N.J. Halfway-House Operator Plagued by Financial Woes A company that plays a critical role in New Jersey's corrections system, running halfway houses as large as prisons, has had such severe financial difficulties over the last four years that it contemplated filing for bankruptcy in 2010, according to newly disclosed documents. Senior executives at the company, Community Education Centers, even feared at the time that they might not have enough money to pay workers, the documents show. Community Education's senior vice president, William J. Palatucci, is one of Gov. Chris Christie's closest friends and political advisers, and Mr. Christie has long championed the company. Mr. Christie took office in January 2010, soon after Community Education defaulted on its debt, the documents show. Since then, the state, while paying the company tens of millions of dollars a year for its services, has not closely examined Community Education's financial standing or operations, according to the documents, former company executives and state officials. If Community Education were to collapse, that could significantly disrupt New Jersey's corrections system, and if the company remains financially hobbled, its halfway houses in New Jersey could continue to suffer. The documents also suggest that Community Education's chief executive, John J. Clancy, highlighted Mr. Palatucci's ties to Mr. Christie in an effort to impress investors and secure desperately needed financing for the company. The documents were submitted on Friday in federal court in Newark in an employment lawsuit brought against Community Education by a former executive. They portray a company that has been in crisis and trying to fend off creditors, even as it has mounted a robust lobbying and public relations campaign. The New York Times, in a three-part series last month, detailed extensive problems in New Jersey's halfway houses, including escapes, violence and drug use. The system of halfway houses, which the state has long promoted as a national model, handles thousands of inmates annually who are leaving prison or on parole. Community Education has dominated the system for over a decade, and more than 15 former workers told The Times for its articles last month that the company had kept staffing levels very low in recent years to save money. As a result, the workers said, the company did a poor job delivering counseling and other services intended to help inmates make the transition to society. The company's financial difficulties have not stemmed from its government contracts in New Jersey, which have steadily grown over the last decade, according to the documents and interviews. Community Education has instead run into trouble after an aggressive expansion foundered in states like Alabama and Texas. The resulting shortfalls have been a factor in staff and other reductions in New Jersey. Michael Drewniak, a spokesman for Mr. Christie, declined on Monday to comment on Community Education's finances, referring questions to the Corrections Department. Asked about Mr. Clancy's emphasizing the political influence of Mr. Palatucci, Mr. Drewniak said, "We have no way of knowing the veracity of that assertion, but it would be inappropriate for any company to do that." The Corrections Department, which is part of the Christie administration, said there was nothing about Community Education's finances that warranted concern. "The company has consistently maintained its services under the terms of its contracts with the Department of Corrections and, like all similar providers, was scrutinized for financial stability prior to any contract award," the department said in a statement. In a statement, Community Education said it had been hurt by the financial crisis but was proud of the work that it continued to do. "C.E.C. has never had a disruption of a contract in New Jersey or any other state, never missed a payroll, and never had a basis that necessitated disclosure of a nonissue," the company said. The documents in the lawsuit, including depositions from current and former Community Education executives, show that the company was under threat of bankruptcy in 2010 because it borrowed too heavily for its national expansion and could not make debt payments. The company, which is privately owned, received roughly $300 million annually from government contracts around the country in 2009 and 2010. But one projection by the company in 2009 showed that because of its debt burden, it would soon have only $13,702.02 in cash on hand. "Everybody in that building was aware on a daily basis that we were making choices of who to pay, who not to pay, " Community Education's former treasurer, Frank English, said in a deposition, referring to the company's headquarters in West Caldwell, N.J. "Everybody knew that the company was struggling," Mr. English added. Asked directly whether the company had contemplated bankruptcy, Mr. English said yes. He added that the company had hoped that it would not come to that and had always found a way to make its payroll. Nevertheless, another former company executive, Chris Rausch, said in a deposition: "We were short cash. We couldn't afford any extra head count. "We were cutting heads," he added. On the brink of bankruptcy, Community Education received $235 million in financing in December 2010, at interest rates as steep as 15.25 percent. The documents in the lawsuit indicate that the company's finances have not improved markedly since then. Despite the new financing, the company remained in debt even to its auditors.