Human Rights

4 Disturbing Reasons the Private Prison Industry Is So Powerful

A major cause of the industry’s staying power is how deeply it has entrenched itself in public institutions and channels.

Since the early 1980’s, incoming revenue for private prison corporations has steadily grown, even through times of deep recession. As long as lawmakers were passing punitive laws to keep mostly young men locked in cages indefinitely, it seemed like the party would never end.

However, there’s been something of an awakening in the last few years. Today over 2.3 million people are locked away in prisons, a number so extreme that lawmakers are now actually considering piecemeal changes to the system of mass incarceration. And just last week, three major corporations (Scopia Capital Management, DSM North America, and Amica Mutual Insurance) announced that they were divesting $60 million from the two largest prison corporations in the nation thanks to a Color of Change campaign urging companies to drop their private prison investments: Corrections Corporation of America and the GEO Group, worth $3.2 billion in total. As a consequence of all this movement, some have portended the eventual demise of the private prison industry. 

This idea overlooks just how dynamic and resilient the private prison industry actually is. It has survived public vitriol, lawsuits from shareholders, poor press for prisoner abuse and, over the last few years, shaky revenue flows. The prospect of renewed demand for detention centers (especially if Congress passes immigration reform) is another reason not to presume the industry’s end just yet.  

A major cause of the industry’s staying power is how deeply it has woven itself into the fabric of our public institutions and channels. What follows are some of the most invisible yet effective ways that the incarceration business embeds itself in our society like a splinter under the skin. 

1. Bankrolling Small Towns

Eloy, Arizona is a town of 10,500 whose financial health and civic culture basically revolve around the private prison system. It’s home to four CCA facilities, all migrant detention centers, and was paid a total $9 million in construction fees by CCA to build them. That revenue went to updating the city’s waterlines, purchasing more police cars and building a new playground, according to the Huffington Post.

"Let me put it in perspective for you," said Rick Miller, Eloy's community development director, to HuffPo’s Chris Kirkham, “if CCA were to close today, that would represent about 20 percent of our operating budget."

The deal’s impact trickled down from the corridors of the state legislature to the county sheriff’s office. In 2009, Pinal County Sheriff Paul Babeu signed an agreement with Immigrants and Customs Enforcement to enforce federal immigration law in his own jurisdiction, and since then the number of migrants funneled from Pinal County jails to its federal detention centers shot up from 33 in 2008 to about 120 annually. It is now one of the top incarcerators of undocumented people in the nation. Notably, writes Kirkham, “Only a quarter of those arrested and identified as undocumented in Pinal County jails last year were apprehended for serious crimes.”

Eloy is hardly the first town private prisons have hijacked. Over 10 years ago, CCA tried to turn Youngstown, Ohio into a penal mecca with a bill that would have flooded the town with so many inmates that one of every 50 Youngstownians would have been an out-of-state prisoner. The deal fell through, to the chagrin of some elected leaders, but a number of small towns across the US have also been sweet-talked into funding the construction of multimillion-dollar prison facilities by promises of revenue and jobs. Sometimes it leads to disaster.

Officials in Hardin, Montana (pop 3,600) were promised that a new state-of-the-art private prison would yield a bounty of jobs and surplus dollars for city projects. Instead, when no prisoners came, Hardin defaulted on the $27 million in revenue bonds it used to finance its construction, and citizens were left with an abandoned, looming dungeon whose expansive razor wire fencing now slices through the heart of the town.

2. Installing Friends in High Places

It takes some effort to wend through Ohio Governor John Kasich’s sinuous ties to the prison industry, but once you do, it makes sense why he wanted to sell five of Ohio’s 26 prisons to private corporations—a completely unprecedented move.

After Kaisch retired from the House of Representatives in 2000, he took a managing level position at Lehman Brothers, which was the go-to financial institution for prison firms before it went kaput in 2008. The same year that Kaisch showed up at Lehman, the firm was putting together a deal that helped CCA avoid bankruptcy, and in 2003 the bank arranged a $785 million refinancing package for the firm. That same year, Lehman also advised Wackenhut Corporation on a million-dollar deal that spun their corrections divisions into what is now the GEO Group.

Kasich won the Ohio governorship in 2010 by crusading for the privatization of all social services. Selling off the state’s penal system was a central part of his agenda, and he bolstered CCA’s business prospects by naming one of its employees, Gary Mohr, as the director of the Ohio Department of Corrections. In the end, Kasich only managed to sell one prison to CCA, and tellingly, that facility descended into filth and violence shortly after the deal.

The revolving door between public and private correctional institutions allots the punishment industry an untold degree of influence in public policy without requiring the disclosure of public-private ties. Three former directors of the Federal Bureau of Prisons (Harley Lappin, Michael Quinlan and Norman Carlson) all went on to chair senior level positions in either CCA or the GEO Group. John Hurley, a former high level official in the Federal Bureau of Prisons, is currently senior vice-president and president of the GEO Group, a post he has served since 2000.

3. Receiving Secret Subsidies

In the construction and maintenance of their facilities, private prison firms have shrewdly secured the spoils of public money normally put aside for civic development projects.

A 2001 study conducted by Good Jobs First found that 73 percent of CCA and GEO Group facilities in 17 (of 19 examined) states were subsidized with development funds. Of these facilities, 37% received a total of $628 million through tax-free government bonds, 38% received property tax abatements or other tax exemptions or reductions, and 23% received infrastructure subsidies, such as water, sewer or utility hook-ups. Citizens had virtually no say in the financing processes of the facilities because lease-backed securities do not require public referenda.

Poor and rural regions were the most aggressive in doling out dollars to private prisons, even though there is scant (if any) evidence of their developmental value. In fact, one study spanning four decades found that the impact of carceral expansion on communities “has impeded economic growth in rural counties that have been growing at a slow pace.”

The most disturbing feature of private prison subsidization is how much it matches geographical legacies of racism. A study in the International Journal of Public Administration found states that subsidize private prisons are more likely to be in the South, have a higher percentage of disenfranchised black males (10 vs. 7 percent), and have a higher percentage of black residents overall (12 vs. 9 percent).

Tellingly, the state that funneled the most development monies to private prisons was Mississippi, the same place where the White Knights murdered Emmett Till and led one of the fiercest campaigns of resistance to desegregation in the 1960s. Half a century later, a new cadre of white knights is funneling hundreds of millions of dollars to the construction of private prisons that subsist on the caging of mostly black bodies.  

4. Using Loopholes to Avoid Taxes

Last year, both the GEO Group and CCA were granted permission by the IRS to restructure themselves into REITs (real estate investment trusts), a designation that lets them escape corporate income taxes. Companies qualify as REITs when most of their assets are in the form of real estate holdings.

Instead of paying a corporate income tax, REITs dish out at least 90 percent of their taxable income to individual investors in the form of dividends. Investors then have to pay ordinary income taxes on those dividends, or at least that’s what is supposed to happen.

Out of fear that the real estate industry had too little actual cash on hand to pay investors, the federal government has permitted REITs to pay their investors in dubiously valued stock rather than cash since 2009. Similar to cash-strapped real estate companies, CCA and the GEO Group have had poor revenue streams in recent years, which means that as REITs they have more incentive to issue bogus shares to investors than actual cash.

It’s a sly trick that takes advantage of post-mortgage crisis financial rules. CCA knows firsthand how hard it can be to maintain an REIT when you have to pay back investors in actual dollars: the company previously converted to an REIT in 1997, but backpedaled a few years later after it defaulted on its debt and had to face the wrath of shareholders.

Christopher Petrella described the consequences in Truthout before the IRS approved the REIT conversion: “An REIT conversion would reduce CCA's federal income tax liability to zero, ensure that it retains enough cash on hand for future acquisitions and allow CCA to grow steadily without rewarding its shareholders.”

Aaron Cantú is an investigator for the Marijuana Arrest Research Project and an independent journalist based in Brooklyn. Follow him on Twitter @aaronmiguel_
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