Following from PDX Oregonian: AFTER HOT GROWTH, PRIVATIZATION OF PRISONS SLOWS.
The lack of big savings promised over government run prisons and fewer criminals are among the reasons for the slowdown.
By JOSEPH T. HALLINAN Newhouse News Service
The nation's largest private prison company, the Corrections Corporation of America, has begun pulling up stakes in the country's largest private prison market, Texas.
It voluntarily quit running, in 1998 at least three prisons there, a small but telling omen in an industry grappling with change.
When private prisons first appeared in 1984, the companies that ran them promised big savings over government-run prisons.
But now, some of the savings aren't as big as officials had been led to believe. In some cases, the savings are less than 7 cents on the dollar
This, along with other factors, has cooled one of the hottest trends in prisons - privatization. After years of breakneck growth, expansion is slowing and stock prices are flat or falling.
"You can't be a fledgling start-up forever,� said Peggy Lawrence, vice president of investor relations for the company, whose once-hot stock has taken a beating.
There are several reasons for the slowdown. Chief among them is fewer criminals. In December, the federal government announced that violent and property crimes hit their lowest level since 1973. And fewer crimes generally means fewer convicts
"I guess the bottom line is, there's a bit of a slowdown in the number of inmates we've been receiving," said Larry Todd, a spokesman for the Texas Department of Criminal Justice
Texas is the biggest private prison user in the nation, swamping every other state. So a slowdown there has a disproportionate effect on the private prison industry.
Of the 142 private prisons and, jails in operation in 1997, 41 of them -29 percent - were in Texas.
Fourteen of those facilities were run by Corrections Corporation of America until Dec. 31. But the company stopped running at least three of those facilities, Lawrence said, as competition drives down the company's profits.
At the end of 1997, private prisons housed about 71,000 inmates, or' about 4 percent of the nation's prison and jail population.
These facilities were built on a singular concept: Private is cheaper. But figuring out how much cheaper has been difficult. Industry estimates vary widely. Corrections Corporation of America, which runs 72 prisons in the United States, cites savings numbers ranging from 5 percent to 20 percent.
But the federal government, in a 1996 report, said it could not conclude based on the evidence, whether private prisons save any money at all.
The report, by the General Accounting Office, reviewed five studies that compared costs of public and private prisons.
In four of the comparisons examined the GAO found that two showed no significant differences in cost one showed a 7 percent difference in favor of the private prison; and another showed that the private prison was more expensive than one public prison but cheaper than another.
The fifth study reported that private prisons saved 14 percent to 15 percent But the GAO discounted' These results because the comparison was based on hypothetical public prisons, not real ones.
completely accurate with regard to the three facilities CCA "stopped running" in Texas. TDCJ (Texas Department of Criminal Justice) will sign a management contract for one year, with three to five extensions. However, they have (and do) exercise their right to re-bid the contract at any time. CCA "lost" the
contract for a big county jail near Dallas and a state jail (maybe two) simply because TDCJ exercised their right to re-solicit.
Incarceration costs as much as $75 per day per inmate. Up until now, most private firms have been able to beat state
operating costs by $10-20 per inmate per day. It is an
incredibly cut-throat business, and I would not be surprised
if TDCJ received back channel pressure from other companies claiming to be able to meet or beat CCA's price. So, that part of the article I take with a grain of salt.
I work for a medical services provider which contracts with CCA. It is a well-organized company, professionally and efficiently run. It is a pleasure to work with them. We also contract with other correctional companies, so I have a basis of comparison. Currently, CCA deserves its place at the top of the heap. I bought some CCA stock because of my experience with the company.
I've been reading the CCA message board for quite a while and enjoy the comments. I've learned much from this erudite group.
Florida also has studied the issue and has reached roughly the same conclusions as the GAO.
Charles Thomas, a professor at the University of Florida and a leading expert on private prisons, has scaled back his growth forecasts for the industry, from 35 percent to 40 percent a year to a still healthy 21 percent to 23 percent. Thomas is a member of the board of trustees of Corrections Corporation of America Prison Realty Trust, a prison owning company closely affiliated with the company.
Between the end of 1997 and June 1999, Thomas predicts 36 new prisons capable of holding nearly 30,000 inmates will have opened. This is a 13 percent drop from the 1996 pace.
The occupancy rate of private prisons also is slipping. According to numbers compiled by Thomas, private prisons filled 4 percent fewer beds in 1997 than in 1996.
Stock prices, too, are leveling off. The stock of Corrections Corporation of America, which traded early in 1998 for as much as $41.50, now 2 languishes near $18.
The stock of its archrival, Wackenhut Corrections Corp., is doing better but still trades for about what it did a year ago. And shares of Cornell Corrections Inc., a leading company based in Houston, are down more than 25 percent from their peak.
But even amid this gloom, Thomas sees light. A baby boom, he said, is expected to push more young people into the crime-prone years, and this will be good for the prison business.
In addition, he said, repeat-offender laws such as "three strikes and you're out," which imposes a life sentence upon a third criminal conviction, will ensure criminals stay behind bars longer.