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Part 5: Private Prisons - Sweetheart Contracts Fill Beds & Pad Profits

At 192% occupancy, Alabama's prisons are so overcrowded that some fear a federal takeover. It's likely that some sort of prison reform (or maybe just a building spree) will be a major topic of the 2015 legislative session. And when the private prison lobbyists start waving donation checks and ALEC-inspired bills at legislators, there's a good chance some form of privatization will be under discussion.  

Alabama private prisons
 
The private prison industry is generous with contributions. Between 2004 & 2012, half the members of the Oklahoma legislature received $200,000 in gifts and campaign contributions.
 
But before we start looking at a short-term fix, it's important to see how these contracts have played out in other states. For the most part, prison privatization is a zero sum "solution" to a problem: when corporations win, taxpayers lose.

Need to catch up?

 
"Guaranteed Occupancy" Is a Crucial Part of the Business Model
When CCA made its 2012 offer to 48 states to buy the state prison systems outright, that offer came with one important condition: the state would have to "guarantee" a 90% occupancy rate. Last year, In the Public Interest (an anti-privatization group) reviewed 62 private prison contracts. Two-thirds of them (41 total) included occupancy requirements:

States with the highest occupancy requirements include Arizona (three prison contracts with 100 percent occupancy guarantees), Oklahoma (three contracts with 98 percent occupancy guarantees), and Virginia (one contract with a 95 percent occupancy guarantee).

Now, the societal goal for prisons is (or should be) to keep the population as low as possible and avoid as many repeat visits to the facility as possible. That not only saves money, lower recidivism helps the community by keeping families together and hopefully keeping prisoners as part of the workforce outside prison industries. However, those goals conflict with the private prison business model, and Colorado learned that lower crime rates can be just as expensive as soaring crime rates:

The deal to keep sending inmates to private prisons wasted at least $2 million in state tax money, says Christie Donner, executive director of the Colorado Criminal Justice Reform Coalition. The total could be far more. The state already has 1,000 empty beds in various state prisons and that number is rising by nearly 100 a month. That includes 300 beds in cellblocks shut temporarily until the study is completed. Officials need some beds open for flexibility, but won’t say how many.

The deal gave CCA a written promise of 3,300 prisoners, at $20,000 each, for the fiscal year that ends this June. Details were hashed out a year ago during meetings between the governor’s office, CCA and its Colorado lobbyist, Mike Feeley.
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“The whole idea around private prisons was that they were overflow, that we would only use them to the extent that we needed them,” Donner said. Donner was critical of the deal, which she noted was “negotiated behind closed doors.”

Even if the contracts start out with no occupancy guarantees, that can change. For instance, initially, the 2011 contract between Colorado and CCA explicity stated that “the state does not guarantee any minimum number of offenders will be assigned to the contractors’ facility.” However, CCA re-negotiated the deal in 2013 and included quotas. The result cost the state millions:

Instead of using empty bed space at state-run facilities, the Colorado Department of Corrections housed inmates in CCA’s facilities to ensure they met the occupancy requirement.  Thanks to the quota, the private prisons were the first priority for placement, rather than the last.

Tennessee taxpayers also shelled out money to compensate CCA for empty prison beds:

A 2009 contract between Metro Government and Corrections Corporation of America guarantees that the private prison company will be paid for 90-percent capacity in the women’s section of its Metro Detention Facility. But records show that the private-run prison has rarely been that full, putting taxpayers on the hook for $487,917.27 worth of empty beds since 2011, when it first began booking female prisoners. Such quota systems are commonplace across the nation but prompt criticism, in Nashville and elsewhere, that the arrangements are better for private corporations than taxpayers.

A Bad Long-term Solution to a Short-term Problem
The most attractive contracts from the industry perspective are those that CCA offered to states in 2012. The company offered to purchase the states' prisons, giving many cash-strapped governments a huge infusion of cash. In return, the state would contract with CCA for 20 years, pay a management fee, pay a set amount per prison bed, and guarantee 90% occupancy.
 

In 2011, Ohio sold one of the state's largest prisons to CCA. It was fewer than Governor Kasich requested. When he took office, Kasich hoped to sell five state prisons as part of his overall plan to privatize much of state government.

By the time Ohio received proposals last summer from private prison companies, only one offer was deemed worthy: the $72.7 million sale of the Lake Erie Correctional Facility. In a conference call with investors last fall, Hininger, the Corrections Corporation CEO, trumpeted the Ohio deal, noting, "Ohio has been a targeted state for CCA for several years."

Kasich's appointed chief for state prisons, Gary Mohr, previously served as a managing director at Corrections Corporation of America before assuming his government position last year. And Kasich's former chief of staff when he was a congressman, Donald Thibaut, now works as a lobbyist in Ohio for Corrections Corporation of America.
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State officials have argued that selling and outsourcing the prison will generate $3 million in cost savings each year. But a report from Policy Matters Ohio calculated that selling the Lake Erie prison would actually cost more in the long term than if the state continued to own the property and pay off the construction bonds. That's because the state has to pay Corrections Corporation of America a $3.8 million annual ownership fee for housing state prisoners, in addition to the prisoner per-diem costs laid out in the contract.

According to the report, the prison sale would cost taxpayers $11 million more over the next 20 years than if the state would have continued to own the prison.
The strong pressure to fill beds (and the financial penalties involved if they're empty) often results in prisoners serving time in prisons far from their home states. For instance, Oklahomans were shocked to find out in 2012 that CCA inmates in the state included some rather unsavory characters from California:

California corrections officials knew a private prison company was housing a convicted murderer, rapist and two other felons at a Midwest City nursing home, but contend they had no “role in approving or objecting to this facility,” a department spokeswoman said Friday.

They had been injured during a prison riot, and CCA asserted that the nursing home was just the sort of "skilled nursing facility" needed for the "rehabilitative needs" of the prisoners. Though the spokesperson also noted that the inmates were "shackled to their beds," so you have to wonder how the rehab went.
 
In these and other cases, the states involved in prison purchases have found themselves trading long-term control of the state's prisons for a short-term infusion of cash that helps balance the budget for a few years, but then becomes a drain on state coffers.
 
It's pretty creepy to consider that if a state with these private prison contracts meets the desirable goal of reducing crime and prison populations, it can incur long-term financial penalties.
 
Sentencing Reform & Community Corrections Threaten Industry Profits
The private prison industry's success is built on locking people up, and the more people incarcerated, the higher the profit margin. The industry doesn't even try to refute that. In its 2010 Annual Report (PDF) , CCA noted: “The demand for our facilities and services could be adversely affected by . . . leniency in conviction or parole standards and sentencing practices . . . .” 

Although the industry protests that it doesn't actively lobby for or against bills that directly affect its business - like mandatory minimum sentences, community corrections, drug courts that divert offenders to treatment rather than jail, and repeal of marijuana laws - it is involved in funding "tough on crime" political candidates and all three of the largest for-profit prison companies are actively involved in the American Legislative Exchange Council. ALEC promotes "model legislation" for state legislatures on a number of topics - including corrections.
 
From a 2011 Nation article:

Somewhat more familiar is ALEC’s instrumental role in the explosion of the US prison population in the past few decades. ALEC helped pioneer some of the toughest sentencing laws on the books today, like mandatory minimums for non-violent drug offenders, “three strikes” laws, and “truth in sentencing” laws. In 1995 alone, ALEC’s Truth in Sentencing Act was signed into law in twenty-five states. (Then State Rep. Scott Walker was an ALEC member when he sponsored Wisconsin's truth-in-sentencing laws and, according to PR Watch, used its statistics to make the case for the law.)
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ALEC has also worked to pass state laws to create private for-profit prisons, a boon to two of its major corporate sponsors: Corrections Corporation of America and Geo Group (formerly Wackenhut Corrections), the largest private prison firms in the country.

The reliance on more and more prisoners is at odds with efforts to reform sentencing and both the restorative justice & community-based corrections movements.  

The industry understands this. CCA noted in that same 2010 annual report:

For instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional facilities to house them. Legislation has been proposed in numerous jurisdictions that could lower minimum sentences for some non-violent crimes and make more inmates eligible for early release based on good behavior. Also, sentencing alternatives under consideration could put some offenders on probation with electronic monitoring who would otherwise be incarcerated. Similarly, reductions in crime rates or resources dedicated to prevent and enforce crime could lead to reductions in arrests, convictions and sentences requiring incarceration at correctional facilities.”

In previous installments of this series, we've seen that private prisons don't necessarily produce promised cost savings and benefits, but the strong relationship between industry & government is helping the industry to expand in spite of that.
 
But privatizing prisons isn't just a bad idea from a state budget standpoint: it affects public policy in other ways as the industry struggles to keep a steady stream of criminals behind bars. Tomorrow, in Part 6, we'll look at conditions inside private prisons for inmates & employees.
 
Here's a preview... From a "The Week" article from 2013:

As bad as state-run prisons can be, private prisons ultimately pose a greater threat to inmates because of their raison d'être; they exist solely to make a profit off of incarcerated individuals.

Like pretty much all other for-profit enterprises, private prisons make money in part by cutting operating costs wherever possible. In most industries, this can be done by reducing employee hours or buying goods wholesale or any number of other strategies. But when it comes to housing inmates, cutting costsis done in a variety of troubling ways.

 

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