Crime bill boosts already healthy private prisons

August 29, 1994|By Bloomberg Business News

WASHINGTON -- While President Clinton, gun owners, law officials and others lobbied furiously for and against the crime bill, the people who build and operate private prisons were too busy to pay much attention.

They're in the midst of a building boom, and their future growth and profits seemed guaranteed long before Congress finally passed the record $30.2 billion measure.

"We didn't have any lobbyists on Capitol Hill," said Peggy Lawrence, a spokeswoman for Corrections Corp. of America, the nation's largest private prison builder and manager.

"We already have a fairly full plate. And besides, we know that one way or the other more funds would have to be found for prisons."

True enough. The crime bill that Congress finally passed this week contains $9.9 billion to help states pay for new prisons, which are popping up at a rising rate from Maine to California and almost every state in between.

The inmate total nationwide is now about 1.4 million, up 55 percent from about 900,000 in 1987, and the number is sure to grow.

The Nashville, Tenn.-based Corrections Corp. of America is building four new prisons now to add to the 17 prisons it operates or manages in the United States today.

With crime the public's No. 1 concern, and with politicians calling for putting more thugs behind bars, Corrections Corp.'s spokesman Ms. Lawrence said, "We have great growth prospects."

The company's income rose 33 percent during the first six months of 1994 compared with the same period last year. A $2 million one-time interest payment caused a loss in 1991, but the company rebounded by focusing on larger and more profitable facilities.

Corrections Corp. shares rose 11 percent in the heat of the crime bill debate, climbing from $15.75 on Aug. 16 to a one-year high of $17.50 Wednesday. They closed Friday at $17.25 a share.

Corrections Corp. emerged a decade ago as one of the first of a new wave of for-profit prison operators and now has about 20 competitors.

One of them is Wackenhut Corrections Corp., which runs a close second to Corrections Corp. in the for-profit prison business. Together, they house half of the 44,000 inmates housed at prisons run by private outfits.

Like Corrections Corp., Wackenhut did not lobby for the bill either, but kept tabs on developments from its offices in Coral Gables, Fla.

"I always thought it was inevitable Congress would have to pass some sort of crime bill because crime is the public's top concern," said George Zoley, the company's president and chief executive.

Wackenhut, too, is doing well. So far this year, the company won contracts to build a 771-inmate facility in England, a 750-inmate prison in Florida and four 1,000-inmate facilities in Texas, one of them for juveniles.

Wackenhut announced second-quarter net income of $416,000, an increase of 139 percent over the same period last year.

Second-quarter per share earnings were 7 cents compared with 3 cents a year ago.

"This is a brand new and rapidly emerging business where the need far outstrips our resources," Mr. Zoley said.

Wackenhut shares reached a high of $13.875 a share on Wednesday from $9 when they first went public in July. The stock closed at $13.625 on Friday.

Currently, just 13 states -- including Maryland, Texas, California and Florida -- have privately managed correctional facilities, although 36 states permit them.

About 2 percent of the nation's inmates are in such facilities.

Yet projections are that more states will be turning to private management companies to run their prisons, encouraged in part by studies showing that private industry, with larger and more efficient prisons, can house inmates up to 15 percent less expensively than government.

"Private prisons are an idea whose time has come and whose use is accelerating rapidly," said Prudential Securities analyst Lincoln Werden in giving Wackenhut shares a "buy" rating last week.

Since 1981, the number of state prisons -- privately and publicly run -- have doubled to more than 1,300. That's still not enough.

About 40 states are under court orders to ease crowding, and 30,000 people convicted in state courts of violent crimes were released last year without spending a day behind bars.

"Not one day! Why? Because we have no room for the new guys," Sen. Joseph R. Biden Jr., a Democrat from Delaware, railed on the Senate floor in calling for passage of the White House-backed measure.

Democrats and Republicans agreed more prisons are needed. And the crime bill would build 125,000 prison cells over the next six years.

There are plenty of critics of private prisons. Public-sector unions seem them as a threat to their jobs. Civil liberties advocates fear they are less accountable.

Yet many tax-weary public officials and citizens seem to like the idea of private prisons, and the bill approved by Congress permits the new federal funds to be used to build them.

Ted Goins, an industry analyst with Branch, Cabell Co. in Richmond, Va., agrees.

"Less than 3 percent of the market share is now held by private companies that have shown that they can do the job better and cheaper than the public sector," Mr. Goins said.

"Do I see a bright future for these guys? Absolutely, yes."

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