Private prisons: guaranteed income
“[The prison business is] “like a hotel where you lock in the guests, and if they try to escape you shoot them.” —hedge fund manager William Ackman in October 2009, telling a group of investors why they should buy stock in Corrections Corporation of America (“Jailhouse Shock,” by Steve Schaefer, Forbes magazine, 10.21.09)
Last week, Corrections Corporation of America announced their 2009 financials, and the company seems to be navigating tough times with a certain degree of nimbleness: CCA’s revenue increased 4% since the prior year, to $427 million. For those who have never heard of them, CCA is the biggest manager of the private prisons nationwide, administering 65 prisons in 19 states, 76,000 inmates in all. Roughly 1 in 12 federal prisoners and are in private, for-profit prisons; yet despite growing inmate rolls, it hasn’t been all smooth sailing for CCA of late. The company has 85,000 beds all together, which means roughly 7,000 of those sit empty. In a business where you can earn almost $23 per day on an inmate, this is bad news for investors. Three lucrative contracts (worth $65 million) between the state of Arizona and CCA expire this spring, meaning that thousands of prisoners at CCA prisons in Oklahoma and Colorado would be called ‘home’. After the loss of a contract with Washington state, CCA closed one of its prisons in Appleton, Minnesota; the company has also had to nix plans to build a new lock-up near Prescott, Arizona due to local opposition.
It’s part and parcel to the current slowdown, when several states are considering early releases and other measures to reduce their corrections budgets and save money. But since its founding in 1984 (after a remarkable start in Houston in 1984, and a takeover of a Tennessee prison that same year) the company has grown by the proverbial leaps. Ackman is probably right—these recent stumbling blocks are nothing but blips on the radar, because even in tough times, private prisons will continue to proliferate. Here’s why: state prisons at running at 110 percent of capacity, on average, and federal prisons at 137 percent. Guards at private prisons make less than their state/federal counterparts, and are thinner on the ground, so these prisons are cheaper to operate. And when you are in danger of running a deficit, as so many states are now, it’s cheaper to contract with a private company than try and build a new prison yourself. Case in point is again, Arizona: despite not renewing current CCA contracts, the state has proposed to privatize their entire prison system to save money.
The 25-year surge in private prisons, and the meteoric growth of the companies that build and manage them, provides perhaps the starkest example that housing inmates is about profits as much as—or more than—it is about deterrence. Despite the band of passionate people that travel throughout this country organizing against private prisons wherever they are proposed, and despite warnings that private prisons will die in this recession, the surreal business of housing inmates for revenue is not going anywhere soon.