The Schwarzenegger administration has quietly moved to reopen two private prisons a year after mothballing them -- and after a company that stands to profit retained consultants close to the governor and his inner circle.
Administration officials attribute the reversal to an unexpected rise in the number of prisoners. Prisons Department critics point to the private prison company's lobbying.
The administration has decided to reopen two facilities, one of which is a 224-bed prison in the Central Valley town of McFarland. A Florida company ran the McFarland facility for 15 years until Dec. 31, 2003, when the state moved its last prisoners out.
Rather than abandon California, the company, the GEO Group Inc., retained a top Schwarzenegger campaign official and a lobby firm that has close ties to the Republican's administration to restore the company's standing in California.
A company that is a spinoff of GEO and owns the prison at McFarland placed Donna Arduin on its board of trustees in October, 10 days after she left her job as Schwarzenegger's director of the Department of Finance, which oversees all state spending.
"This was an administration that said they weren't going to be influenced by special interests," said Lance Corcoran, executive vice president of the California Correctional Peace Officers Assn., the union that represents state prison guards and opposes private lockups.
"The private prison industry to us is a special interest."
Arduin and administration officials said that when Arduin was finance director, she had no hand in deciding whether to reopen the nonunion private prisons. Arduin said Thursday that she had had no discussions with the administration about private prisons since returning to Florida and joining the board of Correctional Properties Trust in October 2004.
GEO created Correctional Properties in 1998 as a real estate investment trust. Correctional Properties owns prisons; GEO operates them and makes lease payments to its spinoff. Until recently, the two companies shared some board members. The state is obligated to pay GEO $3.5 million to operate the prison in 2005, under terms of a one-year, no-bid contract approved earlier this month.
Arduin dismissed suggestions that serving on Correctional Properties' board presented a conflict of interest, saying: "Every person that knows anything about law, ethics or otherwise, would tell you the answer is no."
She noted that the state's contract was with GEO, not Correctional Properties. "I don't know what conflict there would be."
Some Democratic lawmakers were skeptical.
"The Department of Finance had to be in the midst" of any negotiations on the prison contracts, said state Sen. Gloria Romero (D-Los Angeles), chairwoman of the committees that have jurisdiction over the state's prison system. "This is absolutely amazing; talk about revolving doors."
Romero and Assemblyman Rudy Bermudez (D-Norwalk), her counterpart in the lower house, said they were irritated that the administration did not inform legislators that it was reopening private prisons.
"It is beyond quiet. I think it has been deceptive," Romero said.
Currently, six corporate-owned prisons, three of which are GEO-run facilities, house 2,550 of the state's 165,000 inmates. Inmates in the private lockups are considered low-security.
Schwarzenegger administration officials say they have not formulated an overall privatization policy. Rather, confronted by an immediate need for beds, officials awarded the contract to GEO and were preparing to make final a contract with a second company, Civigenics, without soliciting bids from other companies.
Civigenics stands to receive $5.7 million from the state in the coming year to operate the 340-bed Mesa Verde facility in Bakersfield.
"We've got to get additional beds," said Kevin Carruth, the California Youth and Adult Correctional Agency official who pushed to reopen the private prisons.
He said he was unaware that Arduin was a trustee of the company that owns the prison and that she had had no contact with him.
Schwarzenegger's decision was a return to the policy of Republican Gov. Pete Wilson, among Schwarzenegger's mentors and an advocate of using private enterprise for many government functions.
The man Schwarzenegger ousted in the recall election, former Gov. Gray Davis, said he wanted to close all corporate-owned private prisons in California and house all convicts in state-owned prisons.
In the end, however, he succeeded in closing three of the nine in 2003, his final year in office -- a move that pleased the California Correctional Peace Officers Assn.
The union was one of Davis' largest campaign donors, giving him $1.4 million during his time as governor.
Soon after taking office, Schwarzenegger clashed with the union on a variety of issues. The union, for example, balked at accepting a pay cut that the governor deemed sufficient to solve the state's budget woes.
GEO, meanwhile, gave $58,000 to Schwarzenegger's campaign committees in October and November 2003, as the state was making final plans to close the company's prison at McFarland.
Schwarzenegger, who took office in October 2003, could have interceded and blocked the closure, which took place at the end of 2003.
But officials justified the closure by citing what they said was a drop in low-security inmates.
Executives at Correctional Properties and GEO in Florida did not return calls from The Times this week.
But in a 2003 interview, a top GEO executive said: "We want to do everything we can to preserve our business base in California."
One step was to hire the Flanigan Law Firm to influence Schwarzenegger's inner circle of advisors -- something it is well-positioned to do. The firm consists of four brothers who were close to Wilson and his administration. Several former Wilson aides are high-ranking Schwarzenegger administration members.
The Flanigans' business has turned bullish since Schwarzenegger took office. Its billings rose 45% to $2.1 million in the first three quarters of 2004 over the same period in 2003, when Davis was in office.
According to public reports filed with the secretary of state, GEO has paid Flanigan $37,500 for its services.
GEO also retained Joe Rodota, a former Wilson aide who was policy director for the Schwarzenegger recall campaign.
As a consultant, Rodota cannot directly contact decision makers to influence them, and is not obligated to report his clients and billings. His role was to provide strategic advice and develop a long-term strategy for GEO's reentry into the private prison business in California, company representatives in Sacramento said.
Correctional Properties, meanwhile, appointed Arduin to its board of trustees on Oct. 28.
In announcing her appointment, Charles R. Jones, Correctional Properties' president, said in a statement that Arduin's "insight into the allocation of financial resources within the government appropriation and spending process will be a valuable resource."