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CCA Closes Oklahoma Prison, Settles Tax Lawsuit Over Ohio Prison

The turbulent economy of the past decade has led many communities across America to foolishly seek prisons as a recession proof industry and rural welfare program for poor whites. But prisons can be a double edged sword, sometimes causing more problems than they solve. Private prisons can be especially duplicitous. Private prisons open and close at will as the need for bed space arises. While public prisons can do the same, powerful guard unions prevent that from occurring in all but the rarest of cases. Private prison guards are not unionized. Sayre, Oklahoma and Youngstown, Ohio are two towns that were lured by the seemingly easy money and extra jobs private prisons would bring. They ended up being burned by their own greed.

Sayre, Oklahoma

On April 23, 2000, a riot broke out at the North Fork Correctional Facility in Sayre, Oklahoma, a private prison owned by Corrections Corporation of America (CCA). One guard received 12 stitches to the head and spent six days in the hospital after seven prisoners allegedly beat and kicked him. The riot apparently began on the recreation yard and moved to the kitchen where another 15 prisoners caused roughly $12,000 in damage. All of the prisoners housed at the 1,440 bed prison were from Wisconsin. [Sayre was the site of another riot in June 2000. See the March 2001 PLN].

Unfortunately, for the city of Sayre, the riot was but a foreshadow of trouble to come. On June 13, 2003, CCA announced it would close North Fork because phone rates for collect calls from the prison were higher than CCA's contract with Wisconsin allowed. North Fork's 225 employees were handed 60 day termination notices prior to the announcement. The 225 jobs generated $6 million in annual payroll.

North Fork was built in 1998 at a cost of $34.5 million. CCA owns the prison but gave the city of Sayre the right to negotiate the phone contract and keep any commissions. The city negotiated a sweetheart deal guaranteeing them at least 25 percent of the prison's monthly phone revenues and possibly as much as 42 percent (figured on a sliding scale) depending on the total monthly revenue generated. This is a substantial amount considering the 5-year contract with AT&T charges $3.95 to connect and 89 cents for each additional minute. Sayre's monthly kickback under the contract typically ranged from $15,000 to $92,000, with the profits going to the Sayre Economic Development Authority.

But unbridled greed did not triumph over common sense. By negotiating such exorbitant phone rates in order to bolster their own kickbacks, the city has ended up with nothing. In November 2002, CCA renewed its contract with the Wisconsin DOC to house 989 prisoners at North Fork, agreeing to abide by Wisconsin state law. According to Bill Clausius, spokesman for the Wisconsin DOC, state law caps prison telephone rates at $1.25 for the connection fee and 22 cents for each additional minute.

Sayre is now stuck with the AT&T contract, which did not provide a buy-out clause or specify penalties for breaching it. Sayre City attorney Kent Whinery said that AT&T offered to let the city out of the contract for $850,000, but the city couldn't afford it. AT&T declined to say if the company had offered to lower its rates. AT&T account manager Doug Bundy did say, however, that the agreed upon rates were "market driven."

CCA plans to move the prisoners at Sayre to its Diamondback Correctional Facility in Watonga, Oklahoma. Phone rates there are $2.15 to connect. Charges per minute vary according to distance and time of day, from as much as 55 cents for the first minute to 47 cents for each additional minute. Many prisoners at Watonga end up paying at the top end of the scale since two-thirds of them are from Hawaii. Media reports did not indicate how these phone rates comply with Wisconsin law as they are still higher than the Wisconsin rate.

Phone rates at North Fork were higher than those at state-run prisons in Oklahoma, which vary according to the distance, the time of day, and the provider. Collect calls from the state-run Great Plains Correctional Facility in Hinton, Oklahoma cost $1.65 to connect with per minute charges ranging from 12¢ to 69¢ for each additional minute. Calling card rates are $1.00 for the first minute then 30¢ a minute for all calls within the U.S. Assistant Warden of Programs Travis Smith said the prison makes roughly $12,000 a month on the calls. That money is earmarked for the inmate welfare fund.

According to Oklahoma DOC spokesman Jerry Massie, in fiscal year 2002, the Oklahoma DOC made roughly $1.9 million from prisoner phone calls. The money was used to pay staff salaries in order to avoid furloughing some guards.

Avarice has also overcome reason in the Oklahoma cities of Cushing and Holdenville as they rake in the money from their phone service deals with private prisons. City attorney Stewart Authurs said that the Cushing Municipal Authority made $204,667 in 2002 off of its 42 percent commission on prisoner phone calls. Holdenville's 38 percent kickback earns it roughly $100,000 a year, which it uses for public improvements, according to Mayor Jack Barrett.

Phone rates at the Lawton Correctional Facility in Lawton, Oklahoma, a Wackenhut run prison, are $1.65 to connect and 17¢ for each additional minute for local calls, according to Tim Youngbluth, director of business management for Wackenhut Corrections Corp. In-state calls cost $3 to connect and 17¢ for each additional minute. Collect calls within the U.S. cost $3.95 to connect and 69¢ a minute thereafter. The prison receives a 27 percent kickback on calls from its 1,860 prisoners, which it uses to fund operations to offset money the state pays to house prisoners, says Youngbluth.

Sayre, locked into its contract with AT&T until November 2004, is now paying a heavy price for its abortive money grab. North Fork was Sayre's largest employer. This loss of jobs, devastating to the city's economy, illustrates the havoc for-profit-prisons can wreak on towns focused more on money than on morality.

Now the city is begging for prisoners. "I asked [Ron Ward, director of the Oklahoma DOC] if he had any inmates he could move to Sayre, but he hasn't been able to find the numbers," said State Senator Gilmer Capps. And according to insiders, the state of Oklahoma cannot afford to buy the prison. Sayre Mayor Jack Ivester and City Manager Jack McKennon, both of whom supported opening the prison in 1998, did not return phone calls to the Daily Oklahoman.

Youngstown, Ohio

In 1996 CCA and the city of Youngstown, Ohio struck a deal giving the company significant tax breaks for opening the Northeast Ohio Correctional-Center [NOCC]. According to the 10-year deal, in the first five years, CCA would pay only 25 percent of its property taxes, the bulk of which would go to the school district. In the following five years, CCA would continue to pay 25 percent of its property tax bill to the school district but would pay the remaining 75 percent directly to the city.

In September 1998, the school board filed suit against CCA over the deal, which was never approved by the Ohio Tax Commission. The district requested that the deal, which school officials had estimated would cost them $9 million in lost property tax revenue over the 10-year contract period, be nullified since it was not notified of the agreement as required by a state law passed in 1995. School district treasurer Carolyn Funk said, "If this isn't a case of the city trying to put a skewer up the you-know-what, I don't know what is."

Highly troubled even as it opened, NOCC closed in 2001 amid a torrent of litigation and controversy over escapes, killings, stabbings, medical neglect and the like. It didn't seem to matter that Youngstown had practically given away the prison land, which had been sold to CCA for a dollar an acre as an added incentive for building the prison there.

The city's headlong rush to get the prison put it in a no-win situation with the potential of bankrupting the city. At stake if the city lost was the roughly $3 million in damages sought by the school district and another $5 million in property taxes that CCA could get back. (Since opening the prison, CCA has paid the full tax bill due to the lawsuit). "That would bankrupt the city of Youngstown," said Mayor George McKelvey. If the school district lost, CCA wanted about $4 million in property taxes refunded.

After more than a year of negotiations, a settlement agreement between CCA and the school district was approved by the Youngstown city council on May 1, 2003. Under the new 12-year agreement, CCA will pay no taxes, instead making payments to the school district and the city. The city will get 30 percent of the payments, the remaining 70 percent goes to the school district. Both sides are responsible for their own legal fees, which are expected to be about $100,000 for the city. CCA also promised to make its "best efforts" to re-open the prison as quickly as possible. [See the August 1999, March 2000, January 2001 and January 2002 issues of PLN for more on NOCC].

The tens of billions of dollars to be had in the lucrative business of private prisons is a compelling lure for small towns across the country. Many, caught in a web of greed, lose sight of what is right and stake their futures on others' (the prisoners') misfortune. But in the end, they too end up suffering, but at least it's only money for them.

In February, 2004, CCA announced it would reopen the NOCC facility on March 10, 2004, after landing a lucrative contract the federal government to house pretrial detainees. It has begun hiring/rehiring staff and guards for that process. It expects to employ 90 employees when it reopens, down from 500 when it closed. CCA said that 68% of the new hires were former employees it had laid off when it closed the prison. Private prisons incorporate the flexibility of corporate America where factories are closed or idled as need arises, in this case, the "factory" is a prison. If demand is high, the prison opens. Demand slackens, it closes. Based in far off states, companies like CCA are not beholden to their employees or local communities, to say nothing of the prisoners they house. Public prisons, by contrast, remain open regardless of need or demand.

Sources: The Daily Oklahoman, Associated Press, Youngstown Vindicator, Wisconsin State Journal

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