This article was brought to my attention by Frank Vespa on FB.
I had already read the previous NYT article
"An
investigation into New Jersey’s halfway houses.
Unlocked, Part 1
As Escapees Stream Out, a Penal Business Thrives
(June 17, 2012)"
and this adds more fuel to the fire. It surely demonstrates the direction privatized education will take once it is firmly established New Jersey.
******************
Finances
Plague Company Running Halfway Houses
By SAM DOLNICK
Published: July 16, 2012 82 Comments
A company that plays
a critical role in New Jersey’s corrections system, running halfway houses as
large as prisons, has had such severe financial difficulties over the last four
years that it contemplated filing for bankruptcy in 2010, according to newly
disclosed documents.
An investigation into New Jersey’s halfway houses.
Senior executives at
the company, Community Education Centers, even feared at the time that they
might not have enough money to pay workers, the documents show.
Community
Education’s senior vice president, William J. Palatucci, is one of Gov. Chris
Christie’s closest friends and political advisers, and Mr. Christie has
long championed the company.
Not long before Mr.
Christie took office in January 2010, Community Education defaulted on its
debt, the documents show.
Since then, the
state, while paying the company tens of millions of dollars a year for its
services, has not closely examined Community Education’s financial standing or
operations, according to the documents, former company executives and state
officials.
If Community
Education were to collapse, that could significantly disrupt New Jersey’s
corrections system, and if the company remains financially hobbled, its halfway
houses in New Jersey could continue to suffer.
The documents also
suggest that Community Education’s chief executive, John J. Clancy, highlighted
Mr. Palatucci’s ties to Mr. Christie in an effort to impress investors and
secure desperately needed financing for the company.
The documents were
submitted on Friday in federal court in Newark in an employment lawsuit brought
against Community Education by a former executive. They portray a company that
has been in crisis and trying to fend off creditors, even as it has mounted a
robust lobbying and public relations campaign.
The New York Times,
in a three-part series last month, detailed extensive problems in New Jersey’s
halfway houses, including escapes, violence and drug use. The system of halfway
houses, which the state has long promoted as a national model, handles
thousands of inmates annually who are leaving prison or on parole.
Community Education
has dominated the system for over a decade, and more than 15 former workers
told The Times for its articles last month that the company had kept staffing
levels very low in recent years to save money. As a result, the workers said,
the company did a poor job delivering counseling and other services intended to
help inmates make the transition to society.
The company’s
financial difficulties have not stemmed from its government contracts in New
Jersey, which have steadily grown over the last decade, according to the
documents and interviews. Community Education has instead run into trouble
after an aggressive expansion foundered in states like Alabama and Texas. The
resulting shortfalls have been a factor in staff and other reductions in New
Jersey.
Michael Drewniak, a
spokesman for Mr. Christie, declined on Monday to comment on Community
Education’s finances, referring questions to the Corrections Department.
Asked about Mr.
Clancy’s emphasizing the political influence of Mr. Palatucci, Mr. Drewniak
said, “We have no way of knowing the veracity of that assertion, but it would
be inappropriate for any company to do that.”
The Corrections
Department, which is part of the Christie administration, said there was
nothing about Community Education’s finances that warranted concern.
“The company has
consistently maintained its services under the terms of its contracts with the
Department of Corrections and, like all similar providers, was scrutinized for
financial stability prior to any contract award,” the department said in a
statement.
In a statement,
Community Education said it had been hurt by the financial crisis but was proud
of the work that it continued to do. “C.E.C. has never had a disruption of a
contract in New Jersey or any other state, never missed a payroll, and never
had a basis that necessitated disclosure of a nonissue,” the company said.
The documents in the
lawsuit, including depositions from current and former Community Education
executives, show that the company was under threat of bankruptcy in 2010
because it borrowed too heavily for its national expansion and could not make
debt payments.
The company, which
is privately owned, received roughly $300 million annually from government
contracts around the country in 2009 and 2010. But one projection by the
company in 2009 showed that because of its debt burden, it would soon have only
$13,702.02 in cash on hand.
“Everybody in that
building was aware on a daily basis that we were making choices of who to pay,
who not to pay, “ Community Education’s former treasurer, Frank English, said
in a deposition, referring to the company’s headquarters in West Caldwell, N.J.
“Everybody knew that
the company was struggling,” Mr. English added.
Asked directly
whether the company had contemplated bankruptcy, Mr. English said yes.
He added that the
company had hoped that it would not come to that and had always found a way to
meet its payroll.
Nevertheless,
another former company executive, Chris Rausch, said in a deposition: “We were
short cash. We couldn’t afford any extra head count.”
“We were cutting
heads,” he added.
On the brink of
bankruptcy, Community Education received $235 million in financing in December
2010, at interest rates as steep as 15.25 percent.
The documents in the
lawsuit indicate that the company’s finances have not improved markedly since
then. Despite the new financing, the company remained in debt even to its
auditors.
Finances Plague Company Running Halfway Houses
Several documents
about Community Education’s current finances — as well as sections of testimony
— were not available for review because they were filed with the court under
seal.
After the articles
about the state’s halfway houses were published in The Times last month, state
lawmakers said the system should be regulated more tightly. The Legislature,
which is controlled by Democrats, approved a measure requiring the Corrections
Department to provide more information about halfway-house operations to the
Legislature.
But Mr.
Christie, a Republican, used a line-item veto to weaken the requirements.
His aides said the measure was burdensome, but some lawmakers contended that he
was trying to protect Mr. Palatucci, the company executive who is his close
friend.
Since the 1990s, the
state has allowed Community Education to obtain its contracts through a
nonprofit organization that the company controls, skirting a state law that
excludes private companies from this work.
Last year, the
office of the state comptroller, Matthew Boxer, raised alarms about this
arrangement. After conducting an audit that harshly criticized state oversight
of the halfway-house system, the office concluded that regulators were kept in
the dark about Community Education’s finances.
The Christie
administration took no action in response to the comptroller’s warning.
Mr. Clancy founded
Community Education in the 1990s, promoting large-scale halfway houses as a
solution for states seeking to scale back their prison systems. Since that
time, he has courted politicians of both major parties while obtaining
government contracts in New Jersey.
Community Education
has a total of 1,900 beds in six halfway houses in New Jersey, which 7,700
state inmates and parolees cycled through last year. The company has hundreds
more beds for county and federal inmates.
The company
received about $71 million in the 2011 fiscal year from state and local
government agencies in New Jersey, out of total halfway-house spending of
roughly $105 million.
The court documents
show that in an effort to forestall bankruptcy, Community Education has had to
give investors without substantial experience in corrections a role in running
the company.
LLR Partners, a private-equity firm in Philadelphia that
invested $53 million in the company with a partner, and other investors have
been involved in deciding how to allocate personnel.
“That’s done in an
interest to maximize their investment?” Kevin J. O’Connor, the plaintiff’s
lawyer in the lawsuit, asked at a deposition.
“Yes,” answered Mr.
Rausch, who was dismissed in 2009 after clashing with Mr. Clancy.
The court documents
stem from a lawsuit filed against Community Education last year by its former
chief financial officer, David N. T. Watson.
Mr. Watson contends
that Mr. Clancy lied about the company’s financial turmoil when recruiting him
and improperly fired him in December 2010.
Mr. Watson and his
lawyer, Mr. O’Connor, both declined to comment.
Last month,
responding to questions from The Times about the lawsuit, Community Education
vehemently denied that it had experienced financial problems.
“The company has
never defaulted on any payment of debt,” the company said in a statement. “No
financial issues existed that would have required disclosure.”
That denial was
described in the first article in The Times’s series, published on June 17.
In depositions made
public on Friday, however, five current and former Community Education
executives, including Mr. Clancy, repeatedly acknowledged that the company was
in default in 2009 and 2010.
“It was in default
for a lot of that time,” Mr. Clancy said. “It could have been all of that
time.”
Asked on Monday
about the discrepancy, the company stood by its previous statement and added:
“The referenced event concerns compliance with certain financial covenants
contained in the company’s loan document. Those issues were subsequently
remedied.”
The court documents
offered new insight into ties between Community Education and Governor
Christie.
In his deposition,
Mr. Clancy said that he was a Democrat who supported Mr. Christie and that he
was standing with Mr. Christie on the night he won election in November 2009.
“The correct person
won, which should make for a better 2010,” Mr. Clancy wrote to Seth J. Lehr, a
co-founder of LLR Partners, the company investor.
Mr. Lehr responded,
“Relationships matter, and that’s a deep one for you and Bill”; that was a
reference to Mr. Palatucci.
Soon after, Mr.
Clancy told another company executive to emphasize Mr. Palatucci’s connections
to Mr. Christie in the information the company was sending to banks and
potential investors, Mr. Clancy acknowledged in his deposition.
At the time, the
company was in dire straits and seeking capital. Mr. Clancy wanted the
investors to know that Mr. Palatucci was co-chairman of Mr. Christie’s
inauguration committee, and Mr. Christie’s former law partner, according to the
deposition.
Mr. Clancy said in
the deposition that he considered Mr. Christie a friend. “ ‘Friend’ does not
mean more business,” Mr. Clancy said. “ ‘Friend’ does not mean anything more
than we were friends.”
The depositions also
raise new questions about a $130 million contract that Community
Education received in 2011 to house federal immigrant detainees and county
inmates in Newark.
Immigrant advocacy
groups have long asserted that the contract, which was administered by
Essex County, was written in a way to ensure that only Community Education
could receive it.
In depositions,
former company executives said Mr. Clancy had been so certain that Community
Education would receive the contract that he used it as leverage in
negotiations with investors.
Community Education,
which was the only bidder, received the contract. The company said Monday that
it had not had an unfair advantage in the process.
Also Please read- NYT article
An
investigation into New Jersey’s halfway houses.
Unlocked, Part 1
As Escapees Stream Out, a Penal Business Thrives
(June 17, 2012)
No comments:
Post a Comment
What do you think?