value Line brought litigation against Global Outsourcing/PRIDE for breach of contract and seizure of equipment.39 In the complaint CCS alleged PRIDE used Global in situations where PRIDE wished to avoid paying inmates a minimum wage:

Again, this contract between Global/PRIDE and CCS were negotiated by Mr. Connett as the PIE Program Manager. (In 2009 the court awarded CCS a judgment exceeding $30 million against Global and individuals of PRIDE40). A snapshot of the 2002 Inmate Handbook informing inmates of the PIECP program and wages they could earn, clearly states inmates would be hired at the federal minimum wage:

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PIECP & PRIDE 20032010: PRIDEs Pie operations involving the four companies identified in the previous section, all collapsed after PRIDE seized equipment, technologies and tied each up in lengthy litigations fought in courts in the county of PRIDEs corporate office. In each case PRIDE sought gag orders imposed by the court. ATL continued to operate under their contract agreement with PRIDE through December 2004. From 2002 through 2004 PRIDE shipped ATLs products nationwide including sales to the federal government exceeding $10,000.0041 but continued to claim the PRIDE Food Processing Plant was not a Pie program operation and paying inmates between $.25 and $.50 cents an hour.42

Between April 2002 and June 2003 alone, ATL delivered $586,708.44 to the federal government(as shown at fn 41). Additional out of state sales were distributed to: Clark Foods, Kroger, Piggly Wiggly, schools, institutions, hospitals and cruise lines under ATL label and invoicing directly from PRIDEs Union Food factory.

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In December 2004 PRIDE seized ATLs assets at the factory, and took over the entire ATL operation, including working with a former PRIDE supervisor who had formed two additional spin-offs (Century Meats and Circle A Brands, Inc.). Circle A took over all of ATLs federal and private sector contracts and PRIDE continued the food processing operation, partnered with the new company. This operation continued as a non-PIECP industry until late 2007, with the inmate workers continuing to receive the wages of between .25 and .50 cents an hour with tons of product sold and shipped under both government and private contract(s). In 2006 this author met with the PRIDE BOD and was allowed to make a presentation to the board outlining the facts provided above.43 Public attendee, Mr. Robert Sloan, was extended the courtesy to address the Board. As a former inmate and PRIDE worker, Mr. Sloan supported the PRIDE program but was critical of the way in which PIECP wages were administered. He provided a handout of questions for the Board. The Board appreciated the feedback and would investigate the complaint. Then Secretary of the FDOC James McDonough held a seat upon the PRIDE board and had arranged my attendance. Following discussion about PRIDE not being in compliance, the BOD took the matter under advisement and asked their Auditor to prepare a report for the board. In July 2006 at the subsequent BOD meeting Ms. Hinkle, PRIDE Auditor presented her audit of the PIE Program.44 Ms. Hinkle reviewed the PIE program (Prison Industry Enhancement Certification Program). She explained that the program covers products sold outside of the State with the exception of work viewed as a service. For PIE work, inmates are paid at the Florida minimum wage (currently higher than Federal minimum wage). Her audit concluded that the industries are complying and that inmates are informed of the program and information is available. Robert Sloan was invited to comment and shared his experience and reiterated his complaints stating that the PIE wages were not properly administered. Ms. Hinkle said that accounting for every time an inmate touches some aspect of a PIE job can be difficult. One example of resolve is the Dental Lab where they split the PIE wages between all inmate workers since everyone touches the piece during the assembly process. Other industries have separate PIE areas. She concluded that the PIE program is fairly administered and an audit by the National Correctional Industries Association showed that PRIDE is in compliance. The PRIDE BOD met in November of 2006 and required Mr. Connett to attend and answer questions presented from the board about compliance with the PIE programs wages paid to inmates:45

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During this meeting, Mr. Connett was asked several times by various board members if PRIDE was in fact in complete compliance with the PIECP wage requirements. In response to each query, Mr. Connett applied in the affirmative, again reiterating that PRIDE industries had been reviewed again and again by the NCIA and found to be in full compliance by paying the Florida minimum wage to all Pie workers, regardless of job description or skill set. The author provided Secretary McDonough with the actual documents provided herein (or linked to in the footnotes) following the July BOD meeting. The Secretary ordered his Inspector General to undertake an investigation of the complaints but did not turn over the documents I provided to him. In September 2007 the report was forwarded to the Secretary, and the IGs inspector determined the claim as to the ATL operation and PIECP were without merit.46 He based this finding upon his questioning of Mr. Connett in April 2007 and Mr. Connetts response denying the ATL contract was a PIE project and provided no information on wages for that operation: In response to our request for PIECP payroll information related to ATL, Brian Connett, PRIDE's manager of bid administration, wrote that "the ATL project was not a PIE project" . Additionally, NCIA's 2004 review of PRIDE made no reference to ATL as a PIECP contract. (emphasis added) Whether this investigation caused or had any influence upon Mr. Connetts sudden departure from PRIDE is unknown as PRIDE made no announcement and there were no press releases as to when or

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why he left. Mr. Connetts bio at LinkedIn provides no information on past employment or dates of previous employment and he has not responded to requests for an interview for this report. An additional finding in the investigation was that the money deducted for room and board deductions from inmate PIE wages, had been diverted and no longer was provided to the FDOC as required. Following receipt of the IGs report, Secretary McDonough immediately resigned his Directors seat upon PRIDEs board. He then requested that the Governor order a return the PIECP Certificate to the FDOC, abolish or remove PRIDE from operating the states prison industries and turn over $1.3 million dollars PRIDE deducted from inmate wages for room and board owed to the FDOC.47 Following the IGs investigation and Secretary McDonoughs subsequent resignation from the PRIDE BOD, PRIDE immediately registered the Union Food Industry with the BJA as a PIECP Food Products industry with 57 inmates assigned. That same quarter, the Box Factory began to show 20 inmates assigned.48 In 2010 Florida Governor elect, Rick Scotts transition team raised the proposal to return the prison industries to the FDOC, and abolish PRIDE.49 One observation made in their recommendations was that like Nevadas prison industry Pie program, Florida had a high number of lifers or workers with long sentences working in this training program: 16% of the inmates working for PRIDE are serving life sentences; the average sentence for the remaining workers is15.1years; and 28% of the PRIDE work force has 10 years or more to serve before being released. This means that few in the PRIDE work force are being rehabilitated for purposes of reducing recommitment to prison because these workers are not being released to Florida communities at all or any time soon. (emphasis added). This is important in that while inmates sentenced to such sentences are good for production quotas, it reduces the number of training jobs available to inmates serving short terms who would benefit from such training. Conclusion: Nevada has been beset by a confluence of several factors that together created the situation now objected to by private business owners. These factors are: Inattention to federal regulations controlling the use of inmate labor by private companies and a lack of knowledge demonstrated by the legislatures Interim Finance Committees Committee on Prison Industrial Programs that has oversight authority on behalf of the citizens of Nevada. An absence of federal oversight and enforcement of the actions, activities and violations involving the PIECP, due to privatizing of such oversight authority to the NCIA and faulty review results forwarded to the BJA advising compliance.

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Control of the NDOCs Silver State Industries given to a member of the private association providing compliance enforcement and oversight over SSIs operations resulting in a serious conflict of interest. Failure to provide the required notice to unions, labor groups and private businesses and seek their input, comments and approval regarding labor and sales prior to initiating new product lines or industries. Disregard to controlling Nevada laws pertaining to requirements that the prison industries be profitable (NRS 209.461 (4),50 and, Mismanagement of SSI.

The legislature itself bears some responsibility for the creation of statutes that allow for deductions from inmate wages working in industry programs without looking to the controlling federal statutes governing such industry programs (PIECP). Additionally the reallocation of funds taken from inmate workers wages that were specifically mandated for expanding work programs to employ more prisoners compounded an already legally improper act. If as this report asserts, the deduction of 5% of industry workers wages is found to have been disallowed and a determination is made to return the deducted money to the workers, the taxpayers will have to provide that money. The industry fund no longer has the funds to return to the workers and with SSI operating at an annual loss, the industry itself is not in a position to repay. NRS 209.461 requires that: (4) Each fiscal year, the cumulative profits and losses, if any, of the programs for the employment of offenders established by the Director must result in a profit for the Department. This continued loss of money in a program designed to be self sufficient is problematic at best and presents a genuine risk to taxpayers who may have to ultimately bail out SSI. The numerous violations outlined in this study indicate that SSI is being run as if it has no responsibility to the legislature or to the controlling federal laws applicable to PIECP. In the absence of any effective federal or local oversight the Pie Program is simply out of control: improper wages paid, unauthorized deductions taken, no compliance with union or business consultation requirements, allowing private companies to operate without paying rent, utilities, staff salaries or inmate wages, . The relationship between Mr. Connett and the NCIA is beyond problematic it presents a genuine situation where anything he does as the Deputy Director of SSI can later be validated by him as the President of the organization charged with official compliance enforcement of the Pie program. If the Committee is relying upon the NCIA to assure complete compliance of the prison industry their President is in charge of, that reliance is misplaced. This is especially true with what occurred previously in Florida with the same program under his control while he held a seat upon the NCIA board alongside his CEO serving as treasurer.

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Recommendations: The following steps should be implemented to begin to turn the situation involving SSI around: 1. Direct consultation between the Legislature and the U.S. Office of Justice Programs (because of the appearance that the BJA has not provided adequate supervision of the NCIA) to determine factually: a. The mandatory wage rate to be paid to inmates participating in the PIECP. b. Legality of the 5% deduction from inmates working in the PIECP for the Correctional Industries Capital Improvement program, and, i. If allowed, what steps must be taken to implement this into the actual deduction provisions of 18 USC 1761(c) and, ii. If disallowed, what state legislative steps must be taken to cure this violation 1. Does the back wage policy apply to reimbursing inmates who have had this deduction taken? 2. The OJP should be consulted on how to determine any back wages owed to prison workers who were not paid prevailing wage, and asked for assistance in developing a schedule to accomplish compliance. 3. Steps should be taken to either replace Mr. Connett as Deputy Director of Prison Industrial Programs, or; a. Mr. Connett be asked to voluntarily resign his position with the NCIA and withdraw from membership in that association for as long as he remains Deputy Director in charge of Nevadas prison industry. 4. The Legislative Interim Finance Committees Committee on Industrial Programs should: a. Adopt a policy of contacting and consulting with businesses and labor unions or groups before approving new products, industries or partnerships that may impact either labor or business interests. b. Disallow notice to the Chamber of Commerce or publication in classified ads as a way of noticing labor groups/unions or business interests of pending or planned prison industry projects or partnerships. c. Review all voluntary participation agreements signed by inmates to insure that provision has been followed. d. Review all records of contacts, notice and discussions with labor/unions and private businesses to insure all interested parties are/were properly noticed . 5. Failing prison industry programs should be reviewed: a. To determine factually if continued operations are critical to; i. Control the behavior of the general population, ii. If they serve a need of the community, iii. If adjustments to the program will make it viable, and if so what steps should be taken to attain that viability. b. If the answers to the above considerations are negative, the program should be closed and the Committee should look at other industry options for the facility and training of inmates. 36 | P a g e

6. The Committee should mandate that any company or enterprise applying to participate in a prison industry submit a financial report to SSI to be reviewed and approved by the Committee early in any negotiations, and; a. If approval is given or anticipated by the Committee, they can use the information provided to fulfill the recommendations provided in 4-a above. 7. The Committee should implement a policy of mandatory contracts between SSI and any private enterprise wishing to participate in prison work or training programs/projects to: a. Insure rent, staff salaries, utilities and payment of inmate wages will be received in a timely manner, and if not; i. What steps will be taken immediately to cure or resolve an issue involving nonpayment. 8. The Committee or Board of Prison Commissioners should: a. Inform the Nevada OES of the requirement that the state OES be consulted for wage rates for inmates participating in PIECP. b. Consult with the Nevada OES and apprise them of the prevailing wage requirement mandated by 18 USC 1761(c) to insure that agency is aware of the restrictions contained in the PIECP Guideline and; c. Instruct the OES to set the prevailing wage rate for prisoners participating in PIECP projects by job description at a wage comparable to the same job performed in the local community requiring the same skills. 9. The Committee should require that at least quarterly SSI provide them with digital or hard copies of all invoices showing inmate products shipped from an SSI industry with a destination outside the borders of Nevada. This will allow the Committee to factually determine: a. if the inmates who manufactured the products were paid the wage established by the OES before the products were introduced into interstate commerce, b. And to certify that the industry where the product was manufactured is in fact certified as a PIECP industry and, c. That the shipped products or materials are properly labeled as originating in a penal facility and made by prisoners.
1 2 3 slide #10 4 5 The Walsh-Healey Public Contracts Act (PCA), 6 Ashurst-Sumners Act, 7 Hauck, Brian. Prison Labor. Harv. J. on Legis. 279 (2000): n. pag. Web. 19. Dec. 2012. 8 9 Sloan, Robert The Prison Industries Enhancement Certification Program: Why Everyone Should be Concerned PLN 21 (2010): n. pag. Web. 10. Dec. 2012 10 Quigleya, William P. Prison Work, Wages, and Catholic Social Thought: Justice Demands Decent Work For Decent Wages, Even For Prisoners. Santa Clara L. Rev. 1159 (2004): n. pag. Web. 19.Dec. 2012 11 Sloan; Hauck 12

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13 14 supra 15 meaning that 90% of all workers performing similar work earn more than this amount, and 10% earn less 16 17 18 19 20 21 & 22 23 24 25 26 27 28 pg. 20 29
30 ng%22+%2B+%22Industries+Training%22&source=bl&ots=Sn94Dio5Oh&sig=2lV_zBgoQzd8UZC9C7d1Ev3di4&hl=en&sa=X&ei=3kb_UNf_L4rHqAGKqoCoCA&ved=0CHMQ6AEwBg#v=onepage&q=PRIDE%20%2B% 20%22Global%20Outsourcing%22%20%2B%20%22Industries%20Training%22&f=false 31 Pg 6

32 33 34 35 36 actual contract and first addendum on marinating and other processing features. 37 38 39 40 41 42 43 44 45 46 47 48 Pgs 5-6 49 50

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