Christie Limits Legislature’s Scrutiny of Halfway Houses
The Bo Robinson halfway house in Trenton is run by Community Education Centers, a private company.
By SAM DOLNICK June 29, 2012
Gov. Chris Christie on Friday curbed an effort by the New Jersey Legislature to improve oversight of the state’s system of large, privately run halfway houses.
Mr. Christie, a Republican who has close ties to a company that is the dominant operator of halfway houses in the state, used a line-item veto to reduce new disclosure requirements about halfway houses that the Democratic-controlled Legislature inserted in the state budget approved this week.
Lawmakers sought to mandate that the Corrections Department send quarterly reports to the Legislature detailing information about the halfway houses’ operations. Mr. Christie allowed some of the measure to stand, but vetoed the requirement that the reports be issued quarterly, leaving unclear when the department had to make the disclosures.
Mr. Christie also vetoed a requirement that the department report actions that the halfway houses had taken to prevent, and protect inmates from, violence.
The Democrats do not appear to have enough votes to override the vetoes.
In a message to the Legislature, the governor said he issued the vetoes because the reporting requirements were burdensome and threatened the security of the facilities.
“The administration recognizes the critical importance of maintaining client safety as well as accountability for the efficient expenditure of state dollars,” the message said, adding, “The administration has retained robust reporting requirements.”
In response to articles in The New York Times that detailed widespread violence, gang activity, drug use and escapes plaguing the halfway houses, Mr. Christie ordered the Corrections Department last week to step up their inspections and the Legislature sought to increase their scrutiny.
After the governor’s vetoes, Democratic lawmakers on Friday denounced him, saying he was trying to protect Community Education Centers, the dominant halfway house operator, which has long had connections to prominent politicians of both parties.
A close friend and political adviser of Mr. Christie’s, William J. Palatucci, is a senior vice president at the company. Mr. Christie was registered as a lobbyist for the company in 2000 and 2001, when he was a private lawyer, and in recent years he has repeatedly visited and praised the company’s facilities.
Community Education received roughly $71 million of the $105 million that was spent on halfway houses in New Jersey in the fiscal year ending last June 30.
In an interview, Assemblyman Joseph Cryan, a Democrat from Union County who is also an undersheriff, said the accusations against the halfway houses were so disturbing that the state should immediately pull inmates from them. Mr. Cryan said he was surprised by the line-item vetoes.
“He seems not to care about the obvious conflict of interest with his friend Bill Palatucci,” Mr. Cryan said.
The Assembly speaker, Sheila Y. Oliver of Essex County, said in a statement, “This language was placed in there to ensure the public safety of the general public, inmates and employees, and according to recent reports is sorely needed.”
State Senator Loretta Weinberg, a Democrat from Bergen County who is the majority leader, said the system clearly needed more regulation.
“To take out the word quarterly really decimates the whole idea,” she said.
Leaders of both legislative houses said this week that they planned to hold hearings on the system this summer.
Michael Drewniak, a spokesman for Mr. Christie, said that the governor wanted better oversight, but that the Legislature’s measures “were oddly shoe-horned into the state’s budget, where they simply do not belong.” He said improved security measures needed to be “more carefully thought through, not just flippantly appended to a budget bill, which is now being treated as a political opportunity.”
Community Education Centers bought advertisements in New Jersey newspapers this week defending its record.
Asked about legislation, the company said in a statement, “C.E.C. has and will continue to welcome any objective review of the facts by the Legislature, as well as any and all agencies.”
Meanwhile, United States Senator Frank R. Lautenberg called on the Federal Bureau of Prisons to investigate conditions in the federal system of halfway houses, saying he was “troubled that the implementation of these programs puts residents, staffers and local communities at risk.”
New Jersey has sent inmates to halfway houses — many as large as prisons — for more than 15 years.
The system houses about 3,500 state inmates and parolees and hundreds of county inmates. The state pays the operators about $60 to $75 per person per day, roughly half what it costs to keep inmates in prison.
Inmates are usually sent near the end of their sentences to halfway houses, which are supposed to provide drug treatment, job training and other services to help in their return to society.
In addition to the budget measure, the Legislature also approved a bill this week that would require audits of halfway house contracts.
Mr. Christie’s aides have not said whether he will sign the bill, which had languished for eight years and was sponsored by State Senator Jeff Van Drew, a Democrat from Cape May County.
Financial Woes Plague a Penal Company Tied to Christie
By SAM DOLNICK - Published: July 16, 2012
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.
Richard Perry/The New York Times
John J. Clancy, Community Education Centers' chief executive.
Senior executives at the company, Community Education Centers .. http://www.cecintl.com/ .., 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 .. http://elections.nytimes.com/2012/candidates/chris-christie?inline=nyt-per .. 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. .. http://cecfacts.com/
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 .. http://www.documentcloud.org/documents/399882-short-of-cash.html .., 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 .. http://www.cecintl.com/news_2010_035.html .. 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.
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.
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.
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, .. http://www.llrpartners.com/ .. 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.”
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, .. http://www.llrpartners.com/team/?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. .. http://www.documentcloud.org/documents/399883-clancy-on-palatucci.html
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.
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.
A version of this article appeared in print on July 17, 2012, on page A1 of the New York edition with the headline: Finances Plague Company Running Halfway Houses.
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