PRISON FIRMS SEEK INMATES AND PROFITS

McRAE, Ga. The late afternoon sun glints from coils of razor wire carefully
intertwined in double rows of chain-link fence. Cellblocks coated with
fresh paint are neat and ready. In the empty parking lot, a sign welcomes
visitors to the McRae Correctional Facility.

But the $45 million private prison holds no prisoners. Finished months ago
by Corrections Corporation of America in anticipation of business that has
not arrived, the gleaming compound is a symbol of an industry whose grand
expectations have outpaced its ability to deliver.

Gone are the heady days of the mid-1990s, when private prisons were
portrayed as an inexpensive panacea that would provide economical beds for
state governments and deliver fat profits to investors. Stock prices have
plummeted as criticism and problems have mounted. CCA's stock bottomed at
18 cents per share in December, after trading as high as $44 in 1998.

By the beginning of last year, just 85,000 of the 1.9 million jail and
prison beds nationwide were provided by private firms. Violence and
disorder inside a number of institutions have raised serious questions
about the companies' management abilities and their profit-making approach.

And the national incarceration rate has slowed. Many states have built as
many prisons as they need, at least temporarily. Roughly 2,000 private beds
sit empty in Colorado. California canceled plans for four 500-bed private
prisons. New York never accepted the companies' business.

Supporters and critics alike predict that private prisons will survive
alongside public ones, but few believe that for-profit penal institutions
will own a major share of the nation's lockups. Industry executives and
corrections officials predict that their future is likely to include
low-security institutions and facilities for the elderly, drug addicts and
the mentally ill.

Chastened, the private firms are setting out anew to prove themselves
during what a top official at Wackenhut Corrections Corp. calls a
"transition" period. They are working to cut costs and identify friendly
corners in the $40 billion U.S. market, even as opponents try to show that
private prisons typically do not save money and do not notably improve
services.

Wackenhut and CCA recently scored coups when the U.S. Bureau of Prisons
awarded contracts for a rapidly increasing federal prison population, which
includes District inmates and deportable aliens. Since 1996, the number of
non-U.S. citizens in federal prisons has increased by 62 percent.

CCA alone expects to collect $780 million in revenue in the next 10 years
after winning contracts to fill two prisons it had built speculatively.

Two Wackenhut contracts could be worth $477 million, including a five-year
deal to house D.C. prisoners in North Carolina.

"Despite all the turmoil and the restructuring, this company has been able
to provide quality services," said CCA's chief operating officer, J.
Michael Quinlan, a former Bureau of Prisons director. "Now we're starting
to see more interest developing."

The new 1,500-bed prison in McRae is a test.

CCA built the facility, and another in Lumpkin, Ga., on the expectation
that inmates would come. But Georgia, which has other private prisons,
expressed no interest, leaving CCA to find another jurisdiction willing to
ship prisoners to the remote county of 12,000 residents, 140 miles from
Atlanta. Hawaii seemed a possibility, but problems emerged regarding
contracting authority. CCA hopes it can land another federal contract.

McRae is banking on it. The town borrowed $1 million to install utility
lines and to build a new water tower, anticipating 350 to 400 new jobs and
more tax dollars in a county where the average annual family income is
$15,000. There is already a state prison in the town next door. Two McRae
Town Council members work in prisons, and now McRae is waiting for CCA to
come through.

"They've asked us to be a partner with them to try and help them get some
prisoners in there," said Mayor Pete King, a Georgia Power supervisor.
"We'd rather have something else than a prison. I think anybody would. But
if anybody's going to give us some job opportunities, we'd be crazy not to
welcome them. If it comes online, we'll do all right."

The private companies, greeted since their inception with skepticism -- and
sometimes downright hostility -- are fighting to improve their image and
their balance sheets at a time when they also must overcome self-inflicted
wounds.

Even Quinlan speaks about the need to "work out kinks." In an interview at
CCA's sleek Nashville headquarters, he said, "Sometimes we tend to
overpromise, that we can deliver right away."

North Carolina canceled contracts last year at two CCA prisons because of
frustration with staffing levels. A federal jury in South Carolina awarded
$3.1 million in December to a teenage inmate who was hogtied and thrown
against a wall by CCA corrections officers. Similar lawsuits are pending in
the state.

Four inmates and a guard were killed in Wackenhut's New Mexico prisons
within a year. Two D.C. inmates were murdered at the once-overwhelmed CCA
prison in Youngstown, Ohio. Wackenhut recently quit the Jena juvenile
facility it managed in Louisiana after the Justice Department charged that
conditions there were "life threatening."

A study of "serious" incidents reported in Oklahoma prisons during a
three-year period revealed that private prisons recorded more than twice as
many incidents as public ones, said New York researcher Judith Greene.
Meanwhile, the Oklahoma Corrections Department, which spends 25 percent of
its budget on private incarceration, has calculated that private prison
beds cost slightly more than public ones.

"For more than 15 years, private-prison marketing was built on sweeping
assertions that they could deliver higher quality services at a lower price
than public correctional agencies," said Greene, an independent analyst.
"But the evidence to date does not support either end of the claim."

The proliferation of private prisons in the 1990s prompted a debate about
the propriety of companies and their investors profiting from the jailing
of others. Yet American University professor Ira Robbins suspects that the
experiment is suffering for more prosaic reasons.

"I think we are finally coming to the point where the politicians are
realizing that privatization of prisons and jails was at best a quick fix,"
Robbins said. "I've debated the morality of it, but the bottom line is that
if it doesn't save money, the politicians won't push it."

The private companies understand the need to produce, although it creates a
quandary. CCA, which restructured itself after nearing insolvency last
year, is trying simultaneously to cut costs, increase market share, fill
the 13 percent of its beds that are empty and raise its per-bed billing rate.

Rising medical costs are a particular problem, prompting the companies to
negotiate more favorable contracts with governments, including escalator
clauses, cost ceilings and managed-care setups. The firms are also
struggling to find and retain qualified staff, particularly in remote
prisons. Their turnover runs at more than twice the rate of the public
prisons' turnover, Greene said.

"They've had a lack of solid, mid-level, experienced managers and a lack of
people at the sergeant and lieutenant level," said D.C. corrections trustee
John Clark, who produced a 330-page study of the Youngstown troubles for
the Justice Department. "You're running 21 shifts a week. You can't just
rely on the experience of three or four solid correctional managers."

In North Carolina, audits at two CCA prisons showed staffing shortages and
problems such as poor oversight of medical supplies and inmate bank
accounts, said prison spokeswoman Tracy Little. The state dissolved the
contracts for the prisons, which had been built by U.S. Corrections Corp.,
a company that was later acquired by CCA.

State governments are moving more slowly to employ private prison firms.
Many have overcome their capital shortage and are constructing their own
prisons. And many states believe private prisons should play only a limited
role.

"We don't have the pressure on us now. We're not in a crisis," reported
Georgia prison official Scott Stallings, who said the state is happy with
the private operators it does have. In Oklahoma, Scott Hauck said the state
fills its own prisons first: "Incarceration rates are way down. We've got
quite a bit of space."

Colorado expects its inmate population to grow by 30 percent by 2006. In
the meantime, however, nearly 2,000 private beds under state contract for
$53 a day sit empty because Colorado has caught up with its prison needs.
As a result, the prison companies are losing millions of dollars in revenue
each month as they operate four unfilled facilities.

Firms such as CCA, Wackenhut and Cornell Cos. are seeking new markets as
they wait for states to call. Industry executives foresee facilities
designed for less-dangerous inmates with special needs, such as the elderly
and the drug-addicted. In Mississippi, Wackenhut runs the nation's only
privatized mental health prison, and it operates a 520-bed drug treatment
facility in Kyle, Tex.

"We expect our government clients will seek more specialized services for
more targeted populations. We have begun to see it less and less as a
monolithic population. It is a diverse population with various needs," said
Wackenhut executive Wayne Calabrese, citing the "evolution" of the
industry. "I think the best is ahead of us."