Saturday, August 25, 2012

Private prison roundup: Investors betting on immigration detention boom continuing

I wanted to point out a few items related to private prisons that came out while Grits was on holiday. First, the media seems to have finally caught on to a trend this blog prophesied six years ago in a post titled "The Coming Immigration Detention Boom." See:
As is usually the case when it comes to law enforcement and prison pork, this trend is a bipartisan one, supported as much or more by the Obama Administration as his Republican predecessor.

Via the blog Texas Prison Bidness, we find coverage of efforts by advocates to combat the unholy alliance of xenophobia and corporate welfare in an item titled, "Groups working to Fight Private Prison Expansion and Immigrant Detention Host Webinar."

Here in Texas, the GEO Group's bid to operate a forensic mental hospital (in fact, they were the only bidder) has drawn criticsm; see: 
See related Grits coverage of the project here, here and here.

This business reporter from the Palm Beach Post commented on the growth in private prison revenues at the two largest players in the market: The GEO Group and Corrections Corporation of America, noting the recent dropoff in GEO stock despite rising revenues:
GEO Group’s revenue — which has risen every year for nearly 20 years — and steady profits make it a financial success story. It’s the second-largest operator of private prisons, trailing only Corrections Corp. of America (NYSE: CXW) of Nashville.

But investors clearly prefer CCA. While GEO Group’s revenue is similar to CCA’s, CCA is twice as profitable, and CCA’s market capitalization is twice GEO Group’s. A $10,000 investment five years ago in GEO Group would have dwindled to $8,667, while the same amount invested in CCA would have grown to $13,237.
The writer attributes the difference to scandals and lawsuits involving the GEO Group, which is certainly part of it, but Grits believes the underlying reason for the stock differences arises from more pedestrian sources. Both companies are overloaded with too much debt, but GEO's debt to equity ratio is higher and CCA enjoys greater value from real estate holdings from facilities it owns, whereas the GEO Group typically manages state-owned facilities instead of owning the units themselves. The current earnings boom is tenuous and could evaporate quickly if Congress ever gets around to passing comprehensive immigration reform. But real estate holdings could be spun off in that event, making CCA more valuable from an investor's perspective. Grits would like to think investors would devalue publicly traded private prison stocks because of human rights abuses, but in my heart of hearts, I doubt it.

MORE: A commenter pointed out this interesting exposition from Crooks and Liars of CCA's real estate holdings as they relate to Bain Capital and presidential candidate Mitt Romney. Whatever your partisan leanings, the detail on CCA's real estate investments (and methods for concealing property-related wealth from taxation) provide greater detail and insight into why the company has retained greater value than GEO.


gravyrug said...

An interesting article on the subject of CCA:

Yea, it's a little slanted as an attack on Romney, but the info on the financial sleight of hand that CCA pulled is important.

dallasdemented said...

Current immigration strategy is also fueling another set of expenses. Under a 2010 decision by the US Supreme Court, hundreds, perhaps thousands, of immigrants facing deportation due to violations of state criminal laws have filed challenges to the validity of their guilty pleas based solely on receipt of bad (or no) advice from their attorneys about whether they would be deported as a result. This has markedly increased caseloads in state trial courts (under articles 11.07 and 11.072 of the Texas Code of Criminal Procedure here in Texas). The local taxpayer picks up the tab, because Congress made so many crimes "deportable offenses" in the 1996 legislation, and withdrew all discretion to consider circumstances of the individual immigrant.

Anonymous said...

Open borders!

Gritsforbreakfast said...

10:28, I'd settle for open minds.

muttkat said...

If the Nobama administration would secure our borders, then we wouldn't have all these illegals here & wouldn't have to worry about the costs of deporting them. Being he wants global govt, to combine Mexico, Canada & US & that he treats illegals better than America's own citizens then besides providing welfare, homes to the illegals, you know its for the votes, then we know who pays for it. Isn't it cheaper to secure the border than to provide these services in which most taxpayers are against except for the rest of the illegal familia here, than to have to pay later?