PRIVATE PRISONS TAKE STOCK MARKET HIT

They were once the hot buy of the stock market, snatched up by thousands of
investors who had visions of rapid growth and rich profits.

But over the past two years, companies specializing in building and running
private prisons - including some with operations in Kern County - have
taken severe hits on the stock market.

"These were once market darlings and now they're outcasts," said James
Macdonald, a stock analyst for Chicago-based First Analysis Securities.

Stock in private prison companies has plummeted in recent years, in some
cases by more than 90 percent, at the same time inmate populations have
grown nationwide and the industry as a whole has been rocked with negative
publicity, high capital costs and other financial woes.

Nonetheless, the bottom lines at most prison firms appear to be unaffected
by the lower prices, analysts said.

"The biggest losers are the investors, of course," Macdonald said.

Of the handful of publicly traded prison firms, two have Kern County
facilities - Corrections Corporation of America and Wackenhut Corrections
Corporation.

A third firm, Cornell Companies, Inc., also hopes to get a local foothold
and is currently offering to build a roughly 1,000-bed facility in Arvin
that would house federal inmates.

All three firms with Kern County ties have seen their stock values drop by
nearly half in the past year.

Perhaps the most dramatic plunge has occurred with CCA, which is the
largest private prison firm in the nation with approximately 68,000 beds,
analysts said. Locally, CCA operates the California City Correctional
Center, which currently holds more than 500 federal inmates.

Despite its prominence in the industry, CCA's stock has dropped by more
than 96 percent in the last year alone, falling from more than $8 per share
in December 1999 to less than 30 cents last week. Just two years ago, CCA
stock was trading as high as $44 per share.

The crash has come in the wake of a series of highly publicized management
problems and thanks to the firm's sizable debt - nearly $1 billion - that
it built up during expansions, analysts said.

"(CCA's) problem has been over-promising by management and over-building,"
Macdonald said.

Locally, CCA spent $100 million to build the California City prison in 1998
without a contract to house state or federal inmates. The prison is just
now beginning to receive a full allotment of inmates.

"It's hard to have a $100 million prison not being used for a year,"
Macdonald said.

CCA's woes have also translated into problems for other private prison
firms, Macdonald added.

"As the industry leader, when they go down, they drag the whole industry
down," he explained. "(Investors) get worried when the leader isn't doing
well."

While its recent drops haven't been as severe as CCA's, Wackenhut has also
seen much better days. Its stock once traded in the mid-$40s but today
wavers between $6 and $7 a share.

In Kern County, Wackenhut currently operates a trio of small community
correctional facilities in McFarland as well as the Taft Correctional
Institution, which houses more than 2,400 low- and minimum-security federal
inmates.

The Taft facility - constructed in 1995 - was the first federally built
prison to be turned over to a private firm for operation.

Like many prison firms, much of Wackenhut's woes stem from a rash of
negative publicity in 1999, including riots and accusations of abuse
against inmates at its facilities, analysts said.

Those incidents pulled Wackenhut's stock down by nearly 60 percent in 1999,
from more than $28 per share to under $12 by the beginning of 2000.

Also trading at roughly $12 per share a year ago, Cornell has performed
even worse as its stock fell to $4 this month - a drop of roughly 66 percent.

Like CCA, Cornell's market performance is hampered by high debts, which it
has accrued during expansion, Macdonald said.

"The whole industry needs some new financing options," he said.

When a stock loses big, it can create a shortage of willing investors,
which has its effects, he added. Without the ability to sell new stock,
firms can find it difficult to raise money for expansions or to pursue
costly prison bids.

"In the old days, CCA used to be able to go out and sell equity to expand,"
Macdonald said.

Rock-bottom stock prices will also prevent companies from buying up smaller
firms with stock swaps, he added.

Despite those difficulties, analysts remain optimistic about the future for
the private prison industry - particularly if the economy begins to slow down.

"This is a counter-cyclical industry, so when the economy gets bad they do
better," Macdonald said. "Wages go down and, usually, crime starts to go
up, so they start to earn more and more."

The prison builders themselves are also largely unconcerned about the stock
price collapse affecting their business, even at troubled CCA. "The company
will continue business as normal," said CCA spokeswoman Susan Hart. "Our
facilities haven't seen any impact (from the stock price drops), and they
won't see any."

In fact, CCA is currently filling its California City prison with roughly
40 to 80 inmates each week, warden Percy Pitzer said. Eventually the
facility is expected to house more than 2,300 prisoners as part of a
10-year, $529 million contract with the federal Bureau of Prisons.

Wackenhut and Cornell are also looking to continue adding new facilities in
Kern County and nationwide. Both firms are in the process of bidding on a
contract with the federal Bureau of Prisons that could bring thousands of
new federal inmates to sites in Arvin or Wasco.