Corporate-Run Prisons a ‘Growth Industry’ : Some Businessmen Claim They Can Do the Job Cheaper . . . and Better

Businessmen are starting to go to prison--for profit.

Privately run prisons have become part of the ‘80s trend toward government hiring entrepreneurs to do the public’s work.

Only a handful of the nation’s 830 prisons and several thousand jails and juvenile halls are run by businesses. (In California, one prison and several less-secure holding facilities are privately operated.) But Donaldson, Lufkin & Jenrette, the Wall Street brokerage house, calls corporate-run jails “a new growth industry.”

Various published estimates indicate that taxpayers will spend $6 billion to $7 billion in the next decade to build more cells--and tens of billions of dollars more to operate them.

That kind of growth means big money for the private firms that contract to design and build prisons, as well as for the financiers who arrange prison bond sales and the investors who collect the income tax-exempt interest on them.

Now some businessmen, including a number of retired prison officials, want to run prisons. They want to inject private ownership into prisons just as investors have done to the hospital business, which for years was almost solely the province of government and nonprofit organizations. And these businessmen claim they can do the job cheaper and, maybe, better.

The idea appeals to some government officials because they can simply pay operating costs. The businessmen must come up with the initial capital to build facilities, which, if the payment rates are high enough, can be done quickly. The thinking is that private industry will bypass the years of government studies and in many cases approval by voters of prison bond issues to finance construction.

The few businessmen who are already running prisons, jails and juvenile halls are also saying what social critics, some law enforcement and corrections officials and blue-ribbon study panels have been saying for years: The American way of imprisonment doesn’t work.

“Right now we are on the damnedest punishment kick you ever saw--and it isn’t going to work,” said Ted Nissen, a former San Quentin guard and co-owner of Behavioral Systems Southwest in Pomona, which operates 10 detention facilities and halfway houses.

“It costs $50,000 to $75,000 to build a single prison cell,” Nissen added. “This is ridiculous. There is a better way to house human beings, but status in the corrections system goes to those who run the highest-security prisons, so the whole system promotes classifying people as more of a security risk than they are.

“We have built a prison industry based on concrete walls, guard towers and the overclassification of inmates,” he said.

50% Failure Rate

“And the prisons, instead of being run so that people are in better shape to live in society when they get out, are run so that we have a 50% failure (recidivism) rate within five years.”

Nissen and other entrepreneurs maintain that these and other problems create an opportunity to build a better prison and make a buck in the process.

California judges have sent so many felons to prison that the state now has about 38,000 inmates, up 74% from 1980.

In economically troubled Illinois “where the inmate population has more than doubled in a decade, officials call corrections the state’s major growth industry,” U. S. News & World Report has reported.

Nationwide, the number of people in jails and prisons has nearly doubled since 1975. Today nearly as many Americans are behind bars (663,000) as live in San Francisco (678,000).

Among industrialized nations, only the Soviet Union and South Africa have a larger share of their people behind bars.

Gil Geis, a UC Irvine professor of social ecology and past president of the American Society of Criminology, is among those experts on crime and justice who favor innovation in running prisons.

‘Worth Trying’

“I think privately run prisons are worth trying--with very, very careful scrutiny,” Geis said. “But it has to be watched very carefully because with a profit motive the tendency is to put in as few resources as possible to maximize your profit.”

Paul Felton, vice president for corporate finance at Sutro & Co. in San Francisco, has been studying the investment potential in corporate jails and believes opportunities abound.

“The public criminal justice system has had a corner on the market for 150 years, but now we are seeing all kinds of competition.

“Whenever you have a large industry that has been substantially impacted or run by government and all of a sudden you introduce market economics into it you are going to have a very large change . . . and that is where investment opportunities often lie.

“It is inevitable that private prisons will attract venture capital because a lot of money is being spent on a system that no one is happy with, that everyone agrees is inefficient, unproductive and self-perpetuating and that will have $7 billion spent on new prisons in the next 10 years.”

No Publicly Traded Stock

So far the few firms involved have relied mostly on capital invested by their owners. None has publicly traded stock. But these firms are operating or planning facilities throughout the country.

In Pasadena, Behavioral Systems Southwest Inc. has converted an old convalescent home into a short-term holding facility for up to 125 aliens awaiting deportation by the Immigration and Naturalization Service. The firm operates a similar facility in Aurora, Colo.

In Chattanooga, Tenn., the Corrections Corp. of America runs facilities for 300 male and female felons and misdemeanants. The firm, founded by the same group of investors who started the for-profit Hospital Corp. of America, also runs two juvenile facilities for 195 youth near Memphis, Tenn., and INS holding facilities for 560 people in Houston and Laredo, Tex.

In Gooding, Ida., and Lewisberg, Pa., two rural towns hit hard hit by plant shutdowns, Buckingham Security, Ltd., plans to build maximum-security prisons, each of which would house nearly 700 inmates who are held in protective custody. The Pennsylvania prison would be built in an abandoned screw factory. (Ironically, screw is prison parlance for a guard.)

On the San Francisco Peninsula, Eclectic Communications Inc. runs a federal minimum-security prison for 60 youthful felons at a former camp for juvenile delinquents. (See related story.)

Running Jails for Profit

Retired Sheriff T.L. Baker of Amarillo, Tex., runs a private jail in Texas, and other jail operators-turned-businessmen are also running incarceration facilities for profit.

Proponents of corporate-run corrections facilities contend that some competition is just what the government monopoly on jails and prisons needs.

For 150 years, American prisons have been designed along the ideas of 19th-Century Quaker reformers, who believed wrongdoers should be sent to individual cells where, alone and in silence, these penitents could contemplate their misdeeds and their duty to God until they changed.

These penitent iaries were a major advance in their day. In colonial times (Georgia was a penal colony) and even after the American Revolution, flogging was a widely invoked punishment.

But the Quaker notion of forced solitude and the huge prisons it spawned have come under increasing criticism for lacking relevancy to modern ideas about life, crime and punishment. In 1969, one prominent American with a Quaker background, Richard Nixon, called American prisons “a convincing case of failure.”

Former San Quentin Guard

Nissen, a former San Quentin guard and state parole officer, said the social premises on which American prisons operate guarantee failure.

“There is a correctional mentality that jails will solve our crime problems. They won’t,” he said.

While the average prison inmate may appear as unfeeling and macho , Nissen said, actually he is “a very fragile human being who lacks coping skills to get along in a modern world.

“In prison everything is taken care of for you; you don’t have to cope. And when you get out you don’t know how to get along in this world, you have no network of friends and you are likely to end up back in prison,” Nissen added.

Nissen and others also say they can run prisons for less.

Partly this is because businessmen will not provide the police-type pension benefits (with retirement after as little as 20 years of work) that corrections officers get at many publicly run jails and prisons. The absence of unions and costly work rules are also a factor, at least for the moment.

Another factor in possibly lower costs is selecting only those prisoners most interested in cooperating in return for a different and, perhaps, more humane environment than existing prisons provide.

“I think whether the private sector can do it for less remains to be demonstrated,” said Bob Levinson, special projects manager for the American Correctional Assn., who has been studying a privately run reform school.

On the Record

The association is on record as supporting steps toward privately run prisons. Former Texas prison warden T. Don Hutto, a vice president of the Corrections Corp. of America, is the association president.

Levinson recently completed a report on the costs of running a Florida training school for delinquents. The state, which had run the school, turned it over to the Eckert Foundation, funded by the fortune of a regional drug store chain’s owners, to test the nonprofit organization’s claims that it could do the job better for less. Levinson said the federal government, which funded the test, has his report but has not yet made it public.

Eclectic Communications, which is the only private operator of a federal prison, gets $133,333 monthly, when it is near its capacity of 60 inmates, to run its facility in La Honda south of San Francisco.

The cost to taxpayers works out to about $76 per day for each inmate, U.S. Bureau of Prisons records show. Eclectic President Art McDonald said the cost is “about what it would cost the government to do the job itself.”

Levinson said the market for private firms is not in handling mainstream prisoners, but in the emotionally disturbed, physically handicapped, elderly and those inmates requiring protective custody.

A Political Problem

“If you are a state with 20 mentally ill guys it may be very expensive to run a proper program for them. It may be a lot cheaper, though, if five states get together to run one place for 100 guys,” Levinson said. “Now the political problem is who is going to run it.”

Contracting with a private firm might resolve such turf problems, he said.

Some economists who have studied the business practices of for-profit hospitals have noted that many of them “cream the market” by focusing on low-risk, high-profit patients, such as those in need of surgery for hernias, hysterectomies and hemorrhoids.

Similar business practices could be applied to accepting prison inmates and, indeed, Eclectic’s contract effectively allows it to reject inmates it considers likely to be troublesome, said La Honda warden Tom Keohane, a retired federal prisons warden.

“I don’t see the private sector running a major penitentiary because Corrections Departments don’t have big budgets and I don’t see how you can make a profit,” Levinson said.

Buckingham Security Ltd. is focusing on a segment of the prison market, protective custody inmates, in its plans to build maximum security prisons in Gooding, Ida., and Lewisberg, Pa.

“Protective custody accounts for about 7% of the people in prisons in this country and constitutes the largest segment of what we call the ‘special needs’ prisoners,” said Joseph Fenton, a real estate entrepreneur who is Buckingham’s executive vice president.

Protective Custody

“There are as many as 35,000 inmates in this country in protective custody. The courts have ruled, on several occasions, that the treatment they receive is cruel and unusual because in order to protect them they are locked up in the most secure cells in what is not unlike what the public regards as solitary confinement,” Fenton said.

“The courts, more and more, lean in the direction that just because you are in protective custody doesn’t mean you shouldn’t be given the treatment of the best behaved prisoners,” he added.

Fenton, like others in the field, said he foresees few if any liability problems.

“Like any private company we are liable for our own negligence,” he said. Buckingham intends to “provide more security than the government does” and, by exceeding the government’s standards, Fenton said he believes the firm can reduce its liability risks in the event an inmate escapes and harms people outside.

The kind of inmates Fenton’s firm wants to house, however, are in maximum security as much for their own safety as that of outsiders. The costs of keeping such inmates may be less than for other maximum-security prisoners, who are especially anxious to get out of prison.

Nissen said his firm, Behavioral Systems Southwest, carries $5 million in liability coverage and has never been sued for negligence. His firm is being sued to close its Pomona halfway house because of complaints of unruly behavior by the residents.

“People don’t want to examine their trash,” Nissen said, “and prisons, as the average person looks at it, are your social trash.

“Compton, West Covina, Upland, Pomona, Riverside, Long Beach, Corona, San Bernardino are cities I have tried to open halfway houses in, but they wouldn’t let me,” he said, because of objections from citizens.

Public Resistance

Running a private prison would pose far greater problems in getting land use and other permits, he said.

Public resistance to having a prison nearby may explain why Buckingham picked two economically hard hit towns for its proposed maximum security prisons.

Bradley Blum, editor of the Gooding County Leader in the Idaho town where Buckingham wants to turn a former tubercular hospital into a prison, noted that a packing plant closed and a lot of jobs were lost in his farming community.

“There has been no controversy about the idea, although I understand the city did get Buckingham to promise that it would only bring protective-custody and similar prisoners for the first 20 years,” Blum said.

“The business community is doing everything possible to make sure this deal goes through and while there are a some people who aren’t too crazy about the idea, no one is speaking against an idea that will bring 350 jobs to town,” Blum said.

Nissen said for private prisons to become widespread, legislation “that will make each community accept part of their problems back is needed. It is, for example, just not fair for Los Angeles to send the people who live there and commit crimes there to other towns and refuse to have a prison.

“I don’t know if I am in a real growth industry or not,” Nissen added. “I need some laws allowing us as a private contractor to open up and that require cities to take a facility and not just exclude my business because I accept convicts.”