[Marxism] Growth stocks
lnp3 at panix.com
Wed Jul 19 11:59:57 MDT 2006
NY Times, July 19, 2006
Immigration Enforcement Benefits Prison Firms
By MEREDITH KOLODNER
As the Bush administration gets tougher on illegal immigration and
increases its spending on enforcement, some of the biggest beneficiaries
may be the companies that have been building and running private prisons
around the country.
By the fall of 2007, the administration expects that about 27,500
immigrants will be in detention each night, an increase of 6,700 over the
current number in custody. At the average cost these days of $95 a night,
that adds up to an estimated total annual cost of nearly $1 billion.
The Corrections Corporation of America and the Geo Group (formerly the
Wackenhut Corrections Corporation) the two biggest prison operators now
house a total of fewer than 20 percent of the immigrants in detention. But
along with several smaller companies, they are jockeying for a bigger piece
of the growing business.
With all the federal centers now filled and the federal government not
planning to build more, most of the new money is expected to go to private
companies or to county governments. Even some of the money paid to
counties, which currently hold 57 percent of the immigrants in detention,
will end up in the pockets of the private companies, since they manage a
number of the county jails.
Private companies are positioning themselves as suppliers, and are
positioned to take the majority of new beds available, said Anton High, an
analyst with Jefferies & Company, the brokerage firm. He has recommended
that his clients buy Corrections stock.
Louise Gilchrist, vice president for marketing and communication at
Corrections Corp., said her company would have no trouble meeting the
federal governments needs. We believe as their demand increases, they
will need to rely on providers who have bed space available, she said.
The company feels it is well positioned.
Wall Street has taken notice of the potential growth in the industry. The
stock of Corrections Corp. has climbed to $53.77 from $42.50, an increase
of about 27 percent, since February when President Bush proposed adding to
spending on immigrant detention.
Geos stock rose about 68 percent in the period, to $39.24 a share from $23.36.
The increasing privatization of immigrant detention has its critics.
Immigrant advocates say health care at some centers has fallen short. They
contend that some centers have treated immigrants as if they are criminals
restricting their movements unnecessarily, for instance even though
many are still awaiting a ruling on their legal status.
Because those who cross the border illegally are not considered criminals,
they are not automatically assigned a lawyer. But, the advocates say, there
have been repeated instances when immigrants have not had access to working
phones to call for legal assistance.
Private prisons have unleashed an entrepreneurial spirit in this country
that is unhealthy, said Judith Greene, director of the nonprofit research
group Justice Strategies. Standards are violated on a regular basis in
order to cut costs.
The companies counter that they are living up to their contractual
obligations. If you develop a reputation as a company that cuts corners,
you will lose your contracts, said Steve Owen, director of marketing at
Corrections. The allegations, he added, are completely false.
Immigration experts say the need for more prison space is not a result of
an increase in the number of people entering the United States illegally.
According to the Pew Hispanic Center in Washington, the number of
unauthorized immigrants arriving in this country is down by about 50,000 a
year from the late 1990s.
Instead, the increase in spending on detention is part of a crackdown on
illegal residents living in the United States as well as an expected
increase in the number of immigrants captured as they try to cross the border.
The government also plans to detain more immigrants, especially those from
countries other than Mexico, while they await their hearings, instead of
releasing them on their own recognizance. This effort to end what is known
as catch and release means more capacity is needed immediately.
The issue is not how many immigrants, said Joe Onek, a senior policy
analyst at the Open Society Institute. Theres incredible pressure on the
administration from members of its own party and from some sectors of the
population to crack down.
Revenues for the prison management companies will grow not only because of
the rising number of detainees, but also because profit margins are higher
at detention centers than prisons, analysts say.
Last year, the Correction Corp.s revenue from holding immigrants jumped 21
percent, to $95 million from $70 million in 2004. Geo, the second largest
prison operator, received $30.6 million last year, about the same as the
While the companies would not comment on profit margins from their
immigration business, Wall Street analysts said that detention centers
produce profit margins of more than 20 percent.
That compares with margins in the mid-teens for traditional prison
management, they said, because prisoners are provided with more costly
services like high school degree programs and recreational activities.
Even with the expected growth in the number of immigrant detainees, the
main source of income for the private prison companies will continue to be
revenue from state and federal governments for housing regular inmates.
The state and local prison population totaled more than 1.5 million last
year, with about 100,000 of those held in privately managed prisons. But
the number of state and federal inmates rose by just 1.4 percent from June
2004 to June 2005, slower growth than the average 4.3 percent annual
increases from 1995 to 2000.
By contrast, the number of immigrants in detention is expected to increase
by about 20 percent over the next three months alone.
Federal immigration contracts generated about $95.2 million, or 8 percent,
of Correction Corp.s $1.19 billion in revenue last year, and about $30.6
million, or 5 percent, of Geos $612 million total income.
In the first quarter of 2006, Corrections Corp.s detention revenue rose to
$25.5 million. The federal immigration agency is now the companys
third-largest customer, after the federal Bureau of Prisons and the United
States Marshals Service.
The detention market is projected to increase by $200 million to $250
million over the next 12 to 18 months, according to Patrick Swindle, a
managing director at Avondale L.L.C., an investment banking firm that has
done business with both Geo and Corrections Corp. He said that a companys
capacity would play an important role in how much of the market it would be
able to capture.
The company currently has 4,000 empty beds in their system, Mr. Swindle
said. They are bringing on an additional 1,500 beds within the border
Reasonably, about 3,000 to 4,000 beds could be made available for
immigrant detention, he said.
Having empty cell space that can be made available quickly is considered an
advantage in the industry since the governments need for prison space is
often immediate and unpredictable. Decisions about where to detain an
immigrant are based on what is nearby and available. Immigration officials
consider the logistics and cost of transportation to the detention center
and out of the country.
We can use the beds whenever and wherever we like, said Jamie Zuieback, a
spokeswoman for United States Immigration and Customs Enforcement. We are
funded for a certain number of beds but there are many beds around the
country that are available and it depends where and when we need them if we
While companies do not release how much space they currently have
available, analysts estimate that Geo has about 1,500 empty places. To
increase capacity, the company announced in June that it was building a
576-inmate expansion of the 875-inmate Val Verde Correctional Facility it
owns in Del Rio, Tex.
George C. Oley, Geos chief executive, said in a statement at the time of
the Val Verde announcement: We are moving forward with the expansion of
this important facility in anticipation of the expected increased demand
for detention bed space by the Federal Government.
Despite the two companies dominance, they face competition from smaller
players in the corrections business. A new federal detention center set to
open in Texas at the end of July will be run by the Management and Training
Corporation, a privately owned company based in Utah.
The Cornell Companies, based in Texas, currently operates two centers that
hold detainees. It is the third-biggest private corrections company, though
significantly smaller than Corrections Corp. and Geo, controlling just 7 or
8 percent of the market, according to Mr. Swindle.
Whats great about the detention business, Mr. High of Jefferies said,
is not that its a brand-new channel of demand, but that it is growing and
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