Prison Stock Prices Collapse After Feds Announce End to Private Prison Use
By: Carey Wedler
The Department of Justice’s announcement on Thursday that it would reduce or terminate contracts with private prison companies commanded headlines and provided cautious hope to those determined to end America’s age of mass incarceration. But what happened directly after the DoJ revealed its decision provides deeper insight into the corporatist structure that pervades the United States.
Shortly after the announcement, stock prices for two of the biggest companies in the private prison industry suffered massive, historic losses.
“Corrections Corp. fell 37 percent to $17.06 at 2:05 p.m. in New York, after earlier dropping as much as 52 percent, the real estate investment trust’s biggest intraday decline in almost 16 years. GEO Group plummeted 38 percent to $20.14, after earlier falling 50 percent, its largest drop since the stock began trading in 1994.”
The stocks tanked shortly after Deputy Attorney General Sally Yates said private prisons “simply do not provide the same level of correctional services, programs and resources” and “do not save substantially on costs.” In a blog post, she cited dwindling the federal prison population to justify the shift, noting the are “approximately 195,000 inmates in bureau or private contract facilities down from a high in 2013 of approximately 220,000.”
The shift spells trouble for companies that rely on sustained prison populations to remain afloat.
“We are dependent on government appropriations,” both Corrections Corp. and GEO Group admitted in their reports last year, Bloomberg reported.
Corrections Corp.’s report noted 24 government contracts were set to expire in December of this year, as were 10 more that were not eligible for renewal. The contracts were worth $594 million in revenue for the single corporation — 33% of the company’s total revenue. GEO Group currently receives 45% of its total revenue from government agencies.
The rise of private prisons was a direct result of the United States exploding prison population in the 1980s,sparked in large part by the War on Drugs and the ripple-effect of crime that came along with it. The prison population exploded nearly 800% between 1980 and 2003.
But the success of the private prison industry was not a result of the increase in the prison population, alone. In fact, Corrections Corp. was on the brink of failure before the government stepped in to rescue the industry.
Grassroots Leadership, an activist group that “fights to end for-profit incarceration and reduce reliance on criminalization and detention through direct action, organizing, research, and public education” explained their financial shortcomings in 2003:
“CCA came close to insolvency in the late 1990s after it embarked on a process of building expensive, speculative prisons, i.e., ones for which it did not have an operating contract lined up ahead of time. The company borrowed a huge sum — ultimately about $1 billion dollars — to support speculative construction while simultaneously engaging in a series of dubious financial restructurings.”
As Bob Libal, executive director of Grassroots Leadership told Bloomberg on Thursday:
“These contracts really helped save the private prison industry in the late 1990s when the BOP really bailed out an industry that was really struggling. And over the last decade, the private prison industry has really made its money on federal contracts. That’s where the growth has been, either through immigrations and customs enforcement or through the Bureau of Prisons.”
The prison industry’s profits soared 500% over two decades, bolstered by the private prison industry’s widespread practice of requiring the government to ensure their prisons are full. Many contracts demand occupancy rates remain at 80 to 100 percent.
Libal noted that recent inmate uprisings within private prisons and investigative reports exposing inhumane treatment and conditions — published by outlets like the Nation and the ACLU — have provoked increased skepticism toward private prisons.
Private prisons currently make up 15 percent of America’s federal inmates, which seems like a relatively small number. To put it in perspective, “the number of prisoners in private prisons increased by approximately 1600% between 1990 and 2009,” as noted by ACLU. That spike in business was arguably purchased by the prison lobby, which is heavily entrenched in Washington D.C. Hillary Clinton has taken heated criticism for her ties to that lobby.
Though the DoJ’s decision will not negate state-level contracts with private companies, which make up a large portion of their business, the decision is a small step in the right direction.
Though the DoJ may receive praise of its shift in policy, the plummeting stock of powerful private prison companies serves as a reminder of just how complicit the public sector has been in the growth of the private beast. In addition to its efforts to prop up the private prison industry, the government still houses roughly 84% of federal inmates.
This article (Prison Stock Prices Collapse After Feds Announce End to Private Prison Use) is free and open source. You have permission to republish this article under a Creative Commons license with attribution to Carey Wedler and theAntiMedia.org. Image credits: ZeroHedge.