Web of funding and influence shrouds Essex County jail bid

TRENTON – A U.S. senator and a state senator from Newark are both questioning the integrity of Essex County’s public bidding process after only one entity applied for a multimillion-dollar immigration-detainee contract.

Complicating matters, the vice president of the operating firm poised for the contract is one of Gov. Chris Christie’s closest confidantes. The firm and its non-profit arm have benefited from nearly $500 million in state and county contracts over the years, and have recently come under intense scrutiny – not only by lawmakers – but also by the state comptroller.

Separate from the county contract, the state budget provides over $20 million benefiting the firm through county aid in place for a decade. The aid was increased $3 million from last year – a proposal put forth by the governor – but still less than previous administrations provided. The state awards Essex and Union counties the aid to use at their discretion, although the firm’s facilities are the only providers eligible.

The Governor’s Office declined comment on whether this unique state aid is relevant to the concerns over the Essex County contract, although Christie’s spokesman told the New York Times recently that it was a “stretch” to connect the governor to the bid in question. Aside from his aforementioned confidante, the Essex County executive, Joe DiVincenzo, is as tight a cross-aisle ally as the governor has in the state.

The firm

The Essex County contract was bid on by a non-profit corporation that subcontracts to a private company running its inmate rehab program at two centers in Newark. Both entities are controlled by prolific Essex County campaign financier and businessman John Clancy.

Clancy heads non-profit Education and Health Centers of America (EHCA) and for-profit Community Education Centers (CEC), operators of privatized inmate facilities nationwide. Clancy’s group has been paid nearly a half-billion dollars in state and county contracts since the late ‘90s.

New Jersey does not allow for-profit entities like CEC to run their inmate rehab programs, so EHCA secures the contracts while CEC performs the services. This relationship was negotiated between EHCA and the state Attorney General’s Office in 1994.

The model

“The original structure was negotiated with the Attorney General’s Office over the period of about nine months,” said EHCA attorney William Harla of DeCottis, Fitzpatrick & Cole in Teaneck. The non-profit has an independent board of directors, he said, and the “corporate and fiduciary responsibility to provide these services.”

Those who suggest that for-profit and non-profit entities are a “distinction without a difference,” are ill informed, said Harla. “Legal relationships matter…We wanted to come up with something that was appropriate,” he said, and “entirely above board.”

“Part of what they wanted was some degree of independence,” he said of the state’s attorneys: separate boards, separate lawyers, separate employees. “There is some overlap,” he said, like EHCA Chief Executive Officer Clancy, who is also the president of the for-profit CEC.

Harla said in other states CEC provides the inmate services directly – without the non-profit entity – because other states don’t have the same limitation. “Many agree that the notion of only permitting non-profits to provide rehabilitation and corrections services seems like a bit of an outdated concept,” he said of that particular restriction.

In June, state Comptroller Matthew Boxer issued a report on the 2,700 inmates in the Residential Community Release Program. EHCA was examined as one of 23 private providers statewide, although it is the only provider benefiting from this state aid.

“This is a $64 million program whose success or failure has important consequences for public safety,” said Boxer. “And yet as a state we have done a poor job of monitoring the program and have made no real attempt to find out what taxpayers are getting for their money.”

Boxer mentioned in particular that EHCA has taken in roughly $500 million in county and state contracts since 1997. He also questioned whether subcontracting to for-profit affiliates is within the letter of the law. The Department of Corrections said they have sought guidance from the Attorney General’s office on the matter since the report, but will keep that legal advice private when they receive it.

The project

On Thursday, July 28, EHCA was the sole bidder for an Essex County contract worth between $8 million to $10 million per year for a facility housing 450 federal immigration detainees. The contract was criticized by immigration advocates who alleged it was tailor-made for EHCA.

The county contract is part of a larger U.S. Immigration and Customs Enforcement (ICE) project, a Northeastern immigration detention center, which Essex has been selected for. The award – the announcement of which was cancelled last week – would net the county nearly $50 million annually. “There was intense competition,” said Essex County Chief of Staff Phil Alagia. “For Essex County to be selected, we saw as a tremendous honor.”

The first phase is to house up to 1,250 medium- to maximum-risk inmates with immigration status concerns, and non-criminal immigration detainees serrviced by an outside vendor – whichever entity is awarded the county contract – for a portion of the federal funding.

The bid

When Essex County began the federal application procedure last year, Alagia said the administration showed ICE administrators one of two CEC facilities in Newark – Delaney Hall – the cornerstone of the county’s bid to the federal government, and the cornerstone of EHCA’s bid to the county.

“We showed them the Delaney Hall facility,” Alagia said, but the county followed the rules in the bidding process – it wasn’t rigged for Delaney Hall – even if it was advertised in the minimum locations with merely 23 days notice.

“We were hoping there was competition,” Alagia said. “There was no expectation (of how many bidders would come in),” although the county did have two dozen downloads of the bid specifications from the county website.

Essex County Counsel James Paganelli said the county is still reviewing the sole bid and has not made a determination as to whether they will award the contract to EHCA. CEC released for-hire ads before the bid was submitted to the county, according to the New York Times, although the firm said that is commonplace.

“I think what is lost is how important this is to saving jobs,” Alagia said, and with the $50 million annual revenue, “It helps keep taxes low for Essex County.” He also said the county’s prison population is at “historic lows,” in large part due to the work that the EHCA facilities like Delaney Hall provide. Aside from the security fencing, the facilities resemble dormitories and improve recidivism rates, officials said, although no data was immediately available.

After the bid was received, U.S. Sen. Frank Lautenberg (D-NJ) sent a letter to ICE Director John Morton inquiring as to whether the county had followed an “entirely fair, open and transparent” bidding process. Essex’s Paganelli said the process was statutorily to the letter of the law.

The state is taking a hands-off approach to the situation since it is not directly a party to it. State Sen. Ronald L. Rice, (D-28), of Newark, said, “The governor’s very selective in terms of what he (has) scrutinized.” There’s been the Passaic Valley Sewerage Authority, Rice said, the South Jersey Port Corporation, and the Delaware River Joint Toll Bridge Commission. But nothing on a multimillion-dollar one-bid contract in Essex, Rice said.

The fundraising

This year, the county renewed a $20 million prisoner treatment contract with EHCA. The last contract was signed in 2006, when a flurry of campaign donations from CEC employees hit campaign accounts for Essex executive DiVincenzo and other county politicians.

In the two years prior, CEC employees made a total of $5,250 in combined donations to Essex County officials. In 2006, the Essex contributions surged to $29,400, including $11,000 to DiVincenzo. Two donations from a Hoboken real estate developer and his wife – listed on the Election Law Enforcement Commission website as CEC employees – were disputed by company officials because the individuals never worked for CEC. Excluding those two contributions, CEC employees donated $6,600 to DiVincenzo in 2006, and $25,000 overall in Essex County. In the four years since, the company’s employees have donated $22,450 into Essex coffers.

In total, CEC President John Clancy and other CEC employees have donated over $104,675 to Essex County politicians while pumping $93,990 into coffers across the rest of the state, including $6,800 for Christie from his former law partner of 10 years, Bill Palatucci. Among the top recipients of CEC employee donations have been the Essex County Democrats ($55,150); DiVincenzo ($21,600); state Sen. Richard Codey (D-27), of Roseland, ($10,900); and state Sen. M. Teresa Ruiz (D-29), of Newark, and her Assembly mates ($8,000).

“We better pay specific attention to these connections,” said Rice, who has not received any funding from CEC employees. “There’s no go-to agency right now. I don’t expect the governor to look into that because of his relationship with (Bill) Palatucci. (It’s the) relationship with the county executive and the governor and Palatucci and Delaney Hall and other people. It’s those kind of relationships that stand out. It’s one big circle of friends and relationships.”

EHCA attorney Harla said there is nothing improper or illegal about Clancy’s contributions, as they are on behalf of himself, not the non-profit contractor. In fact, non-profit entities are not allowed to make political contributions, he said; individuals are, and employment by a non-profit does not restrict that right. Since CEC is not directly contracted by the county, the other donations are also not in violation of any pay-to-play regulations.

As one insider noted, the firm is headquartered in Essex County, which is also where Clancy lives and formerly served as chairman of the county’s Family Court Commission.

The connections

The other big name at CEC is Palatucci, a close friend and former law partner of the governor. Palatucci serves as senior vice president and general counsel for CEC, and maintains there was nothing untoward about any of the contracts, donations, or other funding streams, although he declined to provide any other comments.

Palatucci and his wife both maxed out their personal contributions to Christie in his run to the front office, providing $13,600 in total between the primary and general elections (which includes the $6,800 mentioned above). Soon after, Palatucci was named co-chair of the inaugural committee.

After the inauguration, Christie’s transition committee reviewing the state prison system lost dissenting member Nancy Wolff, director of the Center for Mental Health Services and Criminal Justice Research at Rutgers University. Wolff was critical of the committee’s work, claiming that discussions of reform were “chilled by an orchestrated and deliberate act of bullying and coalition building.”

Wolff also said, “Proprietary interests limited the free exchange of ideas and recommendations.” A private industry representative on the committee was CEC’s Director of Assessment and Research Dr. Ralph Fretz, and Wolff went on to release her own report on the status of the state’s prisoner re-entry programs which concluded less than half of the inmates were being serviced properly.

“While it is often argued that a community-based halfway house bed is cheaper than a prison bed, this is true only if the services provided by the halfway house could not be provided by the Corrections Department while the inmate was serving the mandatory minimum term,” Wolff said in her report. “Adding off-site re-entry preparedness costs to the back end of a mandatory minimum sentence term adds $23,000 per year per inmate.”

The movement

Since 1986, the number of state inmates living in a community setting rose from 1 percent (165 inmates) to 11 percent (2,841 inmates) last year. The state spends nearly $64 million on halfway house programs, including two lines of state aid that benefit EHCA and CEC through Essex and Union counties.

In total, over $20 million in aid was provided by the state in the current fiscal year. Essex County receives $18 million, the bulk of the discretionary aid which the current administration inherited from years prior. Union County is scheduled to receive $2.5 million, and both counties send the entire sum of aid to EHCA and CEC for use of their Newark facilities.

This particular line-item dates back at least a decade, said Essex County Treasurer Paul Hopkins, with peak funding around $20 million coming under Gov. Jon Corzine in FY09. Christie cut the funding from Corzine’s $18.5 million in FY10 to $15 million in FY11, but restored the program to $18 million for FY12 in his proposed and final budgets. The aid is still lower than under Corzine, but it amounted to a $3 million increase in a particularly tight budget year when legal aid for the poor, after-school programs, and tuition aid grants were slashed by the governor.

Rice said, “$3 million? They’re cutting elsewhere and pumping it into Delaney Hall? It’s all part of the privatization movement.” Although the Governor’s Office declined comment, Essex County said the aid has no bearing whatsoever on the contract in question.

“That has nothing to do with the dollars we receive (from the state),” Alagia said. “We’ve been getting that grant for the last ten years.” He said the county requested the state aid be restored this year, so that the county could avoid picking up the $2 million to $3 million tab that it ran last year, although no services were interrupted.

There’s a movement, Rice said, toward privatization of various sectors of government: education, health care, toll collection, and corrections. “I’m very much worried (about the direction the state is taking). The Legislature should hold hearings on that stuff.”

Last year, Christie’s Privatization Task Force concluded that, “through sensible planning and implementation, privatization offers a variety of benefits to governments and taxpayers, including lower costs, improvements in the quality of public services and access to private sector capital and professional expertise.” They estimated that the full force of the recommendations for privatization would result in annual savings of over $210 million.

Web of funding and influence shrouds Essex County jail bid