The Corrections Corporation of America
(CCA) is the industry leader in private prisons. It was the brainchild of a West
Point cadet and Harvard Business School grad who received backing from the same
investment firm that gave us Kentucky Fried Chicken. During the 1980s, with
crime on the rise and 'get tough' well into its second decade, a prison
franchise sounded like a good idea in what the business world calls a 'rapidly
expanding sector'.
However, even with a full fledged
imprisonment binge, CCA has
had cash
flow problems and considered issuing junk
bonds. Their effort to spin off a Real Estate Investment Trust (REIT)
to avoid paying some federal taxes took several bad turns, ending in a
series of losses, including class
action lawsuits by shareholders and more than $30 million in 'strategic
investor fees' and other costs for corporate restructuring. It's no
wonder private prisons don't save
money, even though 73% of the private prisons in a recent study
received a 'development incentive' totaling $628 million in tax free
bonds, low cost construction financing, property tax abatements - which
means less money for local schools - and infrastructure subsidies
(water, sewer, utility hookups or access roads). See Ch
3 <pdf> of Jail
Breaks: Economic Development Subsidies Given to Private Prisons.
Their stock had
been trading for $45 in '98, but bottomed out at $0.18 a
share, leading an analyst to comment "the company has taken a dive that would make a dot-com
blush" However, the same
report indicates that "we expect the industry to have more growth opportunities in difficult economic
times."
College campuses boycotted Sodexho-Marriott
because its "close ties to the scandal-ridden Corrections
Corporation of America make it an unfit provider of campus dining
services". Yes, that's the Marriott as in hotels and food
service because private prisons work on an occupancy rate basis
(higher vacancies, less profit) and they have thousands of people who
require regular feeding. The campus movement pressured Sodexho-Mariott
to divest itself of CCA, but they have retained an operating interest
in British & Australian private prisons. [MORE]
