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.”