Despised Private Prison Companies Rebrand as Prison Real Estate Companies

Many people believe that the United States government is constantly battling corporations, with the government enforcing regulations and corporations skirting them. While this is true in isolated cases, the reality is much more complex. The prison-industrial complex, for example, encompasses a state-run apparatus that is symbiotically intertwined with various private entities.

A growing public relations crisis threatens all entities in this complex. Widespread grassroots movements calling for no new jails and prisons have gained power. Incarcerated people have organized the largest prison strikes to date within the past several years. All major Democratic presidential candidates call for the abolition of private prisons. Even large banks — including Bank of America, Wells Fargo and JPMorgan Chase — have committed to ending their relationships with private prisons following pressure from employees and activists.

Yet private prison corporations, some state legislatures and Immigration Customs and Enforcement (ICE) still push for more prisons. Antiquated state-run facilities across the United States are crumbling and overcrowded, forcing politicians to decide between shutting down prisons or building new ones. As ICE continues to incarcerate an unprecedented number of refugees, the agency seeks new contracts.

Traditionally, to fund new prisons, governments have relied on financing with low-interest municipal bonds. These types of bonds typically require public or legislative approval in some form, such as a referendum. But as prison construction became less popular, some state governments devised a loophole by taking out “lease revenue bonds” (LRBs), a form of debt that does not require a vote since it is theoretically propped up by revenue and theoretically should not increase taxes. But the government found a way to transform tax dollars into “revenue”: A state entity or department finances the prison and incurs debt, and then another state-run entity, such as a Department of Corrections, generates “revenue” by taking money from the city’s general fund — taxpayer dollars — and repays the government’s debt. As early as 1987, legislatures in California, Florida, Texas, New York, Alaska, Michigan, Louisiana, Ohio and Rhode Island, among others, had used this loophole to build new prisons and/or jails.

Now, CoreCivic and GEO Group, the two largest private prison companies, are pushing lawmakers to ditch municipal bonds and the LRB loophole to strike privately financed, publicly run deals with them instead. These types of public-private partnership (“P3”) contracts have been used to build infrastructure in the United States, such as the Indiana Toll Road. In a prison context, the private prison company fronts money or finances debt to build a facility for the government. Then the government has the option of managing the prison and makes payments to the company for a specified amount of time, usually for decades.

In the Public Interest, a research and policy project studying the phenomenon of privatization and promoting the democratic control of public goods and services, is one of the few U.S.-based groups that have studied P3 contracts extensively. The organization warns that P3 contracts, in general, tend to restrict public input into policy decisions and — since private documents are not applicable to public record request laws — are less transparent.

And companies profit at the expense of taxpayers. Jeremy Mohler, communications director at In the Public Interest, told Truthout that these type of leasing agreements are “anywhere from slightly more expensive to drastically more expensive than going the traditional route.” The profit margin for companies tends to be around 10-15 percent, he says. “The company would not have fronted that money if they weren’t going to get a return.” The interest rate on municipal bonds for governmental entities, however, tends to hover around 3 to 4 percent for 20-year bonds.

CoreCivic CFO David Garfinkle explained the business model in 2017: “Under CoreCivic Properties we actually lease three [prison] facilities to government agencies, and are looking to expand. We think that’s an opportunity for meaningful growth as there are a lot of old and antiquated facilities under operation today — up to 300,000 beds in operation over 100 years old, so I think there’s a good opportunity to replace some of that [sic] antiquated facilities and just become the landlord.”

But CoreCivic and GEO Group are not new to the real estate business. They incorporated as a real estate investment trust (REIT) in 2013, a status that allows them to avoid paying taxes on revenue from real estate. Income from detention centers and prisons goes mostly untaxed. With 105 leases, CoreCivic claims to be the country’s largest private owner of buildings utilized by U.S. government agencies.

And the company owns more than just prisons: In August 2018, CoreCivic purchased a $242 million Social Security Administration building and will profit off tax dollars through lease payments. The corporation attributed its “rapid growth” in the third quarter of 2019, in part, to the real-estate portion of its business, which grew by 30 percent and generates $3 billion annually in government real estate transactions.

Despite the high price tag, P3 financing may look attractive to the 39 state legislatures that enable it.

P3s allow governments to avoid upfront payments, which appeals to those with budgetary challenges, even though it will cost them more later. Private financing can be counted as an expense, rather than debt, allowing governments to skirt their debt caps. And of course, GEO Group and CoreCivic lobby and hold meetings with governments to win them over.

Kansas is the first state to sign a privately financed, publicly run P3 contract with a private prison company. The Democratic governor of Kansas, Laura Kelly, admitted that the state was “hoodwinked” by a P3 deal struck prior to her incumbency. Kansas legislators were set on replacing the Civil-War era Lansing Correctional Facility. The Kansas Department of Corrections, however, said the government’s $155 maximum bond wasn’t enough for a state-of-the-art facility. In the end, to skirt the debt cap, Kansas signed a contract with CoreCivic. The company would build the prison for a reported $159.5 million, and the government would pay $362 million in lease maintenance and insurance payments over 20 years. After 20 years, the state would own the facility. The prison is slated to open in early 2020.

CoreCivic lists Kentucky, Alabama and Oklahoma as “significant market opportunities,” for its properties business sector as of January 2019. All three states, along with Hawaii, are considering leasing property with prison companies.

Decarceration advocates have reason to be alarmed by these contracts. The deals create a perverse financial incentive — on top of the broader capitalistic and racist incentives — to keep prisons populated, according to Mohler. “For 30, 40, 50 years the government is going to be making these payments, it’s going to be hard for them to stomach having an empty prison sitting there, if we do actually accomplish criminal justice reform or radical transformational change … it’s pretty hard to retrofit a prison facility, they are a pretty specific thing,” he said.

Private prison companies, which confine 8 percent of incarcerated people, are parasites of mass incarceration, not its drivers. But P3 contracts in the prison context are especially dangerous because each new facility can be applauded by the driver (the state and its department of corrections) and the parasite (the company).

This threatening partnership can be exposed by closely reviewing contracts. “The devil is in the details,” Mohler said. “Once you start shining a light on the math, things fall apart pretty quickly.” Eventually, to make the expensive payments, the government will have to raise taxes or cut services. While bank divestment has only inconvenienced the companies so far, a further push could seriously harm them.

GEO Group appears wary of this type of activism. They warn investors: “Public resistance to the use of public-private partnerships for correctional facilities, processing centers and community reentry centers could result in our inability to obtain new contracts or the loss of existing contracts, impact our ability to obtain or refinance debt financing or enter into commercial arrangements, which could have a material adverse effect on our business, financial condition, results of operations and the market price of our securities.”

Several states, including California, New York, Illinois and Nevada have banned for-profit, private prisons, and the prospect of a federal ban may loom if a Democratic candidate is elected. (Although, as an analyst on GEO Group’s investor call rightly pointed out, “stuff said on the campaign trail or what have you often doesn’t show up in reality. I think Guantanamo is still open….”) Still, both GEO Group and CoreCivic are relying on their real estate sector to diversify their portfolio in the case of such a ban.

A $1 billion public-private partnership contract with the Alabama Department of Corrections appears to be the most lucrative prospect. Earlier in 2019, four men at Limestone Correctional Facility went on a hunger strike, with “no new prisons” as one of their demands. An attorney advocating for them said new prison facilities will not serve the interests of those who are incarcerated. If the eventual contract becomes public, by looking at the “devil in the details,” these advocates will be able to expose whose interests the new facilities will actually serve.