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Sale of State Prison Constitutional

The sale of a state prison to a private corporation did not violate the Ohio Constitution, the Ohio Supreme Court ruled today.

In a 5-2 decision, the Supreme Court cleared the sale of the Lake Erie Correctional Facility in Ashtabula County that was authorized by the Ohio General Assembly in the 2011 state budget bill. Writing for the Court, Justice Judith L. French also stated that the State Employment Relations Board (SERB) is authorized to determine if employees at another privatized state prison should still be considered public employees with the same benefits as those working in state-owned-and-operated prisons.

State lawmakers first authorized the management of state prisons by private contractors in 1995. In 2011’s House Bill 153, the legislature added a provision allowing the Department of Rehabilitation and Correction (DRC) to sell up to six facilities and contract with the private owners to operate the prisons on its behalf. Lake Erie Correctional was the only prison the state opted to sell. Corrections Corporation of America (CCA) purchased it for $72.7 million, and the state entered a contract to pay a $3.8 million annual fee to CCA to house Ohio inmates.

Along with the Lake Erie Correctional sale, DRC signed a contract with Management & Training Corporation (MTC) to operate the North Central Correctional Complex in Marion County.

State Employee Union Challenges Privatization
The Ohio Civil Service Employees Association (OCSEA), the labor union representing state employees;; and several former employees of North Central Correctional Complex, the nearby Marion Correctional Institution, and Lake Erie Correctional filed a lawsuit in Franklin County Common Pleas Court. They claimed the state’s sale violated two provision of the Ohio Constitution. They also asked that if the privatization moves were legal, then it wanted a judgment from the court that employees working at North Central Correctional were public employees.

The Court’s opinion refers to the challengers collectively as OCSEA, and noted it argued that H.B. 153 violated the “one-subject rule” found in Article II, Section 15(D) of the Ohio Constitution. The union also challenged the sale as a violation of Article VIII, Section 4, which prohibits the state from becoming a joint owner of a private business or association.  The trial court dismissed the OCSEA constitutional claims and ruled it did not have jurisdiction to consider whether the North Central Correctional workers were state employees. The union appealed to the Tenth District Court of Appeals, which affirmed the trial court’s decision regarding the joint-ownership challenge and the public-employee determination, but required the trial court to hold a hearing to determine if H.B. 153 violated the one-subject rule. Both the OCSEA and the state appealed to the Supreme Court.

Court’s Enforcement of One-Subject Rule Limited
Justice French explained the one-subject rule is intended to prevent “logrolling,” where lawmakers combine non-related proposals into a single bill to ensure passage of proposals that might not have won acceptance on their own. She noted that in order to provide the appropriate deference to the General Assembly’s law-making function, the Court has limited its ruling to only invalidate statutes because of the one-subject rule if they contain “a manifestly gross and fraudulent violation.”

Citing a 1985 Supreme Court decision (Hoover v. Franklin Cty. Bd. of Commrs.), Justice French stated, “The mere fact that a bill embraces more than one topic is not fatal as long as a common purpose or relationship exists between topics.”

She explained that state budget bills are difficult to challenge because the intent of the legislation is to fund a wide range of state programs and departments. She noted OCSEA objected arguing provisions regarding the sale of a prison are not related to appropriating funds to operate the state, and that violates the one-subject rule.

The Court ruled the primary subject of H.B. 153 was “balancing state expenditures against state revenues to ensure continued operation of state programs.” Prison privatization relates to the overall subject of state expenditures and revenues, particularly because the state requires the private operators to save the public at least 5 percent compared to the projected cost of the state operating the prison, Justice French concluded.

“A provision that saves the state 5 percent of the cost of operating a prison facility relates directly – not just rationally – to budgeting for the operations of state government. Obviously, savings in this arena free up funds for other governmental purposes,” she wrote.

In addition to freeing up state funds for other uses, Justice French explained the law also requires placing the prison back on the county’s tax list so that the private operator pays property tax as well as state and local income and sales tax.

Court Determines Operation Fee Not Joint Ownership
Once CCA purchased Lake Erie Correctional, the DRC entered into a contract to pay a $3.8 million annual “ownership fee” to the company. OCSEA argued the fee was a subsidy to CCA and violated the Ohio Constitution’s “joinder of public and private property rights” clause.

Justice French explained that Article VIII, Section 4 of the state constitution contains two prohibitions. The first bars the state from giving or lending its credit to any corporation or association, and the second prevents joint ownership with a private entity. She wrote the section does not prohibit the state from selling its property or from contracting with private entities for services.

OCSEA claimed the state promised to pay the $3.8 million fee for 21 years for a total of $79.8 million, which is about $6 million more than the company paid to purchase it. Justice French noted the state law limits appropriations to two years, so the state could only commit to two $3.8 million payments and not 21.

“Even assuming the truth of the details of the fee alleged by OCSEA in this court, payment of the fee does not constitute a gift or loan of the state’s credit, nor does it transform the state’s interest into a co-ownership with Corrections Corporation,” she wrote.

State Board Considers Public Employee Status
OCSEA challenged the ruling that only SERB can determine if North Central Correctional workers were public employees. Justice French noted the union claimed it lost 273 members along with about $145,000 in dues and fees when the private operators took over. The complaint also alleged individual prison employees either lost their employment or when transferring to other state prisons lost benefits by losing seniority. OCSEA cited past court decisions indicating the Franklin County Common Pleas Court had jurisdiction to determine the status of state government employees.

Justice French wrote that OCSEA is correct in stating that SERB does not have exclusive jurisdiction over dealing with public employment, but it does have oversight of all matters that depend on collective-bargaining rights. The Court concluded that claims about public-employee status at North Central arise from collecting-bargaining rights and must be considered by SERB and not the common pleas court.

Chief Justice Maureen O’Connor and Justices Terrence O’Donnell, Judith Ann Lanzinger, and Sharon L. Kennedy joined the opinion.

Dissent Argues Court Can Consider Employee Status
Justice William M. O’Neill in a dissenting opinion wrote that the trial court was authorized to consider the employment question because the employees can raise not only issues related to the state collective-bargaining laws, but other claims such as constitutional rights. He explained that the matter only requires a simple “yes or no” as to whether the employees should be part of the union, and that a court through a declaratory judgment could resolve the matter more efficiently than through a SERB administrative proceeding.

Justice Paul E. Pfeifer joined the dissent.

2014-0319. State ex. Rel. Ohio Civ. Serv. Emps. Assn. v State, Slip Opinion No. 2016-Ohio-478.

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