making money off the immigration crackdown
[lovely photo to go with the story]
New York Times - July 19, 2006 July 19, 2006 Immigration Enforcement Benefits Prison Firms
By MEREDITH KOLODNER As the Bush administration gets tougher on
illegal immigration and increases its spending on enforcement, some
of the biggest beneficiaries may be the companies that have been
building and running private prisons around the country.
By the fall of 2007, the administration expects that about 27,500
immigrants will be in detention each night, an increase of 6,700 over
the current number in custody. At the average cost these days of $95
a night, that adds up to an estimated total annual cost of nearly $1
billion.
The Corrections Corporation of America and the Geo Group (formerly
the Wackenhut Corrections Corporation) — the two biggest prison
operators — now house a total of fewer than 20 percent of the
immigrants in detention. But along with several smaller companies,
they are jockeying for a bigger piece of the growing business.
Corrections Corp. and Geo are already running 8 of the 16 federal
detention centers.
With all the federal centers now filled and the federal government
not planning to build more, most of the new money is expected to go
to private companies or to county governments. Even some of the money
paid to counties, which currently hold 57 percent of the immigrants
in detention, will end up in the pockets of the private companies,
since they manage a number of the county jails.
“Private companies are positioning themselves as suppliers, and are
positioned to take the majority of new beds available,” said Anton
High, an analyst with Jefferies & Company, the brokerage firm. He has
recommended that his clients buy Corrections stock.
Louise Gilchrist, vice president for marketing and communication at
Corrections Corp., said her company would have no trouble meeting the
federal government’s needs. “We believe as their demand increases,
they will need to rely on providers who have bed space available,”
she said. “The company feels it is well positioned.”
Wall Street has taken notice of the potential growth in the industry.
The stock of Corrections Corp. has climbed to $53.77 from $42.50, an
increase of about 27 percent, since February when President Bush
proposed adding to spending on immigrant detention.
Geo’s stock rose about 68 percent in the period, to $39.24 a share
from $23.36.
The increasing privatization of immigrant detention has its critics.
Immigrant advocates say health care at some centers has fallen short.
They contend that some centers have treated immigrants as if they are
criminals — restricting their movements unnecessarily, for instance —
even though many are still awaiting a ruling on their legal status.
Because those who cross the border illegally are not considered
criminals, they are not automatically assigned a lawyer. But, the
advocates say, there have been repeated instances when immigrants
have not had access to working phones to call for legal assistance.
“Private prisons have unleashed an entrepreneurial spirit in this
country that is unhealthy,” said Judith Greene, director of the
nonprofit research group Justice Strategies. “Standards are violated
on a regular basis in order to cut costs.”
The companies counter that they are living up to their contractual
obligations. “If you develop a reputation as a company that cuts
corners, you will lose your contracts,” said Steve Owen, director of
marketing at Corrections. The allegations, he added, “are completely
false.”
Immigration experts say the need for more prison space is not a
result of an increase in the number of people entering the United
States illegally. According to the Pew Hispanic Center in Washington,
the number of unauthorized immigrants arriving in this country is
down by about 50,000 a year from the late 1990’s.
Instead, the increase in spending on detention is part of a crackdown
on illegal residents living in the United States as well as an
expected increase in the number of immigrants captured as they try to
cross the border.
The government also plans to detain more immigrants, especially those
from countries other than Mexico, while they await their hearings,
instead of releasing them on their own recognizance. This effort to
end what is known as “catch and release” means more capacity is
needed immediately.
“The issue is not how many immigrants,” said Joe Onek, a senior
policy analyst at the Open Society Institute. “There’s incredible
pressure on the administration from members of its own party and from
some sectors of the population to crack down.”
Revenues for the prison management companies will grow not only
because of the rising number of detainees, but also because profit
margins are higher at detention centers than prisons, analysts say.
Last year, the Correction Corp.’s revenue from holding immigrants
jumped 21 percent, to $95 million from $70 million in 2004. Geo, the
second largest prison operator, received $30.6 million last year,
about the same as the year before.
While the companies would not comment on profit margins from their
immigration business, Wall Street analysts said that detention
centers produce profit margins of more than 20 percent.
That compares with margins in the mid-teens for traditional prison
management, they said, because prisoners are provided with more
costly services like high school degree programs and recreational
activities.
Even with the expected growth in the number of immigrant detainees,
the main source of income for the private prison companies will
continue to be revenue from state and federal governments for housing
regular inmates.
The state and local prison population totaled more than 1.5 million
last year, with about 100,000 of those held in privately managed
prisons. But the number of state and federal inmates rose by just 1.4
percent from June 2004 to June 2005, slower growth than the average
4.3 percent annual increases from 1995 to 2000.
By contrast, the number of immigrants in detention is expected to
increase by about 20 percent over the next three months alone.
Federal immigration contracts generated about $95.2 million, or 8
percent, of Correction Corp.’s $1.19 billion in revenue last year,
and about $30.6 million, or 5 percent, of Geo’s $612 million total
income.
In the first quarter of 2006, Corrections Corp.’s detention revenue
rose to $25.5 million. The federal immigration agency is now the
company’s third-largest customer, after the federal Bureau of Prisons
and the United States Marshals Service.
The detention market is projected to increase by $200 million to $250
million over the next 12 to 18 months, according to Patrick Swindle,
a managing director at Avondale L.L.C., an investment banking firm
that has done business with both Geo and Corrections Corp. He said
that a company’s capacity would play an important role in how much of
the market it would be able to capture.
The company “currently has 4,000 empty beds in their system,” Mr.
Swindle said. “They are bringing on an additional 1,500 beds within
the border region.”
“Reasonably, about 3,000 to 4,000 beds could be made available” for
immigrant detention, he said.
Having empty cell space that can be made available quickly is
considered an advantage in the industry since the government’s need
for prison space is often immediate and unpredictable. Decisions
about where to detain an immigrant are based on what is nearby and
available. Immigration officials consider the logistics and cost of
transportation to the detention center and out of the country.
“We can use the beds whenever and wherever we like,” said Jamie
Zuieback, a spokeswoman for United States Immigration and Customs
Enforcement. “We are funded for a certain number of beds but there
are many beds around the country that are available and it depends
where and when we need them if we use them.”
While companies do not release how much space they currently have
available, analysts estimate that Geo has about 1,500 empty places.
To increase capacity, the company announced in June that it was
building a 576-inmate expansion of the 875-inmate Val Verde
Correctional Facility it owns in Del Rio, Tex.
George C. Oley, Geo’s chief executive, said in a statement at the
time of the Val Verde announcement: “We are moving forward with the
expansion of this important facility in anticipation of the expected
increased demand for detention bed space by the Federal Government.”
Despite the two companies’ dominance, they face competition from
smaller players in the corrections business. A new federal detention
center set to open in Texas at the end of July will be run by the
Management and Training Corporation, a privately owned company based
in Utah.
The Cornell Companies, based in Texas, currently operates two centers
that hold detainees. It is the third-biggest private corrections
company, though significantly smaller than Corrections Corp. and Geo,
controlling just 7 or 8 percent of the market, according to Mr. Swindle.
“What’s great about the detention business,” Mr. High of Jefferies
said, “is not that it’s a brand-new channel of demand, but that it is
growing and significant.”