PRIVATE PRISONS

Over The Next 5 Years Analysts Expect The Private Share Of The Prison
"Market" To More Than Double.

A few hours after midnight one August evening last year, Walter Hazelwood
and Richard Wilson climbed a fence topped with razor wire at the Houston
Processing Center, a warehouse built to hold undocumented immigrants
awaiting deportation. Once outside, the two prisoners assaulted a guard,
stole his car and headed for Dallas.

When prison officials notified the Houston police that the men had escaped,
local authorities were shocked. Sure, immigrants had fled the
minimumsecurity facility near the airport a few times before. But
Hazelwood and Wilson were not being detained for lacking the papers to
prove their citizenship. One was serving time for sexual abuse; the other
was convicted of beating and raping an 88yearold woman. Both men, it
turned out, were among some 240 sex offenders from Oregon who had been
shipped to the Texas detention center months earlierand local authorities
didn't even know they were there.

The immigration center is owned and operated by Corrections Corporation of
America, which manages more private prisons than any other company
worldwide. While C.C.A. made nearly $14,000 a day on the outofstate
inmates, the company was quick to point out that it had no legal obligation
to tell the Houston police or county sheriff about their new neighbors from
Oregon. "We designed and built the institution," explained Susan Hart, a
company spokeswoman. "It is ours."

Yet like a welltodo rancher who discovers a couple of valuable head of
cattle missing, C.C.A. expected Texas rangers to herd the wayward animals
back behind the company's fence. "It's not our function to capture them,"
Hart told reporters.

Catching the prisoners proved easier, however, than charging them with a
crime. When authorities finally apprehended them after eleven days, they
discovered they could no more punish the men for escaping than they could
lock up a worker for walking off the job. Even in Texas, it seemed, it was
not yet a crime to flee a private corporation.

"They have not committed the offense of escape under Texas law," said
district attorney John Holmes. "The only reason at all that they're subject
to being arrested and were arrested was because during their leaving the
facility, they assaulted a guard and took his motor vehicle. That we can
charge them with, and have."

The state moved quickly to pass legislation making such escapes illegal.
But the Texas breakout underscores how the rapid spread of private prisons
has created considerable confusion about just what the rules are when a
forprofit company like Corrections Corporation seeks to cash in on
incarceration. Founded in 1983 with backing from the investors behind
Kentucky Fried Chicken, C.C.A. was one of the first companies to push the
privatization of public services. The selling point was simple: Private
companies could build and run prisons cheaper than the government.
Business, after all, would be free of red tapethose inefficient
procedures that waste tax dollars on things like open bidding on state
contracts and job security for public employees. Unfettered American
capitalism would produce a better fetter, saving cashstrapped counties and
states millions of dollars each year.

Sooner or later, people realize that "the government can't do anything very
well," Thomas Beasley, a cofounder of C.C.A. and a former chairman of the
Tennessee Republican Party, said near the start of prison privatization.
"At that point, you just sell it like you were selling cars or real estate
or hamburgers."

Not everyone is quite so enthusiastic about the prospect of selling human
beings like so many pieces of meat. By privatizing prisons, government
essentially auctions off inmatesmany of them young black mento the
highest bidder. Opponents ranging from the American Civil Liberties Union
to the National Sheriffs Association have argued that justice should not be
for sale at any price. "The bottom line is a moral one," says Ira Robbins,
who wrote a statement for the American Bar Association opposing private
corrections. "Do we want our justice system to be operated by private
interests? This is not like privatizing the post office or waste management
to provide services to the community. There's something meaningful lost
when an inmate looks at a guard's uniform and instead of seeing an emblem
that reads 'Federal Bureau of Prisons' or 'State Department of
Corrections,' he sees one that says 'Acme Prison Corporation.'"

But such moral concerns have gone largely unheeded in all the excitement
over how much money the boys at Acme might save taxpayers. There's only one
problem: The evidence suggests that the savings reaped from nearly fifteen
years of privatizing prisons are more elusive than an Oregon convict in a
Texas warehouse.

In 1996 the General Accounting Office examined the few available reports
comparing costs at private and public prisons. Its conclusion: "These
studies do not offer substantial evidence that savings have occurred." The
most reliable study cited by the G.A.O. found that a C.C.A.run prison in
Tennessee cost only 1 percent less to operate than two comparable staterun
prisons. The track record also suggests that private prisons invite
political corruption and do little to improve quality, exacerbating the
conditions that lead to abuse and violence.

Although private prisons have failed to save much money for taxpayers, they
generate enormous profits for the companies that own and operate them.
Corrections Corporation ranks among the top five performing companies on
the New York Stock Exchange over the past three years. The value of its
shares has soared from $50 million when it went public in 1986 to more than
$3.5 billion at its peak last October. By carefully selecting the most
lucrative prison contracts, slashing labor costs and sticking taxpayers
with the bill for expenses like prisoner escapes, C.C.A. has richly
confirmed the title of a recent stock analysis by PaineWebber: "Crime pays."

"It's easier for private firms to innovate," says Russell Boraas, who
oversees private prisons for the Virginia Department of Corrections. As he
inspects a mediumsecurity facility being built by C.C.A. outside the small
town of Lawrenceville, Boraas notes that the prison has no guard towersan
"innovation" that saves the company $2.5 million in construction costs and
eliminates twentyfive fulltime positions. "Think about it," Boraas says.
"A state corrections director who eliminates guard towers will lose his job
if a prisoner escapes and molests a little old lady. The president of the
company won't lose his job, as long as he's making a profit."

Although corrections officials like Boraas initially viewed the drive to
privatize prisons with skepticism, many quickly became converts. The crime
rate nationwide remains well below what it was twentyfive years ago, but
harsher sentencing has packed prisons and jails to the bursting point.
There are now 1.8 million Americans behind barsmore than twice as many as
a decade agoand the "get tough" stance has sapped public resources and
sparked court orders to improve conditions.

With their promise of big savings, private prisons seemed to offer a
solution. Corporate lockups can now hold an estimated 77,500 prisoners,
most of them state inmates. Over the next five years, analysts expect the
private share of the prison "market" to more than double.

Corrections Corporation is far and away the biggest company in the
corrections business, controlling more than half of all inmates in private
prisons nationwide. C.C.A. now operates the sixthlargest prison system in
the countryand is moving aggressively to expand into the global market
with prisons in England, Australia and Puerto Rico. That's good news for
investors. The Cabot Market Letter compares the company to a "a hotel
that's always at 100 % occupancy...and booked to the end of the century."
C.C.A. started taking reservations during the Reagan Administration, when
Beasley founded the firm in Nashville with a former classmate from West
Point. Their model was the Hospital Corporation of America, then the
nation's largest owner of private hospitals. "This is the home of H.C.A.,"
Beasley thought at the time. "The synergies are the same."

>From the start, those synergies included close ties to politicians who
could grant the company lucrative contracts. As former chairman of the
state G.O.P., Beasley was a good friend of thenGovernor Lamar Alexander.
In 1985 Alexander backed a plan to hand over the entire state prison system
to the fledgling company for $200 million. Among C.C.A.'s stockholders at
the time were the Governor's wife, Honey, and Ned McWherter, the
influential Speaker of the state House, who succeeded Alexander as governor.

Although the state legislature eventually rejected the plan as too risky,
C.C.A. had established itself as a major player. It had also discovered
that knowing the right people can be more important than actually saving
taxpayers money. The company won its first bid to run a prison by offering
to operate the Silverdale Work Farm near Chattanooga for $21 per inmate per
day. At $3 less than the county was spending, it seemed like a good
dealuntil a crackdown on drunk drivers flooded the work farm with new
inmates. Because fixed expenses were unaffected by the surge, each new
prisoner cost C.C.A. about $5. But the county, stuck with a contract that
required it to pay the company $21 a head, found itself $200,000 over
budget. "The work farm became a gold mine," noted John Donahue, a public
policy professor at Harvard University.

When the contract came up for renewal in 1986, however, county
commissioners voted to stick with Corrections Corporation. Several enjoyed
business ties with the company. One commissioner had a pestcontrol
contract with the firm, and later went to work for C.C.A. as a lobbyist.
Another did landscaping at the prison, and a third ran the moving company
that settled the warden into his new home. C.C.A. also put the son of the
county employee responsible for monitoring the Silverdale contract on the
payroll at its Nashville headquarters. The following year, the U.S. Justice
Department published a research report warning about such conflicts of
interest in onsite monitoringthe only mechanism for insuring that prison
operators abide by the contract. In addition to being a hidden and costly
expense of private prisons, the report cautioned, government monitors could
"be coopted by the contractor's staff. Becoming friendly or even beholden
to contract personnel could lead to the State receiving misleading reports."

But even when problems have been reported, officials often downplay them.
The Justice Department noted "substantial staff turnover problems" at the
Chattanooga prison, for instance, but added that "this apparently did not
result in major reductions in service quality." The reason? "This special
effort to do a good job," the report concluded, "is probably due to the
private organizations finding themselves in the national limelight, and
their desire to expand the market."

The same year that federal officials were crediting C.C.A. with "a good
job" at the undermanned facility, Rosalind Bradford, a 23yearold woman
being held at Silverdale, died from an undiagnosed complication during
pregnancy. A shift supervisor who later sued the company testified that
Bradford suffered in agony for at least twelve hours before C.C.A.
officials allowed her to be taken to a hospital. "Rosalind Bradford died
out there, in my opinion, of criminal neglect," the supervisor said in a
deposition.

Inspectors from the British Prison Officers Association who visited the
prison that year were similarly shocked by what they witnessed. "We saw
evidence of inmates being cruelly treated," the inspectors reported.
"Indeed, the warden admitted that noisy and truculent prisoners are gagged
with sticky tape, but this had caused a problem when an inmate almost
choked to death."

The inspectors were even more blunt when they visited the C.C.A.run
immigration center in Houston, where they found inmates confined to
warehouselike dormitories for twentythree hours a day. The private
facility, inspectors concluded, demonstrated "possibly the worst conditions
we have ever witnessed in terms of inmate care and supervision."

Reports of inhumane treatment of prisoners, while deeply disturbing, do not
by themselves indicate that private prisons are worse than public ones.
After all, state and federal lockups have never been known for their
considerate attitude toward the people under their watch. Indeed, C.C.A.
and other company prisons have drawn many of their wardens and guards from
the ranks of public corrections officers. The guards videotaped earlier
this year assaulting prisoners with stun guns at a C.C.A. competitor in
Texas had been hired despite records of similar abuse when they worked for
the state.

Susan Hart, the C.C.A. spokeswoman, insisted that her company would never
put such people on the payrollwell, almost never. "It would be
inappropriate, for certain positions, [to hire] someone who said, 'Yes, I
beat a prisoner to death,'" she told The Houston Chronicle. "That would be
a red flag for us." She did not specify for which positions the company
considers murder an appropriate job qualification.

In fact, C.C.A. employs at least two wardens in Texas who were disciplined
for beating prisoners while employed by the state. And David Myers, the
president of the company, supervised an assault on inmates who took a guard
hostage while Myers was serving as warden of a Texas prison in 1984.
Fourteen guards were later found to have used "excessive force," beating
subdued and handcuffed prisoners with riot batons.

The real danger of privatization is not some innate inhumanity on the part
of its practitioners but rather the added financial incentives that reward
inhumanity. The same economic logic that motivates companies to run prisons
more efficiently also encourages them to cut corners at the expense of
workers, prisoners and the public. Private prisons essentially mirror the
costcutting practices of health maintenance organizations: Companies
receive a guaranteed fee for each prisoner, regardless of the actual costs.
Every dime they don't spend on food or medical care or training for guards
is a dime they can pocket.

As in most industries, the biggest place to cut prison expenses is
personnel. "The bulk of the cost savings enjoyed by C.C.A. is the result of
lower labor costs," PaineWebber assures investors. Labor accounts for
roughly 70 percent of all prison expenses, and C.C.A. prides itself on
getting more from fewer employees. "With only a 36 percent increase in
personnel," boasts the latest annual report, "revenues grew 41 percent,
operating income grew 98 percent, and net income grew 115 percent."

Like other companies, C.C.A. prefers to design and build its own prisons so
it can replace guards right from the start with video cameras and clustered
cellblocks that are cheaper to monitor. "The secret to lowcost operations
is having the minimum number of officers watching the maximum number of
inmates," explains Russell Boraas, the private prison administrator for
Virginia. "You can afford to pay damn near anything for construction if it
will get you an efficient prison."

At the C.C.A. prison under construction in Lawrenceville, Boraas indicates
how the design of the "control room" will enable a guard to simultaneously
watch three "pods" of 250 prisoners each. Windows in the elevated room
afford an unobstructed view of each cellblock below, and "vision blocks" in
the floor are positioned over each entranceway so guards can visually
identify anyone being admitted. The hightech panel at the center of the
room can open any door at the flick of a switch. When the prison opens next
year, C.C.A. will employ five guards to supervise 750 prisoners during the
day, and two guards at night.

Another way to save money on personnel is to leave positions unfilled when
they come open. Speaking before a legislative panel in Tennessee in
October, Boraas noted that some private prisons in Texas have made up for
the low reimbursement rates they receive from the state "by leaving
positions vacant a little longer than they should." Some C.C.A. employees
admit privately that the company leaves positions open to boost profits.
"We're always short," says one guard who asked not to be identified. "They
do staff fewer positionsthat's one way they save money." The company is
growing so quickly, another guard explains, that "we have more slots than
we have people to fill them. When they transfer officers to new facilities,
we're left with skeletons."

At first glance, visitors to the South Central Correctional Center could be
forgiven for mistaking the mediumsecurity prison for a college campus. The
main driveway rolls through wooded hills on the outskirts of Clifton,
Tennessee, past picnic benches, a fitness track and a horse barn. But just
inside the front door, a prominent bulletin board makes clear that the
prison means business. At the top are the words "C.C.A. Excellence in
Corrections." At the bottom is "Yesterday's Stock Closing," followed by a
price.

In addition to employing fewer guards, C.C.A. saves money on labor by
replacing the guaranteed pensions earned by workers at staterun prisons
with a cheaperand riskierstockownership plan. Employees get a chance
to invest in the company, and the company gets employees devoted to the
bottom line. "Being a stockholder yourself, you monitor things closer,"
says Mark Staggs, standing in the segregation unit, where he oversees
prisoners confined for breaking the rules. "You make sure you don't waste
money on things like cleaning products. Because it's your money you're
spending."

Warden Kevin Myers (not related to C.C.A. president David Myers) also looks
for little places to cut costs. "I can save money on purchasing because
there's no bureaucracy," he says. "If I see a truckload of white potatoes
at a bargain, I can buy them. I'm always negotiating for a lower price."

But what is thriftiness to the warden is just plain miserly to those forced
to eat what he dishes out. "Ooowhee! It's pitiful in that kitchen," says
Antonio McCraw, who was released from South Central last March after
serving three years for armed robbery. "I just thank God I'm out of there.
You might get a good meal once a month. The rest was instant potatoes,
vegetables out of a can and processed pizzas. C.C.A. don't care whether you
eat or not. Sure they may cut corners and do it for less money, but is it
healthy?"

The State of Tennessee hoped to answer that question when it turned South
Central over to C.C.A. in 1992. The prison was built at roughly the same
time as two staterun facilities with similar designs and inmate
populations, giving officials a rare opportunity to compare daily operating
costsand qualityunder privatization.

The latest state report on violence at the three prisons indicates that
South Central is a much more dangerous place than its public counterparts.
During the past fiscal year, the C.C.A. prison experienced violent
incidents at a rate more than 50 percent higher than state facilities. The
company also posted significantly worse rates for contraband, drugs and
assaults on staff and prisoners.

"If that doesn't raise some eyebrows and give you some kind of indication
of what the future holds, I guess those of us who are concerned just need
to be quiet," says John Mark Windle, a state representative who opposes
privatization.

Corrections officials note that understaffing can certainly fuel violence,
which winds up costing taxpayers more money. The state legislature has
heard testimony that employee turnover at South Central is more than twice
the level at state prisons, and prisoners report seeing classes of new
recruits every month, many of them young and inexperienced. "The turnover
rate is important because it shows whether you have experienced guards who
stick around and know the prisoners," says inmate Alex Friedmann, seated at
a bare table in a visitation room. "If you have a high turnover rate you
have less stability. New employees come in; they really don't know what's
going on. That leads to conflicts with inmates."

Internal company documents tell a similar story. According to the minutes
of an August 1995 meeting of shift supervisors at South Central, chief of
security Danny Scott "said we all know that we have lots of new staff and
are constantly in the training mode." He "added that so many employees were
totally lost and had never worked in corrections."

A few months later, a company survey of staff members at the prison asked,
"What is the reason for the number of people quitting C.C.A.?" Nearly 20
percent of employees cited "treatment by supervisors," and 17 percent
listed "money."

Out of earshot of their supervisors, some guards also say the company
contributes to violence by skimping on activities for inmates. "We don't
give them anything to do," says one officer. "We give them the bare minimum
we have to."

Ron Lyons agrees. "There's no meaningful programs here," says Lyons, who
served time at staterun prisons before coming to South Central. "I can't
get over how many people are just laying around in the pod every day. I
would have thought C.C.A. would have known that inmate idleness is one of
the biggest problems in prisonstoo much time sitting around doing
nothing. You definitely realize it's commercialized. It's a business. Their
business is to feed you and count you, and that's it."

(continued in Part II)