CEC Investigation: The Puppeteer and His Puppets – Part VI

“The allegations of civil rights and corrupt government and contractor practices [at halfway houses] are very serious and disturbing. There is a political circle of individuals and relationships that basically controls State government and certain local governments. This circle conspires to protect itself and its members from appropriate oversight and accountability. This practice must end.” – Senator Ronald Rice (D-28)

Key members of this circle are CEC Founder & CEO John Clancy, Governor Christie, and CEC Senior Vice President and Christie confidante William Palatucci. Another member is Essex County Executive Joe DiVincenzo, about whom much has been written regarding Delaney Hall, immigration detention, Essex County Jail, and CEC campaign contributions. But that is an Essex County story which may not feature in the July Senate and Assembly investigations of State Department of Corrections (DOC) ccontracts. Yet another story revealed by Blue Jersey was CEC’s mismanagement at Cheyenne Mountain Re-Entry Center in Colorado. For CEC the malfeasance involves contracts with NJ state, local government, and other states.

The nexus of Clancy, Christie, and Palatucci

Puppeteer: Let’s call Founder John Clancy the puppeteer. The origins of CEC go back to 1979 when he was a youth services county employee and decided there was money to be made through drug and alcohol treatment for those incarcerated. He was so successful that in 2007 private equity firms Primus Capital and LLR Partners invested $53 million in Community Education Centers. Primus boasted that CEC was “the nation’s largest provider of offender re-entry services with 97 facilities in 22 states and revenues in excess of $200 million.” Today CEC is even larger thanks to a little help from his puppets.

Puppets and what they do

Chris Christie joined the law firm of Dughi & Hewitt in 1987 which represented CEC. “It appears that between 1994 an 1996, CEC made good use of its legal counsel and most likely, its political connections, to strike a deal with the AG’s office to allow CEC to use Education and Health Centers of America (EHCA) as a shell to comply with the state’s legal requirement that only non-profits can hold contracts with the state to operate halfway houses.” Perhaps, it was just coincidental that another member of the law firm at the time was William Palatucci, who had joined in 1992. Fast-forward to 2011 when EHCA’s Form 990 (NJ non profit tax return) indicates that on $71 million in revenue from our state and local governments, $350,000 was spent on John Clancy’s compensation as Chair of EHCA, exclusive of whatever he received from CEC.

In 2000 and 2001 both Christie and Palatucci were registered lobbyists for CEC. In 2005, after representing CEC for 14 years, Palatucci joined the company as its Senior Vice President and General Counsel. His ongoing close relationship with Christie includes helping run Christie’s gubernatorial campaign, serving as co-chair of the governor’s inaugural committee, sitting on the board of Reform Jersey Now which raised money to promote Christie policies, and being a member of the Legislative Apportionment Commission.

As US Attorney, Christie attended the ribbon cutting ceremony in 2007 for CEC‟s new corporate headquarters and the ten year anniversary celebration in 2008 of Talbot Hall. By 2008 with lots of cash, a U.S. attorney as a friend, a well-connected legal V.P., a dubious, sweet-heart deal on EHCA, little DOC oversight, and weak competitors, Clancy must have been asking himself, “What’s not to like?”

But it gets even better for Clancy thanks to more help… also warning signs… and let’s not forget CEC donations beyond the fold  

But it gets better. Governor Christie‟s first year in office was marked by drastic and dramatic budget cuts. However, one area sees funding restored after an initial cut. He restores $3 million in funding for halfway houses. Later in the year he attends the 10th Anniversary of CEC’s Delaney Hall just months after a resident was murdered there. In 2011 Christie attends the wedding of John Clancy’s daughter and hires the groom, Samuel Vivattine, to work as an assistant in his office. By now an advocacy group has compiled a list of six preventable deaths of inmates in CEC’s custody.

Warning Signs

This circle of entrenched interests was so busy enjoying the “fruits” of privatization and patronage that it ignored warning signs. Here are just a few:

  • In 2004 Steve Adubato wrote Prison Re-Entry: A Big Problem based on concerns of the NJ Institute for Social Justice.

  • Opponents of private prisons, including the union representing correction officers, had warned about problems. They sent letters to officials across New Jersey documenting poor security at Delaney Hall and questioning whether the center could legally accept some of the inmates who were lodged there. The authorities took no action in response.

  • State Commission of Investigations: Report: Armed and Dangerous (2007)

  • NJ Monthly: The state is sending more of its prisoners to low-security halfway houses. Some fear there are dangerous criminals in the mix. (2010)

  • State Comptroller Boxer Audit of Halfway Houses (June 2011)  

    And let’s not forget CEC donations

    Charles Stile states that Clancy, his family, and CEC since the early 1990’s have donated over $600,000 to elected officials at the state and local level. Here are just a few of their contributions:

    Amount   Date       From           To

    $15,000  2007      Clancy         Essex Co. Dem. Comm.

    $25,000  2008      CEC            Democratic Assy. Campaign

    $25,000  2008      CEC            Senate Democratic Majority

    $14,400  2008      Clancy        Joe DiVincenzo

    $13,600  2009      Palatucci     Christie

    For more donations go here.

    Have you ever noticed so many expensive, frequent TV commercials for a particular product or incredible claims for a product that you say “I’m not going to buy that item because its price must be jacked way up or its quality is much less than claimed?” Well in the case of CEC it has high expenditures for political campaign contributions, PR, lobbying ($110,00 for lobbying in Trenton in 2010), and legal costs (67 cases just on the current federal docket). These expenditures are passed on to State and local governments which shortsightedly seek supposed privatization savings. For CEC it’s the “cost of doing business” and only serves to increase its contracts and enhance profits. With little oversight, quality need not be a concern, but as the NY Times series Unlocked points out the losers sadly are the residents of the facilities and the general public when residents escape. The puppeteer and his puppets are just fine thank you.

    Glenn Minnis in Black AmericaBlog concludes, “The now somewhat mythical conviction that private prisons save money drove scores of states to turn their penal institutions over to private companies, all largely on the word of the likes of Gov. Chris Christie.”

    For other diaries in the CEC Investigation series go here.

  • Comments (3)

    1. Jersey Jazzman

      This is out of control.

      Wait until you read what’s coming about charter and virtual schools. Same pattern: spread money around to the pols, privatize as much as possible, reap the rewards on the taxpayer dime.

      When will this end? When will this state finally say “Enough!”?

    2. Bill Orr (Post author)

      Sam Dolnick in today’s NY Times writes about “Money Woes Plague Penal Business Linked to Christie.” As mentioned in the diary above in 2007 CEC obtained $53 million from private equity firms, which typically demand a hefty return, to expand its business. Dolnick reports that CEC’s expansion into Texas and Alabama did not go well and that “On the brink of bankruptcy, Community Education Centers received $235 million in financing in December 2010, at interest rates as steep as 15.25 percent.” CEC has periodically had difficulty in meeting payroll.

      One “take away” message is the dangers that arise when allowing one firm through a sweet-heart EHCA deal, and its own lobbying and political contributions to obtain a monopolistic position. CEC claims that its NJ business is sound and not endangered, but severe financial distress often works its way throughout an entire company. As Dolnick indicates, “Community Education has a total of 1,900 beds in six halfway houses in New Jersey, which 7,700 state inmates and parolees cycled through last year. The company has hundreds more beds for county and federal inmates.” With CEC having cash flow difficulties the impact on inmates, security and services could be serious and pose severe problems to the Department of Corrections, ICE, and county governments, which hold contracts with CEC.    


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