Privatization Blues

[Double A]

San Fransisco Bay Guardian

July 21, 2006

Private-prison blues

By G.W. Schulz

Nashville is known mostly as a home for some of the best and worst artists country music has to offer. But the city has quietly played host to something else over the years – privatization. The Nashville business community is dominated in part by the nation's largest privatization outfits, which earn lucrative contracts performing services for the public sector such as hospital and jail management.

Perhaps the biggest player in the Nashville business scene is the Corrections Corporation of America, which endured the popular wrath of lefty journalists several years ago and almost went bankrupt in the late 90s. CCA's Tennessee neighbor, the Hospital Corporation of American, attracted slightly more attention recently when a certain prominent stockholder, Senate Majority Leader Bill Frist, was accused of conflicts of interest. Frist's family helped found HCA, but the senator has insisted his investments haven't compromised his capacity to legislate fairly.

But these days, after escaping headlines for a few years, CCA is back.

Since Congress has vowed to detain and deport more illegal aliens, immigration-enforcement officials are looking for new places to put them all. Thousands of arrested immigrants waiting for deportation will now fill the empty beds CCA and other private-prison contractors (like the infamous, yet smaller, Wackenhut Corporation, which recently changed its name to The GEO Group) have scattered at facilities around the country.

In the past, arrestees were released on their own recognizance and allowed to remain "free" while awaiting deportation hearings. But the feds want to hold on to more of them now, and combined with new captures at the southern border, the demand for steel and concrete has jumped. The private-prison operators stepped in, so not surprisingly, CCA's stock price has jumped, too. According to the Times piece from a few days ago:

"Last year, the Corrections Corp.'s revenue from holding immigrants jumped 21 percent, to $95 million from $70 million in 2004 ... While the companies would not comment on profit margins from their immigration business, Wall Street analysts said that detention centers produce profit margins of more than 20 percent."
Note that CCA's $100 million revenue stems exclusively from its detention services. The company's overall revenue was $1 billion last year, which comes also from constructing and managing jails and prisons and overseeing and transporting inmates. GEO's revenue was the same this year as last, but company execs are telling investors they expect increased demand. Technically, illegal immigrants are not considered criminal, per se. They're held until their immigration status is reviewed, and then they're freed or deported. Yet detaining them at a CCA facility often means subjecting them to the rigors of prison life, the Times writes.

It's worth taking a look at CCA's history. The company has made profits largely by cutting costs, and any corporation's greatest cost is generally its payroll. Guards in Tulsa County, Ok., where CCA held the largest municipal jail-management contract in the nation until last year when Tulsa ran them out of town, were paid $10 an hour. Securing benefits was a colossal challenge. It was by no means uncommon there for guards to be more loyal to the inmates than to the company's management. Barry Yeoman's definitive piece for Mother Jones is good, but it focuses on what is probably the company's most controversial facility, a prison in Youngstown, Oh. The most thorough, yet critical, look at the company was published in 2003 by Grassroots Leadership, a think tank funded by George Soros.

Democrats should be careful not to assume jail privatization is a phenomenon only the Bush White House would pursue with conviction. The trend was popularized under Clinton, and as CCA and Wackenhut made their ascent during his presidency, highly publicized riots found their way on to the front pages of papers across the country due in part to untrained and underpaid guards who refused to face off with violent inmates (can't blame 'em, frankly).

CCA secured its Tulsa contract under a Democratic mayor despite the loud opposition of a Republican sheriff who foresaw cost-cutting measures on the part of CCA that would lead to poor conditions for inmates and no real monetary benefits for Tulsa (which is pretty much what happened). The company's board is populated with prominent Democrats, including the son of revered former Supreme Court Justice Thurgood Marshall. In addition to attracting wealthy investors, CCA has proved skillful at lining the pockets of state and federal political candidates with contributions.

In the context of Nashville, everyone there in the privatization biz has shown an uncanny ability to refashion themselves as market demand shifts, or as scandals erupt. Former CCA top executive Doctor Crants (his birth name) was ousted after the company nearly went broke taking on an enormous amount of debt in the 90s and overbuilding prisons without assured inmate contracts. But just after Sept. 11, he resurfaced with a new company, the Homeland Security Corporation. (These people are not very creative when it comes to naming their business ventures.) A group of HCA and CCA executives formed Psychiatric Solutions, Inc. a few years ago, which specializes in buying and managing youth psychiatric facilities. While the names change, the strategy is often the same -- absorb bucket loads of debt from Wall Street and buy assets like crazy; go public quickly, get more money, put it back into new structural assets, and thereby overshadow the rest of the industry.

My old man and I often argue about privatization. If the market can offer a cheaper and more efficient solution, then contract it out, he grumbles after a few Bud Lights. Despite my affection for my father, my response is the same nearly every time: Would you have contracted out parenthood if it was cheaper and more efficient? Would it have even been cheaper or more efficient?

Privatized Toll Bridge Anyone?