Pubdate: January 5, 1998 Source: The Nation Author: Eric Bates Contact: http://www.thenation.com PRIVATE PRISONS (Part 2 of 2) Given all the pennypinching, it would seem that C.C.A. should easily be able to demonstrate significant savings at South Central. Instead, a study of costs conducted by the state in 1995 found that the company provided almost no savings compared with its two public rivals. The studycited by the General Accounting Office as "the most sound and detailed comparison of operational costs"actually showed that the C.C.A. prison cost more to run on a daily basis. Even after the state factored in its longterm expenses, C.C.A. still spent $35.38 a day per prisoneronly 38 cents less than the state average. The study contradicted what is supposed to be the most compelling rationale for prison privatization: the promise of big savings. But the industry champion dismissed its defeat by insisting, much to the amazement of its challengers, that it hadn't tried very hard to save tax dollars. "When you're in a race and you can win by a few steps, that's what you do," said Doctor R. Crants, who cofounded C.C.A. and now serves as chairman and chief executive officer. "We weren't trying to win by a great deal." The comment by Crants, as remarkable as it seems, exposes the true nature of privatization. When it comes to savings, the prison industry will beat state spending by as narrow a margin as the state will permit. To a prison company like C.C.A., "savings" are nothing but the share of profits it is required to hand over to the governmentanother expense that cuts into the bottom line and must therefore be kept to a minimum, like wages or the price of potatoes. At its heart, privatizing prisons is really about privatizing tax dollars, about transforming public money into private profits. That means companies are actually looking for ways to keep public spending as high as possible, including charging taxpayers for questionable expenses. The New Mexico Corrections Department, for example, has accused C.C.A. of overcharging the state nearly $2 million over the past eight years for operating the women's prison in Grants. The company fee of $95 a day for each inmate, it turns out, includes $22 for debt service on the prison. Last summer, a legislative committee in Tennessee calculated that state prisons contribute nearly $17.8 million each year to state agencies that provide central services like printing, payroll administration and insurance. Since company prisons usually go elsewhere for such services, states that privatize unwittingly lose money they once counted on to help pay fixed expenses. The "chargebacks," as they are known, came to light last spring when C.C.A. once again proposed taking over the entire Tennessee prison system. This time the company offered to save $100 million a yeara staggering sum, considering that the annual budget for the system is only $270 million. Like many claims of savings, the C.C.A. offer turned out to be based on false assumptions. Crants, the company chairman and C.E.O., said he derived the estimate from comparing the $32 daily rate the company charges for mediumsecurity prisoners at South Central with the systemwide average of $54. But the state system includes maximumsecurity prisons that cost much more to operate than South Central. "It's almost like going into a rug store," says State Senator James Kyle, who chaired legislative hearings on privatization. "They're always 20 percent off. But 20 percent off what?" Yet the sales pitch, however absurd, had the intended effect of getting Kyle and other lawmakers into the store to look around. Once there, the prison companies kept offering them bigger and better deals. Given an opportunity to submit cost estimates anonymously, firms offered fantastic savings ranging from 30 percent to 50 percent. Threatened by the competition, even the state Department of Corrections went bargain basement, offering to slash its own already low cost by $70 million a year. Despite opposition from state employees, legislators indicated after the hearings that they support a move to turn most prisoners over to private companiesa decision that delighted C.C.A. "I was pretty pleased," Crants said afterward. The governor and legislators are wrangling over the details, but both sides have agreed informally to privatize roughly twothirds of the Tennessee system. A few prisons will be left in the hands of the state, just in case something goes wrong. Lawmakers didn't have to look far to see how wrong things can go. South Carolina decided last February not to renew a oneyear contract with C.C.A. for a juvenile detention center in the state capital. Child advocates reported hearing about horrific abuses at the facility, where some boys say they were hogtied and shackled together. "The bottom line is the staff there were inexperienced," said Robyn Zimmerman of the South Carolina Department of Juvenile Justice. "They were not trained properly." Once again, though, such stark realities proved less influential than the political connections enjoyed by C.C.A. The chief lobbyist for the company in the Tennessee legislature is married to the Speaker of the state House. Top C.C.A. executives, board members and their spouses have contributed at least $110,000 to state candidates since 1993, including $1,350 to Senator Kyle. And five state officialsincluding the governor, the House Speaker and the sponsor of the privatization billare partners with C.C.A. cofounder Thomas Beasley in several Red Hot & Blue barbecue restaurants in Tennessee. The political clout extends to the national level as well. On the Republican side, Corrections Corporation employs the services of J. Michael Quinlan, director of the federal Bureau of Prisons under George Bush. On the Democratic side, C.C.A. reserves a seat on its sevenmember board for Joseph Johnson, former executive director of the Rainbow Coalition. The Nashville Tennessean points to Johnson as evidence that the company "looks like America.... Johnson is AfricanAmerican," the paper observes, "as are 60 % of C.C.A.'s prisoners." Johnson played a pivotal behindthescenes role earlier this year, using his political connections to help C.C.A. swing a deal to buy a prison from the District of Columbia for $52 million. It was the first time a government sold a prison to a private company, and C.C.A. hopes it won't be the last. Earlier this year, with backing from financial heavyweights like Lehman Brothers and PaineWebber, the company formed C.C.A. Prison Realty Trust to focus solely on buying prisons. The initial stock offering raised $388.5 million from investors to enable C.C.A. to speculate on prisons as real estate. Why would cities or states sell their prisons to the C.C.A. trust? PaineWebber cites the lure of what it calls "free money." Unlike many public bond initiatives earmarked for specific projects like schools or sewage systems, the broker explains, "the sale of an existing prison would generate proceeds that a politician could then use for initiatives that fit his or her agenda, possibly improving the chances of reelection." Companies building their own prisons certainly receive friendly treatment from officials. Russell Boraas invited companies bidding on a private prison to a meeting and asked what he could do to help. "I said, 'Guys, I know quite a bit about running construction projects, but I don't know much about private prisons. What are you looking for? What can I do to make this userfriendly for you?' They said it would be nice if they could use taxexempt bond issues for construction, just like the state." So Boraas allowed companies to finance construction with help from taxpayers, and a local Industrial Development Authority eventually aided C.C.A. in getting $58 million in financing to build the prison. Such deals raise concerns that private prisons may wind up costing taxpayers more in the long run. Although governments remain legally responsible for inmates guarded by public companies, firms have little trouble finding ways to skirt public oversight while pocketing public money. Instead of streamlining the system, hiring corporations to run prisons actually adds a layer of bureaucracy that can increase costs and reduce accountability. Prison companies have been known to jack up prices when their contracts come up for renewal, and some defer maintenance on prisons since they aren't responsible for them once their contract expires. Even more disturbing, private prisons have the financial incentiveand financial influenceto lobby lawmakers for harsher prison sentences and other "get tough" measures. In the prison industry, after all, locking people up is good for business. "If you really want to save money you can lock prisoners in a box and feed them a slice of bread each day," says Alex Friedmann, the prisoner at South Central. "The real question is, Can you run programs in such a way that people don't commit more crime? That should be the mark of whether privatization is successful in prisonsnot whether you keep them locked up but whether you keep them out." C.C.A. officials dismiss such concerns, confident the current boom will continue of its own accord. "I don't think we have to worry about running out of product," says Kevin Myers, the warden at South Central. "It's unfortunate but true. We don't have to drum up business." Perhapsbut Corrections Corporation and other company prisons already have enormous power to keep their current prisoners behind bars for longer stretches. Inmates generally lose accumulated credit for "good time" when they are disciplined by guards, giving the C.C.A. stockholders who serve as officers an incentive to crack the whip. A 1992 study by the New Mexico Corrections Department showed that inmates at the women's prison run by C.C.A. lost good time at a rate nearly eight times higher than their male counterparts at a staterun lockup. And every day a prisoner loses is a day of extra income for the companyand an extra expense for taxpayers. Some C.C.A. guards in Tennessee also say privately that they are encouraged to write up prisoners for minor infractions and place them in segregation. Inmates in "seg" not only lose their good time, they also have thirty days added to their sentencea bonus of nearly $1,000 for the company at some prisons. "We will put 'em in seg in a hurry," says a guard who works at the Davidson County Juvenile Detention Facility in Nashville. The prison holds 100 youths"children, really," says the guardmost of them teenage boys. "They may be young, but they understand what's going on," he adds. One day, as a 14yearold boy was being released after serving his sentence, the guard offered him some friendly advice. "Stay out of trouble," he said. "I don't want to see you back here." "Why not?" the kid responded. "That's how you make your money." * Copyright (c) 1997, The Nation Company, L.P. All rights reserved. Electronic redistribution for nonprofit purposes is permitted, provided this notice is attached in its entirety. Unauthorized, forprofit redistribution is prohibited. For further information regarding reprinting and syndication, please call The Nation at (212) 2428400, ext. 226 or send email to Max Block at