Wall Street thinks economic downturn will boost private prison fortunes

Sometimes it may seem like I'm picking on this or that county when they pursue jail overcrowding solutions that aren't in the taxpayers interests, but the truth is these issues aren't really local or even statewide, but are national in scope. After he left a note in the comments, I put in a call to Grayson County Judge Drue Bynum's office, though I haven't heard back yet. He's the fellow proposing the privatization plan that he says will let Grayson County build a new jail with no taxpayer investment

In the meantime, though, I noticed this item over at Think Outside the Cage pointing to a Reuters story that tells us Wall Street types are hoping more local officials like Judge Bynum decide it's cheaper to subsidize a private company to do the government's business than to do it themselves. Reports Reuters:

Government belt-tightening could be a boon for a range of mid- and small-cap names whose share prices have in many cases fallen as far as more cyclical companies that really do suffer in a downturn. And, analysts say, that could present some stock market opportunities.

The housing slump has hurt public budgets, as depressed property values and lowered homeowners' equity cut proceeds from real estate and sales taxes.

In 2009, 25 states are facing shortfalls, according to the Center on Budget and Policy Priorities. That pain trickles down to local governments, which increasingly look to privatize services they traditionally have performed.

By outsourcing a prison, states can save as much as a quarter of its cost, Avondale Partners analyst Kevin Campbell said, which is why private prison companies boosted their market share to 7.2 percent in 2006 from 6.5 percent in 2001-2003.

States might begin a new wave of prison privatization sooner than in the 2001 recession because the United States is still suffering from prison overcrowding as a result of that last downturn, Campbell said.

So at a national level, private prison companies and Wall Street investment analysts view the housing market downturn and pressure on state and local government as a marketing opportunity. Great! If that's true we'll see even more local officials who want to subsidize private companies instead of just pay for basic taxpayer services.

I don't believe for a second that private prisons can operate at 25% less cost than government and turn a profit, particularly for county jails where they must still meet requirements by the Texas Commission on Jail Standards like everybody else. That's a marketing pitch, not an assessment of actual contract costs (or else a reflection of cherrypicking the least dangerous, least costly inmates). I'm not opposed to private contracting as a crisis management option, but it makes no sense to put your county in a position where a constitutionally required service - the local county jail - is owned and controlled by a private business.

The private prison industry spent more than a million dollars lobbying Texas officials in 2007, reports Bob Libal over at Texas Prison Bidness. Expect that number to increase if the economy tanks, if it's true that nationally these companies view such indicators as a marketing opportunity.

Counties cannot contract away liability for the jail nor its expenses, the can only contract away control. Private prisons low-ball up-front bids and underpay employees to cut costs, but that only goes so far. After the initial investments are made, when the contract comes up for renewal, the contracting agency is pretty much stuck with the decision, having put all its eggs in the private company's basket. And if anybody sues, the taxpayers are still the ultimate deep pockets who are accountable.

When counties have enough money to function properly, the economics of private jails make little sense. It's when times are hard, apparently, that the idea of getting a new jail for free starts to sound attractive, but if there's no such thing as a free lunch, there's damn sure no such thing as a free jail.