Public safety chief: Pressure from donor on NC prison contracts, but no 'quid pro quo'

Key legislative committee examines McCrory meeting, private prison maintenance

By Joseph Neff and Craig Jarvis
The News & Observer

RALEIGH, N.C. — A top McCrory administration official told legislators Wednesday that he had heard Charlotte developer Graeme Keith Sr. say on four occasions that he wanted something in return for his political donations.

But Secretary of Public Safety Frank Perry said that Gov. Pat McCrory never directed him to extend or expand a private prison maintenance contract held by Keith’s company, and that there was no “quid pro quo” from the administration and therefore no reason to report the statements.

“It was inappropriate. It was uncomfortable,” said Perry, a former FBI agent. “But there has been no quid pro quo and therefore no crime.”

Perry said he never gave a detailed account of Keith’s political overtures to the governor.

Perry’s comments came as key legislators explored whether anything improper occurred when Keith, a friend of and political donor to the governor, received an extension on his firm’s contract for prison maintenance late last year over the objections of Perry and other state correction officials.

State budget director Lee Roberts walked the committee through a presentation about the costs of private prison maintenance, saying it was a cheaper option. “We believe at all times this matter was handled in a standard and ethical way,” he said.

Roberts said he never heard Keith discuss his political contributions during meetings about the prison maintenance contract.

Keith has declined to be interviewed. In a statement issued Wednesday evening, he called Perry’s account of events “a gross misrepresentation.”

“It is nothing more than an attempt to discredit me and turn the conversation away from the dramatic savings that could be achieved by privatizing prison maintenance,” Keith’s statement said. “...Neither I nor anybody at TKC Management Services has ever had or expressed any expectation that our company should be considered for or awarded state prison maintenance work on any grounds other than our experience and track record of delivering cost savings while providing high-quality service.”

Roberts, Perry disagree

The controversy came to light after The News & Observer and The Charlotte Observer 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.”

McCrory, a first-term Republican, has said he was talking to someone else in the room at the time and didn’t hear Keith’s remark, and that he would have ended the meeting if he had.

Asked what he heard Keith say at the meeting, Perry replied: “He had made his contributions and it was time for him to get something in return...I never thought it was appropriate.”

The written account of the meeting came from Joe Prater, a deputy commissioner of prisons. According to the memo, Keith also said he was glad that the head of the N.C. Department of Public Safety had the authority to expand private prison maintenance to all state prisons.

Prison officials wanted to take over maintenance at the three prisons, contending there were no significant savings in private maintenance.

The FBI has interviewed several state officials about the contract. The Keith Corporation says it is cooperating with the FBI.

Questioning McCrory’s role

At the hearing Wednesday, some Democrats said the governor should not have convened the meeting last year, which involved four prison officials traveling to Charlotte to meet with a vendor.

Rep. Susi Hamilton, a Wilmington Democrat, noted that the $3 million in contracts represented a tiny portion of the state’s $21 billion annual budget.

“I would respectfully disagree that it was appropriate for the governor to be there to mediate as if he were participating at a recruitment process for a company outside the state,” Hamilton said.

“This matter was handled with an unbelievable amount of deference and attention with regard to The Keith Corporation,” said Rep. Larry Hall of Durham, the minority leader. “It’s problematic on its face, and the failure to heed the ethical signals is troublesome.”

Keith is a Charlotte developer and retired banker. He and his son and business partner, Graeme Keith Jr., contributed $12,000 to McCrory from 2008 through 2012.

Roberts was not at the meeting in Charlotte. But after it was over, McCrory asked him to look into the issue and recommend whether private or public maintenance was the better choice.

Roberts on Wednesday listed several examples of calculations where private prison maintenance was cheaper than having the state handle it.

Perry told the committee he had disagreed with Roberts’ conclusions, and had become uncomfortable with the actions of Keith’s company in seeking to get the contracts extended and expanded. He was asked about a text he sent late last year that said extending the contract would “soil the Gov”.

“The tone and tactics of TKC were inappropriate, and I did not want the governor to be exposed to those tactics,” Perry said.

Perry said he questioned Keith about why after 25 years of working in prison maintenance, he only had the three North Carolina prisons and contracts for jails in two counties: one in Texas, one in North Carolina.

“My view was that if this was the thing to do...that after 25 years he would have had more clients,” Perry told the committee.

Sen. Harry Brown, a Jacksonville Republican, asked both Perry and Roberts if the governor had ever directed them to extend the contract. Both said no.

Brown was concerned that Prater’s memo was undated and unsigned. Perry attested that Prater wrote the memo shortly after the Charlotte meeting, and then deleted the electronic copy from his state computer.

Commissioner of Prisons David Guice, a former Republican representative and career probation officer, attended the meeting in Charlotte. He did not attend Wednesday’s hearing, though he was listed on the initial agenda.

A ‘marching order’

After meeting separately with DPS and Keith officials late last year, Roberts worked out an 11th-hour extension that culminated in an exchange of testy text messages among the governor’s top appointees the night of Dec. 30, one day before the contract was to expire.

Roberts and Thomas Stith, McCrory’s chief of staff, pushed Perry to extend the contract for Keith, the messages show.

Perry told Roberts and Stith he wanted to end the contract and allow state employees to resume maintenance. His staffers had been adamant that private maintenance wasn’t saving money and posed a greater security risk.

Perry protested the contract extension and said it wouldn’t save much money. But he said he would carry out the “marching order.”

The state extended the three contracts but did not expand to more prisons. Last month, the prison system notified the Keith Corporation that the contract would not be renewed.

Perry declined several times to discuss the FBI inquiry: “I cannot speak to that.”

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