America’s Top Prison Corporation: A Study in Predatory Capitalism and Cronyism

Part of the Series

Solutions

Last week I wrote about the private prison company The GEO Group and how allowing private businesses to operate prisons can affect our justice system, our laws and the fate of our prison population. This week, I will tackle the largest private prison company, the Corrections Corporation of America (CCA) and its unprecedented proposal to buy prisons from money-strapped states, as well as how CCA has gamed the system with trips through the revolving door, self-dealing and influence peddling.

Just to set the stage as to how large the prison population is in the United States: our prison population is the highest in the world; one out of 100 US residents are in prison. This number has grown dramatically since 1990, due to tighter crime laws and longer sentences. According to the American Civil Liberties Union (ACLU), “Between 1970 and 2005, the number of people incarcerated in the United States grew by 700 percent. Today, the United States incarcerates approximately 2.3 million people.”

The private prison population has also been exploding. From the ACLU:

Even compared to this breathtaking rate of overall growth in incarceration, the rate of expansion of for-profit imprisonment far outpaced the field, accounting for a disproportionate increase in the number of people locked up. In 1980, private adult prisons did not exist on American soil, but by 1990 private prison companies had established a firm foothold, boasting 67 for-profit facilities and an average daily population of roughly 7,000 prisoners. During the next twenty years (from 1990 to 2009) the number of people incarcerated in private prisons increased by more than 1600%, growing from approximately 7,000 to approximately 129,000 inmates.

The largest private prison company, CCA, realized that this was going to be a lucrative market and decided to take their marketing and private takeover strategy one step further. In January of this year, they sent a letter to 48 states, many of them strapped for cash, and offered to buy the state prisons and enter a 20-year-plus contract with the states to house their prisoners. This was done under the persistent ruse that private prisons can be run cheaper than state prisons, even though most of the studies prove otherwise.

CCA has a $250 million fund ready to buy prisons from desperate or conservative states who are trying to find anything in the short term to ease their cash flow or privatize as much of the state’s functions as possible before the next election.

The Huffington Post received in February a copy of the letter that CCA sent to these 48 states. CCA lays out the stark terms by which the states can get short-term money by selling their prisons:

We want to build on that success and provide our existing or prospective government partners with access to the same opportunity as they manage challenging corrections budgets. Interested parties would execute the sale to CCA and enter into a long-term management contract of 20 years or more.

Physical requirements for facilities that would be eligible for purchase by the fund would include:

• A minimum rated occupancy of 1,000 beds;
• A structure age of no more than 25 years;
• A designation that the structure is suitable for immediate occupation or is alreadyoccupied by an inmate population; and
• An assurance by the agency partner that the agency has sufficient inmatepopulation to maintain a minimum 90 percent occupancy rate over the term of the contract.

So, the state that surrenders their prisons to this arrangement would have to guarantee a 90 percent rate, even if the crime rate drops or there are fewer prisoners because mandatory sentences or three-strike laws are changed, or even if there is a drop in crime due to the decriminalization of certain drugs.

CCA realizes that the prison population may shrink due to a falling crime rate and warns of that problem in their 2010 annual report:

The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, leniency in conviction or parole standards and sentencing practices or through the decriminalization of certain activities that are currently proscribed by our criminal laws. 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.

If this language sounds familiar, it is very similar to the language that The GEO Group put in their annual report, which I quoted in last week’s article. Like GEO, CCA knows that it may lose market share if our society gets better and we stop imprisoning so many of our citizens.

But the enterprising CCA believes that it has found a way to panic states to sell their prisons in these desperate fiscal times and then lease them back to the states while maintaining a monopoly for 20 years. The old management contracts that private prison companies have with state-owned prisons can be re-competed, but with this ownership arrangement, CCA would be in the driver’s seat, and the states would not have the choice to opt out of CCA prisons unless they built new prisons.

According to The Huffington Post, CCA had a company earnings call last year to explain how, despite these dire fiscal times, the company could make money:

“We continue to believe we are very well-positioned in a market that, despite the economic pressures faced by our customers, has provided healthy financial performance,”Corrections Corporation chief executive Damon Hininger said in the company earnings call last November. “Indeed, it is because of these pressures, which lead to severe capital constraints and the need to avoid increasing their pension liabilities, that we believe our value proposition to customers is getting stronger.”

CCA based this new marketing strategy on the success it had with Ohio. Late last year, the state of Ohio agreed to sell their Lake Erie Correctional Facility to CCA for around $72 million and even promised to pay CCA for a 90 percent inmate rate even if the inmate population drops below 90 percent. Perhaps CCA’s sales pitch had a more favorable audience in Ohio because the current head of Ohio’s Department of Corrections, Gary C. Mohr, was formerly a managing director at CCA. Now Ohio will have to honor a contract of 20 years or more and be on the hook to pay CCA for a 90 percent inmate rate, even if crime goes down and they can’t fill the prisons. CCA now has a monopoly on that prison.

Based on my knowledge of government contractors and the promises of saving money through privatization, Ohio will not come out on the good side of this deal. CCA has to make a profit, and they will find a way to do it. What will Ohio be able to do about it? Build a new public prison and cancel a contract with CCA that most likely will have a large cancellation fee? Unlikely. One can only hope that cooler heads will prevail in other states and they will not panic and get locked into a 20-year mess with this company.

CCA has also been a member of the American Legislative Exchange Council (ALEC), the free market nonprofit that has been making cookie-cutter laws to advance many conservative social and political goals. Although CCA left the council in 2010, according to The Arizona Republic: “for the past few decades, a CCA executive has been a member of the council’s [task force that] produced more than 85 model bills and resolutions that required tougher criminal sentencing, expanded immigration enforcement and promoted prison privatization…. CCA’s senior director of business development was the private sector chair of the task force in the mid to late 90’s when it produced a series of model bills promoting tough-on-crime measures that would send more people to prison for a longer time.”

If CCA is successful in buying prisons in other states, those ALEC-based bills should help ensure a 90 percent prison rate for years to come.

Many CCA officials have gone through the revolving door between CCA and state and federal government positions to ensure that the company has influence in all levels of government. Alex Friedmann of the Private Corrections Institute has kept a list of CCA officials who have have kept the revolving door spinning occupying positions of influence within and outside of government.

Here is a list that Friedmann compiled for this column:

• CCA’s general counsel, Gustavus A. Puryear IV, was nominated by President Bush for a lifetime appointment as a federal judge in the Middle District of Tennessee, where CCA is headquartered and where numerous lawsuits against the company are filed. Friedmann coordinated a successful opposition campaign that stopped his nomination.

Some notable CCA officials who came from the public sector:

• Board chairman and former CEO John D. Ferguson is a former Tennessee Commissioner of Finance and Administration.
• Board member Donna M. Alvarado was a deputy assistant to the US Secretary of Defense, counsel for the US Senate Judiciary Committee’s Subcommittee on Immigration and Refugee Policy, and staff member of the US House of Representatives Select Committee on Narcotics Abuse and Control.
• Board member Dennis DeConcini is a former US senator from Arizona.
• Board member Thurgood Marshall Jr. was cabinet secretary to President Clinton and director of legislative affairs and deputy counsel to Vice President Al Gore.
• Chief Development Officer Tony L. Grande is a former Tennessee commissioner of economic and community Development.
• Chief corrections officer Harley G. Lappin is a former director of the federal Bureau of Prisons (BOP) (he resigned from the BOP shortly after being arrested for driving under the influence).
• Vice President of Facility operations Unit 3 Steven Conry is a former New York Department of Corrections warden and assistant divisional chief.
• Vice President of Partnership Development Natasha Metcalf is a former commissioner for the Tennessee Department of Human Services.
• Senior Vice President J. Michael Quinlan is a former director of the BOP. (He was sued by a BOP employee who claimed Quinlan had sexually harassed him in a hotel room; the case settled confidentially).
• Vice President of Partnership relations Brad Regens, served as director of fiscal policy for the Arizona House of Representatives.
• Vice President of Health Services Herb Spiwak served as regional administrator for the California Department of Corrections.
• Vice President of Facility Operations Unit 1 Ron Thompson spent 31 years with the BOP, including as an assistant director.
• Vice President of Partnership Relations Bart VerHulst is a former chief of staff for former US senator Bill Frist from Tennessee.

The most disappointing name to see on this list is that of Thurgood Marshall Jr., son of the iconic Supreme Court Justice Thurgood Marshall. According to his biography on the CCA web site, Marshall has joined other groups that promote social justice. “He serves on the American Bar Association Election Law Committee and serves as a board member of the National Fish & Wildlife Foundation, the National Womens Law Center and the Supreme Court Historical Society, and serves on the Ethics Oversight Committee of the United States Olympic Committee.” However, Marshall is also a partner in the DC law firm of Bingham McCutchen LLP, advising government contractors, “with communications, political and legal strategies” (read: lobbying and influence peddling).

Considering that his father’s work on the Supreme Court concentrated on civil rights and the rights of criminals, it is ironic that Marshall is making good money on the board of directors of the largest private prison company in America. I contacted Marshall to hear his reasons for serving on the board of this company in light of its history of poor treatment of prisoners, but he referred me to CCA’s public relations manager, who informed me that Marshall was not available for an interview. For many examples of CCA’s abuse of prisoners and of how it cuts corners to increase profits, see the ACLU’s Banking on Bondage report and the Private Corrections Institute’s web site.

CCA has also garnered success by throwing around plenty of lobbying money in the past few years to help its private-prison concept get a toehold around the country. According to The Arizona Republic:

CCA has spent about $17.6 million lobbying Congress and federal agencies over the past decade, according to records compiled by the Center for Responsive Politics, a nonpartisan organization that tracks the effect of money on U.S. politics. The agencies include the Department of Homeland Security and its Immigration and Customs Enforcement division, which contract with private operators such as CCA for immigration-detention centers.

So, is anyone making a dent in CCA’s blitz on privatizing as many prisons as possible, or in its notorious lack of care and abuse of its prisoners? Many groups such as the ACLU have been doing reports and urging reform, but Friedmann, who is with Prison Legal News as well as the Private Corrections Institute, is making a bold stand next week at CCA’s board meeting in Nashville.

Friedmann, who served ten years in prison and was released in 1999, spent six of those years in a CCA-run prison, so he has firsthand knowledge (albeit with a bias) of CCA’s mode of operations. Since his release, he has amassed an impressive amount of information on all private prison companies, but has decided to make a stand on CCA. When I interviewed him for this column, he told me his bold plan to try to make CCA accountable to their stockholders. In his words:

In 2010, I purchased additional shares that gave me a $2,000 stake in the company and held the shares for one year, which qualified me to introduce a shareholder resolution. I did so for the first time in November 2011. My resolution would require CCA to issue biannual reports concerning its efforts to reduce prisoner rape and sexual abuse at its facilities, as well as data for all such incidents during each reporting period.

The resolution is currently pending and will be considered at CCA’s annual meeting on May 10 in Nashville, Tennessee, where I reside. CCA filed an objection with the SEC to have the resolution excluded; I retained pro bono counsel to respond, and the SEC ruled in my favor earlier this year.

CCA then included a lengthy objection in their proxy statement urging shareholders to vote against my resolution. I drafted a formal solicitation statement in support of the resolution, filed it with the SEC, and, using SEC rules, required CCA to distribute my statement to around 4,600 shareholders (at my expense).

Meanwhile, I began contacting organizations involved in socially responsible investing, as well as proxy advisory services (Glass Lewis, ISS Governance, etcetera) and institutional CCA shareholders that own over 200,000 shares – such as Wells Fargo, General Electric, Vanguard, Lazard, etcetera. The reception from corporations that own CCA stock has mostly been chilly.

Recently, ISS and another advisory firm, ProxyTell, issued recommendations to vote for my resolution, while Glass-Lewis recommended against. CCA has taken the unusual step of issuing a supplemental proxy statement, again urging shareholders to vote against the resolution.

The entire CCA board of directors, including Marshall, have advised the stockholders to vote against Friedmann’s resolution before the annual meeting on May 10.

The Guardian, a British-based newspaper, picked up on Friedmann’s battle to force this resolution at the annual meeting and outlined CCA’s history of problems of sexual abuse in their prisons.

Friedmann is trying to make a dent in CCA’s overwhelming influence and power. He is heading a petition at Change.org to urge CCA’s stockholders and management to pass his resolution to help curb rape and sexual abuse at CCA prisons.

CCA and the other private prison companies have made a great effort to lobby and influence beleaguered state governments to increase the number of private prisons in this country. Next week, I will examine how these companies are working on and with the federal government on another potential growth area for the prison population – immigrants who are imprisoned while waiting for deportation. CCA, The GEO Group and other private prison companies are working that system to gain even more of a private-prison foothold in the lucrative sector of federal immigrant detention facilities. I will also explore possible suggestions for reining in the private prison industry from preying on our state and federal governments and our prisoners.

If you are interested in learning more about Friedmann’s petition effort, you can view the petition here.