Prison workshops bleeding money despite requirement to break even

The South Dakota Department of Corrections is required to operate its prison workshops without losing money, but the DOC has long failed to live up to that expectation.
Not only do some shops lose as much as $400,000 a year, but inmates aren’t spending enough of their work time filling customer orders. Inmates regularly tag just 15% of their work hours to the job orders they’re meant to fill in the carpentry, metal fabrication or sign-making shops.
The industry standard is 70 percent, with the remaining work time used for things like setting up for the next task, maintenance or cleanup.
Four of the prison industries’ divisions ended 2022 with negative cash flows on their balance sheets, according to the DOC’s most recent annual report.
Last year, shortly after accepting the state’s top corrections job, DOC Secretary Kellie Wasko decided it was time for a change.
On Wednesday morning, she told the state’s Corrections Commission about plans to improve financial transparency and move operations closer to hitting the DOC’s legal obligations to break even.
There’s been a lot of work done over the past year to address issues at Pheasantland Industries, she said, referring to the umbrella term for the state’s inmate work programs.
“Every shop has a business plan, we’ve assessed every business plan, and we’re actually holding revenue profitability to the letter that the statute requires,” Wasko said. “I don’t think there has been a stronger time for us to have complete integrity and fidelity in our Pheasantland Industries program.”
Changes in leadership, management
Pheasantland comprises an array of production facilities and products across the state’s five prison campuses. A handful of shops, such as a quilting and embroidery shop at the women’s prison in Pierre and a custom cabinetry shop at Mike Durfee State Prison in Springfield, have community partners as customers and pay inmates who work there a wage of $8 an hour or more. Most shops, however – including those that produce license plates and highway signs – pay inmates 30 cents an hour.
The head of Pheasantland Industries was ousted in July 2021, alongside former South Dakota State Penitentiary Warden Darin Young, in a housekeeping sweep of leadership, the necessity of which was never fully explained to the public. Former Corrections Secretary Mike Leidholt was placed on administrative leave shortly before the staff shakeup and never returned.
At the time, Gov. Kristi Noem’s office offered only references to unspecified unprofessional behavior, citing an internal investigation that revealed “nepotism, sexual misconduct, poor wages and equipment and low morale.”
On Wednesday, Wasko told commissioners that the DOC has rewritten policies because of “some of the shenanigans” at Pheasantland Industries in the past.
Wasko did not elaborate, but told the Corrections Commission those were among the reasons she chose to realign the shops’ administrative operations when she arrived in the spring of 2022. The shift in management came alongside new policies requiring quarterly meetings between DOC finance staffers and shop managers, and requiring corrective action plans for any of the separate divisions at Pheasantland that lose money for six straight quarters.
“This was really just an opportunity to upright some of what was expected for revenue-generating operations,” Wasko said.
DOC Finance Director Brittni Skipper and Pheasantland Industries Manager Justin Winters did not explain what may have caused some of the shops’ pre-2022 troubles, but they did offer data points showing the DOC has regularly failed to live up to its fiduciary responsibilities.
The metal shop, for example, which fabricates lockers and bed frames for the DOC’s prisons and does a host of other odd jobs for clients in and outside the DOC, has lost money for 10 straight years, Skipper said. The most recent annual loss in the metal shop was $400,000. The custom cabinetry shop, which has a separate balance sheet from the metal shop, lost $370,197 in the fourth quarter of fiscal year 2022.
Between those figures and the charging of just 15 percent of inmate work time to billable work orders in some areas, Skipper said, it’s clear that budget-minded management had not historically been a priority.
Not every area of Pheasantland lost money, Skipper said, which is part of the reason the DOC is working to bring each area into a more financially solvent position.
“It’s not fair to the shops that are making money that they have to subsidize the shops that are consistently losing money,” Skipper said. “Nobody would stay in business if you’re losing $400,000 a year.”
Future change,
accountability
The Corrections Commission reviewed a handful of adjustments being made to deal with the financial troubles. The group also saw several slides showing profits and losses and laying out the wide range of work produced by prisoners.
The shops on corrective action plans have yet to make dramatic turnarounds, but there have been positive signs, Skipper and Winters said. The license plate shops recently hit their third quarter goal of fulfilling printing 800,000 license plates for South Dakota counties more than a month ahead of schedule. The plates are updated every seven years, and the DOC will produce a total of 1.8 million.
On the signage side, Winters said, the DOC has maintained a strong relationship with the state Department of Transportation and county highway departments. Low costs and reliability have made the DOC a trusted partner in such work, he said.
“Every sign that you see driving down the expressway right now, those signs are made in our sign shop here in Sioux Falls,” Winters said. “So the signage shop does have a fantastic ability to service our communities at a low cost, but highly effective way to make sure everyone has what they need.”
At least one Corrections Commission member wondered aloud Wednesday if the DOC’s goals are realistic. Moving from 15 percent of inmate work time charged to specific jobs to the 70 percent Skipper described as “industry standard,” Commissioner David McGirr said, might be a lot to ask based on historical trends.
“To go from 15 percent to 70 percent would be pretty amazing, but it doesn’t look like actually the numbers have changed much,” McGirr said. “So what plan is in place to cause them to be successful?”
Skipper explained that the budget scrutiny placed on Pheasantland “made me realize” that some of the shops are set up more to serve state and internal DOC needs – metal shop repairs and replacements of DOC or government customer property, for example – than to make money. They’re more like vocational training programs, Skipper said, so the DOC is pondering the possibility of moving those programs into that vocational model and focusing its money-making efforts on other areas.
Wasko told McGirr and the rest of the commission that they will continue to receive updates on Pheasantland’s progress in the coming months. The group will help keep her staff accountable as the process of revamping its business model plays out, she said, and the DOC will continue to update, present and explain its plans.
“It does not get more transparent than this,” Wasko said. “This is to the penny. So I would just hope that the commission kind of sees that, and knows that there will be plenty of room for asking questions as we move forward.”
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