Craig Harris

The Republic | azcentral.com

Corrections wants the state to buy troubled Kingman private prison by refinancing debt

Cost savings would give $2 million to GEO for more staff pay

State says total payments would drop significantly

The Arizona Department of Corrections wants the state to buy the troubled private prison near Kingman by refinancing the building debt and then using some savings to pay the operator $2 million a year to retain correctional officers with higher pay.

However, total annual payments to GEO Group would significantly drop with the deal, the agency said.

The proposal comes roughly eight months after GEO won a bid to take over the prison following an inmate riot last summer that damaged the facility.

Florida-based GEO was a major financial contributor to Gov. Doug Ducey's 2014 election campaign. The company did not respond to calls or emails.

The company posted $139.4 million in profits last year on $1.8 billion in revenue and gave its chief executive officer a $2.3 million raise — more than what the state wants to give the company for prison guard raises.

Daniel Scarpinato, a Ducey spokesman, said the state is realizing savings through refinancing the debt and spending those dollars on public safety.

The additional money for GEO should prevent problems like last year's riot and a 2010 escape that resulted in a murder, he added. Those problems occurred under a different operator.

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Robert Blackmer, spokesman for the 2,000-member Arizona Correctional Peace Officers Association, said the plan is disappointing to correctional officers at state-run prisons who haven't seen a raise in nine years.

Starting pay for correctional officers is $31,886 and tops out at nearly $40,000, after eight years of experience.

"The money should be going to correctional officers who are long-time employees of DOC before we worry about whether private prisons can take care of their staff," Blackmer said. "We have our own retention problems."

State wants more private-prison beds

The move to use cost savings and shift public funds to GEO comes as Republican lawmakers and Ducey have pushed to open additional private prison beds in Arizona, claiming they are more cost-effective than state-run prisons.

Private prison operators, such as GEO, and their lobbyists have made campaign contributions to the governor and lawmakers who have passed laws to add more private-prison beds.

The state houses roughly 17 percent of its 42,940 inmates in private prisons. In mid-July, Corrections will begin moving roughly 50 more inmates per week into a private prison in Eloy until 1,000 beds are filled by January. Those inmates going to Eloy will help ease prison crowding.

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Corrections officials on Thursday will ask the Joint Committee on Capital Review, a group of lawmakers from the House and Senate, to approve the refinancing deal.

The plan calls for the state to purchase the Kingman prison from GEO for $137.4 million. The state would refinance the debt with an estimated interest rate of 2.1 percent for the next nine years. Currently, the interest rate on the prison is 8.2 percent, according to Corrections records.

Corrections already pays the debt on the building through a per diem on each inmate housed by GEO. At the end of the contract, the prison is turned over to the state.

By refinancing the debt, and owning the prison, the state would save at least $8 million a year in interest for the remainder of the nine-year mortgage, for a total of $77.5 million in savings, according to Corrections.

"The state has a unique opportunity to utilize its superior credit rating and favorable financial markets to reduce the amount of interest being paid on the Kingman facility. ADC (the Arizona Department of Corrections) and the Department of Administration worked with the Governor’s Office and the Legislature to suggest this idea in order to save Arizona taxpayers a significant amount of money over the remaining term of the existing vendor’s contract (nine years)," Corrections spokesman Andrew Wilder said in a statement.

Overall state per diem would be lowered

GEO in October was awarded a contract through 2023. At the time, it called for paying the company $60.10 a day per inmate, the same amount paid to the prior operator, for up to 3,298 inmates.

That's roughly $72.3 million a year.

The new deal would pay GEO $40.37 a day per inmate, a decrease of approximately 32 percent. That's roughly $48.6 million.

The per diem is lowered even more to house additional inmates, up to 3,508 prisoners. As of Friday, there were 3,348 inmates at the minimum- and medium-security facility.

Along with giving GEO more money to pay for higher salaries for its correctional officers, the state would give GEO another $500,000 annually for food price increases and health-care inflation, records show.

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The records do not indicate how much GEO correctional officers make and how much more they would make with the pay increase, though Corrections stated it would confirm that the salaries are increased.

GEO won the bid last year after Ducey revoked the contract from Management & Training Corp., following a riot around Independence Day weekend.

That riot severely damaged the facility and forced the evacuation of roughly 1,200 inmates. A state investigation found MTC failed to control the riots and had a "culture of disorganization, disengagement, and disregard" of Corrections policies.

MTC responded by saying state monitoring reports and audits stated the company was largely in compliance.

GEO's CEO now makes $6.6 million

GEO in late April reported a profit of $32.4 million for the first quarter of 2016, a 12.5 percent increase from its $28.8 million quarterly profit from the first quarter of 2015.

GEO Chief Executive Officer George Zoley, whose total compensation last year increased by 53 percent to $6.6 million, said in April that the "activation of the 3,400-bed Arizona State Prison in Kingman" was a key reason for the strong quarterly results.

Corrections also plans to use savings from refinancing the Kingman prison to pay $2.7 million more to its privately contracted health-care vendor for services at state facilities and to open the Northern Regional Community Corrections Center, a 100-bed facility for inmates on community supervision. Corrections officials expect to have at least another $2 million in savings annually. The state didn't designate how it would use that money.

Sheriffs: Mistreatment of prisoners caused Kingman riot

Blackmer, the union official, said the state using its credit resources to purchase the GEO prison shoots a huge hole in the argument that private prisons are more cost-effective than public prisons.

"They are admitting that we have been right all along. They can't do it cheaper than us. It justifies our argument," Blackmer said.

Caroline Isaacs, program director for the American Friends Service Committee and a critic of private prisons, said she has no problem with paying more money to correctional officers in Kingman because that likely will make the facility safer.

But the state should also use the cost savings to increase pay for correctional officers at state-run prisons, she said.

"Clearly, staff pay in corrections across the board is a fundamental and serious problem," Isaacs said. "We have people in the leadership of this state who are ideologically wed to privatization, and they just don't want to be bothered by the facts. This is just one more piece of evidence on a mountain pile that it's a myth you can save money through privatizing corrections. You just can't."

Fact Check: Relative safety of private prisons inconclusive