California Prison Industry Authority Fiscal Report to Legislature 2010-2011, CALPIA, 2011
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CALIFORNIA PRISON INDUSTRY AUTHORITY
REPORT TO THE LEGISLATURE
FISCAL YEAR 2010-2011
Quality Products ★ Changed Lives ★ A Safer California
View this report electronically at www.calpia.ca.gov
This page left blank for pagination
Edmund G. Brown, Jr.
Governor
State of California
California Prison Industry Board
Matthew L. Cate, Chair
Secretary California Department of Corrections and Rehabilitation
Esteban Almanza (S)*
George Chapjian (A)*
William Davidson (S)*
Curtis Kelly (G)*
Kira Masteller (G)*
Bruce Saito (A)*
Darshan Singh (SR)*
Ray Trujillo (G)*
Jeanne Woodford (SR)*
(Vacancy) (G)*
Charles L. Pattillo, Executive Officer
*(S) Statutory Appointee *(A) Assembly Appointee *(G) Governor’s Appointee *(SR) Senate Rules Committee Appointee
The Prison Industry Board (PIB) Fiscal Year (FY) 2010-11 Report to the Legislature regarding the California Prison
Industry Authority (CALPIA) is submitted pursuant to Chapter 1549, Statutes of 1982, as embodied in paragraph
2808 (k) of the California Penal Code which requires the PIB to report to the Legislature in writing on or before
February 1, of each year regarding the following:
1.
2.
3.
4.
The financial activity and condition of each enterprise under its jurisdiction.
The plans of the board regarding any significant changes in existing operations.
The plans of the board regarding the development of new enterprises.
A breakdown, by institution, of the number of prisoners at each institution, working in enterprises under the
jurisdiction of the CALPIA.
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Committed to California’s Public Safety
The Prison Industry Board
CALPIA Mission Statement
Pursuant to Chapter 1549, statutes of 1982, the Prison
Industry Board (PIB) was established in 1983 to oversee
CALPIA operations, much like a corporate board of directors. The PIB sets general policy for CALPIA, oversees the
performance of existing CALPIA industries, determines
which new industries shall be established, and appoints and
monitors the performance of CALPIA’s CEO/General
Manager. The PIB also serves as a public hearing body,
charged both with ensuring that CALPIA enterprises are
self-sufficient and that they do not have a substantial adverse
effect upon the private sector. The PIB actively solicits
public input for the decisions it makes to expand existing or
develop new prison industries.
The mission of CALPIA is to support the CDCR public safety
mission.
CALPIA Program Goal
CALPIA’s program goal is to produce trained inmates that have a
job skill, good work habits, basic education, and job support in the
community when they parole so they never return to prison. Many
CALPIA inmates receive industry accredited certifications that
employers require. CALPIA inmate programming reduces prison
violence and makes communities safer by lowering the frequency of
repeat criminal behavior.
Does CALPIA Work?
The Penal Code1 Established the
California Prison Industry
Authority (CALPIA) to:
•
•
•
Over a three year period, beginning in FY 2006-07, CALPIA
participants returned to prison on average 24 to 30% less often than
inmates released from the CDCR general population, saving the
General Fund millions in incarceration cost avoidance. Additionally,
offenders who participate in CALPIA’s Career Technical Education
(CTE) program are 89% less likely to return to prison.
Develop and operate manufacturing, agricultural, and
service enterprises that provide work opportunities
for inmates under the jurisdiction of the California
Department of Corrections and Rehabilitation
(CDCR), and serve governmental agencies with
products and services commensurate with their needs.
Does CALPIA Save the State Money?
CALPIA’s inmate programming saves the State General fund millions annually through lower recidivism, and saves CDCR millions
more in rehabilitation program cost-avoidance.
Create and maintain working conditions within
enterprises, as much like those which prevail in private
industry as possible, to assure inmates assigned therein
the opportunity to work productively to earn funds,
and to acquire or improve effective work habits or
occupational skills.
To achieve its mission, CALPIA has established four main strategic
and business goals:
•
•
•
•
Operate work programs for inmates that are selfsupporting through the generation of sufficient funds
from the sale of products and services to pay all its
expenses, thereby avoiding the cost of alternative
inmate programming by CDCR. CALPIA receives no
appropriation from the Legislature.
Achieve Self-Sufficiency
Build Inmate Success
Exceed Customer Expectations
Promote and Support CALPIA
1. Penal Code Section 2800-2018
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Committed to California’s Public Safety Continued
CALPIA Operates Four Programs:
Joint Venture Program
1.
2.
3.
4.
The Joint Venture Program (JVP) is responsible for implementing
the Prison Inmate Labor Initiative, Proposition 139, passed by the
voters in 1990. Under its provisions, private businesses can set up
business operations inside California correctional facilities and hire
inmates. This includes only those businesses that are starting a new
company, expanding an existing business, or relocating to California.
Correctional Industries
Joint and Free Venture
Career Technical Education
Inmate Employability Program
Correctional Industries
This unique relationship is a cooperative effort of private industry
and the state of California, benefiting businesses, victims, and the
State, while preparing inmates for successful reintegration into the
community.
CALPIA manages 60 manufacturing, service, and agriculture
industries in 22 CDCR institutions. CALPIA provides
employment and programming for approximately 7,000
inmates assigned to 5,039 positions in manufacturing,
agricultural, service enterprises, and selling and
administration. Administrative offices are located in Folsom,
California.
Inmates are paid a comparable wage that is then subject to deductions
for room and board, crime victim compensation, prisoner family
support, government ordered restitution (child support), and
mandatory inmate savings for release. In addition, inmate-employees
pay federal and state taxes. The JVP disbursed more than $100,000
for crime victim restitution in FY 2010-11. Local government
correctional facilities may also participate in the JVP.
The goods and services produced by CALPIA’s operations
are sold principally to departments of the State of California,
and other government entities. CDCR is CALPIA’s largest
customer, and accounted for 62.3% of all sales in FY 201011. Other major customers include the Department of
Motor Vehicles (DMV), Department of Mental Health,
Department of Health Care Services, California Department
of Transportation, Department of Developmental Services,
and the Department of General Services (DGS).
All CALPIA inmate participants must achieve a General
Education Development (GED) degree within two years to
continue participating in CALPIA.
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Committed to California’s Public Safety Continued
Inmate Employability Program
projects realized millions in labor cost avoidance, and the
General Fund realized $11.4 million in savings as a result of
CTE recidivism reduction. CALPIA is currently exploring
alternative means of financing the CTE program since CDCR
ceased reimbursing CALPIA for these programs in FY 2011-12.
CALPIA developed the Inmate Employability Program
(IEP) to enhance the ability of inmate workers to obtain
meaningful jobs upon release and successfully transition
from prison to the community and the world of work. This
effort supports CALPIA’s goal to reduce recidivism and
contribute to safer communities.
CALPIA has also established a CTE program at California
Men’s Colony (CMC) located in San Luis Obispo. The CMC
CTE program will complete small construction projects,
including lead and asbestos abatement for the California
National Guard facility located at Camp Roberts. The CTE
program at CMC will allow the Guard to accomplish deferred
maintenance that would otherwise be budgetarily prohibited.
Through the IEP, CALPIA inmate workers are continually
evaluated for improvement in job skills, education,
experience and work habits. The IEP provides inmate
workers access to nationally accredited certifications and
internal skill proficiency certificates.
CALPIA will disband the CTE program at the California
Insitution for Women after five years due to a lack of funded
projects.
The IEP provides transition to employment services and
information. Prior to parole, a California Identification
Card is issued or an appointment at the DMV arranged.
Information and forms are provided for a social security
card, birth certificate, child support, and veterans benefits.
The IEP also provides access to the CDCR statewide
resource guide.
In October 2011, the PIB authorized a legislative concept
that would provide a net savings to the General Fund while
providing incentive based funding for the CTE program.
CALPIA has not secured a legislative author for this proposal.
Career Technical Education2
Bureau of State Audits Report
The CTE program, established by CALPIA in 2006, gives
inmates an opportunity to gain hands-on experience in real
world training, as well as work opportunities performing
construction and facility maintenance for institutions and
communities. CTE encompasses programs in carpentry,
iron working, construction labor, commercial diving,
and facilities maintenance. Over the past three years that
CALPIA has operated the CTE program, the recidivism rate
for graduates who paroled is 7.13%, which is 89% lower than
the recidivism rate for general population inmates. Over the
same time period, state and local government entities that
utilized CTE inmates for maintenance and construction
Among its findings, the Bureau of State Audits (BSA) in its
May 2011 Report (2010-118) documents ways that CALPIA
saves the state money by enhancing the safety of prisons,
demonstrating lower recidivism rates among inmates who
work in its programs, and in its pricing of products. The
BSA reported that in every instance where comparable data
exist, the recidivism rate for CALPIA participants is lower
than that of CDCR offenders released from the general
population. While the BSA identified discrepancies in
CALPIA’s calculations, the BSA notes that once adjusted,
the cost avoidance from a lower recidivism rate of CALPIA
participants, to be approximately $8.5 million in FY 2008-09.
2. Under Penal Code Section 2805, CALPIA may initiate and develop new vocational training programs as well as assume jurisdiction over existing vocational training programs.
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Committed to California’s Public Safety Continued
CALPIA Reduces Recidivism,
Saves Money and Increases Safety
returned to prison on average 24 to 30% less often than
inmates released from the CDCR general population, saving
the General Fund millions in incarnation cost avoidance.
Additionally, offenders who participate in CALPIA’s CTE
program are 89% less likely to return to prison.
Former inmates who participated in CALPIA programs
are less likely to return to prison than general population
inmates. They are significantly more likely to become productive citizens that pay taxes instead of costing California
taxpayers approximately $49,000 per year.3
CALPIA provides CDCR over 7,000 alternative inmate
programming positions, thereby saving CDCR more than
$11 million annually in General Fund costs for rehabilitation
positions4 that CDCR does not have to fund.
CALPIA is preparing inmates for productive
lives, reducing further incarceration costs.
The recidivism rate of CALPIA participants is an essential
measure of the organization’s success. Over a three-year
period, beginning in FY 2006-07, CALPIA participants
CALPIA Reduces Recidivism
Fiscal
Year
Total
CALPIA
parolees
Total
CDCR
parolees
1 year
CALPIA
Percent
CDCR
Percent
2 years
Variance
Percent
CALPIA
Percent
3 years
CDCR
Percent
Variance
Percent
CALPIA
Percent
09/10*
1,330
12.41%
08/09*
1,571
27.75%
07/08*
1,637
116,497
31.83%
42.18%
24.54%
39.71%
06/07*
1,853
115,522
30.87%
43.20%
28.54%
43.34%
55.83%
22.39%
44.41%
05/06*
1,822
108,637
32.44%
49.10%
27.80%
43.19%
62.50%
26.50%
43.63%
CDCR
Percent
Variance
Percent
67.50%
30.20%
33.86%
Average Variance 26.95%
44.95%
Average Variance 24.45%
Average Variance 30.20%
* Data was unavailable at the time this report was published
3. Legislative Analyst’s Office (March 2009) Report to Senate Budget Sub. No. 4.
4. Legislative Analyst’s Office (2011) Rehabilitation Programs (http://www.lao.ca.gov/laoapp/LAOMenus/Sections/crim_justice/6_cj_inmatecost.aspx?catid=3)
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CALPIA Invests in Rehabilitation
CALPIA invests in curricula for inmates, including 17 programs that offer nationally recognized accredited certification such as optometry, dental
technology, food handling, automotive service, laundry, commercial baking, agriculture, welding, and metal stamping. Additionally, CALPIA funds
CTE programs in commercial diving, carpentry, construction labor, and ironworking, in partnership with trade unions that offer employment
possibilities when inmates are released on parole. CALPIA inmates also earn certificates of proficiency in occupational disciplines which may be
utilized upon parole to validate skills and abilities acquired during employment with CALPIA.
In FY 2010 -11, 1,443 CALPIA inmates received a certificate of proficiency, and another 334 CALPIA inmates successfully completed an
accredited certification program. Of those that completed an accredited certification program, 142 were graduates of CALPIA’s CTE program.
American Board of Opticianry
Optician
American Institute of Baking
Science of Baking
Foundations
Ingredient Technician
Bread/Rolls
Cake/Sweet Goods
American Welding Society
GMAW-1
GTAW-1
GTAW-2
GTAW-3
Association for Linen Management
Certified Linen Technician
Certified Washroom Technician
Certified Laundry Linen Manager
Automotive Service Excellence
Medium/Heavy Truck: Gasoline Engines
Medium/Heavy Truck: Diesel Engines
Medium/Heavy Truck: Drive Train
Medium/Heavy Truck: Brakes
Medium/Heavy Truck: Suspension/Steering
Medium/Heavy Truck: HVAC
Medium/Heavy Truck: PMI
Special: Exhaust Systems
CA Department of Food & Agriculture
Artificial Insemination License
Pasteurizer License
Sampler/Weigher License
Electronics Technicians Association
Customer Service Specialist
Certified Electronics Technician
Journeyman (Industrial)
Federal Emergency Management Agency
Decision Making
Effective Communication
Hazardous Materials
International Organization for Standardization
ISO Internal Quality Auditor
Library of Congress – Braille
Literary Transcribing
Literary Proofreading
Mathematics Transcribing
Mathematics Proofreading
Music Transcribing
National Institute of Metalworking Skills
Machining, Level I
Metal Forming, Level I
Metal Stamping, Level II
National Restaurant Association
ServSafe Essentials
ServSafe Employee Guide/Food Handler
North American Technician Excellence
Installation or Service for:
Air Conditioning
Air Distribution
Heat Pumps
Gas Heat
Oil Heat
Overton–Forklift Operator
Warehouse Forklift
Construction Forklift
Pallet Jack Forklift
Printing Industries of America
Sheetfed Offset Press
Web Offset Press
Bindery
Pre-Press
Productivity Training Corporation
Dental Technician
Stiles Machinery Inc.
Intermediate Weeke Machining
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Financial Activity of CALPIA
Financial Overview
involve actions filed by labor unions challenging the legality of furloughs imposed upon employees of state agencies
which receive funding from sources other than the State’s
General Fund.
After several years of profitability, CALPIA experienced a
$15.3 million (M) decrease in net assets in FY 2010-11.
Four factors that contributed to this extraordinary result
were a $17.4 M (9.6%) decrease in operating revenues
from the prior year, an $8.6 M expense for the anticipated
settlement of a lawsuit brought by employee unions for lost
wages claimed as a result of state imposed furloughs, a $6.3 M
expense for Other Post-Employment Benefits (OPEB), and
a $2.8 M expense related to factory closures. If not for the
furlough expense, the annual OPEB charge, and the onetime costs associated with factory closures, CALPIA would
have continued its profitability in FY 2010-11.
In consideration of this litigation, and after conferring
with CALPIA’s independent financial auditors, CALPIA
accrued $8.6 M as a selling and administrative expense on
its FY 2010 -11 operating statement, anticipating a court
order to compensate its employees back pay, including
interest, for furlough time imposed upon employees.
This anticipated settlement cost for furloughs is in addition
to the considerable costs CALPIA has already incurred
relating to furloughs, including increased vacation balances, liquidation of banked furlough time, and overtime
expenses to meet customer demand.
Operating Revenues
The FY 2011-12 Mid-Year Revise (MYR) anticipates
revenues of $160.5 million, a decrease of 2.4% from the
FY 2010-11 audited revenues of $164.4 million. The MYR
anticipates CALPIA utilizing up to 5,417 inmate positions,
compared to 5,039 positions in FY 2010 -11. CALPIA
anticipates employing 564 free staff in FY 2011-12, which is
a 5.7% reduction over the previous year.
Postemployment Benefits Other
than Pensions
CALPIA is one of only two state agencies that is required
to fully fund the cost of their retiree benefits. Under
Governmental Accounting Standards Board Statement
No. 45—Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions
(OPEB), the State is required to recognize the cost of
retiree health benefit programs on an accrual basis rather
than on a pay-as-you go basis. The State Controller informed CALPIA that its share of the State’s net unfunded
OPEB obligation is $6.3 M for each of the FYs 2009-10
and 2010-11. The State does not maintain a separate pool
of assets to finance future retiree healthcare benefits.
In the past three years, CALPIA revenues, reflecting the
reduction in government expenditures, has declined 29.8%
from $234.2 M in FY 2008-09 to $164.4 M in FY 2010-11.
The largest product declines since FY 2008-09 are Modular
Construction (24.4 M), Optical (11.2 M), General Fabrication ($8 M), and Furniture ($9.9M).
Litigation Related to Employee
Furloughs
CALPIA was not exempted from furloughs imposed on
state agencies. The application of furloughs has resulted
in three court cases, the results of which are likely to have
a significant financial impact on CALPIA. These cases
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Financial Activity of CALPIA
interest is not accrued. At an average daily interest rate of
0.00134%, this translates to over $105,000 of lost interest to
CALPIA that is not collectible.
Factory Closures
In FY 2009-10, CALPIA closed two optical factories, two
furniture factories, and one dairy. In FY 2010-11, CALPIA
closed an additional furniture factory at the Deuel Vocational
Institution, near Tracy, California. In addition to the 401 inmate positions eliminated because of these closures, CALPIA
will recognize a $2.8 M charge resulting from the deactivation
of the various factories in FY 2010 -11.
CALPIA Balance Sheet
Notwithstanding the challenges of FY 2010-2011, CALPIA
is financially strong. The CALPIA balance sheet as of June
30, 2011, shows that current assets are almost four times
greater than current liabilities, and almost twice the amount
of total liabilities. These financial indicators reflect that
CALPIA is well positioned to meet its short-term and longterm obligations. Moreover, CALPIA continues to identify
additional cost savings and is working to stabilize revenues by
identifying new customer needs.
Other Extraordinary Expenses
Pro Rata Payments to the State
Despite the fact that CALPIA receives no Budget Act appropriation, CALPIA must pay the State its pro rata share of
costs of State services (Legislature, Department of Finance,
Controller, Treasurer, etc.). In FY 2010-11, CALPIA’s pro rata
bill from the State of California was $3.5 M. The FY 2011-12
pro rata payment is anticipated to be $3.8 M.
Future Impacts
In the immediate future, CALPIA must focus on issues which
directly affect its ability to operate a business in a correctional
environment.
Application of State Sales Tax
Governor Brown signed Assembly Bill 109 (Chapter 15/2011)
which redirects thousands of parolees and new inmates to
the jurisdiction of local counties, effective October, 2011.
In the next 36 months, CALPIA anticipates revenues will
decrease an additional $19.9 M as a result of declining purchases from CDCR as the inmate population declines. This
will reduce opportunities to employ inmates with CALPIA.
CALPIA estimates that as a result of this revenue reduction,
CALPIA will reduce up to 725 inmate positions, and up to
72 civil service positions.
Per the Board of Equalization, unlike any other manufacturer,
CALPIA must pay sales tax on purchases of raw materials instead of collecting sales taxes from the end user. Since CALPIA
incurs the cost of paying sales tax on materials purchased, those
costs must be reflected in the base prices of CALPIA goods
and services. CALPIA paid over $4 M in Sales and Use Tax in
FY 2010-11.
No Interest General Fund Loans
CALPIA remains optimistic about the future of successful
business enterprises, supported by a dedicated and qualified
workforce, working in partnership with satisfied customers,
including DGS , that create the best opportunities for the rehabilitation of inmate workers, resulting in a safer California.
Government Code section 16310(a) authorizes the State
Treasurer to transfer idle cash from other funds (not to exceed
10% of the fund) to the General Fund to meet the cash needs
of the State. In FY 2010-11, CALPIA loaned an average of
$22.2 M per day, for 355 days, to the General Fund for which
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New Programs
California Identification Project
CSFM services include, but are not limited to, new
construction, refurbishing structures, making special and
emergency repairs, minor capital projects, Americans with
Disabilities Act (ADA) access modifications, energy retrofits, and lead and asbestos abatement. CSFM also installs
CALPIA’s state of the art modular buildings throughout the
state. From 2008 through 2010, the former ISB installed
over 100,000 square feet of CALPIA modular buildings
throughout CDCR institutions.
In a partnership with DMV and CDCR, on December 31,
2011, CALPIA completed an 18-month pilot project that
provided a valid California Identification Card (ID) for 8,000
paroling inmates from nine institutions. CALPIA requires
that all inmates participating in CALPIA programs obtain a
California ID prior to parole, and secure a GED within two
years of entering CALPIA, both of which are proven to aid the
offender upon release to make a successful transition to the
community.
In 2011, CSFM provided construction services to the
CDCR, the California Department of Parks and Recreation
and the California Exposition and State Fair.
CALPIA Construction Services and
Facilities Maintenance
In FY 2011-12 CALPIA will expand the CSFM enterprise
with the addition of a facilities maintenance program at the
California Medical Facility at Vacaville, California that will
employ 28 inmates.
In April, 2011, the PIB approved the establishment of the
Construction Services and Facilities Maintenance (CSFM)
enterprise to provide a full range of construction and facility
maintenance services. The PIB’s action was to recognize
CALPIA’s long established Industrial Services Branch (ISB)
as an enterprise, consistent with the California Penal Code requirements. The ISB had previously been recorded as a selling
and administration expense prior to its recording of revenues.
Utilizing the CSFM greatly reduces the General Fund costs
for prisons, parks and public works, and simultaneously
provides a proven inmate rehabilitation training option.
The CSFM is a concept which should be embraced further
by state agencies, including CDCR, in a time of shrinking
budgets as they recognize deferred maintenance deficiencies.
The CSFM provides an added benefit of inmate rehabilitation
training that demonstrates a remarkably low recidivism rate.
CSFM focuses on the management and timely completion of
smaller construction, renovation, or repair projects utilizing
skilled inmate labor participants in CALPIA’s CTE inmate
training program. CALPIA has demonstrated and documented that trained inmates from its CTE program can reduce the
operating costs of prisons and other state facilities by using
CTE inmates to perform deferred maintenance. The program
boasts a recidivism rate that is 89% lower than the rate for the
inmate general population. The CTE program produces inmates that are employable upon parole and able to contribute
to society through the payment of taxes rather than costing
taxpayers by reoffending and being sent back to state prison.
The CDCR also operates a similar construction program, the
Inmate-Ward Labor program (IWL), but IWL does not include
an apprenticeship program as does CALPIA, and IWL restricts
their work to correctional facilities.
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New Products Continued
Prototype Modular Buildings
Organization for Standardization (ISO) 9001:2008 and
National Fire Protection Agency (NFPA) 1977: 2011
certifications in order to meet obligatory requirements.
CALPIA manufactures the 1st Defense line of garments at
Mule Creek State Prison.
CALPIA is currently in development and near completion of several
prototype buildings funded by the PIB.
The first pilot Telemedicine Modular Building Project is for the
California Correctional Health Care Services (Office of the Federal
Receiver). The self-contained telemedicine unit will provide for
remote medical examinations by way of video conferencing. The
new telemedicine unit will be installed at Pelican Bay State Prison
(PBSP). The project will reduce the cost of inmate health care at
PBSP by lessening the need to transport inmates to outside health
care facilities, and serve as a model for the delivery of health care to
prisoners located in remote California prisons.
Tactile Maps and Signs
The Americans with Disabilities Act and the State of
California require that evacuation maps be available in
public buildings. Tactile maps are used to help orient
vision-impaired individuals around buildings and campuses.
Without them, individuals with vision disabilities are unable
to read emergency information. CALPIA has recently added
tactile maps to its Digital Services enterprise list of products.
Digital Services offers dimensional printing, resulting in a tactile
maps and images with raised linear surfaces, symbols, and Braille
dots. Maps can be selectively digitized according to categories of
information on the map, such as buildings, parking, athletic fields,
and locations of entrances, bus stops, and obstructions.
The second prototype is a “Incident Management System”
prototype to be installed at the Green Valley Training Center
in Folsom . This will provide a state of the art training facility to
demonstrate methodologies for correctional and non-correctional
incident management that have been adopted nationally.
The third prototype is a lighter constructed modular which
differentiates itself from the higher security (and heavier)
modular buildings previously installed throughout the
state. This lower weight, lower cost building will still enjoy
the same 30 year life span as the previous buildings. The
modular units are fabricated by CALPIA inmate workers in
the CTE program within the Modular Building Enterprise
at Folsom State Prison (FSP).
Revitalized Modular Systems
Furniture
In support of a greener California, CALPIA offers a
product stewardship program for its Modular Systems
Furniture (MSF). In support of Management Memo
11-01, released February 11, 2011, CALPIA officially
launched its line of Revitalized MSF that provides a way
for agencies to effectively recycle office furniture.
1st Defense- Wildland Fire
Protection Gear
When agencies have surplus modular furnishings,
CALPIA retrieves its own components and revitalizes
them to be offered within other modular furniture
projects. This new program reduces warehousing
costs and landfill waste while providing agencies
cost-effective modular system furniture. In addition to
being environmentally friendly, these products provide
additional leadership in Energy and Environmental
Design (LEED)credits for building certifications.
CALPIA is launching its newest line of fire protection gear
under the name 1st Defense. Developed in partnership with
the California Department of Forestry and Fire Protection,
1st Defense garments are designed to provide personal
safety, comfort, durability and full range visibility.
CALPIA Fabric Enterprises received International
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New Products Continued
Remanufactured Toner Cartridges
Improved Processes
CALPIA launched the Remanufactured Toner
Cartridges product line in November, 2010, offering
an easy recycling opportunity to our customers. Initial
offerings began with seven different printer styles,
and in less than one year expanded to 13. Customer
acceptance has been gratifying in that agencies see the
fiscal and environmental value of purchasing previously
used and remanufactured printer cartridges. CALPIA
remanufactures toner cartridges at Folsom State Prison.
Quality Control
Individual Prepackaged Meals
CALPIA is one of only two state correctional industries in
the nation that has achieved ISO certification, and the only
state correctional industry program with inmates that are
trained and certified ISO Internal Quality Auditors. In FY
2010-11, 10 additional CALPIA factories received ISO
certification (eight fabric factories, one knitting mill, and one
mattress factory).
FY 2010-11 was characterized by CALPIA’s on-going
efforts to adapt to market conditions and improve the overall
quality of its products and services. These efforts included
expanding the application of International Organization
for Standardization (ISO) principles throughout the
organization. ISO is the world’s largest developer and
publisher of International Standards.
After several years of research, CALPIA launched the Individual
Prepackaged Meals (boxed lunch) product line in September,
2011, as a pilot to feed approximately 100 CALPIA inmates.
CALPIA was asked to develop the boxed lunch product by DGS.
The boxed lunch product will be offered to CDCR for feeding
inmates. The CALPIA boxed lunch product line will be produced
at California State Prison - Corcoran. The product will be limited
meal selection consistent with CDCR’s correctional dietary
requirements.
11
Prison Industry B o ard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
CALPIA Enterprises by Location
CALPIA Enterprises
& Career Technical Education Locations (CTE)*
Pelican Bay State Prison,
Crescent City (PBSP)
• Laundry
On Time Delivery Center,
Sacramento (OTD)
• Distribution Center (Northern)
CSP Solano,
Vacaville (SOL)
• Metal Products
• Bindery
• Laundry
• Optical
• Support Services
Folsom State Prison, Represa
& CSP Sacramento, Represa (FSP)
• Metal Products
• Metal Signs
• License Plates
• Printing
• Laundry
• Modular Building Construction
• Construction Services Enterprise & Facilities Maintenance
• Digital Services
• Support Services
CTE Programs
• Pre-Apprentice, Carpentry
• Pre-Apprentice, Ironworker
• Pre-Apprentice, Laborer
CALPIA Central Office, Folsom (CO)
• Support Services
Mule Creek State Prison,
Ione (MCSP)
• Meat Cutting
• Coffee Roasting
• Fabric Products
• Laundry
• Support Services
Deuel Vocational Institution,
Tracy (DV1)
• Dairy
• Support Services
CSP Corcoran & Substance
Abuse Treatment Facility,
Corcoran (COR)
• Dairy
• Food & Beverage Packaging
• Laundry
• Support Services
On Time Delivery Center,
Corcoran (OTD)
• Distribution Center (Central)
Wasco State Prison,
Wasco (WAS)
• Laundry
CSP San Quentin,
San Quentin (SQ)
• Furniture
• Mattress
• Support Services
Central California
Women’s
Facility, Chowchilla
& Valley State Prison
for Women, Chowchilla
(CCWF/VSPW)
• Crops
• Fabric Products
• Dental Lab
• Optical
• Laundry
• Support Services
Sierra Conservation
Center,
Jamestown (SCC)
• Fabric Products
California Correctional
Institution, Tehachapi
(CCI)
• Fabric Products
• Support Services
Correctional Training
Facility, Soledad (CTF)
• Furniture
• Fabric Products
• Support Services
Avenal State Prison,
Avenal (ASP)
• Poultry
• Egg Production
• Furniture
• General Fab/Century
• Laundry
• Support Services
*Career Technical Education (CTE)
locations appear in blue
California Men’s Colony,
San Luis Obispo (CMC)
• Knitting Mill
• Fabric Products
• Shoes
• Printing
• Laundry
• Support Services
CSP Los Angeles County,
Lancaster (LAC)
• Cleaning Products
• Laundry
• Support Services
Chuckawalla Valley
State Prison, Blythe
(CVSP)
• Laundry
Richard J. Donovan,
Correctional Facility,
San Diego (RJD)
• Bakery
• Shoes
• Laundry
• Support Services
California Institution
for Women,
Corona (CIW)
• Fabric Products
CTE Program
• Pre-Apprentice, Carpentry
On Time Delivery Center,
Chino (OTD)
• Distribution Center (Southern)
California Institution for Men,
Chino (CIM)
• Laundry
• Food & Beverage Packaging
• Support Services
CTE Program
• Marine Technology Training Center
Centinela State Prison, (CEN)
• Fabric Products
12
Quality Products ★ Changed Lives ★ A Safer California
Prison
Industry
o ard Office
R e po
t t oNatoma
t h e Street,
L e g is
la t u CA
re 95630
F Y 2 0www.calpia.ca.gov
10-11
California
Prison Industry
Authority B Central
560rEast
Folsom,
4/20/2011
PIB Summary of Adopted Action Items FYs 2009-2011
PIB Meeting
Summary 2011
Item C
Item D
11-1021-325-AI
11-1021-326-AI
Item E
Item C
11-1021-327-AI
11-0617-299-AP
Item D
Item B
11-0617-300-AP
11-0406-322-AI
Item C
11-0406-323-AI
Item D
Item C
Item D
11-0406-324-AI
11-0113-320-AI
11-0113-321-AI
Item E
11-0113-322-AI
CALPIA Regulations, Section 8006, Inmate Pay adopted for promulgation through Administrative Procedure Act (APA).
Support legislation providing net General Fund savings, annual performance-based GF appropriation of approx. $1.15M for CTE
program
Change & place PIB policy in ISO format re: Transcripts of PIB Meetings and Public Hearings as the Official Record
Adoption of Annual Plan. Revenues of $158.17M, decrease of 5.2% ($8.65M) from MYR; 5.5% ($6.80M) decrease of total costs of
goods sold
Adoption of $11,303,533 designation of cash to support capital expenditures for ongoing operations
Adoption of Construction Services & Facilities Maintenance Enterprise Statewide; no change to the Revenue Limit of $10M; 20
inmate worker assignments per contact/location.
Oppose SB 700 re: allowing CDCR to purchase locally; Reduction by over $4M and up to 60 inmate positions; increase in GF costs
to CDCR by $300,000 annually.
Support SB 608 re: allowing non-profits to purchase goods & services from CALPIA; possible GF savings $4,900,000 annually.
CALPIA Regulations, Sections 8000, 8007, 8008 Inmate Appeals and Health & Safety Complaint for promulgation through APA.
Satellite food & beverage packaging Enterprise at CSP-COR; capital investment approx. $800,000; 40 inmate worker assignments
anticipated.
MYR revenues & expenditures $166.8M; Gross profit decrease of $1.8M; $2.3M to fund CTE; utilizing 6,184 inmate positions –
reduction of 149 positions (2.4%); funding 598 civil service positions (12.3% salary savings).
Adoption of $13,014,631 MYR designation of cash to support capital expenditures; $1,065,900 increase
PIB Report to Legislature FY 09-10
Summary 2010
Item F
11-0113-323-AI
Item G1 11-0113-324-AI
PIB Meeting
Item B
Item C
Item D
Item E
Item F
Item G
Item B
Item C
Item A
Item B
Item B
Item C
Item D
Item E
Item F
Item G
Item H
10-0629-297-AP
Adoption of Annual Plan. Revenues of $180.4M, decrease of $19.9M (9.9%) from MYR; $19.2M (12.3%) decrease of total costs of
goods sold Utilizing approx. 6,333 inmate positions, reduction of 198 positions (3.1%);
10-0629-298-AP Adoption of $11,948,731 MYR designation of cash to support capital expenditures; $3.6M increase
10-0629-201-OP Adoption of closure of furniture factory at DVI and reduction of the operation at SQ effective 7/1/10 – 40% decrease
10-0629-297-OP Adoption to establish a Construction Services Enterprise effective 7/1/10; gross profit est. of $458,000 based on $6M annual
revenue; 60 inmate worker positions.
10-0629-297-OP Adoption of Toner Cartridge Refurbishing-Printing Enterprise at FSP effective 8/1/10; utilizing 6 inmate positions.
10-0629-319AI
Oppose SB 1130 (update) re: the elimination of the mandate for CDCR to purchase perishable goods from CALPIA; potential
reduction of $3 million to Prison Industries Revolving Fund and loss of 100 inmate positions.
10-0504-319-AI Adoption of statewide Food & Beverage Packaging Enterprise revenue limit increase from $14.4 to $23M.
10-0504-320-AI Adoption of statewide Cleaning Products Enterprise revenue limit increase from $5.5 to 11.5M.
10-0505-321-AI* Oppose Assembly Bill 1771 re: change mandate to purchase CALPIA products to only those contracts and purchases over $25,000;
potential reduction of $24 million to Prison Industries Revolving Fund; increased cost to CDCR of $15 million annually.
10-0505-322-AI Oppose SB 1130 re: the elimination of the mandate for CDCR to purchase perishable goods from CALPIA; potential reduction of
$3 million to Prison Industries Revolving Fund and loss of 100 inmate positions.
10-0128-3120AI Adoption of PIB policy re: Destruction of Unofficial Transcripts of PIB Meetings & Public Hearings into ISO format
10-0128-313-AI Adoption of Resubmission of regulations, Sections 8000, 8001, 8002 re: PIB and CALPIA Regulatory Authority for promulgation
through APA.
10-0128-314-AI MYR revenues & expenditures Revenue decrease of $3.3M (1.6%); COGS decrease $2.2M (1.38%); Gross profit decrease of
$1.2M (2.5%); Selling & Admin decrease $2.4M (5.6%); Operating increase $1.3M (40.77%) Overall Net Gain $2.7M a decrease
of $0.5M (16.6%)
10-0128-315-AI Adoption of $9,743,100 designation of cash to support capital expenditures for ongoing operations
10-0128-316-AI PIB Report to Legislature FY 09-10
10-0128-317-AI Adoption of discontinuance of employing ICE hold inmates in Certification programs; disallow approx. 46 ICE hold inmates from
program; possible GF savings of $588,000.
10-0128-318-AI Oppose SB 467 re: enabling State agencies to enter into purchase contracts for less than $25,000 with certified small businesses,
micro businesses, or disabled veteran business enterprises; potential reduction of revenue to Prison Industries Fund of $99 million;
increase costs to CDCR of $3.5 million.
*Teleconference
13
Priso n Industry B oard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
Financial Overview with FY 2011-12
Revenues
(In Thousands)
FY 09-10
Audited
Actual
Manufacturing
Services
Agricultural
28,773
Total Revenue
Expenses
FY 10-11
Audited
Actual
FY 11-12
FY 11-12
Annual Plan Mid-Year Revise
$86,407
$71,250
$71,356
$73,671
66,631
63,889
59,896
59,896
29,259
26,914
26,914
$181,811
$164,398
$158,166 $160,481
(In Thousands)
Cost of Goods Sold
Manufacturing
$68,855
$58,091
$49,825
$53,974
Services
46,295
48,269
43,757
44,109
Agricultural 24,850
25,797
24,068
24,425
Total Cost of Goods Sold
Gross Profit
$140,000
$132,157
$117,650 $122,508
$41,811
$32,241
$40,516
$157
$184
$37,973
Selling & Administration (In Thousands)
Prison Industry Board
$126
$129
Executive Division
Executive Management
439 382 288 272
Legal
943
573
775
695
External Affairs
129
147
113
135
Operations Division
Operations Management
2,461
2,720
2,606
2,547
Industrial Services Branch
2,238
1,286
1,379
1,273
Inmate Employability Program
339
731
1,070
1,018
Marketing Division
3,353
3,648
3,261
3,254
Joint Venture/Free Venture
367 354 664 664
Administration Division
7,732
8,060
7,674
7,167
Human Resources
959
958
1,008
943
Staff Development
295
771
884
855
Career Technical Education Programs (CTE)
2,020
1,348
975
907
Reimbursements
1
CTE
(1,543)
(800)
0
0
Joint/Free
(670)
(671) (664) (664)
IEP
0
(253)
(169)
(169)
Total Central Office
19,188
Distribution/Transportation
11,346
11,597
10,337
10,761
OPEB
Operating Income/(Loss)
Non-Operating Revenues/Expenses
Net Gain/(Loss)
20,048
19,026
6,316 6,270 6,318
6,270
Furlough Expense
Total Selling and Administration
19,411
0 8,619
0 0
$36,850
$45,897
$36,703
$4,961
($13,656)
$3,813
($1,680)
$3,281
$36,057
$1,916
($1,620) ($411) ($495)
($15,276)
$3,402
$1,421
14
Prison Industry B o ard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
Enterprise Overview
FY 2011-12 Approved Mid-Year Revise
Revenue
Enterprise
Cost of
Goods
Sold
Gross
Profit/
(Loss)
(In Thousands)
Manufacturing
Furniture
$9,500
$7,718
$1,782
Metal Products
4,500
4,163
337
License Plates
11,000
5,205
5,795
General Fabrication (Century Systems)
9,600
8,390
1,210
Bindery
1,896
1, 513
383
Knitting Mill
1,311
1,085
226
Fabric Products
19,900
14,562
5,338
Shoes
4, 669
3,564
1,105
Mattresses
2,600
1,919
681
Cleaning Products
6,500
3,118
3,382
Modular Construction
2,195
2,737
(542)
$73, 671
$53,974
$19,697
$8,625
$7,092
$1,533
Bakery
3,080
2,443
637
Coffee Roasting
1,878
1,269
609
13,735
10,520
3,215
Metal Signs
1,100
704
396
Printing
7,000
3,930
3,070
Dental Lab
500
414
86
Digital Services
350
290
60
14, 033
11, 265
2, 768
9,000
5,183
3,817
595
999
(404)
$59,896
$44,109
$15,787
$14,425
$12,383
$2,042
Crops
1,155
1,420
(265)
Poultry
5,337
5,089
248
Egg Production
5,997
5,533
464
Sub-total Manufacturing
Services
Meat Cutting
Food & Beverage Packaging
Laundry
Optical
Construction Services & Facilities Maintenance
Sub-total Services
Agricultural
Dairy/Farm
Sub-total Agricultural
Total
$26,914
$24,425
$2,489
$160,481
$122,508
$37,973
15
Prison Industry B o ard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
Inmate Assignments by Enterprise
FY 09-10
Actuals
Enterprise
FY10-11
10- FY 11-12 FY 11-12
FY
11
Actuals
Annual Mid-Year
Actuals
Plan
Revise
Manufacturing
Furniture
568
476
439
503
Metal Products
237
220
323
239
License Plates
96
102
110
102
General Fabrication (Century Systems)
162
133
160
134
Bindery
98
102
140
105
Knitting Mill
87
95
82
91
1,307
1,273
1,355
1,297
Shoe
183
170
223
173
Mattress
101
92
98
102
Cleaning Products
43
49
50
50
Modular Construction
40
66
40
66
2,922
2,778
3,020
2,862
Meat Cutting
49
60
70
68
Bakery
84
66
76
66
Coffee Roasting
25
23
40
25
142
115
155
132
30
28
30
28
124
131
139
131
56
58
50
56
Fabric Products
Sub-total Manufacturing
Services
Food & Beverage Packaging
Metal Signs
Printing
Dental Lab
Digital Services
10
13
20
14
Laundry
830
794
856
829
Optical
210
176
178
183
0
0
35
28
1,560
1,464
1,649
1,560
232
224
218
222
Crops
53
35
64
48
Poultry
58
32
111
81
Construction Services & Facilities Maintenance
Sub-total Services
Agricultural
Dairy/Farm
Egg Production
80
77
96
96
423
368
489
447
307
292
390
347
On-Time Delivery
23
23
12
25
Central Office
29
27
61
42
Career Technical Education Programs
241
87
120
134
Sub-total Selling and Administration
600
429
583
548
5,505
5,039
5,741
5,417
Sub-total Agricultural
Selling and Administration
Statewide Administrative Support
Total
16
Prison Industry B o ard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
Inmate Positions by Location
Average Monthly Filled Inmate Assignments
Location
California Institution for Men
California Men’s Colony
R. J. Donovan Correctional Facility
Correctional Training Facility
Avenal State Prison
Deuel Vocational Institution
Folsom State Prison/CSP Sacramento/OTD North
San Quentin State Prison
California Institution for Women
California Correctional Institution
California State Prison, Solano
Mule Creek State Prison
Corcoran State Prison/Substance Abuse Treatment Facility
Chuckawalla Valley State Prison
Pelican Bay State Prison
Sierra Conservation Center
Central California Women’s Facility/Valley State Prison for Women
California State Prison, Lancaster
Wasco State Prison
Centinela State Prison
Central Office
Total
FY 2009-10
FY 2010-11
241
620
282
375
482
186
540
292
178
270
410
350
363
52
35
125
406
91
86
69
29
5,505
216
598
232
381
424
151
503
236
124
272
390
332
334
38
19
123
402
96
71
70
27
5,039
17
Priso n Industry B oard R e po r t t o t h e L e g is la t u re F Y 2 0 1 0 - 1 1
CALIFORNIA PRISON INDUSTRY AUTHORITY
(A Component Unit of the
State of California)
ANNUAL FINANCIAL REPORT
Years Ended June 30, 2011 and 2010
CALIFORNIA PRISON INDUSTRY AUTHORITY
(A Component Unit of the State of California)
Table of Contents
Page
Independent Auditor’s Report ..................................................................................................................... 1
Management’s Discussion and Analysis (Required Supplementary Information - Unaudited) .............. 3
Basic Financial Statements as of and for the Years Ended June 30, 2011 and 2010:
Balance Sheets ................................................................................................................................... 15
Statements of Revenues, Expenses, and Changes in Net Assets..................................................... 16
Statements of Cash Flows ................................................................................................................. 17
Notes to Basic Financial Statements................................................................................................. 19
Supplemental Information and Reports for the Years Ended
June 30, 2011 and 2010:
Independent Auditor’s Report on Supplemental Information ......................................................... 32
Classified in Accordance with the State Controller’s Instructions:
Balance Sheets ............................................................................................................................... 33
Statements of Revenues, Expenses and Changes in Net Assets ................................................... 34
Statement of Cash Flows ................................................................................................................. 35
INDEPENDENT AUDITOR’S REPORT
To the California Prison Industry Authority Board
Folsom, California
We have audited the accompanying balance sheets of California Prison Industry Authority (“CALPIA”), a
component unit of the State of California, as of June 30, 2011 and 2010, and the related statements of
revenues, expenses, and changes in net assets and cash flows for the years then ended. These financial
statements are the responsibility of CALPIA’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government Auditing
Standards issued by the Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of CALPIA’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of CALPIA as of June 30, 2011 and 2010, and the changes in its financial position
and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated January 6,
2012 on our consideration of CALPIA’s internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grants agreements and other
matters for the year ended June 30, 2011. The purpose of that report is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing, and not
to provide an opinion on the internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards and should be
considered in assessing the results of our audit.
1
Accounting principles generally accepted in the United States of America require that the
management’s discussion and analysis on pages 3 through 13 be presented to supplement the basic
financial statements. Such information, although not a part of the basic financial statements, is
required by the Governmental Accounting Standards Board, who considers it to be an essential part of
financial reporting for placing the basic financial statements in an appropriate operational, economic,
or historical context.
We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of America,
which consisted of inquiries of management about the methods of preparing the information and
comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited procedures
do not provide us with sufficient evidence to express an opinion or provide any assurance.
Sacramento, California
January 6, 2012
2
CALIFORNIA PRISON INDUSTRY AUTHORITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEARS ENDED JUNE 30, 2011 AND 2010 (Unaudited)
CALIFORNIA PRISON INDUSTRY AUTHORITY
The following Management Discussion and Analysis (MD&A) applies only to the activities of
the California Prison Industry Authority (CALPIA) and should be read in conjunction with its
financial statements and related footnotes.
CALPIA is a proprietary component unit of the State of California (State) and is accounted for in
the Prison Industries Revolving Fund, which is an internal service fund in the State’s basic
financial statements. CALPIA does not receive a General Fund appropriation.
Chapter 1549, Statutes of 1982, created CALPIA as a self-supporting state agency. The statutory
purposes of the CALPIA are to:
Develop and operate manufacturing, agricultural, and service enterprises that provide work
opportunities for inmates under the jurisdiction of the California Department of Corrections
and Rehabilitation (“CDCR”);
Create and maintain working conditions within enterprises, as much like those which prevail
in private industry as possible, to assure inmates the opportunity to work productively to earn
wages, and to acquire or improve effective work habits or occupational skills;
Operate a work program for inmates that is self-supporting through the sale of products and
services, and reduces the cost of operation of the CDCR.
CALPIA is under the policy direction of an eleven-member board of directors, which reviews and
approves the annual budget for the CALPIA. CALPIA manages over 60 manufacturing,
agricultural and service factories in 22 institutions. Administrative offices are located in Folsom,
California. The goods and services produced by CALPIA’s operations are sold principally to
departments of the State, and other governmental entities. CDCR is CALPIA’s largest customer,
and accounted for 62% and 61% of all sales in the years ended June 30, 2011 and 2010,
respectively.
Overview of the Financial Statements
The financial statements presented herein include all of the activities of CALPIA as prescribed by
statements of the Government Accounting Standards Board (GASB).
The Statements of Net Assets include all assets and liabilities of CALPIA. They are prepared
under the accrual basis of accounting, whereby revenues and receivables are recognized when the
service is provided and expenses and liabilities are recognized when incurred, regardless of when
cash is exchanged.
The Statements of Revenues, Expenses and Changes in Net Assets present information showing
how net assets changed during the most recent two fiscal years. All changes in net assets are
reported as soon as the underlying event giving rise to the change occurs, regardless of the timing
of related cash flows. Thus, revenues and expenses are reported in this statement for some items
that will result in cash flows in future fiscal periods (e.g., uncollected service charges and earned
but unused vacation leave).
The Statements of Cash Flows present information about the cash receipts and cash payments of
CALPIA during the two most recent fiscal years. When used with related disclosures and
3
information in the other financial statements, the information provided in these statements should
help financial report users assess CALPIA's ability to generate future net cash flows, its ability to
meet its obligations as they come due, and its need for external financing. It also provides insight
into the reasons for differences between operating income and associated cash receipts and
payments; and the effects on CALPIA's financial position of its cash and its noncash investing,
capital, and related financing transactions during the year.
Notes to the Basic Financial Statements provide additional information that is essential to a full
understanding of the data provided in CALPIA's basic financial statements. The notes are
included immediately following the basic financial statements within this report.
Financial Overview
The financial crisis of the past several years continued into fiscal 2011, further suppressing tax
revenues and prolonging the fiscal crisis at every level of government. As anticipated, lower
spending by both state and local government entities has adversely affected CALPIA.
While CALPIA has aggressively managed its operations through cost containment measures and
the identification of new revenue sources in order to fulfill its statutory goal of self-sufficiency,
operating results in fiscal 2011 were negatively impacted by several factors. After having
recorded net asset gains of $3.3 million and $7.0 million during fiscal years 2010 and 2009,
respectively, CALPIA experienced a $15.3 million decrease in net assets in fiscal 2011. The
decrease in net assets in fiscal 2011 was primarily due to a reduction in revenue of $17.4 million
as compared to fiscal 2010, an accrual of approximately $8.6 million related to the anticipated
settlement of a lawsuit brought by employee unions for lost wages claimed as a result of state
imposed furloughs and an increase in the amount of impairment loss, from $1.1 million in fiscal
2010 to $1.3 million in fiscal 2011, related to factory closures (see additional discussion below).
Additionally, CALPIA’s financial results are negatively impacted by the costs related to its share
of the State’s unfunded other post employment benefit (OPEB) obligation. In fiscal 2011 and
fiscal 2010, CALPIA recorded $6.3 million in additional expense each year related to this
accrual.
Notwithstanding the challenges of fiscal 2011, CALPIA is financially strong. The CALPIA
Balance Sheet at June 30, 2011, shows that current assets are almost four times greater than
current liabilities and almost twice the amount of total liabilities. These financial indicators
reflect that CALPIA is well positioned to meet its short-term and long-term obligations.
Moreover, we continue to identify additional cost savings and are working to stabilize our
revenues by identifying new customer needs. Adjusted for the settlement accrual and the
impairment charge, CALPIA would have recorded a net decrease in assets of $5.3 million.
Employee Furloughs
In an effort to reduce State General Fund expenditures, the Governor ordered state workers,
including CALPIA employees, to take 55 furlough days without pay between February 2009 and
October 2010. Subsequently, through the collective bargaining process, State employees
accepted one unpaid personal leave day (PLP) per month between November 2010 and October
2011, to be used at the employee’s discretion. CALPIA realized payroll savings of $2.4 million
in fiscal 2011 as a consequence of furlough and PLP days. However, the savings were partially
offset by $0.8 million in increased earned employee vacation balances, resulting from employees
utilizing their PLP days in lieu of vacation days.
4
Currently, three court cases related to the State’s furlough order are pending, the results of which
are likely to have a significant financial impact on CALPIA. These cases involve actions filed by
labor unions challenging the legality of furloughs imposed upon employees of State agencies,
which receive funding from sources other than the State’s General Fund. The trial court ruling
for each case was initially in favor of the unions, holding that furloughs were not authorized when
special funding was present. The appellate court, however, reversed the trial court decisions
stating that to the extent a state agency received any portion of its funding from a General Fund
appropriation, the legislature legally ratified the furloughs for those agencies through the Budget
Act. The appellate courts carved out an exception for five state agencies, including CALPIA,
because there was no apparent General Fund appropriation for these agencies. The matter as it
relates to CALPIA and the other four agencies was referred back to the trial court to determine
whether these agencies had received an appropriation from the General Fund. CALPIA’s budget
is approved by the Prison Industry Board, and CALPIA does not receive a General Fund
appropriation. As a result, CALPIA has accrued $8.6 million, based on consultation with its legal
counsel, representing its estimate of its potential liability related to employee back pay, including
interest, for furlough time imposed upon employees.
Postemployment Benefits Other than Pensions
Under Governmental Accounting Standards Board (GASB) Statement No. 45 (GASB 45)—
Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions (OPEB), the State is required to recognize the cost of retiree health benefit programs on
an accrual basis rather than on a pay as you go basis. The State Controller, who administers
GASB 45 accounting requirements for the State, informed CALPIA that its share of the State’s
net unfunded OPEB obligation is $6.3 million for each of the fiscal years 2011 and 2010.
CALPIA recorded these amounts as a selling and administrative expense on the operating
statement in addition to the actual payments made for OPEB. The State does not maintain a
separate pool of assets to finance future retiree healthcare benefits. As one of the few State
agencies required to fund the OPEB obligation from its own proprietary fund, CALPIA actively
monitors the costs of retiree health benefits in accordance with generally accepted accounting
principles and the funding policies of the State. As of June 30, 2011, the balance sheet reflects a
net OPEB obligation of $25.2 million.
Factory Closures
In accordance with GASB Statement No. 42—Accounting and Financial Reporting for
Impairment of Capital Assets and Insurance Recoveries—CALPIA recorded $1.3 million of
impairment losses related to its decision to terminate operations at the Deuel Vocational
Institution furniture factory; the California Training Facility dairy; and the Mule Creek State
Prison digital services factory. This amount represents the carrying value of the assets at these
locations which could not be transferred or sold.
Strategic Business Plan
The 2010 edition of the CALPIA Strategic Business Plan emphasizes the dual priorities of
providing inmate rehabilitation and operating a self-sufficient business while enumerating
objectives and strategies to accomplish CALPIA’s mission. In fiscal 2010, in response to
decreasing demand for its goods as a result of the State’s budget deficit, CALPIA closed two
optical factories, two furniture factories and one dairy. In so doing, CALPIA reduced civil
service staff by 50 budgeted positions (6.7% of total budgeted positions). In fiscal 2011 CALPIA
closed operations at one additional furniture factory in an effort to adjust its operating capacity to
lower customer demand. This closure resulted in the elimination of 11 positions (1.6% of total
budgeted positions).
Even as CALPIA reduces costs, CALPIA aims to identify new customers and expand product
lines in response to changing customer needs. In fiscal 2011, CALPIA launched the “California
5
Green” line of biodegradable chemical cleaning products and successfully marketed that product
to the State Department of Mental Health and the State Department of Parks and Recreation.
Additionally, working in conjunction with the California Department of Forestry and Fire
Protection (CAL FIRE), CALPIA developed a new line of wild land fire protection clothing,
which was designed to the unique specifications of CAL FIRE. Other products launched in fiscal
2011 were remanufactured toner cartridges, and additional fabric products for the California
Department of Transportation. In addition, the Prison Industry Board committed nearly $3
million for prototype modular buildings, the first of which to be developed is a tele-medicine
facility for the Federal Healthcare Receiver which is overseeing the CDCR’s delivery of
healthcare to inmates. In fiscal 2011, the Prison Industry Board authorized the creation of a new
Construction Services and Facilities Maintenance enterprise (CSFM). The CSFM provides
CDCR cost effective solutions for refurbishing existing structures, implementing minor capital
outlay projects, and delivering routine maintenance of facilities and grounds.
Fiscal 2011 was characterized by CALPIA’s on-going efforts to adapt to market conditions and
improve the overall quality of its products and services. These efforts included expanding the
application of International Standards Organization (ISO) principles throughout the organization.
In preceding years, CALPIA attained ISO certification in its furniture, modular building, and
modular furniture factories. In fiscal 2011, CALPIA’s wild land fire protective apparel received
ISO and National Fire Protection Association (NFPA) certification. This ISO certification
enabled CALPIA’s new line of fire fighting garments to achieve NFPA certification in September
2011. The NFPA standard is a national standard for firefighting protective clothing. In fiscal
2012, CALPIA will seek ISO certification for cleaning products, printing and laundry enterprises.
Implementing and maintaining quality standards affirms CALPIA’s commitment to producing
superior products while enhancing CALPIA’s ability to retain existing customers and attract new
customers who may require such certification as a condition of being selected as a vendor.
As previously noted, CALPIA was not created solely to be a business enterprise. CALPIA
distinguishes itself as a State program by providing inmates work opportunities and skills they
will require to re-enter society as productive citizens. In fiscal 2011, CALPIA employed more
than 7,000 inmates assigned to 5,300 positions in manufacturing, agricultural and service
enterprises. CALPIA invests in curricula for inmates including 17 programs that offer nationally
recognized accredited certifications such as optometry, dental technology, food handling,
automotive service, laundry, commercial baking, agriculture, welding and metal stamping.
Additionally, CALPIA offers Career Technical Education (CTE) programs in commercial diving,
carpentry, and ironworking in partnership with trade unions that offer employment possibilities
when inmates are released on parole. CALPIA inmates also can earn certificates of proficiency in
occupational disciplines, which may be utilized upon parole to validate skills and abilities
acquired during employment with CALPIA. In fiscal 2011, fourteen hundred forty-three (1,443)
CALPIA inmates received a certificate of proficiency, and another three hundred thirty-four (334)
CALPIA inmates successfully completed an accredited certification program. Of those that
completed an accredited certification program, one hundred forty-two (142) were graduates of
CALPIA’s CTE programs. CALPIA is currently seeking alternative sources of financing its CTE
programs as the CDCR ceased funding these programs in fiscal 2011. If no alternative financing
sources are found, the CTE programs will be terminated.
6
In times of economic uncertainty, it is incumbent upon CALPIA to be as responsive as possible to
customer demands. In that regard, CALPIA is proud of its contributions to the State. Research
indicates that CALPIA saves the State money, both by enhancing the safety of prisons and by
demonstrating lower recidivism rates among those inmates who work in its programs. The
recidivism rate of CALPIA inmates is 25% lower than general population inmates and even less
for CALPIA inmates participating in CTE programs. Incarceration cost avoidance from CALPIA
industries saves the General Fund $8.5 million per year (Bureau of State Audits,
May 2011.) Further, CALPIA prices are lower than the private sector nearly 60% of the time,
which saved CALPIA’s five largest customers $3.0 million in fiscal 2010. For the remaining
products, CALPIA is competitively priced (Bureau of State Audits, May 2011.)
In fiscal 2012, CALPIA must adapt to the changing correctional environment in the State.
Governor Brown signed AB 109 (Chapter 15/2011), which redirects thousands of parolees and
new inmates to the jurisdiction of local counties, effective October 2011. The effects of this realignment are likely to reduce CDCR’s purchases, which currently account for approximately
62% of CALPIA’s revenues. Although the exact impact on CALPIA’s inmate workforce has not
yet been determined; it is likely that there will be some reduction. CALPIA is currently in the
process of assessing the impact of AB 109 on its inmate workforce at each institution.
As our customers benefit from quality goods and services, so do our inmate workers and,
ultimately communities throughout California. CALPIA remains optimistic about a future of
successful busines enterprises, supported by a dedicated and qualified workforce, working in
partnership with satisfied customers that create the best opportunities for the rehabilitation of
inmate workers.
Condensed Balance Sheet
The following table presents the condensed balance sheets for CALPIA as of June 30, 2011, 2010
and 2009:
7
Assets
Cash and cash equivalents
Accounts receviable
Due from State General Fund
Inventories
Capital assets, net
Other assets
Total assets
Liabilities
Accounts payable and accrued
liabilities
Deferred revenue
Workers' commpensation liability
Net OPEB obligation
2011
2009
$
59,682,438
7,221,260
23,400,000
42,726,358
44,850,226
333,693
$
54,884,348
10,474,952
21,000,000
43,057,538
47,903,931
293,961
$
44,059,867
11,258,815
20,800,000
49,114,484
50,307,712
372,427
$
178,213,975
$
177,614,730
$
175,913,305
$
31,365,524
2,559,843
14,878,827
25,224,000
$
19,566,841
4,753,759
14,878,827
18,954,000
$
21,890,749
10,534,685
14,669,927
12,638,000
Total liabilities
Net Assets
Invested in capital assets
Unrestricted net assets
Total net assets
Total liabilities and net assets
2010
$
74,028,194
58,153,427
59,733,361
44,850,226
59,335,555
47,903,931
71,557,372
50,307,712
65,872,232
104,185,781
119,461,303
116,179,944
178,213,975
$
177,614,730
$
175,913,305
Assets
Total assets increased by $0.6 million at June 30, 2011 compared to June 30, 2010, which is
explained by a $4.8 million increase in cash and cash equivalents and a $2.4 million increase in
amount due from State General Fund, offset by a $3.3 million decrease in accounts receivable, a
$3.1 million decrease in capital assets, and a $0.3 million decrease in inventories.
Total assets increased by $1.7 million at June 30, 2010 compared to June 30, 2009, which is
explained by a $10.8 million increase in cash and cash equivalents, offset by a $6.1 million
decrease in inventories, a $2.4 million decrease in capital assets, and a $0.7 million combined
decrease in accounts receivable, due from state general fund and other assets.
The $4.8 million increase in cash and cash equivalents at June 30, 2011 is explained by the
positive cash flows from operating activities of $13.1 million and investing activities of
$0.2 million, offset by the net outflow of $2.4 million in a short-term loan to the State General
Fund and $6.1 million from capital asset acquisitions and disposals. The $2.4 million increase in
amount due from State General Fund at June 30, 2011 represents an increase in a short-term loan
authorized by the State Controller’s Office for cash management purposes.
The $3.3 million decrease in accounts receivable at June 30, 2011 is mainly attributable to
CDCR, whose balance was higher at June 30, 2010 because of a deficiency in its fiscal 2010
appropriation, which was resolved in fiscal 2011. The decrease in capital assets is attributable to
8
reduced capital outlays, the disposal of older equipment, and the recognition of a $1.3 million
impairment loss related to closed factories.
The $10.8 million increase in cash and cash equivalents at June 30, 2010 is explained by the
positive cash flows from operating activities of $17.8 million and investing activities of
$0.3 million, offset by the net outflow of $0.2 million in a short term loan to the State General
Fund and $7.1 million from capital asset acquisitions and disposals.
The decrease in inventories at June 30, 2010 is the result of emphasizing the use of on-hand
inventory to satisfy production demands as well as devaluing inventory in the amount of
$0.7 million for slow moving and obsolete inventory items. The decrease in capital assets is
attributable to the disposal of older equipment throughout CALPIA as well as the recognition of a
$1.1 million impairment loss related to factory closures.
Liabilities
Total liabilities increased by $15.9 million at June 30, 2011 compared to June 30, 2010. This is
explained by a $11.8 million increase in accounts payable and accrued liabilities and a
$6.3 million increase in the net liability for OPEB. Additionally, deferred revenue decreased
$2.2 million.
Total liabilities decreased by $1.6 million at June 30, 2010 compared to June 30, 2009. The net
liability for OPEB increased by $6.3 million, while deferred revenue and accounts payable and
accrued liabilities decreased by $5.8 and $2.3 million, respectively. In addition, the liability for
workers’ compensation reserves increased $0.2 million.
The $11.8 million increase in accounts payable and accrued liabilities at June 30, 2011 is mostly
attributable to an $8.6 million expense accrual for the anticipated settlement of a lawsuit brought
by employee unions contesting employee furloughs (see discussion in Overview.) In addition,
CALPIA recorded a liability of $0.8 million for accrued leave time, which is a consequence of
employees utilizing furlough time and unpaid leave days in lieu of vacation. Also contributing to
the increase in accounts payable and accrued liabilities, CALPIA reclassified $1.4 million from
deferred revenue to customer deposits at June 30, 2011.
The State annually allocates a portion of retiree health benefit costs to the Prison Industries
Revolving Fund. The State recognizes the annual required contribution to the plan, which is
determined by an actuarial valuation that estimates the present value of future retiree healthcare
benefits earned during the employee’s working lifetime, including an amortization of the value of
unfunded retiree healthcare benefits attributable to employee service earned in prior fiscal years.
The State Controller’s Office has determined that CALPIA’s annual required OPEB cost is $9.9
million for fiscal 2011. Of this amount, CALPIA contributed $3.6 million; the balance of $6.3
million was accrued as a net OPEB long-term liability. CALPIA’s annual required OPEB cost
for fiscal 2010 was $9.6 million. Of this amount, CALPIA contributed $3.3 million; the balance
of $6.3 million was accrued as a net OPEB long term liability.
The $2.2 million decrease in deferred revenue at June 30, 2011 corresponds to the revenue
recognition of a prior year advance received from CDCR for the construction of modular
buildings as well as a reclassification of $1.4 million from deferred revenue to customer deposits
reflecting deposits for which orders have been delayed and no specific delivery date has been
established.
The $5.8 million decrease in deferred revenue at June 30, 2010 is primarily attributable to the
liquidation of prior year advances received from CDCR for the construction of modular buildings
and from the State Department of Transportation for office furniture.
9
Condensed Statements of Revenues, Expenses and Changes in Net Assets
The following table presents the condensed statements of revenues, expenses and changes in net
assets for the years ended June 30, 2011, 2010 and 2009.
2011
2010
2009
$ 164,398,239
$ 181,811,217
$ 234,232,997
132,156,694
139,999,941
186,304,080
Gross profit
32,241,545
41,811,276
47,928,917
Selling and administrative expenses
45,896,673
36,849,774
40,819,994
(13,655,128)
4,961,502
7,108,923
(1,620,394)
(1,680,143)
Increase (decrease) in net assets
(15,275,522)
3,281,359
6,959,138
Net assets at beginning of year
119,461,303
116,179,944
109,220,806
$ 104,185,781
$ 119,461,303
$ 116,179,944
Operating revenues
Cost of goods sold
Operating income (loss)
Non-operating (expenses) revenues, net
Net assets at end of year
(149,785)
Operating Revenues
As presented in the table that follows, in fiscal 2011 CALPIA sales decreased $17.4 million
(9.6%) from $181.8 million to $164.4 million. Sales in the manufacturing and service enterprises
decreased by $15.2 million (17.5%) and $2.7 million (4.1%), respectively, while sales in the
agricultural enterprises increased by $.5 million (1.7%). Fiscal 2011 marked the second
consecutive year in which operating revenues declined markedly, as sales dropped by
$52.4 million (22.4%) in fiscal 2010 from $234.2 million to $181.8 million. This outcome also
highlights that CALPIA benefitted from unprecedented sales in fiscal 2009, a period in which
revenues jumped $24.7 million (11.8%) from fiscal 2008, largely on the strength of the modular
building enterprise.
In manufacturing enterprises, general fabrication (modular office systems) sales decreased
$6.2 million (49.2%) in fiscal 2011, while the combined sales of furniture, fabric products, and
modular construction fell by $9.0 million (23.2%). The decreasing sales in these enterprises are
consistent with the reality that State agencies had fewer discretionary funds to spend in fiscal
2011. In fabric, CDCR looked to consume its existing inventories of inmate clothing during
fiscal 2011, reducing CALPIA revenues. Furniture operations were negatively impacted by the
Governor’s directive for State agencies to procure previously used furniture prior to purchasing
new furniture. Despite these undeniable downward trends in State agency spending, CALPIA is
encouraged about the future. Sales of license plates increased $0.9 million (8.3%) in fiscal 2011,
which indicates California citizens are purchasing new vehicles after a period of depressed auto
sales. In the case of modular office systems, CALPIA has installed two major projects in early
fiscal 2012 (State Department of Consumer Affairs and the State Department of Food and
Agriculture.) Still other modular office projects are in the pipeline that should ensure increased
revenues in fiscal 2012. Additionally, CALPIA has developed a new “telemedicine” modular
building for CDCR, which CALPIA projects will generate future sales for the modular building
enterprise.
Of the $2.7 million decrease in sales in service enterprises in fiscal 2011, $2.1 million (77.8%)
occurred in optical, $0.8 million occurred in laundry, and $0.6 million occurred in food
packaging. The decrease in optical revenues is primarily due to the State’s elimination of MediCal coverage of adult optometric services in fiscal 2010. Under a contract with the State
Department of Health Care Services, CALPIA served as the fabricating laboratory for glasses
related to this benefit. Though Med-Cal services for adults were eliminated in fiscal 2010, the
10
full effect was not realized until fiscal 2011. It should be noted that CALPIA continues to
provide optical services to Med-Cal beneficiaries under the age of 21. Additionally, CALPIA
was notified by the State Department of Health Care Services that the Center for Medicare and
Medicaid Services has approved a 10% reduction in provider rates for Medi-Cal. This rate
reduction will reduce reimbursement to CALPIA’s Optical Enterprise by approximately
$0.9 million for fiscal year 2012.
The $0.5 million increase in agricultural sales in fiscal 2011 is explained by a $1.2 million
increase in dairy sales, offset by a $0.5 million reduction in egg sales and a $0.2 million reduction
in the sale of crops. The increase in dairy sales is attributable to price adjustments, which were
enacted in January 2011.
In manufacturing, the sales of modular buildings decreased $20.8 million (82.0%) in fiscal 2010,
while the combined sales of the furniture, general fabrication (modular office systems), fabric
products, and bindery factories decreased by $17.9 million. The reduction in modular building
sales reflects both the weakening economy and the fact that CALPIA completed major projects
for CDCR in fiscal 2009. The lesser sales in all other enterprises epitomize the limited budgets of
State agencies during a depressed economy.
Optical sales decreased by $9.1 million (42.3%) in fiscal 2010 or 66.4% of the total sales
decrease in the service enterprises. As noted above, Medi-Cal coverage of adult optometric
services was eliminated effective July 1, 2009. In response to the change in Medi-Cal benefits,
and the subsequent reduction in demand for optical products, CALPIA closed two optical
factories, i.e., R. J. Donovan, San Diego and Pelican Bay in 2010. These factories processed
prescription glasses through the first quarter of the fiscal 2010; therefore, the full effect of the loss
in Medi-Cal revenues was not realized until fiscal 2011.
11
2011
Operating Revenues by Product Line
Manufacturing:
Furniture
Metal products
License plates
General fabrication
Bindery
Knitting mill
Fabric products
Silk screening
Shoe factory
Mattress factory
Cleaning products
Modular construction
Total manufacturing
$
9,675,374
4,085,633
11,940,815
6,405,117
3,186,001
1,493,281
19,371,098
11,200
4,847,206
2,675,061
6,659,033
899,808
71,249,627
2010
$
2009
12,998,752
4,844,423
11,022,264
12,612,758
2,066,681
1,992,224
21,420,228
43,318
4,819,811
2,890,369
7,132,309
4,564,250
86,407,387
$ 19,547,224
3,908,571
10,904,074
17,226,231
3,636,349
1,785,709
26,587,531
54,242
5,450,382
2,598,542
6,157,438
25,328,947
123,185,240
Services:
Meat cutting
Bakery
Coffee roasting
Food packaging
Metal signs
Printing
Dental lab
Digital services
Laundry
Optical
9,815,049
3,292,298
1,927,558
14,544,013
1,000,675
7,216,236
696,852
155,648
14,977,315
10,263,855
9,881,990
3,398,686
2,100,153
15,129,659
1,133,797
6,190,498
583,790
33,423
15,784,548
12,394,351
10,792,831
3,442,818
2,305,585
16,120,041
1,324,069
7,573,647
607,289
5,766
16,665,143
21,488,391
Total services
63,889,499
66,630,895
80,325,580
Agriculture:
Dairy/farm
Crops
Poultry
Egg production
15,608,918
1,193,557
6,087,415
6,369,223
14,444,550
1,428,491
6,027,188
6,872,706
15,193,773
1,341,100
6,746,286
7,441,018
29,259,113
28,772,935
30,722,177
$ 164,398,239
$ 181,811,217
$ 234,232,997
Total agriculture
Total operating revenues
Cost of Goods Sold
Cost of goods sold decreased by $7.8 million (5.6%) in fiscal 2011 from $140.0 million to $132.2
million. The decrease in cost of goods sold corresponds to reduced sales throughout CALPIA.
Overall, cost of goods sold as a percentage of sales were 80.4% and 77.0% in fiscal years 2011
and 2010, respectively. This increase is primarily due to a lower level of revenues to cover the
fixed cost components of cost of goods sold, increases in certain raw material costs and increased
labor costs related to a reduction of the number of employee furlough days, from three per month
to one per month.
12
Gross profit decreased by $9.6 million (22.9%) from $41.8 million to $32.2 million. The decrease
in gross profit is comprised of a $4.7 million decrease in service enterprises, a $4.4 million
decrease in manufacturing enterprises, and a $0.5 million decrease in agricultural enterprises.
Specifically, in the service enterprises, gross profit decreased by $1.0 million in meat cutting,
$1.0 million in optical and $0.9 million in laundry. Additionally, in fiscal 2011 CALPIA
inaugurated the construction services and facilities maintenance enterprise, which completed its
first year of operation with a gross loss of $1.1 million. In the manufacturing enterprises, gross
profit decreased by $1.9 million in fabric products, $1.2 million in modular construction, $0.9
million in furniture, and $0.7 million in metal products. In the agricultural enterprises, gross
profit increased by $1.0 million in the dairies; however, the crops, poultry, and egg production
enterprises experienced a combined decrease in gross profit of $1.6 million.
Cost of goods sold decreased by $46.3 million (24.9%) in fiscal year 2010 from $186.3 million in
fiscal 2009 to $140.0 million. As a percentage of sales, cost of goods sold were 77.0% and
79.5% in fiscal years 2010 and 2009, respectively. The decrease in cost of goods sold is
primarily due to a reduced level of revenues in fiscal 2010. Gross profit decreased by $6.1
million (12.8%) primarily as the result of reduced sales levels. The decrease in gross profit was
generally consistent throughout CALPIA’s operations with a decrease in gross profit of $3.9
million in manufacturing enterprises, $4.9 million in service enterprises as partially offset by a
$2.7 million increase in agricultural enterprises gross profit.
In manufacturing enterprises, gross profit decreased primarily due to decreases in gross profit of
$2.7 million in general fabrication and $2.2 million in modular construction, partially offset by a
gross profit increase of $1.2 million in cleaning products. In service enterprises, the decrease
was primarily attributable to a gross profit reduction of $4.0 million in optical. In agricultural
enterprises, the increase was primarily due to a gross profit increase of $1.8 million in dairy
operations. Notwithstanding the dramatic sales decreases in fiscal year 2010, CALPIA’s gross
profit as a percentage of sales (gross margin percentage) improved slightly because of pricing
adjustments and cost containment measures, including closing factories. Of note, Governor
Schwarzenegger ordered three furlough days per month for the State workforce for the entire
2010 fiscal year, which created salary savings compared to the prior year. (In fiscal year 2009,
Governor Schwarzenegger initiated two unpaid furlough days, effective February 2009.)
Additionally, the assessment CALPIA receives for statewide administrative costs decreased by
$1.0 million in fiscal year 2010 from $4.2 million to $3.2 million. The majority of this assessment
is allocated to cost of goods sold.
Selling and Administrative Expenses
Selling and administrative expenses are comprised of distribution and transportation expenses and
central office costs. In fiscal 2011, selling and administrative expenses contain a charge of $8.6
million for the anticipated settlement of a lawsuit brought by employee unions contesting
employee furloughs (see Overview.). After giving effect to the settlement accrual, selling and
administrative expenses for fiscal year 2011 remained consistent with fiscal 2010 levels. and
2010 remained level. Selling and administrative expenses for fiscal 2010 were $4.0 million less
than fiscal 2009 levels. This is primarily due to the implementation of staffing reductions and
increased efficiency in the distribution program, including increased utilization of CALPIA trucks
over common carriers. While some of these initiatives were begun in fiscal 2009, only a portion
of that year benefited from the changes.
Fiscal year 2010 selling and administrative expenses consist of distribution and transportation
charges of $11.3 million, central office costs of $19.2 million, and an OPEB charge of
$6.3 million. Overall, selling and administrative expenses decreased by $4.0 million (9.7%) in
fiscal year 2010 from $40.8 million to $36.8 million. The decrease is primarily explained by
reduced payroll costs as a result of furloughs and reduced freights costs as a consequence of
fewer sales.
13
Non-Operating Revenues (Expenses)
Non-operating revenues (expenses) consist primarily of loss on disposal of capital assets, interest
income (expense) and other expenses. Total non-operating revenues (expenses) of $1.6 million
for fiscal year 2011 were consistent with total non-operating revenues (expenses) of $1.7 million
for fiscal 2010.
Request for Information
The financial report is designed to provide a general overview of CALPIA’s finances. For
questions concerning any information in this report or for additional financial information,
contact Eric Reslock, Chief of External Affairs, at 916-358-1802 or email at
Eric.Reslock@calpia.ca.gov.
14
CALIFORNIA PRISON INDUSTRY AUTHORITY
BALANCE SHEETS
June 30, 2011 and 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Cash designated for capital assets expenditures
Accounts receivable
Related party receivable
Inventories
Due from state general fund
Interest receivable
Other
TOTAL CURRENT ASSETS
$
2011
48,378,905
11,303,533
4,156,041
3,065,219
42,726,358
23,400,000
71,352
262,341
133,363,749
NONCURRENT ASSETS:
Capital assets not being depreciated
Capital assets being depreciated,net
$
432,889
44,417,337
TOTAL ASSETS
2010
42,935,617
11,948,731
4,916,290
5,558,662
43,057,538
21,000,000
68,736
225,225
129,710,799
48,128
47,855,803
$
178,213,975
$
177,614,730
$
9,605,261
13,141,591
8,618,672
2,383,232
2,559,843
36,308,599
$
8,491,762
11,075,079
2,383,232
4,753,759
26,703,832
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable
Accrued expenses and other liabilities
Accrued furlough liability
Workers' compensation liability-current portion
Deferred revenue
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
Workers' compensation liability
Net OPEB obligation
TOTAL LONG-TERM LIABILITIES
12,495,595
25,224,000
37,719,595
12,495,595
18,954,000
31,449,595
TOTAL LIABILITIES
74,028,194
58,153,427
NET ASSETS
Invested in capital assets
Unrestricted net assets
TOTAL NET ASSETS
44,850,226
59,335,555
104,185,781
47,903,931
71,557,372
119,461,303
TOTAL LIABILITIES AND NET ASSETS
$
178,213,975
See Notes to Basic Financial Statements
15
$
177,614,730
CALIFORNIA PRISON INDUSTRY AUTHORITY
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
Years Ended June 30, 2011 and 2010
2011
OPERATING REVENUES
Manufacturing
Services
Agriculture
TOTAL OPERATING REVENUES
$
COST OF GOODS SOLD
GROSS PROFIT
SELLING AND ADMINISTRATIVE EXPENSES
ACCRUED FURLOUGH LIABILITY EXPENSES
OPERATING INCOME (LOSS)
NON-OPERATING REVENUES (EXPENSES)
Interest income
Interest expense
Loss from disposal of capital assets
Loss from impairments of capital assets
Other expenses
TOTAL NON-OPERATING (EXPENSES) REVENUES
Change in net assets
NET ASSETS - BEGINNING OF YEAR
71,249,627
63,889,499
29,259,113
164,398,239
2010
$
132,156,694
32,241,545
139,999,941
41,811,276
37,278,001
8,618,672
36,849,774
-
(13,655,128)
4,961,502
235,966
(13,933)
(429,362)
(1,308,501)
(104,564)
280,134
(18,786)
(588,794)
(1,141,401)
(211,296)
(1,620,394)
(1,680,143)
(15,275,522)
3,281,359
119,461,303
NET ASSETS - END OF YEAR
$
See Notes to Basic Financial Statements
16
86,407,387
66,630,895
28,772,935
181,811,217
104,185,781
116,179,944
$
119,461,303
CALIFORNIA PRISON INDUSTRY AUTHORITY
STATEMENTS OF CASH FLOWS
Years Ended June 30, 2011 and 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash receipts from interfund services provided by the reporting entity
Cash payments for interfund services used by the reporting entity
Cash payments to employees for services
Cash payments to suppliers of goods and services
Cash payments for other services
Net cash provided by operating activities
$
2011
165,458,014
1,764,899
(9,748,903)
(53,276,130)
(90,977,446)
(104,564)
13,115,870
$
2010
176,814,154
2,229,343
(11,162,631)
(51,721,301)
(98,151,300)
(211,296)
17,796,969
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Due from state general fund
Interest expense
Net cash flows used in noncapital financing activities
(2,400,000)
(13,933)
(2,413,933)
(200,000)
(18,786)
(218,786)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING
ACTIVITIES
Acquisitions of capital assets
Proceeds from sale of capital assets
Net cash flows used in capital and related financing activities
(6,689,225)
552,028
(6,137,197)
(7,551,749)
476,301
(7,075,448)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
See Notes to Basic Financial Statements
17
233,350
321,746
4,798,090
10,824,481
54,884,348
44,059,867
59,682,438
$
54,884,348
CALIFORNIA PRISON INDUSTRY AUTHORITY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30, 2011 and 2010
2011
Reconciliation of operating income (loss) to net cash
provided by operating activities:
Operating income (loss)
Adjustments to reconcile operating income (loss) to net
cash provided by operating activities:
Depreciation
Other expenses
Net effect of changes in:
Accounts and related party receivables
Inventories
Other assets
Accounts payable
Accrued expenses and other liabilities
Accrued furlough liability
Workers' compensation liability
Deferred revenue
Net OPEB obligation
Net cash provided by operating activities
$
$
(13,655,128)
2010
$
4,961,502
7,453,039
(104,564)
7,749,035
(211,296)
3,253,692
331,180
(37,116)
1,113,499
2,066,512
8,618,672
(2,193,916)
6,270,000
13,115,870
783,863
6,056,944
36,854
(2,136,152)
(187,756)
208,900
(5,780,925)
6,316,000
17,796,969
See Notes to Basic Financial Statements
18
$
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements
For the Fiscal Years Ended June 30, 2011 and 2010
(1)
ORGANIZATION
The California Prison Industry Authority (“CALPIA”) was established in 1983, as the successor to the
California Correctional Industries (“CCI”). It is under the policy direction of an eleven-member board of
directors (“Prison Industry Board”) and is a component unit of the State of California. CALPIA manages
over 60 manufacturing, service, and agriculture factories in 22 institutions that employ inmates at
California’s penal institutions within the California State Department of Corrections and Rehabilitation
(“CDCR”). Administrative offices are located in Folsom, California. The products manufactured by
CALPIA’s operations are sold principally to departments of the State of California and other governmental
entities.
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting - CALPIA uses the accrual basis of accounting. Under this method, revenues and
receivables are recorded when earned, and expenses and liabilities are recorded when incurred.
Governmental Accounting Standards Board (“GASB”) Statement No. 20 (“GASB No. 20”), Accounting
and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary
Fund Accounting, established standards for accounting and financial reporting for proprietary funds. In
accordance with GASB No. 20, CALPIA’s proprietary fund accounting and financial reporting practices
are based on all applicable GASB pronouncements as well as the following pronouncements issued on, or
before November 30, 1989, unless those pronouncements conflict with or contradict GASB
pronouncements: Financial Accounting Standards Board (“FASB”) Statements and Interpretations,
Accounting Principles Board (“APB”) Opinions, and Accounting Research Bulletins ("ARB”) of the
Committee of Accounting Procedures. CALPIA has elected not to apply applicable
FASB
pronouncements (which are now codified in the Accounting Standards Codification and the
Accounting Standards Updates) issued subsequent to November 30, 1989.
Revenue Recognition - Revenues and receivables are recorded when earned, usually upon the
shipment of orders, other than modular furniture and building construction. Revenue on modular
furniture and building construction is recognized using a method which materially approximates the
percentage-of-completion method of accounting, in accordance with Statement of Position (“SOP”)
81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.
Under this method, CALPIA recognizes revenue at the end of each period using output measures in
terms of results achieved, to measure the extent of progress toward completion under the contract, on
the basis of units of work completed.
Cash and cash equivalents - Cash consists of deposits in the custody of the State of California
Treasurer. CALPIA’s deposits are subject to the California Government Code and the State Treasurer’s
Office investment policy for the Pooled Money Investment Account (“PMIA”). Cash not required for
current use is invested in the Surplus Money Investment Fund (“SMIF”), while non-SMIF funds are held in
operating accounts, all of which are part of the State Treasurer’s pooled investment program.
19
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
These funds are invested through the PMIA and at the direction of the Pooled Money Investment Board,
which provides regulatory oversight of such funds. PMIA moneys are limited by State statute to the
following investments: U.S. government securities, securities of federally-sponsored agencies, U.S.
corporate bonds, interest-bearing time deposits in California banks and savings and loans, prime-rated
commercial paper, bankers’ acceptances, negotiable certificates of deposits, and other investments.
The investments in SMIF are reported at amortized cost, which approximates fair value. As of June 30,
2011 and 2010, the weighted average maturity of PMIA investments administered by the State Treasurer’s
Office was approximately 237 days and 203 days, respectively. Weighted averaged maturity is the average
number of days, given a dollar-weighted value of individual investments, that the securities in the portfolio
have remaining from the evaluation date to stated maturity. Neither SMIF nor PMIA are rated by credit
rating agencies.
Interest earned on cash invested in the SMIF and other pooled funds is prorated to CALPIA based on its
average daily balance.
At June 30, 2011, $56,014,000 was invested in SMIF and $3,668,438 was held in operating accounts in the
State Treasury pooled investment program. At June 30, 2010 $51,070,000 was invested in SMIF and
$3,814,348 was held in operating accounts in the State Treasury pooled investment program. Cash and cash
equivalents include cash on hand and temporary cash investments (including SMIF and funds designated
for property and equipment acquisitions) with original or remaining maturities of three months or less.
Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures –
An Amendment of GASB No. 3 (“GASB No. 40”) requires that governmental entities provide
disclosures regarding deposit and investment credit risk, custodial credit risk, interest rate risk, and
concentration of credit risk. CALPIA’s deposits in the PMIA are not subject to GASB No. 40 risk
disclosures except for the disclosures provided above. Additional information regarding investment
risks, including interest rate risk, credit risk and concentration of credit risk of the PMIA can be found in
the State’s basic financial statements included in its comprehensive annual financial report.
Cash designated for capital asset expenditures - CALPIA segregates its cash which is designated as to
use. Designated funds at June 30, 2011 and 2010 represent designations of cash by the Prison Industry
Board for certain capital expenditures. The Board designated funds amounting to $11,303,533 and
$11,948,731 for certain capital expenditures to be made during the years ended June 30, 2012 and 2011,
respectively.
Concentrations of credit risk - Financial instruments which potentially expose CALPIA to concentrations
of credit risk consist primarily of trade accounts receivable.
CALPIA’s customer base includes departments of the State of California and other governmental entities.
CDCR is the largest customer of CALPIA and accounted for approximately 62% of sales for the year
ended June 30, 2011 and 61% of sales for the year ended June 30, 2010. As of June 30, 2011 and
2010, CDCR accounted for 42% and 53%, respectively, of total accounts receivable. Management does
not believe significant credit risk exists at June 2011 and 2010, as the goods and services produced by
CALPIA's operations are sold principally to departments of the State of California and other governmental
entities.
20
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CALPIA and other state and local agencies’ deposits are held in the pooled money account in the custody
of the State Treasurer’s Office, in which the deposits are insured by federal depository insurance or by
collateral held by an agent of the State Treasurer’s Office in the State’s name.
Accounts receivable - CALPIA has no formal policy regarding the extension of credit and does not use an
allowance for doubtful accounts because their customer base is primarily made up of state and local
government agencies. As of June 30, 2011 and 2010, CALPIA has receivables of $364,439 and $403,875,
respectively, from non-governmental agencies. Historically, CALPIA has not experienced significant
losses related to such accounts receivable.
Due from state general fund - During the course of normal operations, the State Controller’s Office
periodically loans funds from CALPIA’s deposits held in the custody of the State Treasurer to the state
general fund on a short-term basis for cash management reasons. These transactions are reported as “due
from state general fund.” As of June 30, 2011 and 2010, due from state general fund totaled $23,400,000
and $21,000,000, respectively.
Inventories - Inventories are stated at the lower of cost (as determined using the average cost method) or
market. Inventories consist of raw materials, components and subassemblies and finished goods held for
sale.
Capital assets - Capital assets are stated at historical cost, net of accumulated depreciation. CALPIA
has established a threshold of $5,000 for capitalization of depreciable assets. Expenditures for repairs
and maintenance are charged to operations as incurred. Depreciation is computed using the straightline method over the estimated useful lives of the assets. The estimated useful lives range from 5 to 20
years for equipment, 5 to 30 years for buildings and leasehold improvements, 2 to 3 years for livestock,
and 20 years for orchards and 5 years for intangible assets.
Interest expense (net of interest income on unexpended tax-exempt debt proceeds) related to the cost
of construction of certain assets is capitalized whenever debt is outstanding and the assets are constructed
for use by CALPIA. Capitalized interest is amortized over the related assets’ estimated useful lives.
CALPIA did not recognize any capitalized interest expense for the years ended June 30, 2011 and 2010.
In the ordinary course of business, CALPIA opens and closes manufacturing facilities based on economic
conditions and industry demand for products. Based on CALPIA’s closure policy, management may
recommend that the factory remain idle if at a later date it is probable that product demand will
increase resulting in the factory being reactivated. If management determines not to reactivate a
factory, CALPIA will take one of the following actions: (1) determine if the factory has alternative uses,
(2) transfer equipment to operating factories, or (3) pursue other alternatives for disposal. Factories
which are closed temporarily are retained in the property accounts as idle facilities and are not
depreciated during the temporary closure.
For those facilities which have been closed and will be transferred to CDCR, the related assets are
transferred at net book value and a gain or loss is recognized upon the transfer. There were no such
transfers during the fiscal years ended June 30, 2011 and 2010.
21
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Asset impairment - As required by GASB Statement No. 42, management periodically reviews long-lived
assets for impairments whenever events or changes in circumstances indicate that the service utility of an
asset has declined significantly and unexpectedly.
Impaired capital assets are written down to reduce the related assets to the lower of carrying value
or fair value. At June 30, 2011, CALPIA determined that there were capital assets with a net book
value of $1,308,501 that were impaired and recorded an impairment charge of $1,308,501 for the
year ended June 30, 2011. At June 30, 2010, CALPIA determined that there were capital assets
with a net book value of $1,141,401 that were impaired and recorded an impairment charge of
$1,141,401 for the year ended June 30, 2010.
Compensated absences - It is CALPIA’s policy to accrue for personal leave time, holiday pay and
vacation pay that has been earned but not yet taken by employees. A liability for compensated absences is
accrued when incurred and reported in accrued liabilities on the balance sheet. CALPIA employees are not
compensated for unused sick leave, but instead are credited with pension service time for unused
sick leave. Accordingly, such convertible sick leave is not reflected in the accrued liability for
compensated absences. Instead, it is reflected over time in the employer’s pension contribution.
Deferred revenue - Deferred revenues represent advance payments from customers for the future delivery of
products and services.
Net Assets - The difference between assets and liabilities in the balance sheet is labeled as Net Assets and is
subdivided into two categories as follows:
Invested in capital assets - This component of net assets consists of capital assets, net of accumulated
depreciation and amortization.
Unrestricted - This component of net assets consists of net assets not restricted for any project or any
other purpose.
Operating and non-operating activities - Operating revenues are charges to customers for sales of products
and services. Operating expenses consist of cost of sales and selling and administrative expenses. Selling
and administrative expenses are comprised of distribution and transportation costs, central office costs,
and the annual net unfunded OPEB obligation. All revenues and expenses not meeting these definitions
are reported as non-operating revenues and expenses. Distribution and transportation costs include shipping
and handling costs related to the delivery of merchandise sold by CALPIA. For the years ended June
30, 2011 and 2010, such costs were $11,596,884 and $11,345,950, respectively.
Use of estimates in the preparation of financial statements - The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
22
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements - Effective July 1, 2009, CALPIA adopted the provisions of GASB
Statement No 51, Accounting and Financial Reporting for Intangible Assets (“GASB No. 51”). This
Statement requires that an intangible asset be recognized in the statement of net assets only if it is
considered identifiable. Additionally, this Statement establishes a specified-conditions approach to
recognizing intangible assets that are internally generated. Effectively, outlays associated with the
development of such assets are not capitalizable until certain criteria are met. Outlays incurred prior to
meeting these criteria are expensed as incurred.
This Statement also provides guidance on recognizing internally generated computer software as an
intangible asset. The adoption of GASB No. 51 did not have a material impact on CALPIA’s results of
operations, cash flows or financial position.
In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus—an
amendment of GASB Statements No. 14 and No. 34. The objective of this Statement is to improve
financial reporting for a governmental financial reporting entity. This Statement modifies certain
requirements for inclusion of component units in the financial reporting entity. CALPIA has not
determined what impact, if any, this pronouncement will have on the financial statements. The
requirements of this Statement are effective for CALPIA’s fiscal year ending June 30, 2013.
In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. CALPIA
has not determined what impact, if any, this pronouncement will have on the financial statements. The
requirements of this Statement are effective for CALPIA’s fiscal year ending June 30, 2013.
In June 2010, the GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position. GASB Statement No. 63 provides financial
reporting guidance for deferred outflows of resources and deferred inflows of resources, introduced and
defined in GASB Concepts Statement No. 4. This Statement amends the net asset reporting requirements
in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State
and Local Governments, and other pronouncements by incorporating deferred outflows of resources and
deferred inflows of resources into the definitions of the required components of the residual measure and
by renaming that measure as net position, rather than net assets. CALPIA has not determined what
impact, if any, this pronouncement will have on the financial statements. The requirements of this
Statement are effective for CALPIA’s fiscal year ending June 30, 2013.
23
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(3)
INVENTORIES
Inventories consist of the following:
June 30,
Raw materials
Work-in-process
Finished goods
Total inventories
(4)
2011
$24,744,420
8,884,590
9,097,348
2010
$25,488,788
8,527,688
9,041,062
$42,726,358
$43,057,538
CAPITAL ASSETS
A summary of changes in capital assets during fiscal years 2011 and 2010 is as follows:
Balance
June 30, 2010
Additions
Deletions
$
48,128
$384,761
-
48,128
384,761
-
102,737,178
4,293,146
(3,491,998)
103,538,326
37,518,937
5,063,942
874,716
3,352,863
609,387
1,110,776
291,155
(2,233,137)
(1,674,700)
-
35,895,187
4,500,018
874,716
3,644,018
Total capital assets, being
depreciated
149,547,636
6,304,464
(7,399,835)
148,452,265
Accumulated depreciation
and amortization
(101,691,833)
(7,453,039)
5,109,944
$47,903,931
$ (763,814)
$(2,289,891)
Capital assets, not being
depreciated:
Construction in process
Total capital assets, not being
depreciated
Capital assets, being depreciated:
Equipment
Buildings and leasehold
improvements, net of
transfers
Livestock
Orchards
Intangible assets
Capital assets, net
24
Balance
June 30, 2011
$
432,889
432,889
(104,034,928)
$44,850,226
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(4)
CAPITAL ASSETS (CONTINUED)
Balance
June 30, 2009
Capital assets, not being
depreciated:
Construction in process
Total capital assets, not being
depreciated
Capital assets, being depreciated:
Equipment
Buildings and leasehold
improvements, net of
transfers
Livestock
Orchards
Intangible assets
Additions
-
$
-
Deletions
48,128
-
48,128
-
Balance
June 30, 2010
$
48,128
48,128
$108,530,749
4,635,778
(10,429,349)
102,737,178
38,085,040
5,275,060
874,716
-
1,150,961
1,716,882
3,352,863
(1,717,064)
(1,928,000)
-
37,518,937
5,063,942
874,716
3,352,863
Total capital assets, being
depreciated
152,765,565
10,856,484
(14,074,413)
149,547,636
Accumulated depreciation
and amortization
(102,457,853)
(7,749,035)
8,515,055
(101,691,833)
$50,307,712
$3,155,577
$(5,559,358)
$47,903,931
Capital assets, net
Depreciation expense for the years ended June 30, 2011 and 2010 was $7,453,039 and $7,749,035,
respectively. Depreciation expense includes amortization of intangible assets.
The Prison Industry Board authorized the closure of certain factories because of excess capacity and
reduced customer demand for products that were manufactured by such factories. Management has
identified certain factory equipment held at the closed factories that will be relocated and placed in
service at other factories to replace older equipment currently in service and improve operational
efficiency. All other factory equipment and leasehold improvements held at the closed factories, for
which management has no plans for continued use, were determined to be impaired capital assets. For the
years ended June 30, 2011 and 2010, the impairment loss recognized on capital assets held at the various
closed factories totaled $1,308,501 and $1,141,401, respectively. The impairment loss has been reported
as a loss from impairments of capital assets in the statements of revenues, expenses, and changes in net
assets. Management does not consider this event to be unusual in nature or infrequent in occurrence.
25
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(5)
ACCRUED EXPENSES AND OTHER LIABILITIES
June 30,
2011
2010
$9,771,084
$9,004,672
1,416,899
987,410
1,180,731
332,554
310,060
296,749
290,836
317,450
283,558
19,445
5,222
Accrued leave time
Customer deposits
Support charges due to CDCR
Inmate pay
Personal services
Sales and use tax
Accrued service and expenses
Total accrued expenses and other liabilities
(6)
$13,141,591
$11,075,079
ACCRUED FURLOUGH LIABILITY
In February 2009, at the request of the Governor’s office, CALPIA and other state agencies instituted
involuntary furloughs of substantially all of their employees. Under the arrangement, employees received
3 unpaid furlough days per month. The arrangement ceased in October 2010. Unions representing the
furloughed employees have sued CALPIA and other state agencies seeking repayment of the lost wages.
At June 30, 2011, based on the status of those lawsuits (see Note 11), CALPIA has accrued $8.6 million
representing its estimate of the wages and interest to be repaid to the involuntarily furloughed employees.
26
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(7)
WORKERS’ COMPENSATION LIABILITY
CALPIA is exposed to risk of loss related to torts, theft of, damage to, and destruction of assets, injuries
to employees, and natural disasters. The State of California self-insures its workers’ compensation claims.
CALPIA’s workers’ compensation claims are administered by the State Compensation Insurance Fund
as part of the overall State program. CALPIA currently reports claims, expenses and liabilities when it
is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses
include an estimate of claims that have been incurred but not reported and related loss adjustment
expenses. Consulting actuaries assist CALPIA in determining its liability for workers’ compensation selfinsured claims.
The amount of these liabilities was a discounted value of $14,878,827 at June 30, 2011 and 2010.. The
interest rate used to discount the value of the liabilities for the years ended June 30, 2011 and 2010, was
3.5%. This liability represents CALPIA’s best estimate of its ultimate exposure based on available actuarial
information.
Fiscal
Year
2010-2011
2009-2010
(8)
Beginning of
Fiscal Year
Liability
$14,878,827
$14,669,927
Current
Year
Claims and
Changes in
Estimates
$2,306,992
$2,592,132
Claims
Payments
$(1,910,026)
$(1,990,131)
Legal and
Administrative
Expenses
Paid
$(396,966)
$(393,101)
End of
Fiscal Year
Liability
$14,878,827
$14,878,827
DEFINED BENEFIT PENSION PLAN
Plan description - The State is a member of the California Public Employees’ Retirement System
(“CalPERS”), an agent multiple-employer pension system, which provides a contributory defined benefit
pension for substantially all State employees. CALPIA employees are employees of the State. CALPIA is
included in the State Industrial and Safety categories within CalPERS, thereby limiting the availability of
certain CALPIA pension data. CalPERS functions as an investment and administrative agent for
participating public agencies within the State of California. Departments and agencies within the State of
California, including CALPIA, are in a cost-sharing arrangement in which all risks and costs are shared
proportionately by participating State agencies.
CalPERS issues a publicly available Comprehensive Annual Financial Report that includes financial
statements and required supplementary information for CalPERS. A copy of that report may be obtained
by writing CalPERS, Central Supply, P.O. Box 942715, Sacramento, California 94229-2705, or by logging
onto the CalPERS web site at www.calpers.ca.gov/.
The pension plan provides retirement benefits, survivor benefits, and death and disability benefits based
upon employee’s years of credited service, age and final compensation. Vesting occurs after five
years of credited service except for second tier benefits, which require 10 years of credited service.
Employees who retire at or after 50 with five or more years of service are entitled to a retirement benefit,
payable monthly for the remainder of their lives. Several survivors benefit options, which reduce a
retiree’s unmodified benefit, are available.
27
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(8)
DEFINED BENEFIT PENSION PLAN (CONTINUED)
Funding policy - Active members who participate in Social Security under the State Industrial Tier 1 category
are required to contribute 5% of their annual covered salary after excluding the first $513 of gross monthly
pay. Active members who do not participate in Social Security under the State Safety and Industrial Tier
1 categories are required to contribute 6% of their annual covered salary after excluding the first $317 of
gross monthly pay. Active members who participate in Social Security under the State Industrial Tier 2
category are not required to make contributions to CalPERS.
CALPIA is required to contribute the actuarially determined remaining amounts necessary to fund the
benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS
Board of Administration. The required employer contribution rate for the year ended June 30, 2011 was
18.183% and 20.672% for State Industrial and Safety categories, respectively. The required employer
contribution rate for the year ended June 30, 2010 was 17.251% and 18.099% for State Industrial and
Safety categories, respectively. The contribution requirements of the plan members are established by
State statute and the employer contributions rate is established and may be amended by CalPERS.
Annual pension costs - For the years ended June 30, 2011, 2010 and 2009, CALPIA’s annual pension
cost and CALPIA’s actual contribution amounted to $5,322,401, $5,128,593, and $6,078,739
respectively. The required contribution for State Industrial and Safety categories for the 2011 fiscal year was
determined as part of the June 30, 2009, actuarial valuation using the entry age normal actuarial cost
method with the contributions determined as a percent of pay. The actuarial assumptions included (a)
7.75% investment rate of return (net of administrative expenses), (b) projected salary increases that vary
by duration of service ranging from 3.45 to 9.55%, (c) 3.25% overall payroll growth, and (d) 3.0% inflation
adjustment.
The actuarial value of CALPIA’s assets was determined using a technique that smoothes the effect of shortterm volatility in the market value of investments over a 15 year period. The plan’s unfunded actuarial
accrued liability (or excess assets) is being amortized as a level of percentage of projected payroll on a
closed basis. The remaining amortization periods at June 30, 2010 the date of the most recent actuarial
valuation, were 14 to 30 years for both the State Industrial Plans and 13 to 30 years for State Safety Plans.
(9)
POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
Plan description - CALPIA employees also participate in the State other postemployment benefit
(“OPEB”) plan. The State OPEB plan is a single-employer defined benefit plan. A separate actuarial
valuation was not performed for CALPIA. The State's OPEB plan does not issue a separate report.
The State provides medical, prescription drug, and dental benefits to retired statewide employees. The
authority for establishing and amending benefits lies with CalPERS and the State Legislature while the
authority for establishing and amending the funding policy lies solely with the Legislature.
28
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(9)
POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (CONTINUED)
Funding policy - The State has historically been on a "pay-as-you-go" funding and allocation policy;
however, pursuant to the requirements of GASB Statement No. 45, Accounting and Financial Reporting
by Employers for Postemployment Benefits Other Than Pensions, (“GASB No. 45”) effective for fiscal
year 2008, the State amended its allocation methodology to include amortization of its accumulated
unfunded postemployment obligations. The State has determined CALPIA's June 30, 2011 and 2010
funding requirements as well as its related 2011 and 2010 contribution credit. The amount allocated to
CALPIA at June 30, 2011 and 2010 representing the annual OPEB cost was $9,904,000 and $9,590,000
respectively. Of this amount, $3,634,000 was contributed for 2011 and the balance of $6,270,000 was
accrued as a liability. The contribution made for 2010 was $3,274,000 and the balance of $6,316,000 was
accrued as a liability.
Annual OPEB cost and Net OPEB obligation - The State of California's annual other postemployment
benefit cost is calculated based on the annual required contribution of the employer (“ARC”), an amount
actuarially determined by the State in accordance with the parameters of GASB No. 45. The ARC
represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each
year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30
years. The State determines the allocation for CALPIA based upon the relationship of active employee
health benefit costs for CALPIA as compared to the total State active employee health benefit costs. The
following table shows the components of CALPIA’s allocation of the State's annual OPEB cost for the year,
the amount credited to the plan, and changes in the net OPEB obligation as of June 30:
Annual required contribution
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost (expense)
2011
$9,809,000
770,000
(675,000)
9,904,000
2010
$9,527,000
515,000
(452,000)
9,590,000
Contributions made
Increase in net OPEB obligation
Net OPEB obligation - beginning of year
(3,634,000)
6,270,000
18,954,000
(3,274,000)
6,316,000
12,638,000
$25,224,000
$18,954,000
Net OPEB obligation - end of year
CALPIA’s allocation of the annual OPEB cost, the percentage of annual OPEB costs contributed to the
plan, and the net OPEB obligation for 2011, 2010 and 2009 were as follows:
Fiscal Year
Ended June
30,
2011
2010
2009
Annual
OPEB Cost
$9,904,000
$9,590,000
$9,422,000
Percentage of
Annual OPEB
Cost
Contributed
36.7%
34.1%
36.3%
29
Net OPEB
Obligation
$25,224,000
$18,954,000
$12,638,000
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
(9)
POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (CONTINUED)
Based on information provided to CALPIA by the State, in the June 30, 2010 actuarial valuation, the
individual entry age normal cost method was used. A pay-as-you go funding scenario was used by the
State. Under the pay-as-you-go funding scenario, the State is assumed to finance retiree healthcare
benefits from assets available in the general fund. The State's actuarial assumptions included a 4.5%
investment rate of return and an annual healthcare cost trend rate of actual increases for 2011 and of
9.0% in 2012, initially, decreasing each year over the next seven years until the ultimate rate of 4.5% is
reached. Both rates included a 3.0% annual inflation assumption. Annual wage inflation is assumed to be
3.25%. The UAAL is being amortized as a level percentage of projected payroll on an open basis over thirty
years.
The schedule of funding progress and employer contributions for the State of California for the year ended
June 30, 2011 can be found in the State’s basic financial statements included in its comprehensive annual
financial report.
( 10)
RELATED PARTY TRANSACTIONS
Related party transactions with CDCR consisted of the following for the fiscal years ended June 30:
2011
Assets:
Accounts receivable
Liabilities:
Accrued expenses and other liabilities
Deferred revenue and customer
deposits
Revenues:
Sales
Expenses:
Support charges paid
2010
$3,065,219
$5,558,662
(987,410)
(1,180,731)
(1,396,542)
(2,175,729)
102,376,854
110,726,793
(4,915,162)
(5,271,998)
The secretary of CDCR is the chairman of the Prison Industry Board. Accounts receivable are for the sale
of goods and services delivered to CDCR. Accrued expenses and other liabilities represent expenses
incurred for rent and utilities associated with the space owned by CDCR, and used by CALPIA to operate
the inmate work programs. Deferred revenue and customer deposits primarily consist of payments
received in advance of future delivery of goods and services.
CALPIA has transactions with other agencies of the State in addition to CDCR. As of June 30, 2011 and 2010,
CALPIA had accounts receivable from other state agencies of $3,636,744 and $4,072,227, respectively.
30
CALIFORNIA PRISON INDUSTRY AUTHORITY
Notes to Basic Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2011 and 2010
( 11 )
CONTINGENCIES
Litigation – In February 2009, at the request of the Governor’s office, CALPIA and other state agencies
instituted involuntary furloughs of substantially all of their employees. Under the arrangement,
employees received 3 furlough days per month in exchange for a prorated reduction in their pay. The
arrangement ceased in October 2010. Three unions representing the furloughed employees have filed
individual lawsuits against CALPIA and other state agencies seeking repayment of the lost wages.
The cases challenge the legality of the furloughs imposed upon employees of state agencies which receive
funding from sources other than the State’s General Fund, such as CALPIA, referred to as “special fund”
agencies. The trial court ruling for each case was initially in favor of the unions, holding that furloughs
were not authorized when special funding was present. The appellate court, however, clarified the trial
court decisions stating that to the extent a state agency received any portion of its funding from a General
Fund appropriation, the legislature legally ratified the furloughs for those agencies through the Budget
Act. The appellate court referred the cases against CALPIA and four other state agencies back to the trial
court to determine whether these agencies had received an appropriation from the General Fund. While a
final determination of that matter is pending before the trial court, management of CALPIA, based on
consultation with counsel representing it in this matter, has determined that it’s probable that it will be
required to compensate its employees for backpay and interest. As a result, CALPIA has accrued $8.6
million related to this matter as of June 30, 2011.
CALPIA is involved in various other legal actions arising in the ordinary course of business. In the opinion
of management, after consulting with legal counsel, CALPIA intends to defend these other cases
vigorously and believes that the ultimate liability, if any, will not be material to the financial position of
CALPIA.
( 12 )
COMMITMENTS
Warranties - CALPIA provides a warranty on its office and miscellaneous furniture and bedding
products for a period of five years. CALPIA has not established a reserve for warranty expense.
The affect on operations are deemed by management to be immaterial. Such costs are expensed when
incurred
Rental payments - Future minimum rental payments required under operating leases that have initial or
remaining noncancellable lease terms in excess of one year was $195,048 as of June 30, 2011. The
remaining
terms
of
all
such
leases
expire
on
or
before
June
30,
2012.
Total rental expense for all operating leases was $570,096 and $591,645 for the years ended June 30, 2011
and 2010, respectively.
31
SUPPLEMENTAL INFORMATION
INDEPENDENT AUDITOR'S REPORT
ON SUPPLEMENTAL INFORMATION
To the California Prison Industry Authority Board
Folsom, California
We have audited the basic financial statements of California Prison Industry Authority (“CALPIA”) as of
and for the years ended June 30, 2011 and 2010, and have issued our report thereon dated January 6,
2012. Our audit was conducted for the purpose of forming an opinion on the basic financial statements as
a whole. The supplemental Balance Sheet, Statement of Revenues, Expenses and Changes in Net Assets,
and Statement of Cash Flows as of and for the years ended June 30, 2011 and 2010, classified in
accordance with the State Controller’s Office Instructions (collectively the "SCO financial statements")
are presented for purposes of additional analysis and are not a required part of the basic financial
statements. The SCO financial statements are the responsibility of management and were derived from
and relate directly to the underlying accounting and other records used to prepare the financial
statements. The information has been subjected to the auditing procedures applied in the audit of the
basic financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records use to prepare the financial statements
or to the financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the information is fairly
stated in all material respects in relation to the basic financial statements as a whole.
Sacramento, California
January 6, 2012
CALIFORNIA PRISON INDUSTRY AUTHORITY
INTERNAL SERVICE FUND
BALANCE SHEETS
CLASSIFIED IN ACCORDANCE WITH THE STATE CONTROLLER'S INSTRUCTIONS
June 30, 2011 and 2010
(in thousands)
ASSETS
2011
CURRENT ASSETS
Cash and pooled investments
Receivables, (net)
Due from other funds
Due from other governments
Prepaid items
Inventories, at cost
TOTAL CURRENT ASSETS
$
NONCURRENT ASSETS
Nondepreciable capital assets:
Construction in process
Depreciable capital assets:
Buildings
Leasehold improvements
Equipment
Livestock
Orchards
Intangible assets
TOTAL CAPITAL ASSETS
Accumulated depreciation:
Buildings
Leasehold improvements
Equipment
Livestock
Orchards
Intangible assets
TOTAL ACCUMULATED DEPRECIATION
TOTAL NONCURRENT ASSETS
TOTAL ASSETS
$
2010
59,683
1,003
29,628
61
262
42,726
133,363
$
54,884
969
30,176
400
225
43,057
129,711
433
48
5,288
30,607
103,538
4,500
875
3,644
148,885
5,666
31,852
102,737
5,064
875
3,353
149,595
(3,097)
(22,402)
(74,005)
(576)
(670)
(3,285)
(104,035)
44,850
178,213
(3,092)
(22,268)
(72,549)
(682)
(629)
(2,471)
(101,691)
47,904
177,615
$
L I A B I L I T I E S A N D N ET A S S E T S
CURRENT LIABILITIES
Accounts payable and other
Due to other funds
Deferred revenue
Compensated absences payable
Other current liabilities
TOTAL CURRENT LIABILITIES
$
NONCURRENT LIABILITIES
Net OPEB obligation
Other non-current liabilities
TOTAL NONCURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
Invested in capital assets
Unrestricted net assets
TOTAL NET ASSETS
TOTAL LIABILITIES AND NET ASSETS
$
33
9,605
1,949
2,560
9,771
12,423
$
36,308
8,492
2,065
4,754
9,005
2,388
26,704
25,224
12,496
37,720
18,954
12,496
31,450
74,028
58,154
44,850
59,335
104,185
178,213
47,904
71,557
119,461
177,615
$
CALIFORNIA PRISON INDUSTRY AUTHORITY
INTERNAL SERVICE FUND
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
CLASSIFIED IN ACCORDANCE WITH THE STATE
CONTROLLER’S INSTRUCTIONS
Years Ended June 30, 2011 and 2010
(in thousands)
2011
OPERATING REVENUES
Services and sales
$
2010
164,398
$
181,811
OPERATING EXPENSES
Personal services
Supplies
Services and charges
Depreciation
Total operating expenses
OPERATING INCOME (LOSS)
(68,908)
(2,124)
(99,568)
(7,453)
(59,073)
(2,130)
(107,898)
(7,749)
(178,053)
(176,850)
(13,655)
4,961
NONOPERATING REVENUES (EXPENSES)
Interest income
235
280
Interest expense
(14)
(1,738)
(104)
(19)
(1,730)
(211)
(1,621)
(1,680)
(15,276)
3,281
Loss on disposal of capital assets
Other expense
Total nonoperating (expenses) revenues
Change in net assets
NET ASSETS AT BEGINNING OF YEAR
119,461
Net cash provided by operating activities
$
34
104,185
116,180
$
119,461
CALIFORNIA PRISON INDUSTRY AUTHORITY
INTERNAL SERVICE FUND
STATEMENTS OF CASH FLOWS
CLASSIFIED IN ACCORDANCE WITH THE STATE
CONTROLLER’S INSTRUCTIONS
Years Ended June 30, 2011 and 2010
(in thousands)
2011
2010
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
$
Receipts from interfund services provided
165,458
$
176,814
1,765
2,229
(9,749)
(11,163)
Payments to employees
(53,276)
(51,721)
Payments to suppliers
(90,978)
(98,151)
Payments for interfund services used
Payments for other services
(104)
Net cash provided by operating activities
(211)
13,116
17,797
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Change in interfund receivable
Interest expense
Net cash flows used in noncapital financing activities
(2,399)
(200)
(14)
(19)
(2,413)
(219)
(6,689)
(7,552)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Acquisitions of capital assets
Proceeds from sale of capital assets
552
Net cash flows used in capital and related financing activities
476
(6,137)
(7,076)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments
Net increase (decrease) in cash and pooled investments
Cash and pooled investments, beginning of year
Net cash provided by operating activities
$
35
233
322
4,799
10,824
54,884
59,683
$
44,060
54,884
CALIFORNIA PRISON INDUSTRY AUTHORITY
INTERNAL SERVICE FUND
STATEMENTS OF CASH FLOWS
CLASSIFIED IN ACCORDANCE WITH THE STATE
CONTROLLER’S INSTRUCTIONS
Years Ended June 30, 2011 and 2010
(in thousands)
RECONCILIATION OF OPERATING INCOME TO NET CASH
2011
2010
PROVIDED BY OPERATING ACTIVITIES
Operating income
$
(13,655)
$
4,961
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation
7,453
Other fees
7,749
(104)
(211)
Net effect of changes in:
Receivables
(34)
Due from other funds
Due from other governments
(188)
339
(111)
Prepaid items
(37)
Inventories
331
Accounts payable and other
1,082
2,949
37
6,057
1,113
Due to other funds
(2,903)
(116)
(287)
Deferred revenue
(2,194)
(5,781)
Other current liabilities
10,035
Compensated absenses payable
Other liabilities
Total adjustments
Net cash provided by operating activities
$
36
336
766
862
6,270
6,194
26,771
12,836
13,116
$
17,797
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California Prison Industry Authority
560 East Natoma Street Folsom
California 95630 (916) 358-1802 www.calpia.ca.gov
