The DOJ’s decision to end contracts with private prison companies may not stop their growth in the long run.
The Department of Justice’s sudden announcement in August that it would phase out contracts with private prison companies caused stocks of the industry’s two biggest leaders, GEO Group and the Corrections Corporation of America, to nosedive. Immediately after the DOJ decision was made public, shares for both companies fell by more than 40 percent. After only a few weeks, the two companies had collectively lost more than $2.2 billion in value.
Despite the market’s volatility, the DOJ move will only affect 13 facilities, and as the shock wears off it is becoming increasingly clear that the industry is not going to simply fade away. Private prison companies still expect to score contracts from state governments and federal agencies, including Immigrations and Customs Enforcement, which uses them to detain tens of thousands of non-citizens annually.
But beyond these traditional criminal justice enterprises, private prison companies have been diversifying their holdings portfolios to capture emerging areas of the criminal justice market.
Since 2005, GEO Group and the Corrections Corporation of America have poured over $2.23 billion into acquiring smaller companies that cater to different parts of the criminal justice system, such as GPS ankle-unit monitoring services, residential re-entry centers (commonly known as “halfway houses”), and prison health care services, according to a new report from the progressive advocacy group In The Public Interest.
From 2013 to 2016, the Corrections Corporation of America put down $230 million for residential re-entry center acquisitions. Similarly, from 2011 to 2015, GEO Group spent more than $450 million on electronic monitoring and alcohol monitoring-related acquisitions.
In conversations with investors, private prison companies have been quite clear that this diversification seeks to meet the demands of the changing political climate. As Ann Schlarb, a senior vice president of GEO Group, explained at the company’s latest earnings call in April (transcript via Seeking Alpha), the company is “enthusiastic” about expanding its offender rehabilitation services, which they believe is “in line with current criminal justice reform discussions.”
As of the first quarter of 2016, GEO Group’s re-entry division manages 21 halfway houses with more than 3,000 total beds, 63 day-reporting centers serving 4,000 participants, 12 residential youth-service facilities with approximately 1,300 total beds, and seven non-residential programs with 1,200 participants. Another GEO group division monitors around 139,000 offenders under community supervision, including more than 100,000 using GPS, radio-frequency, and alcohol-monitoring devices.
“We view these efforts as positive,” concluded Schlarb, “and we believe that the emphasis on offender rehabilitation and community re-entry programs as part of criminal justice reform will create growth opportunities for our company.”
But as with their prison and detention operations, which critics allege skimp on basics to increase profit margins and win contracts, concerns have been raised about the quality of these new ventures.
Mark Bartlett, an employee of a residential re-entry facility in San Diego, told The Nation that quality at his workplace dropped dramatically after the Corrections Corporation of America acquired his employer, Correctional Alternatives, Inc., in 2013:
“As we transitioned from a small business, we saw so many things go wrong when CCA came in. They cut down on eggs, and on food portions. They cut down on staff, and they cut down on programs and resources for the inmates. They stopped giving staff raises. The morale drastically changed. There was overcrowding, and they didn’t have enough staff members to manage the facility. And it turned into a dangerous environment. There were always fights, there were more staff assaults. There were more escapes. The narcotics use just drastically went up. The air conditioning units were always going out, and when temperatures go up, tensions rise. But they would only do these temporary fixes because it always came down to costs.”
Additionally, critics worry that handing over other parts of the criminal justice system to private companies could create perverse incentives, which could fuel people’s re-entry into prison. According to In The Public Interest’s Donald Cohen, writing in The Huffington Post, in 49 states and D.C. the costs of ankle monitors—which are sometimes as high as $40 a day—can be passed on to the people ordered to wear them. Private companies could have an incentive to see people fall behind on their payments in order to accrue additional late fees, and failure to pay can result in re-incarceration.
Despite these problems, neither CEO of the major private prison companies seems concerned that the coming presidential election will change much. Though Hillary Clinton’s campaign rhetoric has been in support of criminal justice reform, The Intercept has reported that lobbyists for both GEO Group and the Corrections Corporation of America have served as top fundraisers for the Clinton campaign.
For the next president, “I think having a view on our business, our industry, is going to be really, really low on the priority list,” said Damon Hininger, the chief executive of Corrections Corporation of America, speaking at the REITWeek investor forum in June.
Similarly, when asked about the presidential election in his latest earnings call in April, George Zoley, CEO of GEO Group, told analysts, “We believe we provided essential government services at the federal level and in the state level, and historically those services have received bipartisan support, and we expect that's going to continue in the future.”