Massachusetts Sen. and presidential candidate Elizabeth Warren this month proposed eliminating federal use of private prison companies. She’s not alone: Democratic competitors including Joe Biden, Bernie Sanders and Beto O’Rourke also have previously proposed measures restricting private operation of public prisons.
Wall Street analysts don’t expect the issue to fade. “We expect that the majority of other contenders will buy into her policy, and that ending private prisons could become a key Democratic position in the 2020 race,” wrote Height Securities analysts Hunter Hammond and Clayton Allen in a note this week.
Pressure is growing in the private sector, too. Bank of America today became the latest to say it’s divesting itself from private prison and immigration center companies following a similar move by JP Morgan earlier this year.
As the first of two groups of Democratic contenders take the debate stage tonight, here’s a look at the issue:
Trump reverses Obama policy
In 2016, President Barack Obama signed an order designed to reduce the use of privately run prisons after the Justice Department concluded they aren’t as safe or secure as government-run facilities. President Donald Trump reversed that order when he took office, resulting in a boon for prison companies, including Geo Group and CoreCivic, the two biggest prison operators.
The two companies’ share prices fell after Warren’s announcement.
How big a business is it?
Some 2.3 million people are held in correctional facilities in the U.S., including 109 federal and 1,719 state prisons, according to the Prison Policy Initiative, a think tank. Depending on who’s calculating and what they include, between 8% and 9% of U.S. prisons are run by private entities.
Geo Group noted it doesn’t manage any facilities along the Southwest U.S. border or those housing unaccompanied immigrant minors. CoreCivic also strikes a similar theme on its website, saying it doesn’t operate shelters for unaccompanied minors or children that aren’t under supervision of a parent, and that it doesn’t operate border patrol facilities.
Lucrative federal contracts
About 50% of Geo Group’s revenue in 2018 came from federal agencies, according to the company’s annual filing with the U.S. Securities and Exchange Commission. Immigration and Customs Enforcement accounted for roughly 20% of total revenue, the federal Bureau of Prisons 12% and the U.S. Marshals Service 11%, according to Geo Group’s annual report.
According to CoreCivic’s annual SEC filing, federal agencies made up 48% of its revenue in 2018, the same as 2017 but down from 52% in 2016. ICE facilities accounted for 25%, U.S. Marshals 17% and the Bureau of Prisons 6%.
Bank of America divests
Bank of America today said it will “exit the relationships we have with companies providing prisoner and immigrant detention services for federal and state governments, as expeditiously as possible.” The move follows a similar one by JP Morgan earlier this year. It comes after “intensive engagement with the limited number of clients” that provide such services, the bank said.
“The private sector is attempting to respond to public policy and government needs and demands in the absence of long standing and widely recognized reforms needed in criminal justice and immigration policies,” the bank said.
Geo Group said it doesn’t see any impact on its financing resulting from BofA’s divestment.
“Bank of America’s decision is about politics, not about the company we are,” Amanda Gilchrist, CoreCivic’s public affairs director, said in an email to CBS MoneyWatch. “Bank of America knows we care deeply about doing business in an ethical, responsible way, and that we have stepped up as a leader in helping address some of the most serious challenges facing our country.”
She added that CoreCivic looks forward to discussing with BofA how it came to its decision to divest.
The companies’ response to Warren
In a statement posted to its website this week after Warren released her plan, CoreCivic noted the reasons the government has turned to private prisons: money and resources.
“Our company helps keep communities safe, enrolls thousands of inmates in reentry programs that prepare them for life after prison and saves taxpayers millions,” CoreCivic’s statement reads. As an example, CoreCivic points to a facility in Dilley, Texas, that opened in 2014 that provides migrants with amenities including gyms, parks, a playroom and a library.
“It’s unfortunate that politicians advocate against these benefits without themselves providing any solutions to the serious challenges our corrections and detention systems face,” CoreCivic’s statement said.
Geo Group called Warren’s announcement “a continuation of politically motivated attacks based on false narratives” in an emailed response to CBS MoneyWatch. It added that the company’s facilities are “highly rated by independent accreditation entities” and are operated as they were under the Obama administration.
The company said: “We would welcome lawmakers, including Senator Warren, to visit our facilities, speak with our employees and hear directly from those individuals in our care.”
Big spenders in Washington
Private prison companies gave a record $1.6 million to candidates and other interests in the 2016 election cycle, according to OpenSecrets, which tracks government filings of campaign finances. That’s almost triple 2014’s level and more than double the donations given during the 2012 presidential race, according to OpenSecrets. Geo Group accounted for most of that, at about $1.48 million.
In the first quarter of this year, CoreCivic spent $370,000 on Washington lobbying, and it retains at least seven different law firms or lobbying groups, Politico reported this week, citing regulatory filings.
Geo Group gave $250,000 to Mr. Trump’s inaugural committee and has held its annual leadership conference at the Trump National Doral Golf Club. The company spent $370,000 in the first quarter and retains nine different firms or entities, according to Politico.
Structured for low taxes
The two biggest for-profit prison companies are organized as real estate investment trusts, known as REITS. Under the structure, 90% of the company’s taxable income must be distributed to shareholders, and the company doesn’t pay federal taxes on those gains.
CoreCivic, formerly Corrections Corp. of America, and Geo Group each switched to the REIT structure in 2013, according to regulatory filings. The structure makes it more advantageous for the companies to own their facilities rather than just manage them.