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Top 5 Secrets of the Private Prison Industry

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There are 2.3 million prisoners behind bars in the United States, costing the federal government about $55 billion a year. Ten percent of all prisons in the U.S. are privately operated. The Daily Ticker embarked on an investigation to take you behind the scenes of this unique and secretive industry.

In 1984 the Corrections Corporation of America (CXW) revolutionized the way prisons in the United States operate. The company took over a prison facility in Hamilton County, Tennessee -- the first time a private operator was contracted to run a jail. More prison companies were created and contracts continued to flow -- between 1990 and 2010 the number of privately operated prisons in the U.S. increased 1600%. The increase in privately operated prisons has outpaced both the growth of public prison facilities and even the U.S. population.

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Private prisons bring in about $3 billion in revenue annually, and over half of that comes from holding facilities for undocumented immigrants. Private operations run between 50% to 55% of immigrant detainment facilities. The immigration bill battling its way through Washington right now might also mean good things for private prisons. Some estimate that the crackdown on undocumented immigrants will lead to 14,000 more inmates annually with 80% of that business going to private prisons.

The prison industry has also made money by contracting prison labor to private companies. The companies that have benefited from this cheap labor include Starbucks (SBUX), Boeing (BA), Victoria’s Secret, McDonalds (MCD) and even the U.S. military. Prison laborers cost between 93 cents and $4 a day and don’t need to collect benefits, thus making them cheap employees.

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Federal Prison Industries, a company that contracts out prison labor, made over $900 million in revenue last year. FPI has prisoners working in apparel, clean energy, printing, document conversion and call centers. While FPI claims that prisoners are gaining real-world skills and learning trades, some argue otherwise.

“This is a threat to not just established industries; it’s a threat to emerging industries,” says Representative Bill Huizenga (R-Mich).

While CCA and the GEO Group claim that private prisons bolster competition and efficiency in the prison system, Christopher Petrella, a prison policy analyst and author, argues that it’s the opposite.

“What’s fascinating is that two companies alone constitute 75% of the entire ‘private prisons market’ and so often the two companies will make claims that competition ends up bringing efficiency and efficacy into the marketplace and their services but unfortunately is creating a duopoly,” he says.

Corrections Corporation of America and The GEO Group made $1.7 and $1.6 billion in annual revenue last year. CCA operates 67 federal and local facilities and has about 40% market share while the GEO Group operates 95 prisons in the U.S. and abroad.

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These companies are not classified as correctional facilitators; they consider themselves real estate investment trusts, or REITs, to limit corporate tax liability. Corrections Corporation of America and The GEO Group derive about 40% of their revenue from the federal government -- and are exempt from paying federal taxes.

Want to know more? Watch the video above for the inside scoop.

Correction: An earlier version of this blog and the accompanying video wrongly identified the Corrections Corporation of America stock ticker as CCA. It is CXW.

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