Articles on this Page
- 09/18/14--12:00: _Bill aims to stop c...
- 09/22/14--02:00: _Health insurers tur...
- 09/22/14--10:28: _U.S. Senate passes ...
- 09/22/14--13:00: _Oops: Republican su...
- 09/23/14--14:17: _In Kansas, Democrat...
- 09/24/14--10:12: _Who’s trying to inf...
- 09/23/14--21:02: _Secret politics per...
- 09/24/14--10:13: _'Outside' groups sw...
- 09/24/14--05:06: _Non-candidate spend...
- 09/25/14--04:24: _Senate Democrats le...
- 09/26/14--12:00: _Marine Corps settle...
- 09/26/14--12:22: _McAuliffe names pan...
- 09/26/14--12:54: _12 things to know a...
- 09/29/14--12:27: _New types of health...
- 09/30/14--13:44: _Prison bankers cash...
- 09/30/14--02:00: _Debit cards slam re...
- 09/30/14--04:30: _Time is money: who'...
- 10/01/14--09:26: _Inside the virtual ...
- 10/02/14--04:34: _Megabanks have pris...
- 10/02/14--12:01: _Open pits offer che...
- 09/22/14--02:00: Health insurers turning into who knows what?
- 09/22/14--13:00: Oops: Republican super PAC misidentifies source of massive donation
- 09/23/14--14:17: In Kansas, Democratic donors invest in uncertainty
- 09/24/14--10:12: Who’s trying to influence your vote?
The State Influence Hub is tracking TV ad spending in all state-level races around the country. Over the next two years it will also track political donors, ballot initiatives and lobbying.
At the national level, we’re also tracking TV ad spending on U.S. Senate races in a pivotal election that will determine the balance of power at the Capitol.
State-level races: email states team leader Kytja Weir or call our statehouse reporters’ hotline at 202-750-0686.
- 09/23/14--21:02: Secret politics pervade popular companies
- 09/24/14--10:13: 'Outside' groups swamp Florida's airwaves in race for governor
- 09/24/14--05:06: Non-candidate spending increases in state elections
- 09/25/14--04:24: Senate Democrats lead TV ad blitz
- 09/26/14--12:00: Marine Corps settles dispute with whistleblower
- 09/26/14--12:22: McAuliffe names panel to reform Virginia’s ethics laws
- 09/26/14--12:54: 12 things to know about who’s trying to influence your vote in 2014
- More money is being thrown into state races than Senate ones so far this election.
- More than $280 million has been spent so far nationwide on television ads promoting and attacking candidates running for state political offices in 2014, a third less than at a comparable point in 2010.
- Political television ads trying to influence state-level races in the 2014 elections have run more than 540,000 times in 44 states starting in June 2013, according to the analysis of Kantar Media/CMAG data, sucking up the equivalent of 195 days of airtime if run continuously.
- The states where most has been spent buying political TV ads so far:
- Amounts spent per voter on political TV ads, the top 5 states:
- More than 90 independent groups have spent $55 million to shape state-level races in 30 states, accounting for roughly 19 percent of state-level political ad dollars this cycle. In 2010, such groups spent $50 million and made up only 12 percent of spending.
- The top spending independent groups in this election cycle are:
- The Republican Governors Association ($11.4 million) – active in 13 states
- Pro-Florida Gov. Rick Scott group, Let’s Get to Work, ($10.8 million)
- Democratic Governors Association ($5.1 million) – active in Michigan, Arkansas, Connecticut, South Carolina
- The union-backed Illinois Freedom Political Action Committee ($4.9 million)
- Billionaire Tom Steyer-backed NextGen Climate Action Committee ($2.3 million) – active in Florida and Pennsylvania
- The most expensive races are all for governor, in these states:
- The $2.1 million race for Oklahoma education superintendent is the 25th priciest nationwide for television, surpassing the amount spent to elect governors in at least 14 states.
- Spending on state supreme court races has outstripped 2010 by a 3-1 ratio, with more than $3.1 million spent to air ads in six states.
- There are more incumbent governors and fewer legislative chambers up for grabs this year than in 2010. That appears to have led to a lower voter turnout rate this year than in 2010 in at least 28 states, according to numbers from state election officials across the country.
- The bulk of political spending is almost certainly still to come. In 2010, 55 percent of the overall spending came in the final two months.
- In total, 44 states have had at least some ads, while six states have had no ads yet: Delaware, Louisiana, Mississippi, New Jersey, Utah, Wyoming.
- 09/30/14--13:44: Prison bankers cash in on captive customers
- 09/30/14--04:30: Time is money: who's making a buck off prisoners' families?
- 10/01/14--09:26: Inside the virtual tollbooth at many U.S. prisons
- 10/02/14--04:34: Megabanks have prison financial services market locked up
Update, Sept. 18, 2014, 3:00 p.m.: This story has been updated to include additional details about the proposed legislation and comments from Sen. Casey; the bill was not introduced today as planned.
For almost four decades, federal law has required coal companies to compensate miners who contract the debilitating and often deadly disease caused by breathing in coal dust. But companies have deployed strategies to avoid paying miners: Doctors working for coal companies have systematically misdiagnosed miners with black lung as having other diseases, and lawyers fighting miners’ claims have withheld evidence that the miners did, in fact, have black lung. These schemes were exposed last year in a major investigation by the Center for Public Integrity, partnering in part with ABC News.
The legislation, sponsored by Sens. Robert Casey, a Democrat from Pennsylvania, and Jay Rockefeller, a Democrat from West Virginia, aims to put a stop to those strategies. "To say this is shameful is an understatement," Casey said during a conference call Thursday, referencing the current state of the black lung benefits system.
The bill’s prospects for passage this year look dim because toxic partisan battles have made it hard to pass almost any legislation. Still, the bill marks a major milestone in the fight of mine workers to secure much-needed benefits. New legislation is particularly urgent, its sponsors say, because new evidence indicates that rates of the severe form of black lung have surged back to the highest levels since the 1970s, and more miners are seeking benefits. If changes are not made, the bill says, miners “with meritorious claims would not receive benefits.”
Casey acknowledged the challenging political climate and said he planned to push the bill in November. "If it doesn't work, we'll try it again in 2015," he said. "If you believe in the founding principles of this country, it's hard to be against these measures."
The first installment of the CPI series focused on cases in which coal company lawyers had withheld evidence that showed miners had severe black lung, leading to wrongful denials of benefits. The legislation would require both sides to disclose all medical evidence developed during the claim. It also strengthens criminal provisions; doctors, lawyers, and claimants could face up to a $10,000 fine and five years in prison for making false or knowingly misleading statements.
The second installment of the CPI series, reported in conjunction with ABC News, revealed that a unit of radiologists at the Johns Hopkins Medical Institutions had long been the go-to place for coal companies seeking negative chest X-ray readings to help defeat a benefits claim. The leader of the unit, Dr. Paul Wheeler, had never found a single case of severe black lung in more than 1,500 cases dating to 2000, the investigation found. The legislation does not mention Wheeler or Johns Hopkins by name, but it references “a certain physician employed at a prominent medical center.”
The bill seeks to root out systematic bias in X-ray readings in multiple ways. It would establish a pilot program that would allow claimants, coal companies, or Labor Department officials to request a review of films by an expert panel convened by the National Institute for Occupational Safety and Health, the federal agency that certifies doctors to read X-rays for diseases such as black lung.
Doctors on the panel would receive a series of X-rays. They wouldn’t know where each one originated, and the series would include films known to be either positive or negative. The agency would monitor performance and have the authority to remove doctors who were consistently wrong.
The bill also would allow miners to reopen their cases if they had been denied because of the readings of a doctor who subsequently was discredited.
Other provisions seek to level the playing field in a system that is often tipped in favor of coal companies, which typically are represented by specialized lawyers and can afford well-credentialed doctors. Claimants, by contrast, often can’t find a lawyer and have few resources to consult an array of top physicians.
To address these problems, the bill allows claimants’ attorneys to collect fees, paid by the government and capped at $4,500, before the case is finalized. Currently, lawyers must wait until the case is finished, then petition for payment. This delay, combined with the low probability of victory and the drawn-out nature of many cases, has caused attorneys to flee the system, leaving miners to fend for themselves in many instances.
The bill also extends a pilot program established this year by the Labor Department that would provide miners with better quality medical evidence. It would give doctors paid by the Labor Department a chance to review and rebut evidence developed by the coal company.
Other provisions would mandate a Government Accountability Office study of any further challenges miners face and would require the Labor Department to devise a strategy to reduce the current backlog of cases pending before administrative law judges.
Chris Hamby, a former reporter with the Center for Public Integrity, now works for BuzzFeed.
As I wrote last week, one of the nation’s biggest employers — Boeing — is pioneering a concept in providing health care benefits to its employees that eliminates insurance companies as middlemen.
What Boeing is doing represents a seismic shift in health care financing and delivery that potentially will have more far-reaching effects than Obamacare, primarily because it is coming from the private sector, not the government. It is a shift that the big health insurers have been anticipating and preparing for since long before the Affordable Care Act was enacted.
We tend to think that insurers with well-known brands like Aetna, Blue Cross, Cigna and UnitedHealthcare have been around forever and likely will always be with us as they are currently structured.
But the large corporations dominating the health insurance landscape bear little resemblance to the companies they were when they first appeared on the scene. Their current metamorphosis is just a continuation of a corporate evolution.
I’m not suggesting they will disappear, but I am willing to bet that in a few years, they will not be providing our health insurance coverage — at least in the way they do now. Instead, they will have transformed into companies that make most if not all of their profits in non-insurance lines of businesses.
You only have to look back a few decades to see just how dramatically the big insurers remade themselves as a result of pressure from both Wall Street and the marketplace.
Take Humana, where I used to work, as an example. Humana began as a nursing home company in 1961. When I joined the company 27 years later, it had sold all of its nursing homes and become the world’s largest hospital company. A few years later, it sold all of its hospitals and became Humana the managed care company.
I left Humana to join Cigna in 1993. Cigna, which started out as a fire and marine insurance company, had by then morphed into one of the world’s largest multi-line insurance companies. Its peers were Aetna — which initially was just a life insurer — MetLife, Prudential and Travelers. All were selling health insurance by this time. But within a year or so after I joined Cigna, Wall Street decided that multi-line insurers were dinosaurs and insisted that the companies divest some of their businesses so they could focus on just one or two.
MetLife, Prudential and Travelers all sold their health care business and Aetna and Cigna decided to get out of the property and casualty business to focus on health care.
Over just the last 25 years, all of these companies had changed dramatically to concentrate on businesses that were deemed to be more profitable than other business lines that once defined them.
As for UnitedHealthcare and WellPoint, few people had even heard of them 25 years ago. But thanks to cash generated by the divestiture of their original non-insurance businesses, they were able to buy their way into managed care. They quickly ballooned in size to become the nation’s largest health insurers.
Now that the profit margins of those big companies’ core health insurance businesses are under intense pressure because of Obamacare and changes in the marketplace, you can rest assured that their top executives are at work on new transformation blueprints.
If you look at their websites, you’ll be hard pressed to even find the word “insurance.” They all are in the process of redefining their missions—and looking outside of the U.S. for new opportunities. Rather than describing what they sell in any explicit way, they use vague language that seeks to describe what they have become or aspire to be and do.
Humana says its primary focus “is on the well-being of its members.” Aetna says it is “transforming health care to create healthier communities, a healthier nation and a healthier world.” How? By “creatively destroying the current business model to enable a new one,” said CEO Mark Bertolini at a health care technology conference earlier this year.
Cigna CEO David Cordani says his team “is proud to serve as a catalyst for change in the more than 30 countries in which we operate around the world.”
According to UnitedHealth Group’s website, it is “the most diversified health care company in the United States and a leader worldwide in helping people live healthier lives…”
WellPoint says it is “working to transform health care with trusted and caring solutions.”
Even the nonprofit Blue Cross plans are reinventing themselves. Florida’s largest insurer, Florida Blue, earlier this month unveiled its new corporate parent, GuideWell. Said CEO Pat Geraghty at the Medifuture conference in Tampa: “We’re not here to be the best plan in Florida. We’re here to be the best health solutions company in the United States.”
What all of those companies’ executives understand is that if profit margins are to be maintained in the post-Obamacare world, finding greener pastures has once again become a necessity.
Wendell Potter is the author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans and Obamacare: What’s in It for Me? What Everyone Needs to Know About the Affordable Care Act.
Private companies typically don’t fill out their own customer satisfaction surveys, and teachers are not generally allowed to pen their own evaluations. But the federal government sometimes pays contractors to perform quality checks on their own work, with predictably abusive consequences.
The most notorious, recent case involved a firm called U.S. Investigations Services, Inc., a Falls Church, VA-based company that was hired by the U.S. Office of Personnel Management to investigate the backgrounds of current or prospective federal employees who needed security clearances — as well as to perform a quality review of each background investigation before submitting it.
Instead, the contractor cut corners, and passed along thousands of background investigations to federal authorities without actually conducting the required quality reviews, according to the U.S. Justice Department.
On Sept. 19, however, half the Congress voted unanimously to prevent federal contractors that process security clearances from conducting quality reviews of their own work. The bill does not have a sponsor in the House of Representatives, but Sen. Jon Tester, D-Mont., the principal Senate author, said via a spokesperson that he is working to find one.
“We have been playing fast and loose with the background investigation process, and it’s past time to make wholesale reforms,” Tester said in prepared statement. “This bill is a step in the right direction, and I’m pleased it’s moving forward.”
The Obama administration says it supports the reform. “We applaud Senator Tester and the other members of the Committee for their unwavering commitment to improving the integrity of the background investigation process,” Susan Ruge, associate counsel to the Inspector General of the Office of Personnel Management (OPM), said in an emailed statement after the Senate vote. She said it would help ensure background checks meet the "highest quality standards".
A U.S. Justice Department complaint filed against USIS in January 2014 said the company had claimed it completed and reviewed at least 665,000 background checks, without actually checking their quality. That amounted to about 40 percent of all background investigations carried out by the contractor between March 2008 and September 2012, according to the complaint.
Earlier this month, a USIS spokesman confirmed reports that OPM had decided not to renew any of its contracts with the company. “There is nothing in the bill that states who should conduct the quality reviews,” said Marnee Banks, a spokeswoman for Tester. But “it’s our understanding that OPM will be conducting the quality reviews in house,” she said.
Republican super PAC American Crossroads misidentified its second-largest donor last month in paperwork filed Friday with the Federal Election Commission.
The group, co-founded by GOP strategist Karl Rove, listed the Glenmede Trust Company as giving it $300,000 on Aug. 29, part of the $1.7 million American Crossroads raised in August.
But Glenmede spokeswoman Melissa Stonberg says the wealth management firm — which manages more than $25 billion for wealthy individuals, families and foundations — didn’t give American Crossroads a penny.
"The Glenmede Trust Company, N.A. did not make any donations to American Crossroads," Stonberg told the Center for Public Integrity. "We have contacted American Crossroads to let them know of the misreporting."
Paul Lindsay, the spokesman for American Crossroads, did not respond to questions about the apparent discrepancy Monday morning.
Several hours later, however, American Crossroads filed an amended report to the FEC that now identifies the $300,000 as coming from Thomas and Sandra Sullivan, the parents of U.S. Senate candidate Dan Sullivan of Alaska. Lindsay confirmed the super PAC changed its report but declined additional comment.
The Center for Public Integrity first raised questions about the six-figure super PAC contribution because the address American Crossroads listed for Glenmede seemed odd: It wasn't the location of the company's corporate headquarters in Philadelphia but that of a beachside condo in Florida.
Thomas Sullivan is the owner of the $3 million, 2,850-square-foot condo, according toMiami-Dade County records.
For their parts, Thomas and Sandra Sullivan have previously donated $250,000 to an Alaska-based super PAC known as "Alaska's Energy/America's Values,” which supports their son.
That super PAC has raised $460,000 through July 30, according to FEC records.
Through mid-September, the group has already aired more than 1,600 TV ads in the race, according to a Center for Public Integrity review of data provided by Kantar Media/CMAG, an advertising tracking service.
In August, only one other donor gave more money to American Crossroads than the Sullivans — Home Depot co-founder Bernard Marcus, who gave $500,000.
Greg Orman, the independent U.S. Senate candidate from Kansas, won’t say whether he’ll caucus with Republicans or Democrats if he wins in November — a decision that could determine which party controls Congress’ upper chamber.
But such uncertainty hasn’t dulled enthusiasm from some of Orman’s prominent left-leaning donors during what’s become one of the nation’s more bizarre races: incumbent Republican Sen. Pat Roberts narrowly survived a primary challenge from tea party foe Milton Wolf, and now, the Democratic candidate is attempting to drop out and may not even appear on the ballot.
Take entertainment lawyer Charles Ortner, who has represented the likes of Madonna, U2, Lady Gaga, Kanye West, Michael Jackson and Whitney Houston.
This election cycle, Ortner has donated a combined $54,900 to the Democratic Congressional Campaign Committee and the Democratic Senatorial Campaign Committee, according to data provided by the Center for Responsive Politics and a Center for Public Integrity review of Federal Election Commission filings. He’s also given $1,000 to Orman.
“Mr. Orman is a fundamentally decent individual. He is not an ideologue. He is a practical problem solver,” said Ortner, who previously bundled between $100,000 and $200,000 for Barack Obama’s 2008 campaign and was later tapped by the president to serve on the board of trustees for the John F. Kennedy Center for the Performing Arts in Washington, D.C.
“When I made a donation to Mr. Orman’s campaign I had no idea this would turn into a two-candidate race,” Ortner continued.
That sentiment was echoed by Hollywood executive Bernie Cahill, who has counted Ortman as a friend and business partner for more than 20 years.
This year, Cahill personally donated $16,200 to the Democratic National Committee and also helped put together “a small get together” for Orman’s campaign in Los Angeles. Campaign finance records show he has given $5,200 to Orman’s campaign — the legal maximum — as has his wife, Jaime Murray, the actress known for her roles on TV shows such as “Defiance,” “Hustle” and “Dexter.”
“Greg is going to be accountable first and foremost to the people of Kansas, and by extension he will act in the best interest of all the citizens of the United States,” Cahill said. “Frankly I’m not concerned in the least who he caucuses with.”
On the campaign trail, Orman has pledged to be “an independent [who] won’t answer to either party.”
He's criticized both Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., for being "too partisan." And he's suggested that Democratic Sen. Heidi Heitkamp of North Dakota or Republican Sen. Lisa Murkowski of Alaska should be considered as the next Senate majority leader.
Earlier this year, neither side suspected Kansas would be in play in November. Now, it’s among the most competitive in the country, in a high-stakes election where Democrats and Republicans are waging intense campaigns to determine who will hold the reins of power during Obama’s final two years in office.
Through mid-July, Orman, a wealthy, 45-year-old businessman, had raised more than $670,000 for his campaign war chest. Roberts, by contrast, had raised about $4.8 million, but he had also spent $3.8 million, largely to fend off Wolf, his primary opponent.
As of July 15, Orman reported about $360,000 cash on hand, versus Roberts’ $1.4 million.
Orman recognizes that, if he wins in November, neither Senate Democrats nor Senate Republicans may have the upper hand.
“If I get elected to the United States Senate, there’s a reasonable chance that neither party will have a majority,” Orman says in an online campaign video.
“If that happens, that’s a great thing for Kansas,” he continues. “It gives Kansans the opportunity to define the agenda.”
He further asserts that he may consider switching allegiances — that is, leave one caucus and join the other — if, after “four or five months,” there’s nothing but “the same, old partisan bickering.”
Orman continues: “We’ve never really seen the opportunity to hold the party in charge responsible and accountability for getting things done.”
That’s a welcomed message for Charles Conn, the warden of Rhodes House and global CEO of the Rhodes Trust and the Rhodes Scholarships.
A former registered Democrat who now identifies as an independent, Conn has previously donated to Democrats such as Obama, John Kerry and Rep. Walter Minnick of Idaho. This year, he’s donated $5,200 to Orman’s campaign because he thinks Orman is a “rational problem solver, not an ideologue.”
“I believe enough in having an independent bloc in the Senate that I am happy to trust that they will caucus with whomever they need to to be effective,” Conn said. “We urgently need collaborative problem solving, not partisan rhetoric, to address the country’s substantial challenges.”
The Center for Public Integrity is investigating who is trying to influence the 2014 elections through television advertising, part of a broader effort to consider the sources behind political power in this country.
What is the Center tracking?
The Center created two apps to track spending on political advertising on television throughout the U.S.:
How can I use this?
This information can help you see who is paying to influence your vote in the 2014 election.
The opening views of both the State Ad Wars Tracker and Who’s Buying the Senate? show at a glance where the biggest expenditures on TV ads have been. You can view this by state totals, or switch to viewing it per eligible voter.
The total expenditures are broken down by candidates, groups and parties. In some races you may be interested to see that groups spend more on TV ads than either candidates or parties.
Click on your state to see who’s running ads either supporting or targeting a candidate, and even watch a few examples of these. You may have already seen these on your TV: now find out who’s behind them.
While you’re on a state page: click on a group name to find out what it is, how many ads it has sponsored, and to see who it is spending money to support and who it is spending against (in negative advertising).
The numbers are helpful barometers of how actively a candidate or group has been using television advertising.
Why should I care about the amounts spent on political television advertising?
Television advertising is one of the most popular and most expensive ways to reach voters. Tracking it provides one of the most comprehensive and comparable pictures available of campaign spending across the states. Money doesn’t always win races, but it often helps push a candidate to victory — or defeat. Tracking these ads helps identify who is trying to influence voters and change the outcome of elections. The ads also provide one of the most comprehensive and comparable pictures available of campaign spending across the states.
Who is paying for these ads?
Airtime for political advertising is purchased by candidate committees, political parties and independent groups.
I see a breakdown by parties, candidates and groups. What’s the difference?
Political parties and independent groups are more likely to run negative ads that attack a candidate, allowing the candidate supported by the group to appear above the fray. Independent groups typically can accept money from corporations and unions, which candidates running for office cannot do in some states. Such independent groups often don’t have to disclose the same information about the sources of their funding as candidates or parties.
Where does this information come from?
The Center for Public Integrity analyzed data from Kantar Media/CMAG — CMAG stands for Campaign Media Analysis Group — which monitors television signals for political advertising nationwide. The group counts ads each time they run. Then, using a proprietary formula, it estimates how much it costs to place each ad. These may not match up exactly with the true costs of placing an ad. Think of the cost estimates as a well-informed guess, which can provide useful points of comparison.
What period does this information cover?
The information covers political television advertising that ran starting Jan. 1, 2013, geared toward the 2014 elections.
How often are these numbers updated?
The trackers will be updated weekly on Thursdays, and the Center for Public Integrity will be writing stories about what we find — both on the state level and for the U.S. Senate.
Which ads are included?
Kantar Media/CMAG monitors television ads that run on local broadcast TV in all 210 media markets, as well as national network and national cable TV, but it doesn’t monitor local cable stations. So if an ad runs on a local cable channel, as many are expected to in the 2014 election, it won't be counted here.
Does this include digital ads, such as those on YouTube? Ads from radio?
No, these numbers only reflect the ads that ran on television. Kantar Media/CMAG monitors most TV stations, but not local cable stations, online or the radio. It also does not include print advertisements. More details.
How does this compare to what is available from government sources?
The estimates only cover television ads, not other kinds of political messages, such as ads that appear on radio or online. The estimates also only include how much money a candidate or organization spent to place the ad, not to make it. And it only counts the ads once they air. Records filed at the Federal Communications Commission, for example, can show TV airtime that groups pay to reserve for the future.
It also includes all ads containing overt candidate advocacy as well as all “issue ads” that mention a candidate but don’t overtly call for the candidate’s election or defeat. Federal Election Commission records only capture ads containing overt advocacy, with the exception of “issue ads” that run immediately before a primary or general election.
Why are the spending estimates different from other sources?
These numbers represent actual television ads that have already run. It doesn’t include the cost of producing the ads. It also doesn’t include ads that run on local cable, online or radio. It doesn’t include ads booked to run in the future. It does include ads that don’t expressly advocate for election or defeat. And it’s based on estimates. Counts from other sources are often different in one or more of these ways.
How is the spending per eligible voters calculated?
Spending estimates are divided by the number of eligible voters for each state, which includes U.S. citizens above the age of 18 as counted by the July 2014 Current Population Survey. The population figures, published by the Bureau of Labor Statistics and the U.S. Census Bureau, are the most recent available.
Have more questions about these numbers? Want to interview one of our reporters for an article you’re writing?
Reporters should include what state and race they are writing about and their deadlines.
Watch your Netflix show, wear your Ralph Lauren shirt, brew your Keurig coffee and deposit your paycheck at M&T Bank.
Just know that you're patronizing some of the nation's least politically transparent companies, according to a new study to be formally released this morning by the nonpartisan Center for Political Accountability and the Zicklin Center for Business Ethics Research at the University of Pennsylvania’s Wharton School.
Twenty of the nearly 300 companies studied didn't score a single point on the survey's 70-point scale measuring political disclosure and accountability policies, including Netflix Inc., which produces political thriller "House of Cards," and K-Cup maker Keurig Green Mountain Coffee, which says it uses the "power of business to make the world a better place."
Other basement dwellers include Whole Foods Market Inc., Southwest Airlines Co., Wal-Mart Stores Inc., DirecTV and Berkshire Hathaway, billionaire Warren Buffett's holding company.
But overall, the nation's largest publicly traded companies are growing more politically transparent, the study concludes.
"Although surging secret spending has fueled public suspicion and even allegations of political scandal, many of the nation’s leading public companies have announced opposition to the practice," the survey concludes. "By standing up for sunlight and adopting public disclosure policies, they are laying the foundation for a new route to political disclosure."
Railroad giant CSX Corp. and Noble Energy Inc. — each with 68 points — led about three-dozen companies that scored at least 60 points out of a possible 70. Other top scorers included energy company Exelon Corp., tech giant Microsoft Corp. and tobacco company Altria Group Inc.
Nanomanufacturing company Applied Materials Inc., investment management firm BlackRock Inc. and oil and gas services company Schlumberger Ltd. improved their scores the most from 2013 to 2014, the survey indicates.
This latest verson of the annual study uses 24 measurements to rate a company's political transparency practices and accountability policies.
The measurements judge whether — and to what degree — companies voluntarily disclose donations to politically active trade groups and “social welfare” nonprofits, adopt policies that govern political expenditures from its corporate treasury and reveal money spent to influence state-level ballot initiatives.
All companies that lobby or operate political action committees must regularly file reports with government regulators. Companies must also report direct donations to state-level candidates, as such contributions are permissible in some states.
But companies have significant leeway in setting decision-making policies for political expenditures and determining whether to voluntarily disclose information beyond what is required by law.
Corporations' involvement in political elections have received significant attention since 2010, when the Supreme Court’s Citizens United v. Federal Election Commission decision granted them powerful spending freedoms.
Corporations may now, for example, directly advocate for a candidate's election or defeat or contribute to super PACs that do. They may also anonymously donate money to nonprofit social welfare groups and trade associations, which in turn are free to directly advocate for a candidate's election or defeat.
In January, the Center for Public Integrity reported that top corporations had in one year funneled at least $173 million to politically active nonprofit groups.
So far during the 2014 election cycle, 11 such nonprofits have each spent at least $1 million overtly advocating for or against federal-level candidates, according to the Center for Responsive Politics.
Topping the list is the U.S. Chamber of Commerce, one of the nation's most notable political forces that, through Tuesday, had spent more than $23 million this cycle supporting primarily Republican congressional candidates.
The Chamber has roundly criticized the Center for Political Accountability/Zicklin Center study as anti-business with a methodology that changes from year to year.
The study is "not a legitimate survey, but an activists' tool to silence business free speech," Chamber spokeswoman Blair Latoff Holmes said.
Bruce Freed, president of the Center for Political Accountability, dismissed the criticism.
"Some of the trade associations have an investment in secrecy," he said. "Most companies view the index as a serious benchmarking, and they treat is seriously."
The Chamber has also criticized corporate political disclosures in general, declaring last year in a joint letter to businesspeople that "corporations do NOT support increased political and lobbying 'disclosure.'"
But while the Chamber "does not encourage corporations not to disclose," companies are "free to choose whatever they would like to do in this space," Holmes said.
The race to occupy the Florida governor’s mansion is among the most expensive state-level contests in the country this year, with roughly $31.8 million spent through September 8 on 64,000 television ads.
But the campaign committees of incumbent Republican Gov. Rick Scott and Democratic challenger and former Gov. Charlie Crist are responsible for less than 4 percent of that spending. That’s the lowest rate of candidate participation in any governor’s race in the country, according to a Center for Public Integrity analysis of data from media tracking service Kantar Media/CMAG.
The phenomenon stems in part from a new campaign finance law that the Florida Legislature passed last year. The change made it easier for independent political committees to raise unlimited sums of money. The committees can then use that money to coordinate directly with candidates on advertising or other spending. Few, if any, other states have such a liberal standard for allowing such coordinated efforts.
As a result, candidates’ actual campaign committees, which face strict contribution limits, have become virtually irrelevant — especially in Scott’s case.
For example, one ad begins with a shot of Scott reading a newspaper.
“You might have noticed the news media is not always my friend, but they aren’t the critics I worry about,” Scott says. He lowers the newspaper to reveal his grandson on his lap. At the end of the ad, Scott’s grandson says Scott’s campaign slogan — “Let’s get to work, Grandpa” — and Scott laughs. “That’s my line,” Scott says.
Though it’s clear that Scott helped produce the ad by, at the very least, sitting and talking before a camera, Scott’s campaign didn’t pay for it. The Let’s Get to Work political committee did.
In federal and most state elections, this level of coordination between a candidate and a group spending independently to support that candidate would be illegal. Less obviously coordinated efforts prompted a criminal probe of Wisconsin Gov. Scott Walker’s 2012 recall election campaign, for example. Yet in Florida, such coordination is not only legal, but the norm.
“The idea that there are firewalls between a candidate campaign and the outside entities is a fiction,” said Dan Smith, a political science professor at the University of Florida.
Without firewalls, though, limits on how much money candidates can raise and spend become meaningless. Political contests become competitions for who has access to more cash.
In the gubernatorial contest, an independent political committee is backing each of the two major party candidates. These groups are separate from the candidates’ respective campaigns, can accept unlimited contributions, yet can coordinate with the candidates. Crist described them as extensions of his and Scott’s campaigns.
“Charlie Crist for Florida is our political committee,” he told the Center. “And he has his, called Let’s Get to Work.”
Representatives of Scott’s campaign and Let’s Get to Work did not respond to requests for comment.
Let’s Get to Work has spent $10.8 million on television ads backing Scott since last November, the second-highest spender nationwide among non-candidate organizations active in state-level races.
The group was established in 2010 when Scott first ran for the seat. It received $12.8 million in contributions from a trust in Scott’s wife’s name that year. The group’s biggest donor this election cycle is the Republican Governors Association, which gave $9 million since January 2013, according to state filings.
The Washington, D.C.-based Republican Governors Association is a political powerhouse that spends tens of millions of dollars on governors’ races nationwide. So far it has bought ads in 13 states this cycle.
The biggest donors to the group so far this cycle are conservative billionaire brothers Charles and David Koch, Las Vegas casino magnate Sheldon Adelson and hedge fund manager Paul Singer, according to IRS filings.
The Republican Governors Association also gave $225,000 to the Republican Party of Florida in December, and the party has given nearly $3.5 million to Scott’s campaign since December.
Four of Let’s Get to Work’s 13 different ads, including the one described above, feature cameos by Scott. These ads alone cost the committee an estimated $3.4 million to air, according to the Kantar Media/CMAG data, more than has been spent in at least half of the nation’s gubernatorial races this cycle. Scott’s campaign, on the other hand, has only spent about $176,000 on TV ads.
Using the political committee to pay for TV ads — usually a campaign’s biggest expense — makes sense, Crist said, given that campaigns face $3,000-per-election contribution limits and donations to political committees are unlimited.
As long as political committees don’t use words such as “vote for” or “vote against” in their ads, the candidates can coordinate with the groups, said Ron Meyer, a Florida elections attorney who is representing several Democratic candidates this cycle, though none involved in the governor’s race.
Like his opponent, Crist is also taking advantage of Florida’s flexible laws, though in a slightly different way.
The political committee backing Crist has not bought any TV ads, and instead has given at least $9.7 million of the $17.7 million it has raised to the Florida Democratic Party, according to state filings. The party, in turn, is coordinating with Crist, a former Republican.
One ad, which cost the party an estimated $1.3 million to air, opens with a shot of Crist.
“Almost every day people say to me, ‘Charlie, I’m working hard, but I’m stressed out,’” he says.
Though illegal in federal races, this coordinated effort is OK in Florida as long as the party names at least two other candidates it supports within the ad, Meyer said. This particular ad features four small photos of Crist and three other Democratic candidates at the end amid the normal disclaimer text.
Parties are free from contribution limits, which means candidates can conserve their own campaign funds when parties pay for ads.
“In my humble opinion, the party is the perfect vehicle for raising and spending money,” said Mark Herron, a Florida elections attorney representing Crist’s campaign. The only downside is that money given to a party can’t be earmarked for a specific candidate the way money given to a political committee can, he said.
Crist’s campaign has spent roughly $968,000 airing TV ads, compared with the roughly $8.9 million the state’s Democratic Party has spent to benefit his candidacy.
Those ads from the Florida Democratic Party, plus the roughly $9.8 million worth of ads sponsored by the Republican Party of Florida, account for roughly 59 percent of the television spending in the governor’s race.
Another oddity of Florida’s laws is that Crist can also raise money for the political committee Charlie Crist for Florida, and Scott can raise money for Let’s Get to Work.
Better yet, Scott can contribute his family's considerable wealth directly to Let's Get to Work, as his wife has done through her trust in the past. Scott can give unlimited amounts to his own campaign committee, but if Ann Scott tried to give directly to her husband’s campaign committee, she would be limited to the standard $3,000 limit per election per donor. State records show she has not given any money to Scott’s actual campaign.
Both candidates can also raise cash for their respective parties.
Despite the various ways candidates can avoid dipping into their campaign reserves, candidates’ official campaigns still have a role in Florida’s elections, Herron said.
“You don’t want to have zero campaign, everything going through the party,” he said, pointing to expenses like staff salaries and travel that the campaign has to cover.
Though the new law makes spending lots of money to influence elections easier, the fact that the state’s airwaves are filled with a seemingly endless supply of ads paid for by groups other than the candidates’ campaigns is nothing new for Florida.
“For all intents and purposes, there is unlimited spending on political races in Florida and almost unlimited sourcing of those contributions, and this has been going on for years,” Smith said. “It’s the same old funders, same sources, going through different vehicles.”
Kitchen cabinet magnate Tom Wolf has tapped his own considerable wealth to help blanket Pennsylvania's airwaves with more than $11 million worth of television ads, surging ahead of a crowded Democratic primary field and opening up a lead in the general election polls against incumbent Republican Gov. Tom Corbett.
His bid is also getting help from two political groups, PA Families First and NextGen Climate Action Committee, which have already aired an unprecedented $3 million in ads themselves, 10 times more independent spending than occurred statewide in 2010.
Fueled in part by Wolf and also the political groups empowered by a U.S. Supreme Court ruling, Pennsylvania is on top of the heap for ad spending so far in state-level races in 2014, with more than $37 million already spent, followed by Texas ($36.8 million), Florida ($33.7 million), Illinois ($26.4 million) and New York ($14.5 million).
Through Sept. 8, one day before the final five state primary elections, more than $280 million nationwide was spent on television ads promoting and attacking candidates running for state political office in 2014.
The total is actually a third less than at a comparable point in 2010, but more money was provided by independent groups like those in Pennsylvania, according to a Center for Public Integrity analysis of data from media tracking service Kantar Media/CMAG.
More than 90 of these non-candidate organizations have spent $55 million to shape state-level races in 30 states, accounting for roughly 19 percent of state-level political ad dollars. Four years ago, such groups spent $50 million and made up only 12 percent of spending. That translates to about 30,000 more ads this cycle from such groups.
The top spending independent groups so far are the Republican Governors Association at $11.4 million, Florida’s conservative Let's Get to Work political committee ($10.8 million), the Democratic Governors Association ($5.1 million), the union-backed Illinois Freedom Political Action Committee ($4.9 million) and the aforementioned NextGen Climate Action Committee ($2.3 million), created by California hedge fund manager and environmentalist Tom Steyer.
The increase in spending by non-candidate committees can be traced in part to the landmark U.S. Supreme Court decision Citizens United v. Federal Election Commission, decided early in 2010. The ruling gave the green light to unions and corporations to spend unlimited funds on ads supporting or opposing candidates.
Such spending is significant because contributions from corporations and labor unions to candidates in most states are either limited or banned altogether.
Citizens United and a separate lower-court decision led to the creation of super PACs and political nonprofits, which collect such donations and spend the money on advertising and other election materials. The decision forced 24 states including Pennsylvania, which limited such spending, to change their laws.
Even in some states, where the decision had no legal impact, there has still been an increase in spending from such groups. In Nebraska, independent groups upended the traditional dynamic by helping push political outsider and tea party favorite Pete Ricketts ahead of establishment candidate Attorney General Jon Bruning to win the GOP nomination for governor in the May primary.
“Nebraska has never seen the kind of third-party spending like it saw in 2014 from a state perspective,” said Jordan McGrain, the former executive director of the state’s Republican Party who led Bruning’s campaign. “The parties play a role, but at least in Nebraska, it’s no longer a kingmaker role.”
While it’s a midterm cycle for federal elections, more than 6,300 political seats are at stake in the states — the most in four years.
Though television ads are not the only campaign tool used in politics, they do indicate which races are the most competitive and expensive.
Ads inundate voters in state races
Political television ads trying to influence state-level races in the 2014 elections have run more than 540,000 times in 44 states starting in June 2013, according to the analysis of Kantar Media/CMAG data, sucking up the equivalent of 195 days of airtime if run continuously.
Though Pennsylvania has seen the most spending on political television ads for state races overall, a Rhode Islander has likely seen far more ads.
With roughly $5.8 million spent on advertising, the small state led the country with the most spent per eligible voter thanks to an especially fierce Democratic primary contest on Sept. 9 for the seat opened up by Gov. Lincoln Chafee, who is not seeking re-election.
Gina Raimondo defeated and outspent Providence Mayor Angel Taveras and the largely self-funded Clay Pell to win the Democratic nomination, despite opposition from public employee unions because of pension reforms Raimondo initiated as the state’s general treasurer. Cranston Mayor Allan Fung emerged from a comparatively tame Republican primary, in which both candidates combined spent one-fifth the amount on television ads that Raimondo did alone.
In total, an estimated $7.77 was spent per possible voter — enough for coffee and half a dozen donuts, with change to spare, at the famed Allie’s Donuts in North Kingstown, Rhode Island.
That’s too many donuts for one person to eat, said shop owner Anne Drescher, and too much money spent on ads that could instead fund scholarships or fix roads.
“It’s unnecessary for it to be so over the top,” Drescher said. “If there’s any way they can take some of that money and invest it in the state, that would be the best PR plug to win any office.”
Pennsylvania, at $3.99 spent per eligible voter, was second, followed by Maryland ($3.48), Nebraska ($3.12) and Illinois ($2.94). Spending in all five states is significantly higher than what it was at this point in 2010, fueled largely by contested governors’ races.
Spending is down in 24 of 44 states where political advertisements have aired so far this cycle. And spending on gubernatorial contests — the biggest ticket race at the state level — is 60 percent of what it was at this point in 2010.
Four years ago, there were fewer incumbent governors, meaning there were more competitive races and thus a lot more spending on ads. Twenty-nine sitting governors are seeking re-election in 2014 compared to 13 in 2010.
At the same point in 2010, for example, the open gubernatorial contest in California alone had accounted for more than $100 million in estimated advertising spending. This cycle, with favored Democrat Jerry Brown seeking re-election, less than $2 million has been spent.
“The playing field is very different this year,” said Tyler Johnson, a political science professor at the University of Oklahoma. “You have 20-plus governors running for re-election, so you’re immediately sort of eliminating in most of those races one competitive primary.”
The lack of a compelling top-of-the-ticket race in so many states appears to have led to a lower voter turnout. At least 28 states showed lower primary turnout rates than in 2010, according to numbers from state election officials across the country.
Top ticket races dominate the airwaves
But even at diminished levels, the 36 governors’ races across the country have fueled more than $208 million, or nearly three-quarters of all the estimated state-level advertising spending this cycle.
The top five most expensive races overall have been gubernatorial races, with Pennsylvania ($35.5 million), Florida ($31.8 million) and Illinois ($26 million) leading the pack. Andrew Cuomo’s bid to remain the Democratic governor of New York put the Empire State fourth, with $13.2 million in spending, while blue-leaning Maryland came in at fifth ($12.1 million) thanks to a heated Democratic primary for the open seat being vacated by Gov. Martin O’Malley due to term limits.
Florida has the second-most expensive governor’s race in the country despite the fact that incumbent Republican Gov. Rick Scott and the Democratic nominee, former Republican Gov. Charlie Crist, faced minimal competition in the Aug. 26 primaries.
Heavy spending there by the parties and other non-candidate groups — one closely associated with Scott — was geared toward the November general election from the beginning.
Non-candidate groups have spent more on that contest than any other state race nationwide. Unlike in other states, Florida’s campaign finance laws allow candidates to work closely with seemingly outside groups, rendering candidates’ own campaigns less relevant.
Illinois’ gubernatorial contest, like the one in Pennsylvania, features a wealthy businessman who has spent millions to fund a challenge against the unpopular incumbent — in this case a Democrat, Gov. Pat Quinn.
Illinois venture capitalist Bruce Rauner narrowly secured the GOP nomination after spending 40 times more on television ads than his closest opponent, state Sen. Kirk Dillard, in the state’s March 18 Republican primary.
Winning the television ad war is no guarantee of victory at the ballot, however.
In Texas, the heated primary for lieutenant governor helped make that seat the sixth-most expensive race overall through Sept. 8 at $11.9 million, eclipsing even the state’s own gubernatorial race. Incumbent Lt. Gov. David Dewhurst spent nearly half of that in the four-way race, with 70 percent more spots airing than his closest challenger, state Sen. Dan Patrick. Yet Dewhurst still lost in the primary runoff for the state’s No. 2 office.
Patrick was able to secure endorsements from influential conservative groups such as Texans for Fiscal Responsibility, a nonprofit chaired by oil executive Tim Dunn. The group typically does not air many television ads but uses direct mail and online messaging to energize conservative voters, according to Texas political consultant Ray Sullivan, who helped run Gov. Rick Perry’s 2012 presidential campaign.
“Candidates in the Republican primary who secured those endorsements generally won, and they usually won over better-funded opponents,” Sullivan said.
A third-wheel joins the race
In this election cycle, more than 90 non-candidate organizations have run ads some 126,000 times, sometimes dueling against each other.
The groups vary from small, seemingly state-specific groups, such as the Campaign for Maine political action committee, to sprawling national political machines with franchises in multiple states.
In six states, such outside groups purchased the majority of the political television ads. And in at least 17 races, the groups spent more than the candidates themselves.
The top independent spender nationally has been the Republican Governors Association, which along with its state-level subsidiaries has spent $11.4 million on ads to help elect Republican governors.
The GOP governors’ group has also been the biggest donor to the second highest spender nationwide, Florida’s Let's Get to Work, which has spent more than $10 million in ads to boost the re-election of Scott, the Republican governor.
The organization functions differently than most so-called “outside” groups, having been initially seeded by a trust belonging to Scott’s wife. The ads often feature Scott speaking directly to the camera, a level of coordination between the group and the candidate that would be illegal in most states.
The Democratic Governors Association, which along with the Republican Governors Association advocates for the election of their parties’ gubernatorial candidates, took the third spot, with $5.1 million spent so far on TV ads when including its state-level subsidiaries.
Union-backed Illinois Freedom PAC spent $4.9 million attacking wealthy Republican gubernatorial nominee Rauner.
NextGen Climate Action Committee, the group funded by deep-pocketed environmentalist Tom Steyer, has sponsored $2.3 million in ads criticizing the policies of incumbent Republican governors in Florida and Pennsylvania, sometimes widening its scope beyond environmental issues to hit hot-button topics such as education.
Already active in 14 states combined, the two governors’ associations have covered the most ground nationwide. The groups, referred to as 527 committees based on the section of the federal tax code under which they are organized, can accept unlimited donations from individuals, corporations and unions.
They can give directly to candidates in some states. In Pennsylvania, for example, the RGA has donated $1.8 million to Corbett’s campaign.
But they also often air their own ads, a strategy that frees them to spend unlimited amounts in states where contributions to candidates are limited — or where union or corporate funders are not allowed to give to candidates directly.
In Connecticut, the two groups are using such proxy organizations to help prop up gubernatorial candidates who have accepted public funds for their campaigns. By accepting the handouts, the candidates are limited in how much they may raise, but the groups are circumventing those restrictions, and have increased total ad spending by 18 percent.
The newly formed independent group Grow Connecticut Inc. has so far spent roughly $375,000 to air TV ads attacking Democrat and incumbent Gov. Dannel Malloy. The group received at least 94 percent of its money from the Republican Governors Association.
On the other side, the Democratic Governors Association recently fired back by pouring more than $1.2 million into Connecticut Forward, an independent organization which has aired an estimated $425,000 worth of ads attacking Malloy’s rival, GOP nominee and former ambassador to Ireland Tom Foley.
Playing the bad cop
Subject to varying state laws, outside spending groups often don’t have to disclose as much as candidates do about who funds them or where they spend their money, effectively masking who is really calling the shots.
Arizona gubernatorial hopeful Christine Jones was on the receiving end of such a group — the Virginia-based 60 Plus Association, which has been connected to the vast network of conservative nonprofits overseen by billionaires Charles and David Koch.
After the secretive group ran attack ads against her, she lost the GOP primary. She now feels such groups ought to disclose who funds them.
“It’s important for democracy, because in the end, everybody has a motivation,” said the former executive of website domain giant Go Daddy Group. “You might be motivated by money, you might be motivated by power, you might be motivated by getting a pet project put through. Everybody’s motivated by something.”
Citizens United did away with Arizona’s ban on the use of corporate and union money to influence elections, according to a tally by the National Conference of State Legislatures.
It’s not uncommon for such groups to be the ones slinging mud while the candidates they support keep it clean. More than two-thirds of ads aired by such groups attacked a candidate. By comparison, candidates were far more positive, with only 14 percent of their ads criticizing opponents.
For candidates, independently sponsored ads that bash their opponents have long provided the “best of both worlds,” according to Johnson, the University of Oklahoma professor.
“They get outsiders who are willing to attack and get those messages out there, but then there’s the sort of plausible deniability of, you know, ‘That’s not our ad’ and ‘We didn’t approve of that,’ ” Johnson said.
A turning tide?
The groups have made significant advances in the television ad wars since 2010, when the U.S. Supreme Court decision opened the floodgates.
Democratic strategist Joe Trippi, who ran Howard Dean’s 2004 presidential campaign, has watched the spread of these organizations from the federal level to the states.
“That phenomenon is growing,” Trippi said. “It was in its infancy in 2010, and so I think that actually more groups exist today.”
But it’s not clear if the greater role such third-party ads are playing on the airwaves this election cycle is a trend that will continue beyond this year — or is just a byproduct of lower spending by incumbent candidates, according to Ken Goldstein, a University of San Francisco politics professor and expert on political advertising who advises Kantar Media/CMAG on its data.
“If you have outside groups who are raising a fixed amount of money in an election year, they’re going to spend it no matter what,” Goldstein said. “And so, by definition then, they’re going to comprise a greater proportion of the spending.”
Still, such groups have expanded their reach and moved beyond just the marquee governors’ races to spread their resources down the ballot this cycle, airing more ads than four years ago in races for state school superintendent and state supreme court justice.
Lower on the ballot, but not in cash
The contest for Oklahoma education superintendent is the 25th most expensive state-level race nationwide in terms of television advertising spending. With $2.1 million spent to air ads more than 4,400 times, the race has surpassed the amount spent to elect governors in at least 14 states.
Incumbent Superintendent Janet Barresi lost the Republican primary despite outspending her opponents on television ads by more than a 2-1 ratio.
An independent group, Oklahomans for Public School Excellence, ran an attack ad against Barresi just a handful of times, but it reinforced the mounting criticism of Barresi’s past support of the Common Core curriculum. Opposition from both the right and the left has grown against the Obama Administration-endorsed education initiative for an array of reasons, including the fear that it removes curriculum control from local decision-makers.
Johnson, the University of Oklahoma professor, said criticism of Barresi’s position on the policy ultimately turned the tide of the race.
Nationwide, state supreme court races have attracted more money spent on TV ads this cycle than in 2010 by a 3-1 ratio, with roughly $3.1 million spent to air ads in six states.
Races to retain three Tennessee justices clocked in as the most expensive with about $1.4 million in ads, followed by a North Carolina primary for a single seat that topped $1.1 million. Independent groups dominated the races in those states and also in an election in Arkansas as they tried to sway voters in those nonpartisan elections.
The independent groups haven’t all been victorious. North Carolina State Supreme Court Justice Robin Hudson is advancing to the November general election despite an estimated $689,000 the group Justice for All NC spent attacking her on the airwaves, saying she “sides with child predators.” She had dissented against applying electronic monitoring provisions to sex offenders whose crimes had occurred before the provisions were enacted.
Three Tennessee Supreme Court justices won retention elections — in which judges ran unopposed and voters decided whether they got to keep their seats — after their campaigns and an outside group fought off attacks from two other outside groups.
But in Arkansas, spending by the Law Enforcement Alliance of America had a particularly outsized influence in the state’s sole contested Supreme Court race between candidates Tim Cullen and Robin Wynne. The group spent nearly $320,000 on TV ads, accounting for nearly $9 out of every $10 spent in the race.
One ad claimed that Cullen had called child pornography a “victimless crime” while representing a convicted sex offender who was appealing his sentence. Cullen disputed the claims, and his campaign countered with its own TV ad that aimed to set the record straight. But ultimately Cullen was outspent, and he told the Center for Public Integrity the group’s ads were a major factor in his 4-percentage-point loss.
It’s not clear why the Virginia-based group was active in the Arkansas race. As a nonprofit regulated under section 501(c)(4) of the federal tax code, the LEAA does not have to publicly reveal its donors. In the past, the group has been backed by the National Rifle Association and the U.S. Chamber of Commerce. The LEAA did not respond to calls requesting comment.
The outside spending was unprecedented for an Arkansas judicial race, and according to former state Supreme Court Justice Annabelle Imber Tuck, the secrecy surrounding the LEAA’s funders could be particularly problematic if the funders of the ads were ever to come before the court.
“They influenced the election, or tried to, and now they’re parties in a case, but you don’t know that,” Tuck said. “There’s no accountability.”
More ads coming in the final stretch
After the primaries nailed down which candidates will compete in the general election, such outside groups started to assume an even greater role, rising from 16 percent of the ads before primary elections to 26 percent of ads afterward.
In Pennsylvania, for example, NextGen Climate Action Committee and the Democratic Governors Association-backed PA Families First only jumped in after the May 20 primary. Both groups have attacked the Republican incumbent, Corbett, for cutting education spending.
Corbett, in response, upped his spending after his uncontested primary, buying more than $5 million worth of ads since July to defend his record and attack Wolf, his Democratic challenger.
If the past is any guide, the bulk of political spending is almost certainly still to come. In 2010, 55 percent of the overall spending came in the final two months. But outside groups represented a diminished share of the ads as state and local parties upped their spending.
Even if advertising spending in all state races doesn’t reach the 2010 total of $921 million, some states and races are poised to blow past their levels from four years ago.
Pennsylvania’s gubernatorial race has already topped the amount of ad spending made in all of 2010. A continued barrage of advertising aided by outside groups could push the race to record levels of spending.
“It's sort of like we've opened the doors,” said William Rosenberg, a political science professor at Drexel University who has been following the race. “Money is an expression of free speech, and if you have more of it than someone else, you might have a bigger voice, a bigger megaphone."
The Democratic Senatorial Campaign Committee ruled the TV airwaves last week, even trumping the conservative super PACs and Koch brothers-backed nonprofits they’ve accused of trying to buy elections.
The DSCC — an official arm of the Democratic Party — aired about 3,800 ads in U.S. Senate races across eight states, according to a new Center for Public Integrity analysis of preliminary estimates provided by Kantar Media/CMAG, an advertising tracking service.
That was more than double the number of ads run by its GOP counterpart, the National Republican Senatorial Committee, from Tuesday, Sept. 16, through Monday, Sept. 22.
Such dominance isn’t shocking against the backdrop of Senate Republicans’ fundraising hiccups: the NRSC ended August with about $5 million less in the bank than the DSCC, according to the groups’ most recent campaign finance filings
“It's critical that the DSCC use our sizable fundraising advantage over the NRSC to help bridge the gap and stop the Kochs from buying the U.S. Senate,” said DSCC spokesman Justin Barasky, referring to the conservative billionaires Charles and David Koch whose political network has also been a major player in competitive Senate races.
NRSC spokeswoman Brook Hougesen did not immediately respond to a request for comment, but numerous recent fundraising pleas from the group have bemoaned the Democrats’ financial advantage.
“The midterm environment is toxic for Democrats, yet there’s a chance Republicans may not take the Senate,” wrote GOP strategist Karl Rove in a fundraising message for the NRSC on Wednesday. “Why? The Democrats have a huge money advantage.”
Senate Minority Leader Mitch McConnell, R-Ky., struck a similar tone in a separate recent email: “If we are unable to close the fundraising gap, Republicans risk being outspent 3-to-1, 5-to-1, even 6-to-1 in several key battleground races.”
Despite the sheer volume of ads the DSCC produced last week, the party committee only once — in Iowa— ranked as the top spender in a Senate race.
There, it essentially tied with GOP super PAC American Crossroads, a group co-founded by Rove after the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in 2010.
Both American Crossroads and the DSCC aired about 1,000 TV ads each in Iowa, according to estimates from Kantar Media/CMAG — or about one ad every 10 minutes. Republican Joni Ernst and Democrat Bruce Braley are locked in a bitter battle to replace long-serving Democratic Sen. Tom Harkin, who’s retiring.
Overall, more than 33,000 TV ads aired in the nine most competitive U.S. Senate races from Sept. 16 through Sept. 22, according to a Center for Public Integrity analysis of preliminary estimates from Kantar Media/CMAG. Democratic candidates and their allies were responsible for 52 percent of them.
The campaigns of Sen. Kay Hagan, D-N.C., and Alison Lundergan Grimes — the Democrat challenging McConnell in Kentucky — each aired about 1,200 TV ads last week. That’s one ad about one ad every nine minutes.
In Louisiana, Democratic Sen. Mary Landrieu’s campaign sponsored about 1,300 TV ads last week — or about one ad every eight minutes.
And in Arkansas, Democratic Sen. Mark Pryor’s campaign aired about 600 TV ads — or about one ad every 17 minutes.
In both Alaska and Georgia, meanwhile, the top Democratic ad producers were neck-and-neck with Republican spenders. For the battleground states of Colorado and Michigan, the top sponsors of ads last week were independent groups — not a candidate or an official party committee.
In Colorado, Crossroads GPS, the nonprofit sibling of super PAC American Crossroads, ranked as the No. 1 spender, airing about 1,000 ads last week.
And in Michigan, that distinction belonged to NextGen Climate Action, the super PAC supported by billionaire environmentalist Tom Steyer. It aired more than 1,400 ads last week supporting Democrat Gary Peters over Republican Terri Lynn Land in an open race to replace retiring Democratic Sen. Carl Levin.
With less than six weeks until Election Day — and early voting already underway in a handful of states — both Democrats and Republicans are working full bore to rally supporters and win over undecided voters.
“Both sides really are doing whatever it takes,” said Johanna Dunaway, a professor of political science at Louisiana State University. “We are seeing tons and tons of ads.”
Republicans need to pick up six seats in November to win a Senate majority.
Since January 2013, more than 400,000 ads have aired in the nine most competitive Senate races across the country, according to Kantar Media/CMAG.
Conservatives and liberals have each accounted for roughly half.
A military scientific adviser whose pay and security clearances were suspended after he exposed the Marine Corps’ disinterest in building lifesaving, heavily-armored, troop carriers settled his employment dispute with the Corps on Sept. 25, after reaching an agreement that he and his attorney described as a victory.
Under the terms of the settlement, Franz Gayl, whose complaints about the Corps attracted wide attention on Capitol Hill and the support of Joseph Biden before he became Vice President, will be appointed to a Marine Corps commission assigned to develop new policies for handling Marine whistleblowers. Gayl also was assured that he can keep working for the Marines, although his clearances were not fully restored.
In a Sept. 25 statement issued through his lawyer, Gayl said “this resolution not only vindicates me but also my loyalty and dedication to the Marines, which never wavered.” The attorney, Tom Devine at the nonprofit Government Accountability Project in Washington, D.C., said that since “team members must exercise sound judgment and work with integrity,” the commission appointment affirms that Gayl possesses those qualities.
It is unprecedented for a whistleblower to be appointed to help a government agency develop policy for whistleblower rights, according to Devine, who has worked with government whistleblowers since 1979.
The dispute was resolved with the help of of the Office of Special Counsel, an independent federal agency that protects government whistleblowers and initially intervened to block the Marine Corps’ decision to cut off Gayl’s pay in 2011. Nick Schwellenbach, a spokesperson for the office, called the two and a half year mediation the most complex undertaken by the Office under its current head, Carolyn Lerner.
In a prepared statement, Lerner, who Obama appointed to the post, commended both sides for reaching the agreement, and said “Mr. Gayl’s experiences as a whistleblower as well as being a former uniformed Marine and current civilian employee will make him an important contributor to the new team’s work.”
Gayl incurred the wrath of the Corps after he called attention in 2007 to the Corps’ failure to act on a request by U.S. officers in Iraq for a troop carrier that would afford better protection against roadside bombs. Had such vehicles been available to troops in 2005, when they were first requested, Gayl alleged, hundreds of soldiers’ lives could have been saved.
The adverse publicity he provoked caught the attention of then-Defense Secretary Robert Gates, who ordered the military to rapidly build costly Mine-Resistant, Armored-Protected vehicles, commonly known as MRAPs.
Gayl was subsequently accused by the Marines of improperly placing a thumb drive into a sensitive office computer, and eventually assigned to a desk in a hallway at the Marine Corps headquarters in Quantico, Va. “He was like a man in stocks,” said Devine. “It was about ongoing personal humiliation on a daily basis, and a symbol to others who worked alongside him.”
Although a copy of the settlement was not released, one of those familiar with it said it does not require the Corps to relocate him, and his superiors can still require that he be accompanied when visiting rooms with classified materials.
Gov. Terry McAuliffe of Virginia has rolled out another in a series of attempts to repair the state’s broken reputation, creating a commission to focus on ethics and accountability in government.
The move comes in the wake of the conviction of former Gov. Robert F. McDonnell, McAuliffe’s predecessor, on corruption charges stemming from gifts he accepted while in office. In a press conference announcing the panel on Thursday, McAuliffe, a Democrat, implicitly acknowledged the case and also cited the state’s failing grade in the Center for Public Integrity’s State Integrity Investigation, calling the grade “one of the many warnings the state has received on its mediocre record on accountability and transparency.” McAuliffe’s action also represents a tacit acknowledgment that reform efforts undertaken by the legislature earlier this year were inadequate.
The ten-member commission will be led by former U.S. Rep. Rick Boucher, a Democrat, and former Lt. Gov. Bill Bolling, a Republican. The panel is scheduled to announce recommendations in December for how the legislature can address a broad range of subjects, including limiting gifts to public officials and the creation of an independent ethics commission. McAuliffe said the panel was comprised of “pragmatists and problem-solvers.”
The state received an overall grade of F from the State Integrity Investigation, a data-driven, 50-state review of accountability and transparency in state government released in 2012 by the Center, Global Integrity and Public Radio International. The commission will address a number of issues that the Center identified as particular problems, including political financing, lobbyist disclosure and ethics enforcement agencies.
Earlier this month, McDonnell and his wife, Maureen, were found guilty of public corruption in federal court. The trial grew out of a series of gifts the couple had accepted from Jonnie R. Williams Sr., a Virginia businessman. That scandal, which emerged last year, pushed ethics reform to the top of the state’s agenda during this year’s legislative session.
One of McAuliffe’s first official acts as governor was to announce a limit on gifts to many executive branch employees. The legislature later passed its own reforms, which included a $250 cap on gifts to lawmakers from lobbyists or people seeking business before the state. The measure was widely criticized as anemic, however.
After the McDonnell verdict, state House Speaker William J. Howell and Senate Leader
Thomas K. Norment Jr., both Republicans, wrote an op-ed in the Richmond Times-Dispatch saying the legislature needed to do more. They issued a joint statement Thursday saying the legislature “looks forward to reviewing the Commission’s findings,” but that “ultimately, the responsibility to make changes,” rests with lawmakers.
In an email, Brian Coy, a spokesman for McAuliffe, said the governor plans to introduce legislation next year based on the commission’s recommendations, saying, “the General Assembly has publicly recognized the need to strengthen the law that they passed last year and the Governor is looking forward to working with them to do just that.” He added that the commission will continue to meet in 2015.
State Sen. John S. Edwards, a Democrat who was chairman of the Senate Rules Committee last session, told the Center that he supports the governor’s goals, but that he is not confident the legislature can pass meaningful reforms.
“I’m skeptical,” he said.
We're a little over a month away from the 2014 midterm elections, and in addition to control of the U.S. Senate there are more than 6,300 state-level races around the country in play.
And if you watch TV you've seen an unbelievable number of political ads asking for your vote. Do you know who is paying for those ads, and why?
The Center for Public Integrity is trying answer this question, by investigating who is trying to influence the 2014 elections through television advertising. We created two apps to track spending on political advertising throughout the U.S. – and reveal the source behind the dollars spent to influence your vote.
Here’s what we’ve found about who’s trying to influence your vote:
Health care provider organizations that are working directly with employers like Boeing — and cutting out the insurance company middlemen — believe they can do more than save money for those employers. They’re confident they can also improve both health care quality and service for workers and their families in ways that insurance companies cannot.
Employers are starting to realize that insurers might not be, as they have claimed, “part of the solution” to achieving a more patient-centered health care system. In fact, in some ways they have been part of the problem.
Providence-Swedish Health Alliance, a not-for-profit, hospital-based accountable care organization (ACO), will soon be providing both coverage and care to many Boeing employees, along with UW (University of Washington) Medicine — without an insurance firm. Officials at Providence-Swedish told me Boeing chose to work with them directly in part because of the firm’s desire to ensure their employees had a “better patient experience.” While cutting costs and improving quality of care were priorities, improving service and reducing hassles that have become synonymous with insurance company interactions was equally important to Boeing.
So Providence-Swedish has committed to a number of assurances and is even establishing a “concierge center” for Boeing employees. Among other things, the ACO has promised same-day or next-day appointments for urgent primary care visits and acute care, proactive support for preventive care and chronic disease management. The hub for all of this will be the concierge center, which patients can reach by phone, email or the Web.
While Boeing is contracting directly with Providence-Swedish and UW Medicine, the ACOs will have their own deals with insurance companies to provide back room services like claims processing. Dr. Joe Gifford, CEO of the Providence-Swedish ACO, told me his organization is working with Blue Cross of Illinois for that work. The federal government works with insurers in the same way to handle claims for Medicare beneficiaries.
Gifford also told me he’s in discussions with a number of other employers in the region that could result in similar deals—and even some that will include insurance companies, to some extent. And he noted that government entities, including Medicare and state governments, are following a similar path.
It’s a path that leads to what is often referred to as value-based care, a term that encompasses a spectrum of arrangements. What is common to all of the arrangements is a movement away from paying doctors and hospitals for individual treatments and diagnostic tests. In the deal with Boeing, for example, the aerospace company has given the ACOs a budget to provide all the care Boeing employees and dependents are likely to need in 2015.
In that sense, he said, “Boeing is treating us like an industrial supplier … and we are fully accountable” for costs and outcomes. That means that the ACOs will by necessity need to focus on keeping patients healthy and managing chronic conditions in the most cost-effective ways so as to prevent complications and reduce unnecessary hospitalizations.
Other hospitals are also taking on responsibilities that once were the complete domain of insurance companies. One example: the Community Hospital of the Monterey Peninsula in California, which earlier this year began offering its own Medicare Advantage plan to serve area seniors through a subsidiary called Aspire. “We think we can do a better job of meeting local needs than having a national company come in and tell us how to do it,” the company’s CEO, Scott Kelly, told the Monterey County Weekly.
This trend is not new. Many hospitals in the 1980s began operating their own HMOs to compete with insurance companies, but most of them failed, in large part because they didn’t have the actuarial and claims management expertise in-house they needed to stay solvent.
Learning from past mistakes, many of the hospitals and physician-led groups that are moving back into the health insurance market are hiring companies like Chicago-based Valence Health, a fast-growing firm that offers services ranging from claims adjudication to patient care coordination to more than 120 hospitals nationwide.
The number of employees at Valence has doubled to 325 over the past two years and is expected to grow by another 500 within five years. According to Kevin Weinstein, Valence’s chief marketing officer, that growth has been fueled by the movement away from fee-for-service medicine to value-based care in which health care providers are finding they have no alternative but to be more accountable for both cost and quality.
While the Affordable Care Act has been a catalyst for much of this change, employers like Boeing and other big payers of health care, including federal and state governments, will continue to drive it.
Wendell Potter is the author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans and Obamacare: What’s in It for Me? What Everyone Needs to Know About the Affordable Care Act.
Editor's note: This is the first in a two-part series examining how financial companies charge high fees to the families of prison inmates. The second part, which will run Thursday, focuses on no-bid deals between Bank of America and JPMorgan Chase & Co. and the U.S. Treasury, under which they provide financial services to the federal Bureau of Prisons.
JOHNSON CITY, Tenn. — Pat Taylor doesn’t believe in going into debt. She keeps her bills in a freezer bag under her bed, next to old photo albums, and believes in paying them on time religiously. For Taylor, living within your means is part of being a good Christian.
Lately, Taylor, 64, has felt torn between that commitment and her desire to be a loving, supportive mother for her son Eddie.
Eddie, 38, is serving 20-year prison sentence at Bland Correctional Center for armed robbery. He’s doing his time at a medium-security Virginia state prison located 137 miles northwest of Johnson City, across the dips and valleys of the Blue Ridge Mountains here in the heart of Appalachia. The cost of supporting and visiting Eddie keeps going up, so Pat makes trade-offs.
“I would send him money even if it broke me, because I do go without paying some bills sometimes to go see him,” Pat says.
Between gas to make the trip and overpriced sandwiches from the prison vending machine, visiting Bland costs about $50, a strain on her housekeeper’s wages. So she alternates, visiting Eddie one week and sending him money the next.
To get cash to her son, Pat used to purchase a money order at the post office for $1.25 and mail it to the prison, for a total cost of less than $2. But in March of last year, the Virginia Department of Corrections informed her that JPay Inc., a private company in Florida, would begin handling all deposits into inmates’ accounts.
Sending a money order through JPay takes too long, so Taylor started using her debit card to get him funds instead. To send Eddie $50, Taylor must pay $6.95 to JPay. Depending on how much she can afford to send, the fee can be as high as 35 percent. In other states, JPay’s fees approach 45 percent.
After the fee, the state takes out another 15 percent of her money for court fees and a mandatory savings account, which Eddie will receive upon his release in 2021, minus the interest, which goes to the Department of Corrections.
Eddie needs money to pay for basic needs like toothpaste, visits to the doctor and winter clothes. In some states families of inmates pay for toilet paper, electricity, even room and board, as governments increasingly shift the costs of imprisonment from taxpayers to the families of inmates.
“To give him $50, I have to send $70 off my card,” says Taylor, who moved to a smaller apartment on the outskirts of Johnson City in part because of the rising cost of supporting Eddie.
“They’re punishing the families, not the inmates.”
Price of prison
JPay and other prison bankers collect tens of millions of dollars every year from inmates’ families in fees for basic financial services. To make payments, some forego medical care, skip utility bills and limit contact with their imprisoned relatives, the Center for Public Integrity found in a six-month investigation.
Inmates earn as little as 12 cents per hour in many places, wages that have not increased for decades. The prices they pay for goods to meet their basic needs continue to increase.
By erecting a virtual tollbooth at the prison gate, JPay has become a critical financial conduit for an opaque constellation of vendors that profit from millions of poor families with incarcerated loved ones.
JPay streamlines the flow of cash into prisons, making it easier for corrections agencies to take a cut. Prisons do so directly, by deducting fees and charges before the money hits an inmate’s account. They also allow phone and commissary vendors to charge marked-up prices, then collect a share of the profits generated by these contractors.
Taken together, the costs imposed by JPay, phone companies, prison store operators and corrections agencies make it far more difficult for poor families to escape poverty so long as they have a loved one in the system.
Shifting costs to families
“It’s not just the money transfer that’s the problem, it’s the system it enables to shift costs onto families,” says Lee Petro, an attorney who helped litigate for a national cap on some prison phone rates. Without companies like JPay, he says, “it would be much harder to take money from families and make families of inmates pay their own keep.”
In 12 years, JPay says it has grown to provide money transfers to more than 1.7 million offenders in 32 states, or nearly 70 percent of the inmates in U.S. prisons.
For the families of nearly 40 percent of those prisoners, JPay is the only way to send money to a loved one. Others can choose between JPay and a handful of smaller companies, most of them created by phone and commissary vendors to compete with the industry leader. Western Union also serves some prisons.
JPay handled nearly 7 million transactions in 2013, generating well over $50 million in revenue. It expects to transfer more than $1 billion this year. (The company declined to provide any financial details; those included in this article are culled from public records and interviews with current and former employees.)
“We invented this business,” said Ryan Shapiro, 37, the company’s founder and CEO, in a phone interview in June. “Everyone else tries to imitate what we did, and they don't do it as well.”
Shapiro says working with corrections includes extra costs for security and software integration. He says he charges only as much as he must to maintain a razor-thin profit margin.
But others provide similar services for less.
NIC Inc., a competitor that helps states set up their websites, charges a flat fee of $2.40 in Maine to send money to inmates. Until recently, Arkansas charged 5 percent to send money through the state’s own Web portal. Floridians pay a fee of 3.5 percent to handle traffic tickets online.
Despite its kudzu-like growth, JPay so far has avoided scrutiny by consumer regulators.
In response to questions for this story, however, the New York Department of Financial Services’ consumer division is reviewing the company’s practices, according to a person familiar with the matter. The person spoke on condition of anonymity because he is not allowed to discuss active investigations.
JPay’s rapid rise stems in part from the generous deal it offers many prison systems. They pay nothing to have JPay take over handling financial transfers. And for every payment it accepts in these states — prisoners typically receive about one per month — the company sends between 50 cents and $2.50 back to the prison operator. These profit-sharing arrangements, which vendors offer as deal-sweeteners in contract negotiations, are known in the industry as “commissions.”
JPay’s payments to Illinois last year came to about $4,000 a month, according to documents obtained under the state’s open records law.
Jails often deduct intake fees, medical co-pays or the cost of basic toiletries first, leaving the account with a negative balance. This prevents inmates from buying “optional” supplies like stationery or sturdier shoes until they have paid down the debt.
Such charges levied by jails for common items are not new. The practice began prior to the rise of JPay, mainly with phone companies and operators of prison stores. But by automating the process, prison bankers make it a lot easier.
Negative account balances discourage cash-strapped people from helping relatives, says Linda Dolan, 58, a manager for a defense contractor in California. Last year, when her son was sentenced to 20 days in jail in St. Lucie County, Florida, for reckless driving, Linda wanted to buy him a second pair of underwear and socks. But the county’s intake fee and daily “rent” already had put the account about $70 in the red. Linda and her husband both were out of work and couldn’t afford to pay $100 for a pair of underwear.
“If relatives are putting money on somebody’s books while they’re an inmate, it’s to help them buy necessities,” Linda says. “I didn’t think it was right that the county was stealing the money.”
Capt. William Lawhorn of the St. Lucie County sheriff’s office said that inmates are charged a $25 initial booking fee, $3 a day for “subsistence” and medical co-pays, all of which can result in a negative balance. He said nobody is denied any type of needed service or care, and when inmates do have money, it’s used for candy and other junk food. Inmates in the county receive payments through Touchpay, a JPay competitor that often partners with foodservice giant Aramark.
Funding prisons out of the pockets of families and inmates has non-financial costs too, says Brian Nelson, who spent 28 years in an Illinois state prison for murder. Nelson says he has “become an asset to society” since he was released four years ago because he stayed in touch with family and priests even when he was in solitary confinement. When inmates can’t afford to maintain contact with the outside world, he says, they are less equipped to transition smoothly to civilian life.
The effect on poor families is especially harsh, Nelson says: “It’s a wife that has three children at home, and her husband is in jail, so now she has a choice: Do I send money to him so he can afford to stay in touch with the kids, or do I feed the kids?”
Inmates’ need for money is inescapable, Nelson says. Those in northern Illinois are not issued cold-weather clothes, he says, leaving them vulnerable to frostbite unless they can get money to pay for prison-approved long underwear and boots.
Razor thin margins
JPay founder Shapiro is eager to tell his company’s story and how he believes it helps families. It’s not just about faster payments. Once an inmate gains access to the money, JPay offers several ways to spend it, including pay-per-page e-messaging, music downloads and MP3 players. When inmates in some states are released, they receive their remaining money on JPay-branded payment cards that carry higher fees than those on most consumer payment cards.
Shapiro says that if his fees were any lower, his company would lose money. He declined to make the company’s financial details available and would not say how much he is paid.
Shapiro serves on the board of a foundation that advocates for inmates and carries full-page ads for JPay in its newsletters. The foundation received an $85,400 gift directly from JPay’s corporate treasury in 2009.
He lives on a tiny harbor island near the northern tip of Miami Beach in a home he bought for about a million dollars. Last year, through a company he controls called El Caballero LLC., Shapiro bought a custom powerboat, dubbed Sea Block, that retails for a half-million dollars.
Heading to the company’s headquarters one July morning, he stopped first for CrossFit, a military-style training regime that he enjoys because it brings out his competitive side, then for daily prayer.
Families who use JPay love the company, he says. He boasts of its well-trafficked Web forum and of the 174,000 “likes” on its Facebook page, where its marketers post cheery articles about incarceration. “The Jail Cats program at Gwinnett County Detention Center in Georgia is rescuing kittens and helping to rehabilitate incarcerated women,” one recent post read.
“We go out of our way to make sure that they feel comfortable — that, you know, you’re spending money with a company that cares about you,” Shapiro says.
If people don’t want to pay his fees, Shapiro says, they can always mail a money order, except in the “couple of states” that now charge fees for them.
Nearly 400,000 people are imprisoned in states where there is no free deposit option, a fact Shapiro was unaware of during a series of interviews this summer.
“When it’s up to us, it’s absolutely free,” he says.
Slow-moving money orders
For the first 14 years of Eddie’s sentence, Pat Taylor mailed money orders directly to the prison at no charge beyond the cost of the money order and a stamp. Then last year, she was instructed to make the money order out to JPay and send it to a Florida post office box. The company would credit it to Eddie’s account.
Under the new system, she says, it would take weeks for Eddie to see funds sent via money order. So Pat, like nearly everyone else she knows, gave in and began paying $6.95 to send the money from her debit card.
Across the country, delays and other obstacles make the “free option” inaccessible to many families, the Center found. More than a dozen families in five different states said that money orders have been credited much more slowly since JPay took over.
Shapiro says he is “absolutely shocked” by the complaints that money orders are delayed because he had never heard of such problems before. Most money orders are processed within two to three days, he said, unless the person sending money fails to fill out the form properly. He said Virginia is especially efficient and processes money orders within 24 to 48 hours.
“We are not slowing it down, there is no conspiracy,” he said.
He said JPay does “want people to convert from a money order customer to a digital customer, absolutely,” but only because electronic payments are more efficient. “We’re not trying to make an extra dollar everywhere we can,” Shapiro said.
Before JPay, Virginia prisons credited money orders to inmates’ accounts in roughly three days, families say. Today, money orders can take more than a month to reach an inmate’s account, Marvin Rodriguez-Barrera, an inmate at Virginia’s high-security Red Onion State Prison, wrote in a letter to prisoners’ rights advocates in February.
Faster to Guatemala
“I am from Central America, and it is cheaper for my family, and easier, to send money to Guatemala than for my family to send me money from this very state!” Rodriguez-Barrera wrote. “The old way of using money orders was cheaper, easier and in many instances faster.”
Those seeking to avoid the fees by sending a money order must print and fill out a JPay-provided form whose instructions are dwarfed by large print barking at them to “Put down your pen! Put away your car keys!” because “There’s a faster way to send money, go to JPay.com and sign up now!”
The aggressive marketing has worked. One former marketing director for the company lists as a key accomplishment on his LinkedIn profile that he “Converted 78 percent” of money order users to online users, boosting the company’s annual revenue by $985,000.
Shapiro said the information in the profile, including the former employee’s title, was inaccurate. He said he didn’t have data on how many money order users convert to electronic payments or how much revenue the company gains when they make the switch.
Inside JPay’s secure, fishbowl-like money order processing room, reams of envelopes sit in postal bins on the shelves. Signs around the room remind the handful of workers employed there which states allow them to deduct a fee and which offer the service for free.
In Pennsylvania, the first state where JPay accepted money orders by mail, executives were surprised to see the number of money orders plunge by two-thirds in the first two months, Chief Financial Officer Mark Silverman explained in a brief interview.
Shapiro said that Missouri used to process 30,000 money orders a month before JPay came in.
“With JPay, we drove that down to only 1,000 people sending money,” he says. “And that’s by choice.”
JPay’s marketing materials urge customers to choose the higher-cost option. During her twice-monthly visits to Bland, an isolated work camp nestled between rolling, green hills, Pat Taylor now sees JPay-branded fliers warning of the misery awaiting anyone who tries to use the “free option.”
On one side, a multi-ethnic lineup of models bury their faces in their hands and complain of what a “nightmare” it was to complete the money order, how it got lost or delayed.
“There’s a better way,” the flier promises on the reverse side, which depicts an attractive young woman seated with her laptop computer. For “Faster, Easier, Next-Day Delivery,” families can choose from a menu of high-fee options.
Tequila, cigars and lobbying
To impress state corrections officials and gain their business, JPay spends heavily on industry conventions attended by agency heads with contracting authority. During a 2012 convention of the American Correctional Association, the company threw what it called an “END OF THE WORLD PARTY” at a Denver wine bar that bills itself as “about you, and your inalienable right to the unbridled enjoyment of food and wine.”
The invitation, printed on a disposable beer coaster, promised “a bash, JPay-style: *fuerte* tequila, hand-rolled cigars, a live mariachi band.” Conventioneers could catch a JPay shuttle leaving from the hotel “ALL NIGHT LONG,” it said.
For years, JPay has sponsored an award for former state corrections directors presented by the Association of State Correctional Administrators, paying for the recipient’s trip and a Wexford crystal bowl inscribed with the honoree’s name.
JPay’s outreach extends to state legislatures as well, even though many of the company’s contracts forbid it from using fee revenue to lobby. The company has hired registered lobbyists in at least seven states. Shapiro says JPay’s lawyers approved the use of company funds for that purpose.
In Ohio, it tapped Thomas Needles, a former aide to President George H. W. Bush. Needles gives generously to Republican candidates and also lobbies for for-profit universities. In Maryland, JPay hired Bruce Bereano, one of the state's best-paid lobbyists, who was disbarred after a 1994 conviction for overbilling his clients and using the money for campaign donations.
The company also sought to lobby Washington for access to the federal Bureau of Prisons’ 216,000 inmates — what Shapiro has called “the mother ship of all contracts,” which is now held by Bank of America.
It spent $20,000 in 2012 to hire Park Strategies, run by former U.S. Sen. Alfonse D’Amato of New York, in an effort to obtain the contract. That effort was not successful.
More inmates, smaller budgets
JPay was founded in 2002, just as the U.S. prison population neared the apex of a three-decade climb that more than quadrupled the number of inmates in state prisons. Shortly thereafter, as the economy went into recession, state budgets were squeezed and officials looked more aggressively for ways to cut spending on prisons.
Already, private vendors had stepped in with a solution: They would charge prisoners sky-high prices for phone services, snack foods, hygiene products and clothing, then return a large cut back to the prisons — often 40 percent or more.
Shapiro was the first entrepreneur to see how financial services might provide another stream of revenue. For a fee, he offered to deliver cash in ways that saved time and effort for corrections agencies, and often to give them a portion of the proceeds, just as the phone and commissary companies were doing.
“When we started, the states were very much saying to us, ‘There’s no need for procurement here because there’s no one else doing what you do,’ ” Shapiro said in a 2012 interview. Ten years later, he said, all of them were asking companies to submit bids for the work.
That doesn’t mean the door is open to competitors. Most states, including Virginia, now contract with JPay or its main competitor under a master agreement negotiated by Nevada in 2011 on behalf of a multi-state consortium. Participating states can simply sign on to the deal with one or both of the companies without the hassle of separately determining the best company for the job.
JPay is protected from other market forces, as well. When states offer its music players and tablet computers for sale to inmates, they often confiscate radios that people already own, according to inmates in Ohio. This leaves inmates dependent on JPay’s music downloads, which can cost 30 to 50 percent more than the same songs on iTunes, inmates say.
The profit-sharing arrangements are at the core of JPay’s origin story, Shapiro said in 2012. A couple of years out of college, he spent months driving around upstate New York, pitching JPay to “every sheriff, whether they had five inmates or 100 inmates” — without success.
Then someone in Passaic County, New Jersey, suggested that they offer the county 10 percent of their revenue, “so the jail would be less of a tax burden on the community.” The warden signed up on the spot.
Critics including Alex Friedmann, associate director of the Human Rights Defense Center, an inmates’ advocacy group, says the profit-sharing amounts to a legal kickback. “They charge exhorbitant fees then kick back a percentage of their revenue. … The company doesn’t need that for profit,” Friedmann said.
Shapiro says he prefers the term “commission” because “the word kickback has a negative connotation, and it seems like some person is making that money and pocketing it and buying a Chevrolet or something, when in fact it’s going to use for the benefit of inmates — basketball hoops, volleyball, whatever.”
Most states put their share of the cash in an “Inmate Welfare Fund” that is supposed to be used for inmate benefits beyond what is guaranteed to them by law. As incarceration rates climbed, however, the definition of “inmate benefit” drifted, says Justin Jones, who was director of the Oklahoma Department of Corrections until last year.
“The Legislature allowed us to broaden the definition of inmate welfare and it got to the point, almost anything they would fund through appropriations could now be paid for as inmate welfare,” he says. “It ended up where we started using that money if an inmate went out to medical on an emergency and medical was end-of-year short,” he says. “We bought air conditioners, ice machines, X-ray machines.”
Jones was not a fan of the system. If legislatures want to impose longer prison sentences or “if they create new crimes, then the legislature should appropriate dollars for that,” he says. “I should not have to go in and redefine and stretch the definition of inmate welfare accounts.”
Taken together, JPay and other prison vendors create a system in which families are paying to send the money, and inmates are paying again to spend it, says Keith Miller, who is serving 21 ½ years at Bland for a series of drug-related, violent crimes committed in his early 20s. The earliest he may be released is 2021, when his mother will be 87 years old.
“The fact that [my mother] has to pay the fees to send the money and then the fact that [prison agencies] make a certain cut off it seems to me that [the prisons are] double-dipping into the money they’re sending,” he said in an interview at the prison. “It really doesn’t make sense to me that this should be allowed.”
Shapiro is skeptical that JPay’s fees make much of a difference for inmates’ families. He says companies that provide other services to inmates, such as phones and commissary, are the real problem.
“Compared to the commissary or phone revenue, we’re just a drop in the bucket,” he says.
That may be changing.
Last year, the Federal Communications Commission dusted off a 12-year-old petition filed by inmates’ families who argued that prison phone rates were unfairly high, preventing them from maintaining contact with loved ones. The commission capped rates for many calls under its authority to ensure that pay-phone rates are just, fair and reasonable.
Mignon Clyburn, who was acting chairwoman of the FCC when it passed the rate cap and now serves as one of three commissioners, says the action was necessary because people are “making unspeakable sacrifices to stay in touch with their loved ones.”
Vincent Townsend, president of Pay-Tel Communications, a major provider of phones for inmates, said his industry “abused the public.”
‘Ethical, right, moral’
Other prison vendors “better pay attention to what’s ethical, right, moral,” he said. “Because if you don’t then some regulator’s going to step in, and you’re going to have to deal with it.”
There is a crucial difference: The telephone industry is closely regulated by the FCC, which has explicit authority to set rates for pay-phone calls. Financial and consumer protection regulators have less power over pricing.
The Consumer Financial Protection Bureau can sue companies for offering unfair, deceptive or abusive financial services. The bureau declined more than a dozen requests to discuss specific issues related to prison financial services.
The Federal Trade Commission, which has consumer-protection authority and the power to ensure that markets are competitive, declined to comment “on specific companies or conduct.”
Regulators in seven states have levied fines totaling $408,500 against JPay for operating without a license. The actions were not designed to disrupt its business, according to the Conference of State Bank Supervisors, a trade group that represents these regulators in Washington.
“State banking regulators are concerned with ensuring that businesses operating in their states are properly licensed and with enforcing applicable laws (including consumer protection laws),” the group’s spokeswoman said in an emailed statement.
‘Invent a better way’
Shapiro says he understands the challenges faced by poor families of inmates since JPay’s startup days, when he would spend “hours on the phone with a grandmother, talking about her day at Wal-Mart.”
He says he feels trapped by the structure of the industry he has come to dominate. He wishes the fees were lower, that states didn’t force him to charge more and give them a share and that he could “invent a better way” than asking people’s families to help pay for their imprisonment.
Yet Shapiro says he is satisfied to compete within what he admits is a broken system, even if the system may be punishing some innocent family members.
For many families, JPay has become that system. When Jewel Miller, 80, phoned JPay’s call center last month to ask why her payments are delayed, and why she must submit the same form every time she sends a money order to Keith, the operator hung up on her.
In a series of interviews it became clear that Shapiro was unaware of some of the fees related to his business. He said he did not know, for example, that Florida now charges its own fee for money order deposits after JPay processes the payments.
These fees are spelled out in JPay’s contracts with states, which Shapiro signed. Florida’s says it will charge a 50 cent “Money Order by Mail” fee.
As of July, Shapiro was unaware of JPay’s own $1.95 fee to deposit money orders in Indiana, declaring, “If someone sends $100 with a money order to an Indiana inmate, that inmate gets $100. … I am positive.”
Two days later, he called back to say, “We’re working with the states right now to get some of those fees taken off.”
So far, the fees remain in place.
Eleanor Bell contributed to this story.
When Clarence Justin Aldred was released from Macomb Correctional Facility in New Haven, Michigan, in July 2013, he left with the balance of his inmate account, which consisted of his prison wages and any leftover money sent by family.
Aldred received no cash. The money was accessible via a debit card issued by JPay Inc., a Miami-based company that provides financial services to inmates. After 29 years inside, the card was Aldred’s only way to make most purchases. After using it a few times, Aldred, 57, noticed that $15 was missing.
“They kept charging me every time I used it. Nobody told me that,” he said.
Michigan is one of at least 15 states where prisoners are given their inmate account balance on a prepaid card when they are released. The cards usually carry a variety of fees that eat away at the small amount of money most former inmates are left with to restart their lives. Inmate release cards have drawn criticism from consumer lawyers and faced litigation in at least two states.
One county in Arkansas agreed to pay $71,609.58 to settle charges that the fees illegally deprived people of access to their own money. A federal judge refused to approve the proposed settlement and invited the parties to submit a modified agreement.
JPay provides the cards in at least 11 states. In most cases, the fees exceed what consumers would pay for similar services.
In Michigan, for example, JPay charges users 50 cents to check the card’s balance at an ATM, $2 to withdraw cash, 70 cents to make a purchase and 50 cents a month for a maintenance fee. Even not using the card costs money. Doing nothing draws a $2.99 fee after 60 days. To cancel the card, it costs $9.95.
Alred said he doesn’t recall if the list of fees was included in the piles of paperwork he received when he was released from Macomb.
JPay CEO Ryan Shapiro says his company doesn’t make money on the cards, because the fees go to middlemen that run prepaid card programs for JPay.
“[The cards are] not really a revenue-generating or a money-making business for us,” Shapiro said in an interview. The company uses the release cards to offer a more complete suite of services to prisons, so they will be more likely to contract with JPay for other services like money transfers to inmates and prison email, he said.
Fees aren’t unique to inmate release cards. Prepaid cards issued by companies like Green Dot and American Express also charge users for a range of services.
The difference is choice: Many consumers who choose to use a prepaid card, often instead of a bank account, can shop around for the least costly option. Released inmates like Aldred can’t.
“They told me there was no check option,” said Timothy Jon “TJ” Spytma, of Ann Arbor, Michigan.
Spytma left G. Robert Cotton Correctional Facility in Jackson, Michigan, in July after 39 years. He had $170 on a JPay card, money he spent on clothing. Once he saw the fees, he decided to cash out as soon as his July pay was deposited onto the card.
“I’ll go to an ATM and remove it all,” he said. “They charge a small service fee every time you even check your balance or make a withdrawal.”
Prisons and jails say the cards save the institutions money and help prevent inmates from paying exorbitant fees charged by storefront check-cashers.
The cards also guard against fraud, said Marty E. Moore, a Utah-based lawyer who represented a bank that issued prepaid cards given to inmates at Ramsey County Law Enforcement Center in St. Paul, Minnesota.
The cards “are quick and leave a complete auditing trail,” Moore said. “If you’re a sheriff, you don’t want your personnel skimming funds. You want the inmate to get every penny he put in.”
That doesn’t happen, however, when they’re forced to use debit cards, according to former Ramsey County inmates who last year sued the county, the bank and Keefe Commissary Network, which provides the cards to the jail.
The former prisoners said they were hit with a $25 booking fee that is deducted from every inmate’s account in addition to the “unavoidable” fees that are charged to inmate release cards. They said the deductions violated their constitutional right to due process. A federal judge has dismissed the lawsuit.
“[Avoiding the fees] is doable, but it’s incredibly onerous,” said Joshua Williams, the plaintiffs’ attorney. He has filed an appeal in the case.
Keefe Commissary Network is the nation’s biggest operator of stores inside prisons. It charges marked-up prices for items sold to inmates and often returns a share to the prisons that contract with it. Keefe’s parent company, St. Louis-based Centric Group, did not respond to requests for comment.
Prison release cards appear to fall between the cracks of existing consumer protection rules, said Dee Pridgen, professor of law and social responsibility at the University of Wyoming. Because the cards are issued to a “captive” customer base, she said, the companies can “exploit the prisoners who find themselves with these cards, but who don’t have the knowledge or experience to use them wisely.”
Federal law forbids forcing consumers to create an account as a condition of getting paid or receiving government benefits like Social Security. Companies that want to pay their employees using debit cards must also offer alternatives such as paper checks or direct deposit to a checking account.
Prisoners don’t enjoy those protections, several consumer law experts said, because the law does not address their specific situation: Prison wages and benefits are deposited first into an inmate’s prison account, and only transferred to the debit card later, when the inmate is released.
The trust account is required not as a condition of employment but as a condition of being a prisoner, a situation not addressed by the law, said Lauren Saunders, associate director of the National Consumer Law Center’s Washington, D.C., office.
Daniel Wagner contributed to this report.
Adryann Glenn, former inmate: I sold cocaine. I started selling cocaine when I was eleven years old. Powder cocaine, never crack.
Vincent Townsend, Pay-Tel Communications president: The reason we’re in this mess now, on my side, my industry has abused the public.
Danielle, inmate’s partner: I was pretty mad, I mean, you made a mistake but now I gotta pay for it.
Jack Donson, former federal prisons officer: You can make a lot of money from prisoners and prisoners’ families, especially in these peripheral services.
Pat Taylor, inmate’s mother: They are dependent on their families’ money – completely dependent on their families’ money. And they’re punishing the families not the inmates.
Mignon Clyburn, FCC Commissioner: There are 2.7 million children with at least one parent in prison. There are 700,000 inmates who are released to society every year. This is an American problem, this is a main street problem.
Jack Donson: There is plenty of money to be made out of that unfortunately.
Ryan Shapiro, JPay CEO: I know who’s making money down to the penny and I can tell you that nobody's making a killing on those margins.
Jewel Miller, inmate’s mother: You know it is kinda sad that they would pick on his mother who is 80 years old and trying to make do on 12 hundred and something dollars a month.
Dan Wagner, Reporter: It’s just not one company, and it's not just one prison. This is an entire system that is shifting the burden on poor families.
Keith Miller, inmate: The fact that she has to pay the fees to send the money and then the fact that they make a certain cut off it seems to be that they’re double dipping.
TIME IS MONEY: HOW A WEB OF PRISON BANKERS, PRIVATE VENDORS AND CORRECTIONS AGENCIES PROFIT BY SHIFTING COSTS ONTO INMATES’ FAMILIES.
Jewel Miller: I’m Jewel Miller and I live at Swords Creek and I am very active.
Friday’s Jewel day so I have my hair done that day and just get out and mostly enjoy whatever comes my way.
But I always do it on a weekend so when I go up, that it will look good.
I go see my son every Saturday.
I have six kids. I have one daughter that has passed away. My youngest one is in prison at Bland.
Keith Miller: I worked in coal mines and I got out running around I guess with the wrong crowd and long story short I came into getting strung out on Oxycontin. Things just kept going downhill from there. I ended up getting two robbery charges with other charges included.
I got 21 years and six months.
Pat Taylor: My name is Pat Taylor and I live in Johnson City, TN.
Eddie’s been incarcerated 14 years.
I was a single mother. He's had a -- he had a rough life.
Pat Taylor’s son Eddie and Jewel Miller’s son Keith are serving time at Bland Correctional Center, where they train service dogs for disabled veterans and kids.
Keith Miller: Cato, load. Verrry gooood.
It’s a real good sense of accomplishment to know that you’re doing something good for the community, to give back.
Jewel Miller: People love him. I’ve heard people say they’ve never seen a poor boy with as many friends as Keith has.
Keith Miller: I’ve often tried not to ask for anything just for the simple fact that I don’t want to be a burden to her.
Dan Wagner: Prisoners with jobs are paid a minimal amount, so that they can pay for victims' restitution, fines, goods and services that they want to buy.
But those wages haven't gone up in decades, and the prices of things that they buy continue to rise. So increasingly families are stepping into that gap, paying through prison bankers. And one company has come to dominate 70 percent of that market.
Ryan Shapiro: When I was 23 years old the internet was starting to take its hold on a lot of different industries and it was clear that it was not even thought of for the prison industry. Why wouldn’t you be able to send money with a credit card online?
We quickly built a website and we started taking payments.
Dan Wagner: JPay is the undisputed leader in the market for getting money into prisons.
Last year this company moved about a billion dollars, generating tens of millions in fee revenue.
Ryan Shapiro, the company’s founder, literally invented this business back in 2002 and he hasn’t slowed down since.
Ryan Shapiro: What does my morning my routine look like? I wake up, I help my kids with breakfast, I run over to CrossFit. It gets me in that competitive mind frame – and helps me focus for the rest of the day, I feel fantastic the rest of the day.
We’re fighting against, we’re trying to convince a family member who for years has been sending money orders in the mail and we’re trying to convince them to use their credit card over the web or over the phone.
Dan Wagner: In lots of states, families have to go through JPay to send money into a prison at all because JPay now controls both the electronic transactions and the money orders.
So for 14 years Pat Taylor sent the money order directly to the prison, until last year she was instructed to send it to JPay.
For almost 45,000 families, JPay is the only way to send an inmate money and the company charges them fees as high as 45 percent.
Ryan Shapiro: My first customers were mostly mothers and grandparents. Now I think the majority are African-American women from the age of like 25 to 36 years old, I believe, and then different categories of women, basically.
It’s not just a convenience, it’s also – it’s just a comfort factor for mom to know “my son has his money”.
Keith Miller: I’ll show you a few items we get from commissary.
This is mostly food here.
Dan Wagner: Prisons contract with private vendors to sell goods and services to inmates. Things like food, toiletries, and clothing – as well as phone calls, emails and stationery.
Some prisons even charge for toilet paper.
Keith Miller: And I’ll show you my hygiene items. They’re over here.
Dan Wagner: Employed prisoners like Keith can earn between 27 and 45 cents an hour in Virginia.
That doesn't go far at the prison store.
Keith Miller: This is around 4 dollars a bottle, for, it’s not very big a bottle of Suave lotion.
Dan Wagner: JPay helps streamline the flow of cash into prisons, making it easier for corrections agencies to take a share of the funds.
For example: when a relative in Virginia sends 120 dollars to an inmate the deductions start when JPay takes its first cut: the money transfer fee.
Then the state automatically takes money for a savings fund, fines and restitution. Once inmates receive the money they’re charged for doctors and prescriptions.
Email and music downloads are another revenue stream for JPay.
That can leave about one third for commissary. And vendors mark that up, too.
Pat Taylor: To give him $50, I have to send 70 off my card.
Dan Wagner: It's hardest on people like Pat Taylor who are barely scraping by.
She pays JPay as much as 35 percent on each transaction before the government takes out its share.
Pat Taylor: Well, I just let a bill go. I let a bill go and pick it up later.
Dan Wagner: It’s not just one company, and it’s not just one prison. Corrections agencies and private vendors work together to shift the costs onto families, and make money in the process.
Phone and commissary vendors charge marked up prices, and return a share of the profits to the prisons.
We made several requests to discuss the profit sharing issue with the Virginia Department of Corrections, but they refused to be interviewed for this story.
Pat Taylor: It's not that much money the first, second, third time, but when you keep doing it, that money goes to someone whereas before we could just send it straight to them, send $50, they got $50.
Dan Wagner: While profit sharing isn’t new, JPay’s innovation was apply it, for the first time, to financial services.
Ryan Shapiro: Government agencies can and will accept a portion of the revenue as an incentive to put the program in because if there’s any agency or any department that’s strapped for cash or for money, it’s Corrections… so this was an opportunity to supplement that budget shortfall basically.
Dan Wagner: Is it fair to call the commission share a kickback?
Ryan Shapiro: Although the structure may seem … the word kickback has a negative connotation, right, and it seems like some person is making that money and pocketing it and buying a new Chevrolet or something. When in fact it's going to use for the inmates’ benefit.
So the question really becomes, who should be paying for that? Should the taxpayer pay, or should mom and dad pay?
Jack Donson: Bureaucracy is bloated. I don't think anybody can look anyone in the eye in the government and say we're not a bloated agency.
So when we talk about maybe potentially cutting out fee for service things, you're just going to have to get lean and trim like any other business organization in the private sector.
My name is Jack Donson. I spent twenty-three years in the trenches of the federal bureau prison system. I have a prison consulting business on Wall Street, New York.
You can make a lot of money from prisoners and prisoners’ families, especially in these peripheral services.
Every additional prisoner is more emails, more phone calls, you know, more commissary items purchased.
Everyone knows in the private prison world in circles, that prisons are extremely profitable.
There’s a lot of revenue being generated by these things and they’re being paid by the more marginalized population.
Adryann Glenn: My mother, who doesn’t have anything to begin with, who never did anything to anybody at all, has to pay this exorbitant fee to send me money, and then when she sends me that money they take a cut of that money about three different ways – you got the Department of Corrections taking a piece and all these little private vendors making money off my mother who has nothing, who’s done nothing wrong. She’s not even the customer! If anybody’s the customer it’s me! So how come she’s getting charged for me? All you’re doing is sitting back getting fat off of my mother.
My name is Adryann Glenn.
Right now, I wake up every day about 6 am. Go off to cosmetology school. From there I leave and work at a barber shop.
I spent 49 months, 10 days, and 17 hours in the Virginia Department of Corrections.
I got a friend whose mom she actually added up the fees. And she was like I could be paying a car payment. With what they're charging me to call him; to send him money, when he needs medical care, I could pay a car note off of that. That's not right.
The majority of the people that you find incarcerated and locked up are going to come from the poorer neighborhoods, projects, like myself – I come from the projects.
The majority of us have either been to jail or prison. I can't really think of a friend who hasn't.
Jewel Miller: I would say the cost of what we do for Keith a month is at least four or five hundred dollars a month. And you take that out of 12 hundred dollars and you don’t have much left.
Keith Miller: The fact that she has to pay the fees to send the money and then the fact that they make a certain cut off it seems to be that they’re double dipping into the money that she’s sending.
Adryann Glenn: A couple of months, before I was released was when JPay took over and then all of the sudden, there was a fee for this, there was a fee for that.
They might send the money in but you might not get it.
If it goes to a facility that has somebody with a similar name to yours and it gets credited to their account they’re not changing it. You’re just out of that money.
JPay’s CEO Ryan Shapiro responded to these claims in a phone interview.
Ryan Shapiro: We don't scam people, we don't overcharge people. If it was due to an electronic mishap then the customers would all be refunded. You know, the proper money would be in the right accounts.
But if it was due to a customer mistake and the money was already spent, I don’t think the customer expects us to refund them that money.
Jewel Miller: Everything so far that they have done has just made it harder, more complicated and costs more money.
Ryan Shapiro: You know, there’s costs associated with each transaction and if you are, if you don’t have the means there is the free, the availability of doing it the other way. Except in those few states where there is no option.
Pat Taylor: I used to be able to just send the money order straight to the facility and it would go there and go on his account right there, and he was able to order his commissary.
Jewel Miller: If you send it by money order they take their time getting it back to him – it takes about 14 days.
Pat Taylor: And it may not even get to them in 14 days if I send the money order. So I have it put on my card.
Jewel Miller: The only reason they drag around is so everybody will go with the credit card and give them more money.
Pat Taylor: [Crying] If your child had the same situation, what would you do? If your child, your husband, your wife, your mother, your father -- do you love your family?
Dan Wagner: Ryan Shapiro denies that this is an issue. He says people's money orders are credited within two or three days after they're received.
What we found, talking to families all over the country, is that their money orders are arriving a lot more slowly since JPay came in. For families without any extra money to spend a few weeks in advance, this just doesn’t work.
JPay has identified that as an opportunity in the market.
So we’re starting to see cards like this pop up in prison visiting rooms.
Jewel Miller: I mean, when you put out little cards with pictures on it like people are crying because their money order takes so long to get there and trying to make you put it on credit cards, now that tells you right there there's something dead wrong.
Ryan Shapiro: Of course we’re going to catch a bad wrap here and there. Verizon catches a bad rap, Google, whomever the customer. Customers get upset. So I can’t satisfy everybody but we really try, we really try hard. If you listen to phone calls, if I take you through that call center, and you listen to how our customer service reps treat our customers you’d be blown away.
JPay customer service rep: “OK I do apologize for the inconvenience you’re experiencing through the website. I’m more than happy to assist you further today with completing the payment transaction ….”
Ryan Shapiro: This company’s focus is on customer service meaning you satisfy the customer when they call.
Jewel Miller: This is Jewel Miller and …
Ryan Shapiro: Before JPay came around that kind of customer service did not exist in corrections. Period.
Jewel Miller: … Why when we send the money orders that we have to pay send all this information on it – once it goes on your record are y’all not able to keep it?
Ryan Shapiro: We go out of our way to make sure that they feel comfortable, that they feel like you’re spending money with a company that cares about you.
Jewel Miller: This is one of the most aggravating things that I’ve ever had to deal with and for anybody to tell a person that everybody’s happy with this JPay – Honey, I can tell you – there ain’t nobody happy with this JPay….
She hung up.
Boy: Daddy, daddy, daddy
Danielle: Say hi! He’s up there!
I need a second job just because I don’t have enough money now.
Dan Wagner: Corrections agencies are adding all kinds of new charges for things like electricity, medications, even room and board.
County jails have been the most aggressive, charging people for intake fees and ID bracelets.
Danielle on phone: I can’t afford that…
It’s basically like paying two rents. I gotta pay his phone calls my rent and my electric and then I gotta pay his phone calls, I mean it’s all of that and then his court costs, his lawyer costs.
Just for him to eat, they take his rent money out of his food money so I put in 50 dollars for food and they take out probably like 25.
Dan Wagner: Inmates who don't have any money coming in can end up in debt to the jail. Then no one wants to send them money, because they know it'll just be taken by the state.
Danielle on phone: [aside] It’s about to say “You got about one minute left.”
There’s other people sitting there starving who have negative accounts so if somebody does put money in their account, they’re not going get no food.
Boy: Bye daddy
Danielle on phone: Love you, Daddy.
Boy: Love you, Daddy.
Danielle on phone: Ok, I’ll talk to you later, Love you bye.
[hangs up phone]
Sigh – it’s horrible.
They call and it’s just like 15 minutes fly (clicks) like that.
15 minutes you gotta basically pay three dollars every time.
I didn’t mess up. I didn’t do a crime. I didn’t get myself in trouble. Why I gotta pay for all that?
Jewel Miller: They’re out to get the extra money. And they don’t care who they get it off of.
Ryan Shapiro: The revenues for the money transfer business are tiny compared to commissary or phone revenue. Right. We’re just a drop in the bucket.
Vincent Townsend: The reason we’re in this mess now, on my side, my industry has abused the public and I’m willing to admit that, y’know we have abused the public.
[FCC Commissioner introduces Mignon Clyburn, applause]
Mignon Clyburn: What we are seeing is people making unspeakable sacrifices. Elders are not taking their medicine so they can be able to afford to speak to their young ones. We’re seeing children go without food, without clothing, without the support they need.
Dan Wagner: Well the one area where we’re starting to see some relief for families is with the phones. These companies have been allowed to charge just exorbitant prices, sometimes 17 dollars for a 15-minute call. They were paying commissions as big as 80 percent back to the prisons.
Mignon Clyburn: These are often the most vulnerable, these are often those with the more muted voices, these are often the individuals that we choose not to hear from. I have chosen to listen.
Dan Wagner: The Federal Communications Commission stepped in last year and said "no way, you can’t just charge people as much as you want in order to get more money back to the prisons."
Mignon Clyburn: Those rates went into effect in February of this year. And I cannot tell you how many letters and calls we are getting and even the providers are getting saying “this is making a difference already.”
Pat Taylor: That makes a big difference for me. It was a joy to my heart.
Adryann Glenn: All a lotta guys have when they’re incarcerated are those phone calls, those letters, those visits, that’s it. That’s what they live for, that’s how they get through their time. I’ve seen guys, their family didn’t come see them in a week or two and the next thing you know they ended up in a hole for 90 days because they just felt alone. ‘cause you feel alone. You can’t build a family in prison.
Mignon Clyburn: It is up to us, if we care about the recidivism rates which are incredibly high, among the highest in the world, we need to make sure that there are not communications disconnect just because someone is behind bars. When those critical disconnects remain and are perpetuated by an unjust and unreasonable rate structure, you are going to have people going home as strangers.
Adryann Glenn: When you come out, the hardest thing is not having any money, and then all the money that they've been spending on you while you’ve been away, they don’t really have any money to help you out with. So you’re kind of forced to get back into that revolving door. “Well, I’m just going to do it for a week or two”. Well that week or two can turn into another 10 years in prison.
Jewel Miller: I think Keith and I have both got through this so well because we have stayed close and spent our time together, and that is a priority to me.
He’s just in really good spirits, and he ate good, and we just had a wonderful time. Just means so much to the inmates and to the parents that I don’t think some people realize how great it is. I had a great time.
Mignon Clyburn: I am hopeful that this will be an incredible example of how federal government, private industry … how we can truly make these markets more efficient and a better service to those who need them the most.
Vincent Townsend: My counsel to other industries that serve a imprisoned population is “you better pay attention to what’s the ethical, right, moral, you know, whatever good word you want to use, to treat people fairly, because if you don’t treat people fairly ultimately it’s not a long-term business plan. Because if you don’t then some regulators’ going to step in and then you’ll have to deal with it.”
Sending money to someone behind bars used to go something like this: you'd go the post office, buy a money order for about $1.25 and then mail that to the prison or jail. All told, it would cost you no more than $2 — that was before JPay came on the scene.
Over the past 12 years, JPay has taken advantage of the Internet to revolutionize money transfers in the prison system. Seventy percent of all prisons in the U.S. offer JPay services, and for 450,000 inmates, JPay is the only way a loved one can send money. That kind of market share came, at least in part, from a profit-sharing arrangement JPay struck with prison systems. But the result for the families trying to send money is a complex, and expensive, layering of fees.
We had a few questions for Dan Wagner and Eleanor Bell about their six-month investigation into JPay and the other companies making a buck off prisoners' families.
How did you first hear about this story?
Dan Wagner: In 2012, when I was a reporter for The AP, I was looking into different ways that governments use prepaid debit cards to deliver benefits and other funds, and how this practice can result in shifting costs onto poor people. I came across a website for a now-defunct company that was using debit cards in local jails and decided to start digging. A month later, I had learned that JPay was far and away the biggest player in this field. I got Ryan Shapiro on the phone.
The first thing he asked me was, “How did you get my number?”
I replied, “I’m a reporter. It’s my job.”
He kept talking to me over the past two years, more than a dozen conversations. In that time, I began talking to family members of inmates and learning about the incredible array of costs they face — and how the money they receive in prisons is a necessity, not a luxury.
These items you talk about inmates needing, toiletries, winter clothes, have these always been things prisoners need to purchase at commissary?
DW: Not always. Before 1930, families were allowed to bring gifts of food and clothing. Around that time, federal prisons started operating their own stores and keeping the profits to spend inmates’ recreation.
It was not until the ‘80s, however, that prisons began aggressively cutting services and supplies to inmates, experts told me. These cuts and the rapid increase in prison populations increased inmates’ need for money from outside, and opportunities for private vendors inside prisons.
Eleanor Bell: Prisons and jails differ on what basic necessities they guarantee to inmates. Some give a bar of soap and tooth powder, while others provide a whole hygiene kit and even some small amount of stationery. Jack Donson, a former Bureau of Prisons employee we interviewed told us that inside prisons, these kits are called a “diddy bag.”
DW: What interested me about that is, in many states, even if you’re “indigent” — meaning you’re too poor and need free hygiene supplies — the states still charge that as a debt against your inmate account. So if your family wants to send money, they have to pay off those old “indigent packs” before you can buy extra clothes or toiletries.
Where was the worst example of fees you encountered in reporting for this story?
EB: I met Danielle when we were filming outside a county jail in Florida. She had just been inside to put money on her fiancé’s account. I told her we were working on a story about the financial costs of incarceration, she lit up and unleashed an incredible monologue about the challenges she faces.
She likened the charges she faced to paying two rents. Danielle is only 21 years old — she’s responsible for paying her own expenses and covering her fiancé's costs while looking after his son. She was one of the first interview subjects who really helped solidify how these costs affect individuals.
DW: I was really shocked that some states charge fees for using electricity. Talking to families, we heard about how inmates can arrive in Florida county jails with big negative balances on their inmate accounts. The $100 pair of underwear sticks out in my mind. It was going to cost Linda Dolan that much to buy her son an extra pair because the jail had already created a negative balance on his account by charging him “subsistence,” which is basically like rent.
What would you say to someone arguing these layers of fees are merely part of the punishment prison is intended to be?
DW: Inmates’ families feel like having a person locked up for years is the punishment. They often point out that “rehabilitation” is technically the goal of the U.S. prison system. With all the costs they bear and the other challenges in their lives, these families felt like the “extra layers” went beyond punishment, into something more like exploitation.
EB: We’ve got to look at whom this is punishing. The punishment needn’t extend to families of those who committed crimes and have been sentenced to prison. Inmates and former inmates told us that they feel these fees are applied not as part of their punishment, but simply as a byproduct of the wheeling and dealing that goes on in the prison system.
So how did you get into the prison and what was it like?
DW: It took a lot of convincing and a lot of luck. We asked many facilities and agencies for access before Virginia came through. I’m still not sure why they said yes, though one clue might be that the warden was on vacation when our interview was approved by statewide corrections office.
EB: We had a very narrow agreement as to what we could film and where we could go. When we arrived, they held us to it to the letter.
Oddly, we weren’t permitted to film any general shots of prison spaces or give viewers an idea of what it’s like to be there. We weren’t even allowed to film the exterior of the prison or a barbed-wire fence. Yet I was able to enter Keith Miller’s cell unaccompanied, and no one seemed to think that was a problem.
To get exterior shots of the prison, I had to stand on top of the prison sign, way up on the hill, and film what was visible in the valley below.
Let's say I've never had a family member go to jail or prison, why should I care about this story?
EB: Whether you know someone personally or not, this affects your community. There is a huge population of people inside prisons, and when their families are stressed for money, it’s harder for them to keep in touch. That means when people are released back into society, they’re way more likely to feel isolated, to re-offend or end up on the streets, experts told us.
One former inmate we spoke to, Adryann Glenn, encapsulates some of the challenges faced by people trying to re-enter society.
DW: People should care because mass incarceration is expensive. You can try to push the costs onto families, but ultimately, taxpayers bear an even heavier burden. Beyond that, people who go through the criminal justice system face huge barriers to success later on in life, making them less able to contribute productively.
You mention in the piece that the FCC stepped in last year to regulate fees for phone calls that were too high, to what extent might that approach work on money transfers or some of the other fees?
DW: FCC Commissioner Mignon Clyburn, who was chairwoman when the phone regulation passed, said she thinks other regulators could do more if they looked carefully at their tools and authorities.
There are two regulators in Washington that could have the authority to look at prison bankers’ monopolies, and potential concerns like the way JPay makes it nearly impossible to send money for free: The Consumer Financial Protection Bureau and the Federal Communications Commission. Neither of them wanted to talk to us about the issue for this story.
Editor’s note: This is the second in a two-part series examining how financial companies impose high costs on the families of prison inmates. Part One, which ran on Tuesday, focused on the explosive growth of JPay Inc., a private company that performs money transfers for 70 percent of U.S. offenders.
On Wall Street, Bank of America plays a perpetual second fiddle to JPMorgan Chase & Co., the only U.S. bank that holds more assets.
A few blocks north, however, at the New York Metropolitan Correctional Center, there exists a market that Bank of America has locked down, literally. For the 790 federal prisoners incarcerated at MCC, Bank of America controls the provision of money transfers, e-messaging and some telephone services.
The bank’s monopoly extends across the federal Bureau of Prisons system — 121 institutions housing 214,365 inmates. Since 2000, Bank of America has collected at least $76.3 million for its work on the program.
The banks’ exclusive deals came not from the Bureau of Prisons, but from the U.S. Treasury.
The agency awarded the contracts using a 150-year-old authority that allows it to sidestep the oversight, transparency and competition typically required for federal contracting. That means that for 14 years, Bank of America has never been required to compete with other vendors who might do the work better or for less money, according to Treasury documents obtained under the Freedom of Information Act.
JPMorgan’s no-bid deal to issue debit cards for various federal agencies began in 1998, was extended in 2008 and eventually expanded to include cards for federal prisons. Fees from former inmates make up most of the bank’s compensation for these cards, documents show. A separate Treasury document from 2013 said that about 50,000 released prisoners had been issued cards and listed fees of $2 for withdrawing money from an ATM and $1.50 for leaving an account inactive for three months.
JPMorgan, Treasury and the Bureau of Prisons declined to provide a current fee schedule for the cards. Bank of America, JPMorgan and the Bureau of Prisons all declined numerous requests to discuss the banks’ deals inside U.S. prisons.
The documents show how Treasury has expanded the scope of Bank of America’s contract — originally focused on managing accounts for inmates and tracking inventory at prison stores — to include an array of services for the nation’s largest prison system, from providing e-messaging to supplying the prison system with handheld scanners. The deal allows Bank of America to subcontract with other prison vendors, positioning it as a hub of prison services that are procured outside any government bidding process.
The contract has been amended 22 times in the past 14 years.
Lubricating the system
Across the country, jails and prisons are hungry for ways to shift their operational costs onto inmates and their families. Inmates need money to pay for essentials like toiletries and court fines as well as extras like higher-quality food than what is served in prison cafeterias. Their families often pay high fees to send them the money. Inmates, in turn, pay marked-up prices for items sold at prison stores.
The oil that lubricates this entire system is supplied by the prison bankers, vendors that collect all the inmates’ money in a pipeline of cash from which payments and fees can be pulled. Bank of America’s lock on federal prisons makes it a major player among prison bankers, many of which provide a range of high-cost financial services to inmates and their families and share their profits with the prison systems they work for.
Providing services inside prisons is a growing business, but it’s not new. The first accounts for federal inmates were set up in 1930. Inmates’ families could no longer bring them food and clothing, the government decided, but instead would be allowed to send money into individual accounts. Until the early 2000s, most deposits were made by mail using postal money orders, a process that was nearly cost-free. Before Bank of America’s contract, the Treasury Department held inmates’ funds.
Bank of America’s prison contract is an example of how the Treasury Department leans on a power granted during the Civil War to pick and choose its own bankers and allow other agencies to avoid procurement rules that might force a competitive bidding process.
By hiding these deals from the public, Treasury “invites opportunities for waste and fraud,” said Neil Barofsky, who provided independent oversight of Treasury’s $700 billion bailout program after the 2008 financial crisis. He said Treasury’s expansive use of the authority reminds him of what he saw while working with the agency.
“The reaction from Treasury when dealing with banks was to find a way to say no to being transparent,” said Barofsky, now a partner with the law firm Jenner & Block LLP.
Treasury’s power to award the deals, known as financial agency agreements, was created in 1863 to support the nation’s first national banking system, around the time the greenback was introduced. Since then, the department’s broad use of this power has drawn criticism from lawmakers, auditors with the Government Accountability Office, federal appeals court judges and the department’s own inspector general. Treasury has said the selection process is competitive enough and the contracts are handled responsibly.
In a 1975 report, however, government auditors said Treasury was reimbursing banks operating on overseas military bases for office parties and club dues, leaving them with “little or no incentive to operate the facilities profitably or efficiently.”
Twenty years later, the U.S. Court of Appeals for the District of Columbia overturned Treasury’s selection of Citibank as a financial agent to deliver electronic benefits like Social Security, calling it “arbitrary.”
And in 2008, the Government Accountability Office said a deal with JPMorgan to provide stored value cards on Navy ships was “at risk of delivering a system solution that falls short of cost, schedule and performance expectations.”
Most recently, Treasury’s inspector general last spring criticized oversight of a program to deliver federal benefits on debit cards issued by Dallas-based Comerica Bank. The inspector general found that officials had failed to keep tabs on fees charged to consumers and did not justify the decision to pay Comerica an extra $32.5 million for work it had promised to do for free. Treasury agreed to rebid the deal, then quietly extended its partnership with Comerica for five years.
Twenty-two amendments, no bidding
Treasury has spent more than $5 billion in the past decade on financial agency agreements with a handful of banks, often without considering whether another company could do the work cheaper or more effectively, documents show.
Consider how Bank of America’s prison deal has swelled in the 14 years since it was awarded.
The original contract to hold and manage inmates’ accounts and track their purchases from prison stores, worth up to $14.4 million, was amended six months later, adding up to another $1.47 million to Bank of America’s compensation. In 2003, officials added telephone service to the deal, boosting the bank’s potential compensation to $25.8 million. Later, the work grew to include e-messaging for inmates.
Bank of America’s contract has been amended 22 times since 2000 and the cost has swollen more than fivefold to $76.3 million, Treasury officials say. They say the Department of Justice, the parent agency of the Bureau of Prisons, has reimbursed Treasury for those costs.
The contracts say these services might help the Bureau of Prisons reduce staff time spent opening letters or entering account deposits manually. Yet they never articulate why the work could not be procured directly by the Department of Justice using typical contracting procedures.
Bank of America and Treasury designated two subcontractors to perform the work: DynCorp International, a major military contractor based just outside of Washington; and Advanced Technologies Group, a Kansas-based technology company that today shares a parent company with Keefe, the biggest operator of prison commissaries.
Neither company would have been eligible to deal directly with Treasury because financial agents must be banks or credit unions that are insured by the federal government.
Mother ship of contracts
The bank’s power to choose which vendors provide money transfers and technology partners has rankled potential competitors including Ryan Shapiro, founder and CEO of JPay Inc., which provides prison banking services to most state inmates. He has called Bank of America’s deal “the mother ship of all contracts.”
Shapiro spent years trying to break through the Bank of America stronghold and offer money transfers to federal prisons — a role explicitly reserved for Western Union and others chosen by Bank of America under the bank’s contracts with Treasury. He spent heavily on lobbying and involved his congresswoman, Rep. Debbie Wasserman Schultz, D-Fla., whose political action committee had received an $5,000 contribution from Shapiro in 2010. Still, he was unable to open the bidding process.
“They hand-pick the vendor,” Shapiro said in 2012. “It’s a veiled way of basically just knighting the company you want.”
The Center obtained contracts that covered the beginning of Bank of America’s deal through mid-2012 through a Freedom of Information Act request. Both Treasury and the Justice Department failed to fulfill more recent requests for records detailing more recent changes to the program.
Bank of America’s role in the system is well hidden, says Jack Donson, a private prison consultant who spent 23 years working for the Bureau of Prisons. He was surprised to learn that Bank of America chooses the subcontractors and ultimately is responsible for systems that he dealt with on a daily basis before he left the agency in 2011.
Programs like those operated by Bank of America don’t always deliver the efficiency they promise, Donson said, because they add a new layer of bureaucracy. “Now the profit is going to two places,” he says. “The profits should not go out to the private sector; it should remain within the agency.”
Trust fund department
The Bureau of Prisons has created a new office to manage inmate services like accounts and e-messaging since the vendors came in, Donson says. When he started in the 1980s, a prison’s inmate finance office was run by one or two people. Today there’s a whole Trust Fund Department. “People have to bid out those contracts, then people have to track those contracts,” Donson said.
The money inmates spend on email and goods from prison stores is plowed back into a so-called inmate welfare fund that is supposed to be used for extra programs to benefit inmates. Yet in the federal system in 2010, more than 75 percent of that money went to inmate wages. About one half of one percent of the money was spent on psychological programs. Nineteen percent went to recreational activities.
Donson said he was not surprised that money earmarked for programs to benefit inmates actually pays for staffing and other costs.
By working with Treasury and Bank of America, the Bureau of Prisons has kept its preferred vendors in place without competition for nearly 15 years, something it could never do under normal contracting rules.
Those rules were designed to prevent agencies from favoring certain contractors and abusing their discretion, said Kathleen Clark, a professor at the Washington University School of Law who studies government ethics. Treasury’s broad use of its authority presents “a risk to fairness,” she said.
“It’s hard for me to understand what the justification is for circumventing these rules,” Clark said, "other than it’s convenient and it’s easier.”
Eleanor Bell contributed to this report.
NORDHEIM, Texas — School Superintendent Kevin Wilson tugged at his oversized belt buckle and gestured toward a field less than a mile from Nordheim School, where 180 children attend kindergarten through 12th grade.
A commercial waste facility that will receive millions of barrels of toxic sludge from oil and gas production for disposal in enormous open-air pits is taking shape there, and Wilson worries that the ever-present Texas wind will carry traces of dangerous chemicals, including benzene, to the school.
“Many of these students live outside of where they could be exposed,” said Wilson, a contemplative man with a soft Texas accent. “But we are busing them to the school, putting them in the direct path of something that could be harmful to them. It makes you think: Are we doing what’s best for the students?”
Along with Nordheim’s mayor and other angry residents, Wilson is trying to stop the 204-acre facility, but he faces an uphill battle. In Texas, as in most states, air emissions from oil and gas waste are among the least regulated, least monitored and least understood components in the extraction and production cycle. Although the wastewater and sludge can contain the same chemicals used in hydraulic fracturing and other processes — chemicals known to affect human health —little has been done to measure waste emissions or determine their possible impact on nearby residents.
This gap can be traced to decisions Congress and the U.S. Environmental Protection Agency made decades ago, when oil and gas producers lobbied hard to get most of their waste exempted from federal hazardous waste regulations.
In 1988 they succeeded, even though a 1987 EPA study concluded that 23 percent of the waste samples the agency had collected contained one or more toxic compounds at levels 100 times higher than is considered safe for humans. The EPA estimated that without the exemption, 10 to 70 percent of oil and gas waste could be considered hazardous.
Still, the report recommended granting the exemption. The expense of disposing of so much hazardous waste would slow U.S. oil and gas production, the authors said. And there weren’t enough hazardous waste facilities to handle that much waste.
For the industry, and for people who live and work near commercial waste facilities, the distinction between hazardous and non-hazardous waste is critical when it comes to air quality.
Pits at hazardous waste sites must be covered — open-air pits are not allowed. Even the transfer of the waste is done through pipes, so emissions don’t escape into the air. The EPA requires some type of air monitoring, too.
Pits at non-hazardous facilities, in contrast, allow chemicals in the waste to evaporate directly into the atmosphere. States decide how and where facilities are built and what, if any, monitoring systems they must have. A recent EPA review of oil and gas waste regulations in 27 states, including Texas, Pennsylvania and Colorado, found that none had rules requiring regular air monitoring at commercial solid waste facilities.
Nathan Richardson, an assistant professor of environmental law at the University of South Carolina who studies waste rules, said most states, including Texas, focus on safeguarding ground and surface water, protecting wildlife, keeping out trespassers and restoring land after pits are closed. “None of it that I remember has to do with air,” he said.
Travis County Assistant District Attorney Patricia Robertson, the environmental crimes prosecutor for the Texas Environmental Enforcement Task Force, has been frustrated for years because the federal exemption makes it almost impossible to prosecute waste facilities for anything more serious than dust or foul odors, which are considered nuisances under Texas law.
“Until the law is changed, people might be exposed to what ordinarily might be considered hazardous waste,” Robertson said.
James Langhorne, chief operating officer of Inland Environmental, a disposal facility south of Houston, bristles when he hears criticism of waste disposal facilities: “We follow the standards set by the people elected to set those standards.”
Last year, U.S. Rep. Matthew Cartwright, a first-term Democrat from Pennsylvania, drafted a bill that would remove the industry’s hazardous waste exemption, which he said is based not on science but on the industry’s successful lobbying. But all of the bill’s 70 co-sponsors are Democrats, and the bill is stuck in the Subcommittee on Environment and the Economy.
“I don’t expect it will be an easy fight, but it’s the right thing to do,” Cartwright said.
The hazardous waste exemption has saved oil and gas producers huge amounts of money.
When the EPA was considering the exemption in 1987 it estimated that treating the waste as hazardous could result in $700 million to $4.5 billion in extra costs to consumers.
An executive with a national waste disposal company said that disposing of hazardous waste can cost up to three times as much as disposing of non-hazardous waste, depending on the composition of the load and other factors.
Bill Keffer, a visiting professor of law at Texas Tech University School of Law and a former state legislator, said that if the industry’s waste were re-classified, the ripple effects would be felt from industry boardrooms to the gas pumps.
“What makes economic sense now to develop these new [shale] plays might not make economic sense once this new expense is factored in,” said Keffer, who once worked as a corporate lawyer for gasoline-producer ARCO. “So removing the exemption could have a chilling effect on future development.”
Alex Mills, president of the Texas Alliance of Energy Producers, said local economies would suffer if production declined, and the cost of electricity produced by gas-powered generating plants would go up. “The unintended consequences would be very far reaching,” he said.
But David Brown, a toxicologist and adjunct professor of applied ethics at Fairfield University in Connecticut, said using a standard cost-benefit analysis when people’s health may be at risk shows that society has lost its moral compass.
“Someone is putting a value on human life and saying the benefit to the larger society justifies the risks to people,” Brown said.
“We have to look deeply at why people’s lives place second in this analysis.”
Little accounting for lots of waste
When the federal exemption for fossil fuel waste was approved in 1988, oil and gas production in the United States was dropping and finding more domestic supplies was a national imperative. The idea that reclassifying the industry’s waste as hazardous might further slow oil production was alarming.
Today, however, domestic production is booming because of the development of hydraulic fracturing, or fracking — the process of blasting water, chemicals and sand down a well to crack open bedrock and tap deeply buried fossil fuels. The United States has so much oil and gas, in fact, that the industry is lobbying Congress for permission to freely export it.
It’s impossible to say exactly how much waste the oil and gas boom is generating, or how it’s being disposed of. Neither the EPA nor the federal Energy Information Administration collects those statistics. The American Petroleum Institute, an industry trade group, estimated that 18 billion barrels of waste were produced in 1995, before fracking began, but an API spokesman said those numbers haven’t been updated.
The bulk of the waste is dirty water from fracking, which contains salts, fracking chemicals and heavy metals from underground. After as much oil and gas as possible is removed from the water, it’s either used to frack new wells, or injected deep underground for permanent disposal. A handful of states — including Texas, Utah, and New Mexico — also allow it to be stored in open-air pits, called evaporation ponds.
The industry’s solid waste — dirt, mud and watery sludge — is generally trucked to waste facilities and dumped into large open pits where it remains until it becomes a gooey sludge the consistency of cake batter. Then it might be spread on open plots of land and tilled into the soil, a practice called “land farming.” Or it might remain in the pits until they are filled and covered with dirt for permanent storage. Some waste may also be mixed with asphalt and used to pave roads. In many states, solid waste can also be buried at drilling sites.
Each of the three solid waste disposal pits Pyote Reclamation Systems LLC wants to build near Nordheim School will be as large as nine city blocks and can hold 720,000 cubic yards of waste, enough to fill the Washington Monument 19 times.
Pyote also wants to build a second, larger facility 3½ miles away. It will occupy 574 acres and, unlike the Nordheim site, will include two open evaporation ponds for wastewater. When filled to capacity, the facility will hold 10 million barrels of solid and liquid waste, enough to fill 62 Shamu tanks at San Antonio’s SeaWorld.
'That just ain’t right'
In September, about 30 Nordheim residents made the 230-mile round-trip drive to a state hearing in Austin to oppose the Pyote facility near the school. Although the final permit hasn’t been issued, Pyote has already bulldozed the land, put up a fence and built a power station.
The hearing lasted two and a half days, with lawyers and expert witnesses speaking for both sides. Pyote’s attorney, John Soule, used the federal hazardous waste exemption as a drumbeat in his opening remarks, saying five times in the first two minutes of his presentation that the material going into the pits wouldn’t be hazardous.
“The waste that will be received is ... exempt oil and gas waste — by definition nonhazardous,” he told the commission hearing officers a minute into his presentation. Twenty seconds later, he made the same point: “In other words, again, only nonhazardous oil and gas waste subject to the commission’s jurisdiction would be received and disposed of at this facility.”
In the audience was 70-year-old Paul Baumann, who was born in Nordheim and graduated from Nordheim School. Baumann has never been much of an activist. But a few months ago, he grabbed an armful of protest signs emblazoned with a skull and crossbones and the words “Don’t Dump On Nordheim” and posted them on fences and gates near the Pyote site.
“They want to poison our water and air with all this hazardous stuff they’re bringing in,” Baumann said. “That just ain’t right.”
Also in the audience was state Rep. Geanie W. Morrison, a Republican who has represented Nordheim in the House since 1999 and last year received an 87 percent approval rating from the Texas Association of Business.
“I fully recognize there is a need for the facilities that we are talking about at this hearing” Morrison told the crowd. “I am not naïve that we always be confronted with the ‘Not in my backyard” position. But this is truly in the backyard of the entire city of Nordheim.
“It might make business sense. But I have yet to see that it makes logical sense for this community.”
Murky emissions data stirs worry
Because Texas, like most states, doesn’t require commercial facilities to monitor and collect data about their waste emissions, it’s impossible to know whether chemicals are drifting into the air at levels high enough to affect public health.
Oil and gas waste includes volatile organic compounds (VOCs), including benzene, toluene, ethyl benzene and xylene. Depending on the concentration and length of exposure, these chemicals can cause a range of ailments, from minor headaches to neurological damage and cancer. But there has been little or no research on how years of exposure to low doses of these chemicals might affect the general public, including children, the sick and the elderly.
There’s also little information about what happens when people are exposed to many chemicals at once, said Stuart Batterman, a professor of environmental health sciences at the University of Michigan's School of Public Health. While the concentration of each chemical may meet current health guidelines, he said, “there might be an issue [when] taking the sum as a whole.”
A few small studies involving untreated drilling wastewater — the part of the waste stream that is usually found at drilling sites and has the highest concentration of chemicals — have produced data and anecdotal evidence that emissions can reach dangerously high levels.
In 2011, Gabrielle Petron, a National Oceanic and Atmospheric Administration scientist working at the University of Colorado, was trying to determine whether emissions from two well sites in northeastern Utah were causing a rise in winter ozone, a major respiratory irritant. During the course of the work, Petron and her team of researchers discovered “out of this world” levels of benzene and toluene coming from small ponds of untreated wastewater near the well sites. At one point, the vapors were so thick that Petron felt nauseous and moved her team out of the area.
“You had to go upwind of the ponds,” she said. “You could not stand to be in the downwind emission stream.”
The lack of health data, plus the EPA’s decision to classify oil and gas production waste as non-hazardous, makes it almost impossible for residents to use air emissions as grounds to object to oil and gas waste operations.
In Texas, a bifurcated regulatory system adds to the confusion.
Construction permits for commercial waste facilities are issued by the state’s Railroad Commission, the primary regulator for the oil and gas industry. The agency considers the projects’ effects on water, but not on air quality. That responsibility rests with the Texas Commission on Environmental Quality.
The TCEQ allows some facilities to self-audit air quality under a special category of rules called “permits by rule,” which means the agency might not even know the facilities exist.
Other facilities have somewhat stricter air permits, which require them to register with the TCEQ. The permits limit annual emissions. But because they don’t require the companies to regularly monitor their emissions or report them to the TCEQ, it’s impossible to verify that the limits are being met.
For residents, determining what kind of permit a particular facility has is almost impossible, because the agency has a backlog of air permit applications and paperwork. Of the state’s 67 largest commercial surface waste facilities, only 10 are listed on the TCEQ’s website as having permits. Of those, four have or have applied for the stricter permits. The other six have permits by rule.
TCEQ spokeswoman Andrea Morrow said the agency’s focus is on dust and nuisance odors.
“In most cases the liquids have very small concentrations of volatiles or sulfur, thus evaporative emissions are very insignificant but in no case may they cause a nuisance,” Morrow said in an email exchange with InsideClimate News.
Morrow said waste pit operators also must comply with the Texas Administrative Code, which prohibits anything that could “adversely affect human health or welfare.”
The TCEQ measures general air quality “rather than pollutants from specific sources,” Morrow said. To do that, she said the agency oversees “one of the most extensive air toxics monitoring networks in the country.” In 2013, she said it loaded data from more than 200 monitoring sites statewide into the TCEQ database.
But an 18-month investigation by the Center for Public Integrity and InsideClimate News revealed that the agency’s program is severely limited in some oil and gas production areas. For example, the Center and InsideClimate News reported in February that the TCEQ had only five permanent air monitors in the heavily drilled Eagle Ford Shale in South Texas, an area roughly twice the size of Massachusetts. The agency recently announced it will add another monitor in the area.
Because waste facilities fall under the jurisdiction of two Texas regulatory agencies, people are often confused about where to turn for help.
About 50 miles southwest of Houston, officials at the Rice Consolidated Independent School District, which serves more than 1,100 students on six campuses, want to know more about emissions from a commercial oil and gas waste facility that sits within a couple miles of two schools.
But Michelle Morris, the district’s lawyer, said a TCEQ official claimed the agency has no jurisdiction over the emissions, and the Railroad Commission said the same thing. The district has contacted the EPA but hasn’t gotten a response.
“I’m sure there is an agency responsible for monitoring the air,” Morris said, “but we can’t figure out what that agency is.”
Ilan Levin, associate director of the Environmental Integrity Project’s chapter in Austin, thinks the state’s regulatory process is intentionally ambiguous and confusing.
“All of the rules are vague enough that it allows the industry to game the system,” Levin said. “They can interpret the rules for their benefit.”
Former EPA Regional Administrator Al Armendariz, who resigned in 2012 amid criticism of his hardline stand against lax oil and gas rules in Texas, said the TCEQ’s permitting system shows that “in their mind they have already made a determination that such facilities will not have a human health impact.”
Armendariz now leads the Beyond Coal campaign for the Lone Star Chapter of the Sierra Club.
Health concerns not enough for regulators
In 2010, people living downwind from a waste facility in Cleburne, Texas complained to the TCEQ “about the odor causing headache and nausea and forcing them to discontinue their outdoor work and to move indoors,” according to a TCEQ report obtained under the Texas Public Information Act.
A TCEQ investigator confirmed the odor was coming from pits containing oil field waste, according to the report. He could smell a natural gas odor, but said his breathing wasn’t affected.
The inspector took an air sample that disclosed trace amounts of benzene, toluene and ethylbenzene, but in concentrations below levels Texas considers a health hazard. The TCEQ determined there had been no violations.
A Borden County couple, Joel and Betty Dennis, had a similar experience when they complained to the TCEQ between 1995 and 2003 about foul odors coming from a Westex Systems disposal facility three miles from their house.
Sometimes the odors were so bad that the Dennises said they felt nauseous and stayed indoors. But when the TCEQ investigated, it found no violations.
On another occasion, the couple complained to the Railroad Commission about a foul smell characteristic of hydrogen sulfide, a potentially lethal gas. Again, there was an investigation. But the commission’s only recommendation was that the company should erect some sort of cover over the pits to keep birds out.
In 2008, the Dennises discovered that Westex had applied to the Railroad Commission for a permit to build an additional pit on the site. The fifth pit—375 feet long, 135 feet wide and 18 feet deep—would hold 163,000 barrels of oil and gas waste, according to commission documents.
Outraged, the Dennises drove almost 700 miles round trip to a commission hearing in Austin to oppose the new pit. Despite their plea, the company’s application was approved.
“Concerns about odor and adverse health effects as a result of operation of the facility do not provide a basis for the Commission’s denial of the application of an additional pit at the facility,” the examining officers said in their recommendation to the commission.
The Westex Systems facility closed last year, not because of complaints but because its five pits were filled to capacity with 1.1 million barrels of waste.
“Against an industry that is so much of the Texas economy, we didn’t count,” Betty Dennis said.
Tiny notice sparks huge protest
The lack of scientific information about oil and gas waste emissions, plus the lack of regulations, leaves residents and local officials who object to gas and oil waste sites with few options.
Kathy Payne discovered that in April 2013 when she got to her office just around the corner from Oralia’s beauty shop to begin another uneventful day as mayor of Nordheim, population 307.
After settling into her worn leather chair, she opened the latest edition of the local weekly newspaper. Starting at the front, she read about a standout high school track star and an upcoming community potluck.
But it was a tiny notice at the back of the paper that caught her attention: an announcement that an application had been filed with the Railroad Commission for a permit to build a waste facility on the outskirts of Nordheim. At 204 acres, it would be nearly the size of her town.
“Oh, holy hell! What’s this?” Payne remembers shouting.
Texas law requires companies that want to build waste facilities to notify adjacent landowners. City officials also must be notified—but that requirement didn’t apply in this case because the facility sits outside Nordheim’s city limits.
Paul Baumann and other landowners whose properties adjoin the Pyote site received thick blue binders from the company, filled with schematics and technical data about the proposed facility. They formed a grassroots opposition group called Concerned About Pollution, or CAP, and held their first meeting under the gazebo in Nordheim’s Jubilee Park.
CAP now has about 400 members and has raised roughly $20,000, most of it already spent on attorney and consultant fees.
As the group coalesced, Baumann said Pyote took notice and made some alterations in its plans for the facility. But CAP wants the application denied, not adjusted, and he worries the company will simply outlast them.
“We have the determination but they have all the money,” he said.
George Wommack is CEO of Petro Waste Environment LP, whose Pyote Reclamation Systems is building the Nordheim facility. He points to the federal hazardous waste exemption as proof that the sludge his company will be receiving at the Nordheim site is harmless. If school superintendent Wilson or Mayor Payne or anyone else has a gripe, Wommack said, they should take it up with the EPA.
“Most of what we’re dealing with here is dirt,” he said.
In its application to the Railroad Commission for a construction permit, Pyote said it didn’t need a TCEQ air permit. But in a recent interview, Wommack said the company will hire consultants to determine whether a permit is needed.
Nationwide, rules begin to tighten
As oil and gas development spreads across the United States, more communities are raising concerns about the industry’s waste.
At least 20 towns, districts, counties or states have passed laws regulating various parts of the waste disposal process.
Longmont, Colo., Pelham, Mass. and Buffalo, N.Y. have banned the storage, treatment and disposal of fracking wastewater within their borders. Ohio has banned new wastewater ponds, and Pennsylvania is trying to ban them. In 2012 Vermont became the first state to indefinitely prohibit the collection, storage and treatment of fracking waste. Connecticut passed a three-year ban this year and a waste ban bill is pending in Massachusetts.
But some places are resistant to change — and some have even reversed strict waste rules.
New Jersey’s legislature has twice rejected legislation that would keep fracking waste from entering its borders.
New Mexico passed some of the nation’s strictest waste pit and pond rules in 2008 under Democratic Gov. Bill Richardson. But in 2013, under a Republican administration, they were weakened. The New Mexico Environmental Law Center has filed a lawsuit on behalf of Earthworks’ Oil and Gas Accountability Project challenging the slimmed-down rule.
At the national level, Matt Cartwright, the Pennsylvania congressman who is trying to repeal the industry’s hazardous waste exemption, campaigned on a promise he would fight to make sure that fracking doesn’t pollute air and water. Cartwright says he isn’t opposed to drilling, but wants it done safely.
“I think requiring responsible regulation of the fracking industry and responsible handling of hazardous waste is the least we should be doing,” he said.
So far, Cartwright’s bill — the Closing Loopholes and Ending Arbitrary and Needless Evasion of Regulations Act, or CLEANER — has gone nowhere. But in August, he scored a small victory when Texas Rep. Eddie Bernice Johnson became CLEANER’s 70th co-sponsor.
Johnson, whose North Texas district includes part of the Barnett Shale, declined to be interviewed but said in a written statement that “oil and natural gas companies should be held to the same standard as other industries.”
“If we are going to ask the EPA to effectively protect the public health and the environment, we should not make special exceptions for an industry that has a long history of polluting the environment,” Johnson said.
In May, more than 50 Texas community leaders urged Democratic Congressman Lloyd Doggett, whose district includes Austin, to co-sponsor the bill.
Their letter notes that open pits of drilling mud waste contaminated four family water wells in Montague County in 2011 and pleads: “With the state of Texas failing to protect us, we need the federal government to act to protect communities in Texas from fracking.”
As of Wednesday, Doggett had not signed as a co-sponsor. His office did not respond to requests for comment.
A question of common sense
School Superintendent Wilson, who wears a burgundy polo shirt with a yellow embroidered Nordheim Pirates logo, is still struggling to understand the logic of putting a waste facility so close to his school.
As he speaks, the trees rustle in a persistent and predictable wind that swirls across the playground after sweeping across the Pyote site. It blows almost every day and is as much a part of life in this small South Texas community as 4-H shows and rodeos.
“There is a lot of area out here for things like this,” Wilson said. “Common sense says you don’t put something like this so close to a community and a school. Just think about it.”
Like so many others in Nordheim and across the Eagle Ford, Wilson doesn’t oppose oil and gas development. It has brought prosperity to his town, which last year approved a $3.7 million bond for renovations to his 65-year-old school.
But with that good fortune comes responsibility, Wilson said: “Doing the right things can’t get lost.”
The Center for Public Integrity and InsideClimate News have been investigating oil and gas air emissions in Texas for 18 months. This story, written by David Hasemyer and Zahra Hirji of InsideClimate News, was produced in partnership with Inside Energy and its public radio affiliates. Lisa Song, Hannah Robbins, Jim Morris, David Martin Davies and Eleanor Bell contributed to the reporting.