Perverse incentives -- kickbacks
Thanks to decades of exploding inmate populations for Departments of Corrections (DOCs), and budgets that have risen far more slowly, DOCs in many states (prisons) and municipalities (jails) have become financially dependent on kickbacks paid to them by vendors hired to provide services to inmates.
The most visible of these vendors are the phone companies, including
GTL, Securus, CenturyLink, ICSolutions, Telmate, and others that support calls, video visitation, and other connections to inmates as local monopolies. There also are other categories of companies that are beholden to the same cycle of high fees for inmates and their loved ones to offset commissions required by DOCs. These include funds-transfer companies like JPay -- now owned by phone giant Securus -- and commissary companies, like Keefe (which also owns ICSolutions), that sell necessary products to inmates (soap, underwear, radios, etc.). These vendors historically have been highly profitable, usually with exclusivity in their DOC contracts, and are now massively consolidated. Their size and scope enables them to block competition by helping friendly correctional institutions write RFPs to include the precise suite of services they provide (i.e. phone + funds transfer + video visitation services), and take advantage of a single sales channel into the huge and reliable markets for incarceration in the US.
Predatory prices are not surprising given the demands of prospective correctional clients. In order to win RFPs from corrections in all but eight states, vendors are required to pay a large fee up front, kick back a high percentage of their revenues, or both, to the facilities they serve. Estimated commission size is based on unit price x commission %, and is generally the most or second-most important criterion in winning an RFP. Vendors naturally respond by jacking up rates and commission percentages in order to win multi-million dollar, multi-year (3-5, generally) monopoly contracts.
Phone company commissions average 42% in US state prison systems, but have been as high as 93%. Jail systems are not accounted for in this number, but typically have higher phone rates. Here's an example of a contract between Securus and Arkansas DOC running from 2015-2018. Note the 73-79% commission on gross collect call-completion revenues, and the 20% commission on video visitation. For phone providers, fees beyond the per-minute rates are not subject to commissions, so vendors add them wherever possible (call connection fees, phone debit account deposit fees, account inactivity and closing fees, etc). The revenues from vendor kickbacks are almost always channeled to an Inmate Welfare Fund held by the Department of Corrections. Most of these funds are indeed used for inmate welfare -- including the purchase of athletic equipment, TVs, and more -- but when budgets are tight, inmate welfare funds can be used for facilities maintenance, emergency medical costs, and other line items that are more appropriately covered by the regular budget. Inmate Welfare Funds also may support educational programming, mental health staff, and other programs that are intended to improve the chances of a successful re-entry.
The problems here are myriad.
Departments of Corrections incentives are falsely aligned with the vendors, rather than the clients they are supposed to serve. Quality and effectiveness of service become secondary to the revenues that can be generated for the correctional institution.
Vendors form long-term relationships with their clients, often helping clients write detailed RFPs to exclude their competitors.
A high cost of services to inmates constitutes a regressive tax on those who already are suffering the economic and emotional consequences of imprisonment.
Prison inmates have far better odds of success post-release when they have regular contact with friends and family members during their incarceration. These stabilizing connections wane when inmates and their families are charged more than they can afford.
The FCC has announced rate regulation for correctional telephony, starting in 2016. This is a positive first step, indicative of increased attention paid to this issue. However, there is a host of other services provided by these companies that are not regulated by the FCC (inmate access to educational materials, email-like messaging, funds transfers, account maintenance, etc), which likely will increase in price increases to make up for the revenue loss from rate caps.
While the proper course of action would be to ban vendor commissions altogether and require correctional institutions to award contracts based on quality, cost, and effectiveness of service to inmates, there are enormous problems with this approach if not handled correctly.
If commission revenues are removed from the system with regulation, the public is going to need to take up the slack immediately through increased taxes; or the inmate-supportive education, vocational, and mental health programs that often are paid for out of Inmate Welfare Funds will suffer. There is clear evidence that these programs reduce recidivism, so their loss risks impacting the rate of incarceration to everyone's detriment.
The FCC may attempt to regulate phone commissions, but other agencies would need to regulate commissions for commissary and financial services. Since many phone companies are owned by conglomerates that also own correctional commissary and financial services entities, commissions and subsequent rate hikes may simply shift to one of these other areas.
Even if commissions are broadly regulated, vendors are often required to pay an upfront fee (pay-to-play), or provide prison computers, staff members, and other correctional line items that may be only loosely associated with the actual cost of providing the vendor's service. If commissions disappear entirely, the upfront fee or in-kind payment may grow, encouraging vendors to keep their inmate prices high to accommodate these extra expenditures while maintaining their profits.
A realizable solution might be to:
phase out all DOC commissions across the board, over a short window (3-5 years)
require vendor contracts to be awarded based on quality, price, and accessibility of service starting immediately
require at least two providers for each service, so consumers (including inmates) have a choice of vendor for their transactions.
ban in-kind provisions from vendors that aren't demonstrably and exclusively associated with running the service in question.
immediately review the facility budgets and backfill with taxes the necessary line items that typically would come out of the inmate welfare fund.
Further reading:
Here's a terrific deep dive into phone company rates and incentives by the good folks at Prison Policy Initiative from 2013. Here is another, from 2011, by the human rights crusaders, Prison Legal News. This latter gives a fascinating history of the prison phone company.