Berger said he removed prison contract ban without knowing of FBI inquiry

Graeme Keith
Graeme Keith Staff Photographer

Senate leader Phil Berger said Friday that he removed a ban on private prison maintenance contracts from the state budget in September without knowing that the FBI had started an inquiry into the contracts and into the lobbying activities of Graeme Keith Sr., the influential Charlotte businessman who had been aggressively pursuing such contracts for years.

Berger said he recently learned from newspaper articles about the FBI inquiry and the concerns that high-ranking prison officials had about Keith, a friend and political contributor to Gov. Pat McCrory.

The News & Observer and The Charlotte Observer recently reported that McCrory arranged an October 2014 meeting with prison officials and Keith, who proposed that his company take over private maintenance contracts at all of North Carolina’s 57 state prisons. A deputy prison commissioner’s memo recounting the meeting stated that, in the presence of McCrory and prison officials, Keith said he “had given a lot of money to candidates running for public office, and it was now time for him to get something in return.” The department did not expand the contracts but extended Keith’s existing contracts at three prisons over the protests of high-level prison officials.

“If the (Department of Public Safety) knew there was an FBI inquiry, they had a number of opportunities to relate that, and it was not related to us,” Berger said. “I think it changes everything.” He said he would not have eliminated the budget provision had he known of the inquiry and ethical concerns.

Berger and House Speaker Tim Moore, the two leaders of the Republican-dominated General Assembly, spoke about the budget provision in a late Friday afternoon interview at Berger’s legislative office in Raleigh.

Berger said the legislature will conduct hearings into the prison maintenance contracts at a Nov. 18 meeting of the Governmental Operations Committee, an oversight committee chaired by Berger and Moore. The oversight committee has asked for presentations from Secretary of Public Safety Frank Perry, Commissioner of Prisons David Guice and Lee Roberts, director of the Office of State Budget and Management. All three played key roles in the controversy over the renewal of the contracts. The meeting promises an unusual set of proceedings: a Republican General Assembly confronting top officials of the Republican-led executive branch.

Keith, a Charlotte developer and retired banker, and his son and business partner, contributed $12,000 to McCrory from 2008 through 2012. One of Keith Sr.'s companies, TKC Management Services, provides private prison maintenance. Keith has called the memo about the October 2014 meeting a “misrepresentation” and said he always acts with the highest ethical standards.

Keith requests meeting

Keith’s company has held maintenance contracts at three prisons since 2006. In May 2014, a Department of Public Safety analysis concluded that the private contracts did not save money and increased security risks. Keith took issue with the study and requested the October 2014 meeting.

In an interview, McCrory did not dispute that Keith made those comments about deserving contracts because of his political contributions but said he did not hear them because he was involved in a side conversation.

McCrory said he asked Roberts to figure out if the contracts saved money.

Public records show that Perry and Guice opposed renewing the contracts. Just hours before two contracts were to expire at the end of 2014, Perry told Roberts he would approve the contract if it was a “marching order” from the governor’s office. Perry texted Roberts that it was a “Very bad decision. Sorry, but this will soil the Gov.” Perry said in interviews that McCrory never told or asked him to renew the contract.

The issue re-emerged five months later in the House budget, which contained a provision that said the prison system could not continue existing prison maintenance contracts or expand them to more prisons unless authorized by the General Assembly. Moore said Friday that he did not know which House member inserted that provision.

The Senate’s budget adopted the same provision word for word. That agreement typically guarantees the provision’s passage in the final budget.

Then came the phone call from Keith to Berger.

“Graeme Keith calls me and says that there’s a provision in both the House and the Senate budget that is problematic because they are saving the state a good deal of money, and if that provision stays in, they won’t be able to continue to do that,” Berger said.

Keith suggested that Berger talk to Roberts, the state budget director.

Berger said Roberts told him the prison system’s analysis had problems. The McCrory administration preferred that the provision be deleted to afford more flexibility, Berger said.

In a phone interview Friday, Roberts agreed with Berger’s account: Roberts preferred that the General Assembly not tie their hands.

Berger’s office then directed two questions to the Department of Public Safety: Did the prison officials stand by their analysis, and should the provision stay in the budget?

A prison lobbyist replied yes to both questions but did not mention the FBI inquiry or other concerns, according to a DPS email.

Berger and Moore said they removed the provision in the waning days of their budget negotiations, spending no more than three minutes discussing it. The removal occurred Sept. 8, months after the FBI inquiry began.

Berger said he favors the privatization of some governmental functions if it can save taxpayers money. He said Keith, who gave him $1,000 in 2012, never mentioned campaign contributions.

“If he had, that would have been the end of that conversation,” Berger said.

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