Many times I've been asked how I got involved on these issues - prison labor and mass incarceration - and I've had to explain my interest. This has happened time and again.
In an effort of apprising everyone about why I became so interested and write so passionately about these and related issues, I wanted to write this diary to not only show what has been happening to us because of this insidious agenda, but how.
The agenda advanced by the Conservative lawmakers and corporations belonging to the American Legislative Exchange Council (ALEC) has been an ongoing affair from the early 1980's and as described below, began fully exploiting prisoners for their labor in earnest in 1998. This agenda includes several variables designed to drive down civilian wages, eliminate private sector jobs and to allow large corporations to continue their market presence while going after the markets and sales of smaller competing companies - "Mom and Pop" or family run small businesses that are/were openly competing against the large manufacturers.
In addition they sought to divert large amounts of taxpayer dollars from funding state operations involved with incarceration, to corporations through privatization and other conservative efforts. One of the more nefarious corporations involved in this - and in fact led the way from 1999 through 2004 was U.S. Technologies, Inc., a Delaware corporation operating out of Lockhart, Texas.
I came across U.S. Technologies in this article that mentioned a new PIECP program approved by the Bureau of Justice Assistance (BJA, Prison Rehabilitative Industries and Diversified Enterprises (PRIDE Enterprises) and the state of Florida's Department of Correction. So I did a little research on US Technologies and their subsidiaries and was led to the article linked to below.
Here is a link to the 1999 SEC 10-K filing of U.S. Technologies, Inc.(stock traded as USXX), and their wholly owned subsidiary, Labor-to-Industry, Inc. (LTI). Here is a description of the "company's" intent, actual operations and those involved in running the company. This document demonstrates their involvement in manufacture of IT, EM products, furniture, motorcycles and their acquisition of privately owned companies manufacturing these and similar products and removing the companies and jobs from the private sector and turning the labor over to prisoners to perform at near slave labor wages.
Here are descriptions and information taken directly from their SEC filings. I urge all to read the actual documents linked to above to corroborate my opinions, as I'm sure some will regard this diary as providing false information as propaganda disseminated against the Republicans and their Conservative faction - all belonging to ALEC:
OUTSOURCING OPERATIONS
The Company is an "outsourcing company" soliciting manufacturing, assembly, repair, kitting and fulfillment services from Fortune 1000 and other select businesses. The Company performs its services utilizing prison labor under the Prison Industry Enhancement Program ("PIE"). Congress created the PIE program in 1979 to encourage states and local units of government to establish employment opportunities for prisoners that approximate private sector work opportunities. The program is designed to place inmates in a realistic working environment, pay them the local prevailing wage for similar work, and enable them to acquire marketable skills to increase their potential for successful rehabilitation and meaningful employment upon release. The PIE Program has two primary objectives:
To generate products and services that enable prisoners to make a
contribution to society, help offset the cost of their incarceration,
compensate crime victims, and provide inmate family support.
To provide a means of reducing prison idleness, increasing inmate job
skills, and improving the prospects for successful inmate transition to the community upon release.
The Company, directly or indirectly through its wholly-owned operating subsidiary LTI, employs a portion of the inmates at each prison facility through a competitive process and designs the work environment to motivate and train each participant in the specific job skills of the contracted work and the general skills required to obtain and hold long-term employment as well as how to advance in employment in a competitive work environment. This training is crucial for many prisoners, who may have never held a job before their conviction. The PIE program allows for up to 80% of the prisoners' wages to be withheld for the purpose of paying restitution to victims, fines, reimbursing the cost of incarceration, alimony, child support, taxes and a restricted savings account. In this way, the PIE program aids in reducing costs to taxpayers and is a savings vehicle to assist the former inmate's transition back into society. Further, the program has been very successful in reducing the rate of recidivism, within the participating inmate population, according to the Federal Bureau of Justice and Assistance.
In August 1997, the Company entered into an agreement with Wackenhut Corrections Corporation ("WCC") whereby WCC agreed to allow the Company to operate as its "industry partner" in any correctional facility managed by WCC. WCC also agreed to determine the products it purchases from third parties, and to the extent possible, purchase such products from the Company. WCC operates 47 corrections facilities in the United States, Australia, England and Canada and is the second largest manager of privatized correctional facilities in the United States. In February 1998, the Company reached an agreement with the states of California and Florida to expand its operations into corrections facilities managed by those states.
LTI operates an electronics manufacturing plant at WCC's Lockhart, Texas corrections facility. The Company currently operates a furniture manufacturing plant in a California Department of Corrections facility located in Blythe, California. The Company's customer call center operation, which had been located in a Utah Department of Corrections facility located in Draper, Utah, ceased operations during the first quarter of 1999 and has not reopened. The Company is currently awaiting the completion of the construction of a motorcycle parts operation, which is located in a WCC facility in South Bay, Florida.
The Company was incorporated on September 9, 1986. The Company's principal executive offices are located at 2001 Pennsylvania Avenue, NW, Suite 675 in Washington, DC 20006, and its phone number is (202) 466-2100.
BUSINESS STRATEGY.
The Company's strategy is to establish itself as a national leader in the employment of prison labor in a variety of business sectors. To that end, the Company utilizes the PIE program to perform its services by using a low-cost, but highly-motivated labor pool, in modern, clean and efficient facilities. The Company intends to operate the business in a simple and straight-forward manner by maintaining corporate overhead at its present level during the Company's expansion. The Company's strategy also includes the following:
Utilize existing expertise in electronics manufacturing to seek new business opportunities and to fully utilize all of LTI's electronic assembly facility in Lockhart, Texas;
Provide ancillary services such as the assembly of kits (kitting) and installation of parts associated with the primary electronics manufacturing process;
Expand the Company's furniture manufacturing operations by increasing its modular furniture production capabilities and introducing other furniture products; and
Evaluate the Company's ability to provide fulfillment services.
Management believes that additional capacity can be added, beyond the existing facilities, without significant additional corporate overhead.
GROWTH STRATEGY. The Company has established a sound working relationship with WCC and seeks to expand that relationship by going into additional WCC facilities with available industry workspace to establish successful PIE programs. The Company is also working with state-run (non-privatized) correctional facilities where industry work space is available to establish PIE work programs. In addition to LTI's successful electronics manufacturing facility in Lockhart, Texas, the Company will open a motorcycle parts manufacturing and assembly facility in a WCC facility located in South Bay, Florida during the second quarter of 2000 and continue to seek additional customers for its furniture manufacturing facility located in Blythe, California. The Company is evaluating several options regarding its opportunities for entry into the fulfillment industry. The Company is also evaluating the strategic acquisition of successfully run companies whose services and products would be suitable for expansion into a prison industry work program.
PRODUCTS AND SERVICES
Through LTI, the Company's operations have been primarily focused in two industries, electronics manufacturing (EM) and furniture manufacturing. The EM industry has been characterized by rapid growth and aggressive competition based on improving technology and decreasing cost. In 1998, the Company entered the furniture manufacturing and the customer call center industries. The Company ceased its call center operations during the first quarter of 1999. During 2000, the Company is scheduled to open a facility, which will provide parts manufacture and assembly services to a motorcycle manufacturer.
Electronics Manufacturing. As a member of the electronics manufacturing provider ("EMP") industry the Company, through LTI, provides several services including contract manufacturing, cable and wire harness assembly and printed circuit board assembly. Given the emergence of new technologies and the proliferation of electronics into virtually all segments of the world economy, management believes the Company is poised for significant sustainable growth in the years ahead.
Original equipment manufacturers ("OEM") such as Cisco, Hewlett-Packard, IBM, Lucent, Texas Instruments and many others are increasingly relying on EMPs for assembly and other value-added services. Many OEMs have begun to view outsourcing as a strategic tool which allows them to focus their efforts on resources and core competencies resulting in improved flexibility and responsiveness in all segments of their business. The benefits of outsourcing by the OEM include: improved time to market since new products can be turned on quickly by an EMP without the cost and time required for the OEM to re-tool; access to state of the art manufacturing facilities and technologies without the need for the OEM to invest in facilities capital equipment; and lower production and procurement costs since EMP's can efficiently purchase many generic components. Finally, EMP's typically do not bear the same overhead and benefit burdens typically incurred by OEMs.
Furniture Manufacturing. Through its furniture manufacturing facility, the Company manufactures panels and associated parts for use in the office workstation industry. The Company's automated facility is capable of producing a high quality panel comparable to those produced and sold by Herman Miller and Steelcase. The Company's product is designed to be interchangeable with several manufacturers of office furniture.
Motorcycle Manufacturing. The Company's motorcycle parts manufacturing and assembly facility, which will be located in a WCC facility in South Bay, Florida, is scheduled to begin operations in the second quarter of 2000. Initially, the facility will be manufacturing, painting and polishing various motorcycle body parts with the intention of eventually accomplishing complete parts manufacture and assembly of motorcycles.
CUSTOMERS AND MARKETS
Within the EMP industry the Company promotes its services primarily in the Southwest region of the United States. The market for its EM services is the multi-billion dollar electronics industry. LTI specializes in production of circuit boards which are ordered in shorter production runs and therefore do not have to compete with the larger companies in the industry who have invested millions of dollars in high speed production equipment capable of continuous production runs creating hundreds of thousands of boards. LTI's customer base consists of over 200 customers, none of whom accounted for more than 15% of the Company's 1999 sales volume.
The major market served by the Company's furniture manufacturing facility is the replacement workstation market. This market is dominated by a few large companies who offer alternatives to purchasing the higher priced products of Herman Miller and Steelcase. These companies offer finished products which are interchangeable with the more expensive products, but at a considerably lower price. In November 1999, the Company's contract with Affordable Interior Systems, the only customer of Blythe, was cancelled. The Company has since contracted with another manufacturer and started producing their panels in January 2000. This manufacturer requires approximately one-shift of the operating capabilities of the Blythe facility. The Company is actively seeking other customers to increase the plant's output.
The Company's motorcycle assembly plant will, initially, have only one customer, American Quantum Motorcycles ("American Quantum"). However, the Company will explore other customer opportunities in conjunction with American Quantum. The contract with American Quantum involves marking up the Company's labor component of the facility while passing through and being reimbursed in full for all other costs incurred to operate the facility.
The Company is dependent upon certain customers for a major portion of its sales. High End (a customer of the LTI segment) accounted for 15% of sales for the years ended December 31, 1999. The sales of services to IBM represented approximately 43% and 66% for the years ended December 31, 1998 and 1997, respectively. Texas Instruments accounted for approximately 7% and 19% of total sales for the years ended December 31, 1998 and 1997, respectively. Amounts due from three customers, Dell, Vektronix (customers of the LTI segment) and AIS (a customer of the LTI - Blythe segment), constituted 87% of the Company's accounts receivable at December 31, 1999. IBM and Texas Instruments, along with other customers, High End Systems and Wyle EMG, comprised approximately 16% of net accounts receivable at December 31, 1998. The Company generally does not require collateral on its trade accounts receivable.
COMPETITION
The competition in the Company's EM and furniture manufacturing segments consists of numerous small, regional companies and a significantly smaller group of large national companies. The Company competes directly with the smaller regional companies and avoids the markets dominated by the national companies. When competing with smaller regional companies, the Company has a distinct cost advantage created through the use of provided manufacturing facilities and not having to provide the same benefits, (medical, dental, etc.) to prison inmates as companies that rely exclusively on free-world employees.
In the case of the motorcycle parts facility, the Company has no direct competition, as the Company has a contract to produce the manufacturing requirements of American Quantum. However, the Company's revenues will be directly effected by the competitive market conditions in the road bike industry where American Quantum competes in an industry dominated by Harley Davidson, Honda and to a lesser extent, BMW.
All of this is bad enough to small businesses that were in an unknown competition against prison industry manufacture and sales of prison made goods. What makes this even more insidious is that these companies involved in exploiting prison labor have it figured so that the state taxpayers will also foot the bill for their leasing of taxpayer owned property and manufacturing facilities. Buildings built with tax dollars were to be leased to these companies for next to nothing - and in addition, taxpayers were going to pay for the utilities necessary to operate huge plants, machinery and other equipment including ovens to bake painted goods, gas used for smelting and other furnaces, electricity to power equipment and provide lighting. Their agreements with some of the prison industries included utility subsidization by the prison - and we all know that subsidization comes from tax dollars.
LEASES AND FACILITIES
The Company's wholly-owned subsidiary, LTI operates in a minimum security prison under an agreement with WCC, the Texas Department of Criminal Justice ("TDCJ"), the Division of Pardons and Parole (the "Division") and the City of Lockhart, Texas. The lease on the Lockhart facility provides approximately 27,800 square feet of manufacturing and office space through January 21, 2001, and provides an automatic three year extension unless notification is given by either party at least 6 months prior to the expiration date of the current term not to renew. The amount of square footage may be increased or decreased depending upon the number of prisoners employed. The lease also provides for annual rental rates of $1 per year for the primary term and the first renewal term thereafter. Occupancy fees for successive renewal terms shall be negotiated by written agreement of the parties. It is expected that similar operating leases will be executed at other WCC facilities.
LTI also operates in a minimum-security prison at Chuckawalla Valley State Prison located in Blythe, California. The lease on the Blythe facility provides approximately 36,300 square feet of manufacturing and office space through August 31, 2003. The lease also provides for monthly payments of $726.
The facility, which the Company's motorcycle parts operation will occupy, is located in a WCC minimum security prison located in South Bay, Florida. The lease on the South Bay facility provides approximately 20,500 square feet of manufacturing and office space through October of 2006. The lease provides for annual rental payments of $1.00.
Now we move on to who would be involved in such a nefarious use of near slave labor for profits - and to take jobs away from the private sector and unfairly compete against the smaller corporations? Here they are:
- General Alexander M. Haig, Jr., former Secretary of State and White House Chief of Staff;
- The Honorable George J. Mitchell, former Senator from Maine and Senate Majority Leader;
- The Honorable William H. Webster, former Director of both the FBI and CIA;
- Rick Rickersten, partner at Thayer Capital, a leading investment management firm headquartered in Washington, D.C.;
- Hal Wilson and Peter Schiff, Managing Directors of Northwood Ventures LLC and Northwood Capital Partners LLC, venture capital investment firms headquartered in New York; and
- Arthur Maxwell, President of Affordable Interior Systems, Inc., one of the 25 largest commercial furniture manufacturers in the United States.
Ever wonder where all those products returned to the manufacturer were refurbished? Well, guess no further - in prisons across the country, like the one this article talks about.
Of course there is never a mention of profits earned or the financial impact upon other businesses in this kind of thing. Instead everyone speaks of "training" of inmates in this kind of program and how beneficial it will be to them when they are released. Everyone is led to believe that this kind of exploitation is for the benefit of the inmates being worked - and not the corporations raking in millions of dollars off of their labor. In addition they report - over and over again - how these joint business ventures benefit the taxpayers by reimbursing them for the costs of incarceration and further tell us that not one penny of tax dollars is used to subsidize these operations.
As I reported in other diaries, this is all disinformation designed to make us feel all warm and fuzzy about prison industries and the corporations partnering with them and actually using some - or most - of the available prisoners. We're informed that this isn't costing us a penny, all these industries and operations are self-sustaining, when in fact it is just the opposite as money earmarked to offset the costs of incarceration are diverted back to the prison industries as additional profits.
First ALEC created the laws that resulted in the huge increases in prison population and the money needed to house and care for these men and women. Then they created laws to introduce privatized prison operations on behalf of ALEC members CCA and Geo Group. ALEC then proposed laws to expand prison industries and corporate participation at both the state and federal level. Right in the middle of all of this are companies such as 3M, AT&T, IBM, Boeing and hundreds of others belonging to or funding ALEC and benefiting off of the laws the ALEC Conservative lawmakers manage to get enacted - such as SB 1070 in AZ. last year. We all know how involved ALEC, Koch and CCA were in that fiasco that is going to cost taxpayers in AZ. and other states as the feds pursue litigation on that law.
PIE wages paid to inmates are supposed to be prevailing but have been reduced to minimum wage or less - as corporations seek more profits - then all benefits they are required to pay to civilian workers were denied to inmate workers. Corners were cut on security and other necessary requirements and it wasn't done to save us a penny - rather it was done to increase the income to those using prisoners as a slave work force.
I forced the BJA and the Department of Justice to fully investigate the operations of one of the worst prison labor exploiters in the nation - PRIDE Enterprises, Inc - out of Florida in 2009. I finally received a full report of the investigation's findings yesterday. I will blog next time and inform all of you what they found in Florida - and provide facts as to how this corporation has avoided compliance with federal laws and continues to operate with no action(s) taken against them when they were caught in numerous violations as a result of my requested formal investigation.
