The Future Of Private Prisons
Covid Threatens Dividends, Forcing Investors To Grow A Conscience?
In the aftermath of the George Floyd murder and global #BlackLivesMatter protests, many politicians are beginning to propose policies aimed at eroding & addressing systemic racism and police brutality.
Police brutality’s roots in white supremacy are inextricably tied to the School-To-Prison pipeline which is fed by lobbyists from the private prison industry to drive mass incarceration across the country. And now there’s news of massive Covid-19 outbreaks in prisons across the US.
Sounds like a problem for prison wardens and their investors.
What is a “Private Prison”?
The world’s first private prison company, Corrections Corporation of America (CCA), was created in Nashville, Tennessee in 1983. Their plan was simple: to sign contracts with local, state, and federal courts/prisons to operate existing prisons or open new correctional facilities.
Their sales pitch was based around costing the average taxpayer less money while also creating new tax revenues. However as data shows, private prisons offer little savings for government spending. The real reason they were able to thrive involved the high arrest rates in response to the War on Drugs, leading to many penitentiary centers being overfilled.
Independent detention centers such as CCA generate revenue per prisoner. There is no incentive for them to decrease the prisoner count, thus they deny parole and often serve infractions to inmates in order to have them stay longer.
In it’s 37 years of existence, CCA has faced countless accusations of sexual misconduct, inhumane treatment, and racial disputes involving prisoners. Yet they continue to operate and repeatedly escape facing charges from authorities. By having investors and backers who are politicians, they’ve been able to withstand allegations and changed their name in 2016 to CoreCivic in attempts to hide their blemished history.
Their most recent earnings report showed a yearly revenue of $1.91 billion. Currently 75% of US’s detention centers are owned or operated by privatized prison companies, such as CoreCivic and The GEO Group.
The 2016 Scare & Banks Divesting
Then-Deputy Attorney General Sally Yates announced in March, 2016 that the Federal Government would begin to phase out private prisons. CoreCivic’s stock (CXW) dropped almost 62% during 2016 Q2.
The Trump administration took hold of the White House and rescinded the comments made by Yates. Six months later in 2017, CXW returned to pre-announcement levels.
However, changing your name doesn’t change your practices. CoreCivic continued to receive allegations about improper treatment of inmates as well as breaking up families. When Trump stance on a firm border took hold, attention went immediately to how undocumented people were being treated.
A coalition of 250 organizations united to form “Families Belong Together”. The group’s petition garnered over 1 million signatures, which urged banks to divest from the private prison sector.
Then in March, 2019, J.P. Morgan Chase and Co. announced they would no longer finance private operators of prisons or detention centers. Soon many banks followed suit and CXW has fallen 40% since June of 2019 (32% for pre-pandemic levels).
Impact Of #BlackLivesMatter
In light of recent protests, petitions, and activists calling for the defunding of police, it’s reasonable to figure it will spill over into the correctional facility sector.
If less funding goes into policing and more towards social workers to fix problems in crime-ridden communities, there’s a potential for a reduction in arrests (and the killing of unarmed Black civilians).
As stated before, the funding for private prisons is based on inmate population. Not to mention movements for defunding prisons would likely follow if the charge for divesting in police succeeds.
Additionally, the catalysts for privatized detention centers are dwindling. The war on drugs is nothing like it was in the 1980s as substances that were once illegal are now being sold over-the-counter or on a prescription basis.
Covid-19 outbreaks have caused private prison shares to plummet as the costs of increasing health & safety are heavily weighing on profits. Profits are in fact so much in peril that CoreCivic recently announced a suspension of its dividend — which was roughly 10% to 20% over the past 5 years.
Without dividends, private prison companies are asking companies to invest in their long-term growth. That’s a different pitch than a stock who’s dividends could double your money every 5 years. It is hard to invest in the growth prospect of private prisons… particularly as mass incarceration and systemic justice reform are becoming hot topics for politicians & their voters.
