Inside the Belly of the Beast: Correctional Corporation of America and the Recession

Much of what we've written about this year has to do with the scaling back of the punitive project because it has become financially unsustainable. We have come to call that process humonetarianism, and support it, with some reservations, as a practical platform for reform. But not all post-recession policymaking has been about reversing the punitive pendulum. Some of it is about increasing profits.

The main, but not by any means the only, beneficiary of these lean times, is Correctional Corporation of America, the largest non-governmental prison operator in the nation. Its shares are traded publicly, at $9 per share, and, while it is organized as a traditional for-profit corporation ("C-corporation") it is examining the possibility of reorganizing as a Real Estate Investment Trust, which will mean special tax considerations and high yields for investors.

CCA institutions - of which it operates 67 and owns 49 - are located in 20 states and in DC (6 of their institutions are, at this point, vacant). After an initial period of time, population in its private institutions averages 89%. A minimum occupancy is often, albeit not always, mentioned in its contracts with the states to whom it provides services. The business model is structured around the concept of a "per-diem", that is, the state pays a price per-inmate-per-bed-per-day. This is the average per-diem for all facilities (you'll note differences in price, which stem from the fact that CCA-owned and managed facilities imply facility costs that CCA needs to pay even if it stays vacant):

		06/12 – 09/12	06/11 – 09/11	01/12 – 09/12	01/11 – 09/11	FY 2011	FY 2010
Combined Per Diem Averages, All Facilities	Revenue	$59.19	$58.62	$59.16	$58.76	$58.48	$58.36
	Expenses	$41.34	$40.51	$41.83	$40.20	$40.15	$40.16
	Operating Margin	$17.85 (30.2%)	$18.11 (30.9%)	$17.33 (29.3%)	$18.56 (31.6%)	$18.33 (31.3%)	$18.20 (31.2%)
Owned and Managed Facilities	Revenue	$67.25	$66.51	$67.22	$66.54	$66.68	$66.30
	Expenses	$44.06	$42.83	$33.91	$42.50	$42.47	$42.48
	Operating Margin	$23.19 (34.5%)	$23.68 (35.6%)	$22.77 (33.9%)	$24.04 (36.1%)	$24.21 (36.3%)	$23.82 (35.9%)
Managed Only Facilities	Revenue	$40.30	$40.70	$40.22	$40.93	$40.39	$39.60
	Expenses	$34.98	$35.22	$35.66	$34.93	$35.05	$34.69
	Operating Margin	$5.32 (13.2%)	$5.48 (13.5%)	$4.56 (11.3%)	$6.00 (14.7%)	$5.34 (13.2%)	$4.91 (12.4%)

Who are CCA's main customers? Well, the federal government, for one. Revenues from federal clients comprise 43% of CCA's total revenue for the years 2010 and 2011. But of the states that contract with CCA, California is a major contributor, providing CCA with 13% of its management revenue. 

How can that be, you might ask? After all, CCA does not have institutions in California, right? After all, CCPOA flexed its union muscles to drive CCA out of California. Well, that is true. California houses its inmates in institutions outside the state: La Palma and Red Rock in Arizona, Tallahatchie County in Mississippi, and North Fork in Oklahoma. Similarly, Hawai'ian inmates are housed in two CCA institutions: Red Rock and Saguaro, both in Arizona. Here's a promotional video in which CCA promotes Saguaro as an institution "uniquely fitted to Hawai'i inmates' needs". You will, of course, immediately note the savings pitch:

The story appears much less rosier in this newspaper article about how women inmates from Hawai'i fared at a CCA institution in Kentucky.

CCA is doing very well. As of the close of the market on Nov. 9, 2012, its stock was trading at $33.67 per share. With 100.05 million shares outstanding, the market cap sits at 3.37 billion dollars. It is considered slightly less risky than market, but riskier than industry average. CCA's CEO and Predisent, earned $3,696,789 in basic compensation. The salaries of other high-ranked corporate officers are also impressive, and have risen considerably between 2010 and 2011. Its income, as per the following table, has increased dramatically since 2001. 

FY ending Dec. 31	Net Income	No. facilities Owned and Managed	No. Managed Only	No. Leased to Third Party Operators
2011	$162,510	46	20	2
2010	$157,193	45	21	2
2009	$154,954	44	21	2
2008	$ 150,941	43	20	3
2007	$133,373	41	24	3
2006	$105,239	40	24	3
2005	$50,122	39	24	3
2004	$61,081	39	25	3
2003	$126,521	38	21	3
2002	($28,875)	37	23	3
2001	$5,670	36	28	3

Despite a slight decline in occupancy (from 95% occupancy in 2005 to 89% occupancy in 2012), the overall number of beds CCA has and leases to states has increased, which explains the increase in income. 

CCA procures political good will through extensive donations and lobbying. Between 2003 and 2012, it contributed $2,161, 004 to political campaigns and ballot measures. Like CCPOA, CCA donates to both Republican and Democrat candidates (albeit twice as much to the former than to the latter.) Its main arena of contribution is California. where among other propositions it supported 2008 Prop 6 (the policing and anti-gang measure that eventually failed to pass.) CCA also contributed to 239 different lobbyists between 2003 and 2011, for a grand total of $1,858, 094. The most lobbyists were active in California - 16 of them. 

Recently, in light of the need for California to comply with the Plata decision, CCA and the state of California modified their contractual agreement, with the state planning to return its inmates from out-of-state institutions. CCA's concern about this was explicitly discussed in their 10-Q for the third quarter of 2012, yielding the following gems:

It is unclear at this time how realignment or the five-year plan may impact the long-term utilization by the CDCR of our out of state beds. The return of the California inmates to the state of California would have a significant adverse impact on our financial position, results of operations, and cash flows. We housed approximately 8,700 inmates from the state of California as of September 30, 2012, compared with approximately 9,500 California inmates as of September 30, 2011. Approximately 12% and 13% of our management revenue for the nine months ended September 30, 2012 and 2011, respectively, was generated from the CDCR. (p.35)

And also,

“[W]e expect insufficient bed development by our partners to result in a return to the supply and demand imbalance that has benefited the private corrections industry.” (10-Q, p.30)

I expect these data provides some initial information on the main beneficiaries from the recession, and explains some of the incarceration trends we have seen since the financial crisis. More to come.

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Many thanks to Amanda Leaf for her valuable and meticulous research assistance.