The Oregon Department of Corrections collects nearly $3.6 million a year from a contract so exploitive of prison inmates and their families that federal officials have pushed for the state to end it.
State corrections officials conceded in March that money from the program would dry up because of pressure from federal regulators.

But the combination of a dire state budget outlook and President Donald Trump's lighter federal regulatory approach has caused state leaders to scrap the planned reform in the budget they are now struggling to finalize.

That's good news for the corrections budget, but bad news for the families of Oregon's prison inmates, who pay millions of dollars a year in artificially inflated phone charges.

"States [like Oregon] have taken the position, if the state can get money out of prisoners' families, why not?" says Aleks Kajstura, legal director for the Massachusetts-based Prison Policy Initiative.

At issue are the phone calls inmates make from prison. They make those calls under supervision and electronic monitoring and exclusively through a phone system provided to the Department of Corrections by a private contractor.

Since 2012, that contractor has been Telmate, a private company based in San Francisco that supplies phone service to 300 prisons and jails across North America.

Under its contract with DOC, Telmate charges inmates 16 cents a minute for phone calls. In return, it pays the state a flat fee of $3 million, plus a percentage of revenues when proceeds from calls exceed projections. Next year, the contract is expected to yield $3.6 million for Oregon.

Critics of the contracts call the commissions that companies pay states such as Oregon "kickbacks."

"These contracts are enormously profitable," says Kajstura. "It's essentially a kickback in exchange for a monopoly."

Oregon incarcerates nearly 15,000 inmates in state prisons. That means Telmate is paying the state an annual commission of about $240 per inmate in exchange for a monopoly on the calls they make.

The rate Oregon inmates pay—16 cents a minute—is in the middle of the pack nationally but is 3 cents—or 23 percent higher—than the ceiling the Federal Communications Commission suggested last year.

Liz Craig, a Department of Corrections spokeswoman, says the Telmate contract provides a cost-effective way for inmates to communicate with their families and for prison officials to monitor such communication. (Families prepay for calls by putting money in an account with Telmate.)

Craig explains her agency puts all the money from telephone commissions in an inmate welfare fund, which pays for alcohol and drug treatment, education and amenities such as exercise equipment and television.

"They are paying for a service," Craig says. "Sixteen cents a minute is relatively low, and funding critical programs is a benefit to the taxpayer."

Inmates' families already pay taxes, say critics of prison phone contracts, and excessive rates are effectively another level of taxation for services that advocates say the state should provide.

The price of those calls has also caught the eye of federal regulators.

For years, the FCC, which oversees the nation's phone system, has sought to reduce the cost of inmate phone contracts, which the commission said last year were characterized by "excessive rates and egregious fees."

Although the FCC and industry providers are currently battling in federal court, eight states, including Ohio and New York, have stopped collecting commissions on prison phone calls.

Oregon was set to follow their lead this year. In the budget the Department of Corrections submitted to the Legislature in March, the agency told lawmakers it would give up the commissions, poking a $7.2 million hole in the budget over the next two years.

"At the direction of the FCC, Oregon DOC will remove the site commission arrangement in its existing contract and any future contracts," the budget document said. "As such, the revenue generated from these commissions will be lost."

The Department of Corrections budget is nearly $900 million a year, so the loss of the phone contract would be a relatively small hit. But it's significant for the inmate welfare fund, which gets nearly 70 percent of its funding from phone commissions.

The first draft of Gov. Kate Brown's budget, released late last year, originally proposed to shift general fund dollars to replace about half the phone commissions.

But Craig says that's no longer in the works.

Instead, state officials decided to extend the Telmate contract, which was set to expire June 30, 2017. Craig says her agency was preparing to put the contract out for bid in early March when responsibility for the contract shifted to the Department of Administrative Services.

"We'll continue to collect the commissions until there's a new contract," Craig says. "I'm not sure when that will be."

Gov. Kate Brown wants the next contract to be reasonably priced.

"It is important to Gov. Brown that the Oregon Department of Corrections provide cost effective telephone services that allow Oregon families to keep in touch with individuals in custody," said Brown's spokesman, Bryan Hockaday in a statement. "Brown ultimately expects a new telephone service contract will include certainties that the system will be fair to Oregon families and those in custody."

Pressure to reform phone contracts like Oregon's, intense under the Obama administration, has shifted with a Trump appointee taking control of the FCC.

Under the Trump administration, the commission has backed away from its previous court challenge of the prison phone industry, leaving inmate advocates to argue the case for lower rates in a long-running battle now before the U.S. District Court of Appeals in Washington, D.C.

The Prison Policy Initiative's Kajstura says states such as Oregon should do the right thing—even if the feds are no longer making a case out of it.

"It's eminently unfair," she says, "to pick on society's poorest residents to say, 'You need to pay extra for a basic service.'"