Every year public companies must file what’s called a 10k report with the Securities Exchange Commission (SEC). This is a summary of the firm’s financial performance. There are stiff penalties for lying to the SEC, and investors aren’t too thrilled with less than the truth either.
These are powerful incentives for honest accounting, so you can accept 10k statements as reasonably credible accounts of what a firm really thinks.
Here’s what the Corrections Corporation of America (CCA), the largest private prison management firm in America, had to say in its 10k about the risk to their profitability:
“A decrease in occupancy levels could cause a decrease in revenues and profitability.”
Similarly, the Geo Group (formerly known as Wackenhut), the second-largest American prison management firm, reports in their 10k:
“…most of our revenues are generated under facility management contracts which provide for per diem payments based upon daily occupancy.”
Right away, we see a problem. The costs of prison management are borne by you and me, the taxpayers. We want this done effectively at reasonable cost with minimal overhead expense, like a non-profit organization.
Private prison management has a different goal – to make money. They provide a service, and expect to make a profit over and above their costs. Here’s a clear misalignment between the wishes of the taxpayers and the wishes of private business.
Profits can come from cutting costs or increasing income. Private firms can be expected to attempt both.
Cutting costs too steeply has consequences. Here are some of the cost-cutting techniques that private firms have implemented at prisons:
In 2008, private prisons in Texas paid their corrections officers $24,000/yr – that works out to $12/hr - which was $2,000 less than the lowest salary earned by personnel doing the same work at public-run prisons. Result? A sky-high staff turnover rate of 90 percent. Imagine the chaos in your workplace if 90 percent of your co-workers left each year.
The U.S. Department of Justice notes that public prisons average 5.6 inmates per officer, whereas private prisons average 7.1. A point and half difference might not seem like much at first glance, but remember some of the population we’re dealing with here has a history of violence and aggression. The lower ratio exists for a reason. The Federal Bureau of Prisons has observed, “the greater the inmate-to-staff ration, the higher the levels of serious violence among inmates.” If security becomes too lax, prisoners escape. It does happen.
Some prisoners are more expensive than others. Some due to health care, some for behavioral management. Troublesome inmates tend to get transferred out to state facilities, so taxpayers pay twice – once for the inmate, and again to sustain the private firm’s profit margin.
The other strategy – increasing income – requires more inmates, creating a powerful incentive to generate high incarceration rates. That strategy is part of CCA’s proposal to buy and operate state prisons:
“An assurance by the agency partner that the agency has sufficient inmate population to maintain a minimum 90 percent occupancy rate over the term of the contract.”
Now think about that. It creates a contractual obligation to keep the prisons as full as possible. How would that obligation be fulfilled?
CCA already has some ideas. They’ve hired several lobbying firms to support legislation that will – surprise! – likely result in more inmates.
The current focus is on immigrants. After 9/11, the industry saw opportunity in the new anti-immigrant sentiment and spent millions in support of legislation that would increase detentions. Since 2002, CCA alone has spent more than $17 million to lobby Congress.
The Geo Group (formerly known as Wackenhut) saw the value of their contracts with the Immigration and Customs Enforcement agency expand from $33.6 million in 2005 to $163.8 million by the end of 2010.
In the most recent report available, “Prisoners in 2010”, the U.S. Department of Justice graphs the growth of federal and state inmate populations since 1990:
1990 was the first year that CCA contracted with the federal government to handle immigrant detainees.
Can you think of other areas for prison growth? Remember, the United States already has the highest incarceration rate in the world, and at this writing most prisons are still owned and operated by the public. What could happen to prison growth fueled by the profit motive and contractual obligations to keep prisons full?
Take that thought one step further. What if cheap labor became available in prisons? It’s already happening. The America Legislative Exchange Council (ALEC) promoted, and the Department of Justice implemented the Prison Industry Enhancement Certification Program (PIECP).
The lion’s share of income from the program pays for inmate’s room and board. An obvious strategy looms — fill prison beds, get the inmates to work off a big chunk of their own costs, and pocket the difference.
Good business? The Wall Street Journal seems to think so. A column by Liam Denning opens with the business perspective:
“Imagine a real-estate business where your tenant finds it hard to move and you provide the barest of amenities. No, this isn’t the world of the New York apartment landlord. It’s the private prison business.”
I’ll leave you with a final question.
If private prison firms succeed in replacing public prisons and expand beyond immigrants, where will they look for further growth?