P3 benefits in question as Kansas hits pause on prison proposal

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DALLAS – Plans to build a $362 million Kansas prison as a public-private partnership are in doubt as lawmakers question the financial benefits of the proposal.

Traditional state bond finance could provide the state a better deal, according to state auditors who examined private operator CoreCivic’s proposed lease-purchase arrangement.

Kansas is having difficulty hiring enough guards to staff the state prisons at current capacity. The Kansas Department of Corrections says that it can lower operating costs by building a prison at the existing Lansing site that requires 46% fewer guards.

Kansas Gov. Sam Brownback, who heads the State Finance Council, postponed a meeting of the council Thursday that was to have authorized CoreCivic, formerly Corrections Corporation of America, to begin work on the project.

Senate Minority Leader Anthony Hensley, D-Topeka, a member of the finance council, said the meeting was likely postponed because Brownback did not have the votes on the nine-member council to authorize the deal. Hensley said that some Republican lawmakers are uncomfortable with terms of the deal. Others say the project should be approved by the full legislature rather than the nine-member council.

Uncertainty over how long Brownback will remain governor has also put the project in doubt. Brownback had been expected to join the Trump Administration as ambassador of religious freedom by now. However, the U.S. Senate has not taken up the nomination, which had to be resubmitted in the 2018 Congress.

“I wasn’t going to vote for it,” council member Sen. Carolyn McGinn, R-Sedgwick, told the Lawrence Journal World. “We’re getting into a big project. We don’t even know who is going to be in the administration.”

A new level of controversy arose late last year when the Kansas City Star reported that Brownback’s former chief of staff, David Kensinger, and another former Brownback staffer were registered as lobbying on behalf of CoreCivic. Brownback’s office said in late November that it was not involved in the selection of CoreCivic.

Kansas Democrats and Republicans have also voiced displeasure with Brownback’s budget plan for the coming fiscal year, which calls for an additional $600 million to public schools to satisfy a state Supreme Court order.

In July, state auditors found that the Kansas Department of Corrections had overestimated cost savings of a lease-purchase agreement and said it would be more cost-effective for the state to borrow money by issuing state bonds.

According to the auditors, bond financing would cost $178 million over 20 years, whereas lease payments over the same time period would cost $206 million.

“These results differ from KDOC’s preliminary estimates, which were missing key variables and used inconsistent assumptions that tended to favor a lease-purchase option,” the audit report said. “If KDOC chooses a lease-purchase option, there are some additional contract risks that will require legal counsel with skills specific to lease financing for large scale construction projects.”

With its original facility completed in 1867, Lansing Correctional Facility is the oldest and largest correctional facility in Kansas. As of June 2017, Lansing held more than 2,300 inmates. For fiscal year 2017, it employed almost 600 staff and had an operating budget of more than $40 million. The original part of the prison is still in use, and houses maximum security inmates.

KDOC plans to rebuild Lansing’s medium security unit so it can hold medium and maximum security inmates. A request for proposals for this project was issued in April 2017. KDOC officials are not considering renovating the existing facilities due to their age and outdated design. Officials sought to make the project budget neutral by requiring fewer correctional officers.

In the 2017 Legislative Session, KDOC presented the project concept to the House Transportation & Public Safety Budget Committee, the House Corrections and Juvenile Justice Committee, the House Appropriations Committee, and to the Joint Committee on State Building Construction.

Lawmakers authorized KDOC to request bids from vendors and move forward with seeking approval from the legislature for the preferred bid. This measure specifically authorized KDOC to seek bids for projects only at the site of the current facility in Lansing.

With the passage of the 2017 Omnibus Budget Bill, the legislature granted the Department authorization to pursue bond-financing or a lease-purchase agreement.

Two bids were received, both funded by the lease-purchase funding mechanism. KDOC chose the lower bid, submitted by CoreCivic, which proposed to design and construct the new Lansing facility within 24 months using Kansas companies. Their plan promised a net savings of $23.6 million over the life of the lease with staff and building efficiency as the primary drivers.

KDOC said the existing Lansing prison has $12 million of deferred repair projects, including new roofs, new locking systems and a new water line for its maximum-security cell house. Delaying construction of the replacement prison would cause higher construction costs, according to KDOC. CoreCivic said that the budget figures on its proposal would also have to be updated if the delay is prolonged.

CoreCivic, the largest for-profit correctional corporation in the nation, is also facing some resistance in its home state of Tennessee after a critical audit of its operations. More than a third of Tennessee’s 22,000 inmates are held in CoreCivic prisons.

In the state capital of Nashville, home to CoreCivic, Rep. Jeremy Faison, R-Crosby, and Sen. Mike Bell, R-Riceville, have introduced legislation that could phase out the use of private prisons.
For Kansas and other states, the growing shortage of prison guards represents an escalating fiscal crisis. States in competition with one another, the federal prisons and the private operators must raise pay to hire or retain guards. In a growing economy, the challenge becomes more severe.

Last August, Brownback announced emergency pay raises for prison guards, with an extra increase for those at El Dorado state prison, where turnover among guards is nearly 50% a year. The high turnover forced remaining officers to work overtime, including some 16-hour days.

Brownback ordered a 10% raise for uniformed staff at El Dorado, but only 5% for officers at the state's other prisons.

In their current session, lawmakers will decide whether to extend the temporary raises into future years.

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