The Real Cost of Prisons Weblog

The current controversy involves tubes of peanut butter and jelly "squeezers," a key ingredient in inmate lunches. Fresno's Adolph Foods Inc. has been distributing the product to the state's prisons for the past year under a $3.2 million contract that expires June 30.

But the Prison Industry Authority, a semi-autonomous state agency, has launched its own peanut butter and jelly business that operates out of a prison in Corcoran. As a result, Adolph's contract with the state won't be renewed -- a potentially lethal blow to a company that reaped 40% of its revenue from the deal, said owner Chris Adolph.

"The more of these contracts they take on, the more jobs that are lost in the private sector," he said.

Other prison suppliers fear they might soon face the same fate as the authority prepares to quadruple its food packaging enterprise to a $20 million-a-year business.

The proposal will be taken up by the authority's 11-member board at a hearing today at Corcoran State Prison. Several small-business owners, including Adolph, are expected to attend to protest.

It's the latest move by private suppliers to ratchet up the pressure on the Prison Industry Authority. The companies have hired lobbyists, contacted lawmakers and made allegations that the authority launched the new product line without holding the necessary public hearings.

Authority officials deny the charges. And they say small businesses have nothing to worry about because the authority will not go into an industry where suppliers already exist.

"We don't get into it when there is another company [involved]," said Chuck Pattillo, the authority's general manager.

But in the case of peanut butter and jelly, the authority got involved even though there were existing suppliers.

Pattillo said the authority made the move at the request of prison managers who worried that contract squabbles among private firms would delay shipments.

Industries at 22 prisons

Established in 1982, the Prison Industry Authority's mission is to rehabilitate inmates by putting them to work, and also to reduce the operating costs of prisons. But the authority -- which operates with little legislative oversight -- only employs a small fraction of the state's 172,000-plus inmates.

At present, the authority provides work for about 5,900 inmates and operates more than 60 service, manufacturing and agricultural operations at 22 prisons. Inmates earn from 30 cents to near $1 an hour to make flags, shoes, printing services, eye wear, gloves, office furniture, license plates, clothing and more. The authority can sells its products to federal, state and local government agencies. The state has been the biggest customer.

The Department of Corrections and Rehabilitation views the authority as a key part of a renewed effort to boost rehabilitation programs. But some lawmakers say the added responsibility might have to be accompanied by greater legislative oversight.

"There clearly is some benefit to the PIA, but at the same time I am concerned when the PIA is misusing its authority and unfairly competing with small businesses," said Assembly Member Juan Arambula, D-Fresno, who leads a budget subcommittee that oversees prisons.

By law, state agencies, with some exceptions, are required to purchase products from the authority, even if private businesses sell the items for less.

Businesses complain

The state auditor in a 2004 report found the authority's pricing to be fairly competitive, but said its cost savings claims were "questionable."

Last year, the authority posted a $4.7 million operating loss on $179 million in revenue, though the authority says it would have posted a small profit if it weren't for significant one-time costs associated with a streamlining effort.

The food packaging business was launched in 2003-04 and today includes cookies, bread and, most recently, peanut butter and jelly. But the move into the new enterprise has been plagued by delays and has generated plenty of complaints from small-business owners.

American Copak in Southern California, an Adolph supplier, says it faces the possibility of worker layoffs.

"We may be talking about 50 to 100 people, between our company, Adolph and the vendors who supply us," said American Copak president Steven A. Brooker. "This will cause a ripple effect."

Brooker's firm produces millions of peanut butter and jelly squeeze packets each year. The prison contract produces 25% to 30% of his overall revenue, he said.

"As a company, we knew we were going to compete against other small businesses," Brooker said. "But I never would have imagined that we would have to fight against the government for our business."

Other prison suppliers also are concerned. Christian Bartels, owner of CB Enterprises in Ceres, said 90% of his produce and other grocery items goes to the state prisons.

"What they are trying to do is do their own packaging and be their own manufacturer," Bartels said. "And once that happens, they won't need people in the private sector like me -- people whose employees are paying taxes, buying things and stimulating the economy."

Tight profit margins

Pattillo said the authority began eyeing the peanut and butter jelly business three years ago at the request of the state Department of Corrections. He said prisons were worried that shipments would be delayed as the state's Department of General Services dealt with in-fighting among suppliers who intensely compete for contracts.

"They were tired of going through hoops with [contractors] who constantly appeal and are constantly protesting bids on an annual basis," he said.

Department of General Services officials said food contracts can be especially contentious because there are tight profit margins and companies often make similar bids. Rita Hamilton, deputy director of the department's procurement division, said she was not aware of any shipment delays as a result of protests, though "that doesn't mean it hasn't happened."

To prepare for the new business, the PIA bought $1 million in packaging equipment. But the project stalled.

The authority's production finally came on line in March, Pattillo said. About 15 inmates are now employed by the venture, which is run out of the California Substance Abuse Treatment Facility in Corcoran.

Domino effect feared

Small-business owners fear that it's just the beginning, and that the prison authority will continue to take contracts away from the Department of General Services. They are concerned because the authority does not operate under the same strict purchasing rules as the state general services department.

For instance, the authority does not have to give preferences to small businesses or businesses owned by disabled veterans, according to a recent opinion by the state's Legislative Counsel. General Services, on the other hand, must comply with those rules.

"The reason a lot of small businesses like ours sell to the state is because we can't compete with some of the big players, like Sysco and U.S. Foodservice," said Stephen Simpson, owner of San Joaquin Valley Distributors in Fresno.

"This is an area where small business can really thrive. And that is what is being threatened."

When lawmakers formed the authority, they gave it freedom from such rules because "the constraints of state government severely impede the ability" to operate as a self-supporting agency, according to the Legislative Counsel.

The authority does not get money from the state budget and, for the most part, covers its expenses with sales revenue, officials say.

Though it operates freely, the PIA still must hold a public hearing before going into a new business. It also must "take into consideration the effect of a proposed enterprise on California industry."

Small businesses say the authority failed to do either in the case of peanut butter and jelly. PIA rejects the claim, saying they fulfilled the mandate when they first approved the overall food packaging enterprise at a board meeting in October 2002.

But, at the urging of private suppliers and lawmakers, Corrections Secretary James Tilton has agreed to accept testimony on the matter at today's PIA board hearing in Corcoran, according to a letter he sent to Arambula. Tilton sits on the PIA board.

The main agenda item, however, is a proposal to grow the food packaging business from $5 million in annual revenue to $20 million, Pattillo said.

He said most of the growth will come from the PIA's entry into the "retort packaged food" business. This refers to the special process of packaging food, such as meat, for extremely long shelf life.

Prisons want to stock up on such food items in the event that a catastrophe -- like a pandemic flu outbreak -- cuts off their food supply, Pattillo said. In such a case, he said, "the last people people are going to want to feed are prisoners."

http://www.fresnobee.com/263/story/49145.html
The reporters can be reached at eschultz@fresnobee.com or (916) 326-5541, or