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Why the DOJ’s Announcement Poses An Existential Threat To Private Prisons

Fear of a domino effect.

As reported by the Washington Post, the Department of Justice announcement t0 end the use of private prison companies was based on the findings in a recent inspector general’s 80 page report on private contract prisons

Deputy Attorney General Sally Yates explained:

“The fact of the matter is that private prisons don’t compare favorably to Bureau of Prisons facilities in terms of safety or security or services, and now with the decline in the federal prison population, we have both the opportunity and the responsibility to do something about that”

Only a matter of hours after the news broke, the stocks for the two titans of private prison industry, Corrections Corporation of America  and the GEO group, plummeted by almost half.

By end of the day’s trading, the prison companies were gutted: “CCA  shares dropped 35% to close at $17.57. It was the lowest close for the stock since July 31, 2009. GEO…shares fell 40% to close at $19.51.”

Yet the percentage of potential loss from contracts with the DOJ’s Bureau of Prison’s only accounted for 7% of CCA’s current revenue, and 11% in Fiscal Year 2015. As such, one is left to wonder why CCA and GEO lost close to 40% of their value in one day despite only losing a small percentage of future revenue from BOP contracted facilities.

CCA and GEO’s statements to the financial press give lead us close to the answer:

The Inspector General’s report used to buttress this decision has significant flaws,” said Jonathan Burns, Corrections Corp. director of public affairs, in emailed comments.

“The findings simply don’t match up to the numerous independent studies that show our facilities to be equal or better with regard to safety and quality, or the excellent feedback we get from our partners at all levels of government,” Burns said.

Burns added it’s important to note that the DoJ’s announcement only applies to 7% of its business, and said the company is shifting toward a real-estate-only focus where the government provides its own staff and management.

“At the federal level, our facilities have a proven track record of providing cost-effective, high quality services for those entrusted to our care,” said GEO spokesman Pablo Paez in emailed comments. “While our company was disappointed by today’s DOJ announcement, the impact of this decision on GEO is not imminent.”

One must deconstruct Burns’ response.

First, CCA attacked the findings of  Inspector General’s report. Second, CCA emphasized that losing the BOP contracts was a smidgeon of a loss of total revenue. But CCA is terrified that that 7% will mushroom to

In doing so, CCA pleaded with  its remaining clients  “to not even look  into ending your contracts with us because the Department of Justice’s Inspector General is full of shit and the Department of Justice’s leaders are morons for believing it. Trust us, even without facts.”

CCA’s annual report for Fiscal Year 2015 shows that in fact the company’s biggest sources of revenue are with state and local governments: For 2015, the Bureau of Prisons accounted for 11% of total revenue; the U.S. Marshals, 16%; Immigration and Customs Enforcement; 24%; Management for State Correctional Facilities, 42%; and California Department of Corrections, 11%.

Let’s name names:

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Will the States of California, Arizona, Hawaii, Georgia, Montana, New Mexico, Ohio, Oklahoma, Tennessee, Wyoming, and Florida read the inspector general’s report and conclude, like the DOJ, that they should end the use of private prisons?

The shareholders of CCA and GEO’s thought so when they abandoned ship in epic numbers.

 

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