Sunday, December 18, 2011

Will Harris County soon privatize jail, let Corrections Corporation of America manage it?

Grits had noticed last month that the two largest private prison companies - the Geo Group and Corrections Corporation of America (CXW) - had been said to have "bearish technicals" by analysts at Market Investment Watch, which jibed with Grits' past assessments that both firms (but especially Geo) were excessively laden with debt. So I was surprised to see that a Zacks.com analyst had recently rated Corrections Corporation of America a "buy" stock. Since Grits mentioned the recent negative assessment, I decided I should report this positive one, as well.

Quite remarkably, an accompanying article from Zacks said part of the company's optimism stemmed from the fact that they're currently "awaiting the decision" on a  "managed-only opportunity for about 9,000 beds in [the] Harris County, Texas" jail. I knew Harris County had agreed to "study" privatization, but "awaiting the decision"? Does Corrections Corporation of America really believe they may soon manage the Harris County Jail under contract? Is that delusional, or do they know something the rest of us don't?

Perhaps they do. According to a knowledgeable source in Harris County, the Office of Purchasing and Management Services told county commissioners they couldn't assess potential savings without doing an actual request for proposals (RFP), so they did one. Bids are sealed, said my source, and nobody is supposed to know who submitted one. But clearly from the Zacks report, Corrections Corporation of America put in a bid and is telling investment analysts the contract might boost their bottom line in the near term. That seems a tad presumptuous.

Grits still thinks the two largest private-prison firms are risky investment bets for two reasons: Both are too overloaded with debt, and I think (perhaps wishfully) we may be on the cusp of seeing the "incarceration bubble" burst. That's particularly true in the industry's main growth area - immigration detention - so I wouldn't endorse a long-term favorable assessment for these stocks.

Certainly, of the two, CXW's situation appears far preferable to Geo's, which really is operating on an extremely over-leveraged basis (i.e., they issued way too much debt to gobble up competitors instead of winning new contracts through competitive bidding). If Geo didn't look like such a dog, I doubt CXW would look nearly as good to Zack's analysts except by comparison. But I question their long-term growth potential when crime rates are declining, states are de-incarcerating, both companies have spotty health and safety records, and folks like Newt Gingrich and Rick Perry are out on the campaign trail touting comprehensive immigration reform.

Even more specifically, I don't think Harris County is likely to privatize its jail anytime soon, to the extent that was cause for extra optimism by analysts. When it was discussed last, the votes didn't seem to be there. Plus any savings would come from cutting guard pay and benefits, and that won't happen without some sort of political rebellion/retaliation from the folks who currently staff the facility. I know Grits won't be the only one caught by surprise if Santa brings CXW a new contract anytime soon to run the jail in Harris County.

6 comments:

Jim said...

Investors can make their money any way they wish, but profiting from the incarceration of their fellow citizens is wrong, just plain wrong.

This will do nothing to solve the overcrowding issue, but voters don't seem to care. It's too easy to blame the Sheriff(for now) and it's a tuff-on-crime, red meat issue for their base.

Karma. What goes around...

Anonymous said...

GFB-- I am going to gently disagree with you that CCA is being presumptous about securing the bid.

There has been/is a quiet and surging lobby effort to privatize prison/jail industry. Especially in Texas.

And investors are being pointed to these private prison companies due to the performance of their stocks. On paper they look very attractive to have in a portfolio.

And unfortunately, despite all of the laws requiring government buisness to be transparent, IT AIN'T. You can bet that CCA knows something that "we" aren't even aware of yet, and I will go a step further by saying that it is a movement that will be much larger than Harris County.

These companies are pitching themselves FALSELY as the solution to downsizing government. But that is not true. They use government $$ to fund their set up and then make bank off inmate commissary and by competing in the open marked with cattle raising, fish farms etc, etc.

Hell that is a guaranteed winner on a stock pick. Think about it, company that doesn't have to front any money to start up and then shows ungodly profits on goods sold on the open market.

The lie is that Taxpayers end up paying just as much to fund these guys and then can't get out of the deal once prisons are handed over to privatization.

THIS NEEDS TO BE WATCHED CAREFULLY FOR THE REASON YOU STATED... PEOPLE SHOULD NOT BE INPRISONED TO GENERATE PROFIT FOR STOCKHOLDERS.

Anonymous said...

This is nothing more than slave labor. Do inmates fall under any employment laws. They are working for private industry aren't they?

As employers, the private prison companies should have to provide health insurance at their expense. This isn't fair for non-prison companies who have to pay all the expenses to produce goods competing against prison produced products.

Anonymous said...

Let's face it, the Harris county GOP controls what will eventually happen regardless of the laws involved. We have all seen cases get dropped or thrown out by a judge for some ridiculous reason or another, and all the while we knew it was a sham. Politics, just like when the Texas Supreme Court Justice David Medina and his wife were indicted on arson charges. Two different GJ's indicted her, and two different district attorneys dropped the charges. My feelings on this is it was all designed to destroy Lykos' reelection chances. And once that is accomplished, this will all disappear no matter what laws she may or may not have broken. Same goes for her soldiers. While it is exciting to ponder, speculate, and watch, we all know deep down what will happen in the end. Sometimes, especially when big money or politics are involved, we are just kidding ourselves if we think justice will actually prevail. It's all a joke, and the jokes on us.

Anonymous said...

first this now, gifts for inmates and their families. good times in the County. Nice. http://abclocal.go.com/ktrk/story?section=news/local&id=8474147

Anonymous said...

When you have literally thousands of inmates, many who are in poor health and homeless, some will die. How many are actually from abuse? as far being contained in small cells, what actions caused that. It is all political and all the citizens, including the inmates, are paying for it. It was not by chance that a surprise visit by state inspectors happened 2 days before the budget was voted on, causing the Commissioner's Court to approve the Sheriff's hiring proposal. It is not practical to hire underpaid, untrained private companies who have never run a facility with half of the inamtes as Harris County. Read about the number of lawsuits, from hiring sex offenders to supervise juveniles to slow response times in inmate altercations. The training that Harris County does is extensive compared to these small private companies. Research alone shows the taxpayers will lose so much money laying off over 1200 people when tax money begins to pay unemployment, medicate and over 1200 different retirements. Non of this makes sense. And why, for a political war. How safe will the streets be when they move inexperience deputies from the jail and move them to patrol. basic reasoning will tell that when you pay people less money the quaility of work will decrease and training. In this situation, safety for and inmates will suffer. Never has anyone in the counrty attempted converting a facility this big. You will pay out more than the savings in lawsuits. How economical is that?