Bryson Chisley, a 24 year old prisoner at Corrections Corporation of America’s Northeast Ohio Correctional Center (NOCC) in Youngstown, Ohio, became the prison’s second murder victim on 11 March 1998. Derrick Davis was killed on 22 February. Both were stabbed by other prisoners.

This latest in a series of violent incidents at the 2,000 bed medium security facility is due to a range of  problems, most fundamental being the company’s non-compliance with its contractual obligations to accept  only medium security prisoners and the non-classification and non-separation of high and medium security prisoners.

On 19 February 1998, lawyers representing prisoners at NOCC applied to the District Court for an injunction preventing CCA from accepting any new prisoners. The judge refused. But after the second murder, the lawyers re-applied and the injunction was granted on 24 February.

The prisoners’ lawyers submitted evidence which gave a damning insight into how the prison was being run. They also argued that the second murder “underscores the urgency  of separating the predatory inmates from those who are truly medium security ... it also indicates the utter failure of the defendants to take any responsible action to solve this obvious problem.”

The injunction prevents CCA from accepting new prisoners for up to 90 days and orders the company and its co-defendants to “conduct a review of the classification and custody level” of  prisoners  involved in assaults.

The judge stated that “the reports of incidents described ... do not assure the court that even with a change in classification, prison personnel are properly trained with completeness to deal with situations such as that presented before us today.” He added: “I realise that the effect of the order may cause economic injury to CCA. I do not consider that economic injury to be as important or indeed to overcome the rights of the prison or the rights, frankly, of our society to the degree that they would foreclose injunctive relief having been granted.”

Noting that CCA had begun to develop a classification system, the judge ordered the company to report to the court within 30 days “as to what you have done, what you have considered and your prognosis for future activity.”

Background and evidence

“Our goal here at NEOCC is to make sure we do not accumulate overtime.” - Assistant Warden Page, NOCC Department Head meeting, June 1997.

In May 1997, the District of Columbia contracted with CCA to transfer 900 prisoners to the facility. This was later extended to 1,500 and then 1,700. By August 1997, lawyers acting for prisoners had started class action legal proceedings. On 29 December 1997 lawyers filed documents alleging that: staff were using excessive force on prisoners;  the defendants were failing in their duty to protect prisoners from assault by other violent prisoners; a long term administrative segregation unit was improperly established; prisoners were being denied adequate medical care; and even their very detention in Ohio was unconstitutional.

The evidence which led to the injunction being granted on 24 February was based upon company and government records; testimonies and depositions from current and former CCA staff, prisoners and their witnesses; and corrections and medical experts hired by the prisoners’ lawyers.

n Although the District of Columbia sent maximum security prisoners to Youngstown, CCA accepted every prisoner regardless of the terms of the contract.

n CCA’s contracts with both the city of Youngstown and the District of Columbia specify that the facility is for medium security prisoners only. But as a result of the failure to classify prisoners, the facility has a mixture of minimum, medium and maximum security prisoners.

n During the first six months there were at least ten serious assaults by prisoners on other prisoners and 16 assaults on staff. In evidence, CCA’s warden stated that victims feel “obligated... to make home made weapons ... to protect themselves ... from these inmates who are the predators”.

n Stabbings occurred on 16 June, 23 June, 1 July, 23 July, 19 September, 28 September, and 21 November 1997. On 28 September a prisoner was assaulted by another with a bag full of locks. On 17 October a prisoner in the gym was smashed in the face with a detachable metal bar. On 20 October a female counsellor was locked in her office and attacked by a prisoner.

n An independent consultant testified that the reasons for such a high level of violence included improper intake procedures, improper classification procedures, and improper control of prisoners who were subject to separation orders. The level of violence exceeded that in other medium security facilities.

n Some 500 prisoners are subject to separation orders which specify that they should be kept away from other prisoners at all times. This was not done.

n To reduce the violence at the facility, the higher security prisoners must be removed.

n A lawyer hired by  CCA as a consultant  to monitor the contract and compliance with federal, state and local laws stated during proceedings that he could not address legal issues because of the need for guidance and asked the court “to tell us what law applies” to the operation of the facility.

n No changes in any practices resulted from the contract monitor’s appointment.

n Prisoners’ files were clearly not being used as part of their daily management; the state of the records was well below professional standards.

n Staff who transferred to the facility from other jails noted that the number of weapons found, particularly hard knives, far exceeded that found in other facilities. One officer stated that prisoners made weapons “out of everything”. In one five week period in 1997, prison shakedown reports showed that 19 shanks, 327 razors, and 58 mops and brooms (for use as weapons) had been recovered by staff.

n One former officer stated that prison administration ignored his warnings about metal bars in the housing pods and exhaust fan blades in other areas of the prison. These items were later used as weapons.

n The laundry room was described as a major source of contraband but there was no correctional officer on duty with prisoners during the second shift.

n In January 1998, administration was warned not to get too close to prisoners as they were carrying hypodermic needles.

n Medical staff complained repeatedly about the lack of security when left alone with prisoners.

n Correctional officers had quit their jobs for health and safety reasons, as they feared violence from prisoners and were not confident that the administration was taking the necessary preventative steps.

n Some officers complained that prisoner management was difficult. As prisoners all wore the same clothing, it was impossible to know if they were in an improper area. Staff suggestions that prisoners’ clothing/name tags should be colour coded were ignored.

Excessive force

n There were at least 27 incidents where excessive force had been used against prisoners.

n The use of excessive force by staff on prisoners included the gassing of cell blocks with chemical grenades containing CS gas.

n There were violations of professional standards on the use of gas. Excessive force was often applied to prisoners by inexperienced staff.

n CCA policy required that all use of excessive force should be videotaped. Only one videotape exists, that of an incident on 30 May 1997, when prisoners who had just arrived at the facility were gassed and pepper sprayed.

Long Term Administrative Segregation Unit (LTASU)

n There was no written criteria for prisoners being transferred to this unit; prisoners faced lockdown for 23 hours a day, seven days per week without a hearing; they had to shower wearing leg irons, handcuffs and a belly chain; NOCC records were falsified between July and September 1997; unit staff were untrained.

n The LTASU’s conditions were described as atypical confinement and should be closed down.

Inadequate medical care

n Prisoners had developed emergency medical conditions  and had been seriously injured when stabbed or assaulted  by other prisoners and when gassed and maced by guards.

n Medical care was described as constitutionally inadequate.  There was delay in  access to care; the sick call system was inadequate; patients with chronic illnesses were not being properly monitored; a quality improvement programme had not been implemented. The level of care was far below community standards and was described by an independent  consultant as “frightening”.

n There was no infection control system.

n Nurses performed sick call in the barber shop. There was no examining table or other basic equipment.

n There were only three full time equivalent physicians on staff. The community standard required at least four.

Source: Plaintiffs’ Supplemental Findings Of Fact and Conclusions of Law in support of Class Certification and Preliminary Injunction, US District Court of Ohio, Case No. 4:97. This is a public record. Contact the prisoners’ trial attorney: Mr Al Gerhardstein, Laufman, Rauh & Gerhardstein, 1409 Enquirer Building, 617 Vine Street, Cincinnati, Ohio 45202. Tel: ++513 621 9100; Fax:++ 513 345 5543.

[On 11 March 1998, the State of Ohio passed legislation regulating private prisons operating within the state. A clause preventing high security prisoners from being held in these prisons was deleted after lobbying by opponents.]

Riot and lockdown at Port Philip

        Forty prisoners at Group 4-run Port Philip prison in Victoria rioted and set fire to one of the accommodation units on 12 March causing an estimated A$100,000 in damage. The Victoria Police Special Operations Group and extra guards were called in to restore order. Thirty prisoners were later transferred to a publicly run prison. The prison will be in lockdown for two weeks and visitors  have been denied access.

Tensions at the prison had been running high for some time. Contact visit times were cut short on 8 March due to staff shortages and this is thought to have tipped the balance. According to Pauline Spencer of the Federation of Community Legal Centres, the prisoners’ action was “indicative of the level of frustration and desperation.”

Stephen Twinn of Group 4 described the prisoners’ action as “little more than a passive demonstration” and “a minor incident by the standards of prison management.” The prison’s Director,  David McDonnell, admitted that the facility has suffered from “teething problems.” In response to the riot, Mr Jeff Kennett, Premier of Victoria, threatened to withdraw contact visits to prisoners because of drug use at the jail. Staff who belong to the Community  and Public Service Union (CPSU) threatened strike action but this has so far been averted.

The union has stated that its problems are with management and not with the prisoners. It has demanded:

n higher staffing levels, particularly at night when there has been only one officer per wing;

n better basic training and refresher courses;

n an independent audit by the National Safety Council;

n better self defence training, full riot equipment and the establishment of a prison security defence team

On 14 March, more than 60 prison staff voted to invoke their rights under the Occupational Health and Safety Act to  stop performing work that could put them at risk after management refused to meet all but one of the officers' demands for tighter safety requirements. Group 4 initially agreed to provide more batons and later agreed to the independent safety audit. But the company has refused requests for more staff and the formation of an emergency team within the prison.

Staff also voted not to carry out escort duties  except in emergency situations as they have to use taxis rather than a secure vehicle to escort prisoners out of the prison.

Prisoners will remain in lockdown for about three weeks. They will be allowed out of their cells for one hour a day. Staff will only meet the minimum of a 30 minute weekly visit for each inmate. Prisoners will still get unlimited access to professional visitors, such as lawyers, and the staff  would be  available for any prison duties that did not compromise their safety.

Karen Batt, CPSU State Secretary, also claimed that Group 4 were breaking their contract by rostering only 26 staff on accommodation units. The contract requires 38 staff. The visitors centre was staffed by two officers instead of six. “If we had adequate staffing, cells would be unlocked from about 8.15am to 8.15pm so prisoners could work, study and visit church. But that can’t operate because there are not enough staff to be safe,” she said.

Another suicide attempt

Just a few days before the riot, the Opposition had renewed its call on the Government to take control of the facility and order a judicial inquiry into its management after a prisoner attempted suicide on 7 March. The prisoner, who cannot be named for legal reasons, tried to hang himself from a shower head in a hospital ward while awaiting assessment. At the time of writing he was critically ill in hospital.

Two prisoners have already committed suicide and one has died of a drug overdose at the prison which opened in September 1997.  There have been at least ten other attempted suicides.

The prison’s design allows for numerous hanging points and critics have called on the Government and Group 4 to remove them. A spokesperson for the Government has said that if all the hanging points were removed, prisoners would be denied access to beds.

Before the riot took place, the Sunday Herald Sun had reported that 62 staff had quit their jobs and one was alleged to have committed suicide due to pressure at the prison. There have been a number of cell fires and prison officers became ill recently after faeces were smeared in sandwiches prepared by a disgruntled prisoner working in the kitchen.

The newspaper also claimed that a report by the Victoria Police Prison Squad was critical of the prison’s design and inadequate staffing. The Federation of Community Legal Centres has also submitted a report to the Government calling for the removal of hanging points.

Meanwhile, the Law Institute has complained to the Government that lawyers face lengthy delays before they can see their clients at the prison. This has led to badly prepared cases and costly adjournments of court cases.

Rejecting calls for the Government to take over Port Phillip, the Police Minister Mr Bill McGrath told the Herald Sun on 16 March 1998 that “it is only the misguided and opportunistic opposition by interest groups and sections of the media that has sought to highlight incidents in private prisons that go unnoticed, or unreported in the public system... we are witnessing innovation, efficiency and performance far beyond what could have been achieved in the expensive monolithic public system which was criticised for years.”

n Similar design problems exist at the Wackenhut-run Fulham Correctional Centre in Victoria but no deaths have been reported.

Protest at women’s prison

  Prisoners at Corrections Corporation of Australia’s Metropolitan Women’s Correctional Centre in Victoria staged a protest on 11 March after their entitlement to monthly all day children’s visits was cut. This was management’s response to some prisoners taking drug overdoses the previous weekend.

n Allegations last year that incidents at the prison were not  fully reported to the Government have been investigated by the Corrections Commissioner. In a response to a Parliamentary Question, the Minister said that allegations of under reporting were “extensively investigated” and that  “The review examined 135 records, including all records entered as ‘acting contrary to the good order and security’ of the prison between 22 August 1996 and 28 February 1997. The review found that “there is not widespread mis-reporting or under-reporting of incidents.  Well under half the errors related to assaults and one to drugs. The errors appeared to be due to the fact that there was initially not a shared understanding of the meaning of all of the codes, which had been developed to meet the operational needs of the public provider.” The system has now been streamlined. (Parliament of Victoria, Parliamentary Debates, Hansard, Answers to Questions on Notice 7 October to 11 December 1997, Published 17 February 1998)

Escort service deplorable

        Magistrate Mr  Ian von Einem has described Victoria’s prisoner escort service as deplorable since it was contracted out to Group 4. The company took over the service in September 1997. Under the terms of the contract, Group 4 should have prisoners at the court cells by 9.15am. But delays in prisoners arriving on time have led to numerous complaints from lawyers who do not have enough time to consult their clients. At a court hearing on 19 February 1998, Mr von Einem said: “This court cannot function properly unless there is greater co-operation from them [Group 4] and unless something can be done immediately the contract should not continue.”

Auditors face contracting out

  The Office of the Auditor General of Victoria is currently carrying out a performance audit of the state’s prison system, including the private prisons. In the summer of 1998 the Office’s work will be put out to tender. Although existing staff will be able to bid for a contract, it is likely they will be competing with firms such as Coopers & Lybrand.

NSW corruption investigated

        The Independent Commission Against Corruption (ICAC) is investigating the death in May 1997 of a prisoner at the Australasian Correctional Management-run Junee Correctional Centre.

Warren Knox was found dead of a drug overdose within a week of informing the Commission about  allegations of drug smuggling and other corruption involving prison officers. At the time of his death, Mr Knox  had only two more weeks of a three year, nine month sentence to complete. The ICAC is looking into this matter as  part of its broader inquiry into corruption in New South Wales’ prison system.

ACT Liberals promise

  The Liberal Party promised to establish a prison in Canberra if it retained government after February’s ACT election. The proposal involves closing the Belconnen Remand Centre and contracting out the construction and management of the $25million jail to the private sector or a State Government. Attorney‑General Gary Humphries said that the deal would make financial sense for the territory.

CANADA

Ontario’s hit list

       The Government of Ontario is to contract out seven facilities for young offenders aged between 12 and 15  to the private and non-profit sectors. Although the Government is to offer a bonus to bidders who will retain existing staff, the Ontario Public Service Employees Union fears that there could be 500 job losses. The Government hopes to save 10 per cent on administration costs. This is in addition to the existing plan for at least one privatised mega-jail for adults.

SOUTH AFRICA

Shipping forecast

        Representatives from a private firm were in the Ukraine in February looking at two vessels that South Africa’s  Department of Correctional Services want to use as prison ships. In conjunction with the private sector, the Department is also renovating empty buildings to house prisoners. Both moves are designed to ease overcrowding. An earlier proposal to hold prisoners in disused mine shafts has been abandoned.

UNITED KINGDOM

Services lacking at new prisons

     The first two privately financed, designed, built and run prisons opened ahead of schedule but fundamental services and facilities were lacking at the time of opening.

Securicor's HM Prison Parc, at Bridgend in Wales, opened on 17 November 1997, four weeks ahead of schedule. Group 4's HM Prison Altcourse in north west England opened last December, six months ahead of schedule. In answer to a Parliamentary Question, Joyce Quin, the Prisons Minister, admitted that a number of services and facilities were “incomplete or not available when the prisons opened. Deficiencies have been, or are being, addressed at each prison...”

At Parc, the deficiencies related to:

n the level of work and training provided;

n automatic transmission between the prison’s own

information system and the Prison Service central database;

n a bail information scheme for prisoners;

n direct debiting of telephone costs from prisoners’ cash;

n drug testing;

n prisoners’ consultation committees;

n arrangements for prisoners’ visitors and there was no creche for visitors’ children.

At Altcourse, the deficiencies related to:

n throughcare;

n the personal officer scheme;

n legal advice and information;

n sentence planning;

n levels of work and education;

n shop and hair cutting arrangements;

n drug testing;

n the number of drug sniffer dogs;

n arrangements for prisoners’ visitors.

n there was no creche for visitors’ children.

n the fitting out of workshops was incomplete.

In her written reply, the Minister added that all the deficiencies had been “brought to the contractors’ attention in writing ... as requiring remedial action” and that “when the prisons reach full occupancy there will be a full audit of contractual compliance which will also ensure that remedial action is being implemented to an agreed timetable.”

“Where specified performance measures are not being delivered, performance penalty points are being applied. Cumulatively, these may lead to a reduction in the contract price.” (Hansard, 12 February 1998)

n As at 21 January 1998, unused prisoner places at Securicor-run HM Prison Parc had already cost the Prison Service - and taxpayers -  £368,000. Full occupancy of the 800 bed facility is expected by 23 March 1998.

n In March Bernard Higgins, Parc’s first director was  replaced by the former governor of the publicly run HM Prison Bristol. Mr Higgins was also ex-Prison Service and most recently the director of UKDS-run Blakenhurst.

Detainees’ centres criticised

        The Chief Inspector of Prisons has inspected Group 4-run Campsfield House Detention Centre near Oxford and Wackenhut UK-run Tinsley House at Gatwick Airport. The Home Office has not yet published the Chief Inspector’s reports which were commissioned following a riot last summer by detainees at Campsfield House.

Campsfield House opened in November 1993. The organisation Asylum Watch recently described it as “an institution permanently on a knife edge with a catalogue of abuses including denial of access to legal advice and representation”. The detainees’ other complaints include racism from staff, heavy handed security, insufficient food, denial of access to phones and television and prison-style incarceration in their rooms.

The Government is said to be renegotiating its contract with Group 4. According to the Chief Inspector, both companies “have been put in an impossible situation because their contracts are not clear. They do not know what rights and responsibilities they have in dealing with detainees.”

The Chief Inspector’s views, which included his condemnation of Britain’s system for dealing with asylum seekers,  were contained in a letter leaked to the media in March. Group 4 issued a statement saying that it would welcome the publication of the Chief Inspector’s report and that the company “would not consider entering into a contract which involved any abuse of basic or other human rights. It operates to a high ethical standard and regards the very suggestion as deeply offensive.”

According to the Times, the Chief Inspector has recommended that incentive-based regimes and more educational facilities should be introduced and staff at both institutions should be put on the same footing as custody officers at privately run prisons.

n In September 1994 the then Chief  Inspector of Prisons made an unannounced visit to Campsfield House. His report was published in April 1995 and recommended 65  improvements. Amongst his findings was the fact that the contract was not being monitored; there were many contradictions between policy and practice; there was tension and confusion between the Immigration Service and Group 4; there was a lack of constructive activity for detainees; medical services were inadequate; and that the daily management of detainees was dealt with by inadequately trained detention orderlies. He was also concerned “at the lack of staff training, the lack of job descriptions and the long hours [the staff] were required to work.” There were also “relatively low” rates of pay.

The Home Office stated on 21 April 1995 that the majority of the recommendations had been or would be implemented.

All aboard for refugees

      A consortium of five London local authorities with responsibilities for housing asylum seekers could transfer hundreds of people currently living in inner-city hostels to a ship. The Bibby Line, a company which owns four barges currently used by German authorities to house asylum seekers, has a 280 room ‘flotel’ available. The London authorities will be viewing the ship in April.

Inquest to resume

     The coroner’s inquest into the December 1995  death of prisoner Alton Manning at UK Detention Services-run HMP Blakenhurst will resume on 24 March 1998.  The   cause of death is expected to be announced on that date.

UNITED STATES

Rebound investigated again

        An investigation has been launched into conditions at Rebound Corp’s High Plains Youth Center in Brush, Colorado after a 13 year old boy hanged himself in his room on 22 February 1998.  The  161 bed facility was the subject of an audit in October 1997 after concerns about high staff turnover and inadequate training. In December 1995, a report on the facility by the University of Illinois at Chicago found “a consistent and disturbing pattern of violence, sexual abuse, clinical malpractice and administrative incompetence at every level of the programme.” The State of Colorado, which has some 60 youths at the facility, has stopped all new referrals to the Center pending the outcome of the latest investigation.

In March 1997, the company had a contract in Florida cancelled due to inadequate performance. Rebound operates six facilities in three states and has contracts to deal with 360 juveniles from 20 states.

More problems for Bobby Ross  

        The Oklahoma Department of Corrections has removed 174 prisoners from the Bobby Ross Group (BRG)-run Newton County Correctional Center in Texas. The facility also holds 435 prisoners from Hawaii. The State will not cancel its contract  with the company if a number of problems are resolved. The Texas Jail Standards Commission has given the company until the end of March 1998 to implement changes related to procedures governing emergencies, prisoner classification and sanitation. Failure to comply could result in closure, the forced reduction in prisoners and/or a change in staffing at the prison.

According to a statement on 3 March 1998 from the Oklahoma Department of Corrections, “incidents in the last several weeks, plus the failure to prosecute new crimes committed by Oklahoma inmates are the reasons for the decision to remove the inmates. The incidents include the burning of the commissary building, assaults on staff, and several instances of inmates getting out of restricted housing cells.”  Oklahoma has been using the facility  since April 1997.

BRG fired its Warden at Newton after a riot on 23 February 1998 when prisoners set fire to the commissary after being tear-gassed.

Another lawsuit for CCA

      A teenager who was a prisoner at a CCA-run juvenile  facility at Columbia, South Carolina is suing the company in the federal court in Columbia. He is claiming that staff routinely mistreated him. He was  hog-tied on more than 30 occasions and pepper sprayed at  least three times.

The boy, who cannot be named for legal reasons, was at the facility between July 1996 and January 1997. He spent the following year in a state mental hospital. His lawyers say that a further 20 former prisoners might also sue the company.

CCA ran the facility for just one year and then the contract was not renewed. A review of operations in November 1996 found that staff had used improper force to control the juveniles. In January 1997 a report by the John Howard Society confirmed that hog-tying had taken place and that staff had been inadequately trained. At least fifteen youths escaped during CCA’s management.  Despite the company hiring a former army colonel to run a military-style leadership programme, on 1 July 1997 the facility’s management  was taken over by the Department of Juvenile Justice.

Michigan getting tougher

       Construction of the State of Michigan’s first private prison is under way. The 480 bed maximum security facility for juveniles  will be completed in 1999 and will be run by Wackenhut Corrections Corp. It will house male juvenile offenders who have been sentenced as adults.

The State Governor, John Engler, who in the past has called for ‘adult time for adult crime’ said “Michigan now has one of the toughest juvenile justice systems in the nation and this prison is another step to keep it that way”. The prison will be one of the largest youth correctional facilities in the US.

Companies want Iowa

     Residents of Forest City, Iowa, are still investigating how and why CCA developed  a proposal for a private prison in their community. In the meantime CCA, Wackenhut Corrections Corp and US Corrections Corp have submitted proposals to Iowa Department of Corrections officials to run all the state's future prisons.

A new 750‑bed facility is due to open on 15 April 1998. US Corrections Corp has said it would require a staff of 188 to run such a  prison. Wackenhut has proposed 203 staff while CCA would need 226.  US Corrections Corp’s proposed daily cost per prisoner would be $42.19,  CCA’s  $42.75 and  Wackenhut’s $46.90. The state’s average cost is $47 per prisoner per day. The companies have identified nine potential locations, including Forest City. According to the Director of the state corrections department, the companies would ultimately decide on sites based upon “whatever makes business sense to them”.

A consultant's report commissioned by Iowa corrections officials concluded: "The best of the available evidence certainly indicates that privatization initiatives elsewhere in the United States have proven to be a cost‑effective part of the solution for many of the troublesome problems. However, privatisation is not a panacea and it does not come with guarantees. Whether Iowa would have a satisfactory experience with privatisation cannot be determined." A decision to privatise would need  legislative approval.

New smooth operator

       Atlanta based construction firm Facility Group has acquired CSG Consultants of Kansas in order to expand from simply building prisons to offering complete consulting services on operations. The company’s Facility Justice Group will offer logistic assessment and recommendations on complete justice systems, including the relationship between jails and courts, the movement of prisoners between them and even sentencing options.

The company notes that overbuilding of prison bed space is the current trend. Communities make decisions to accommodate needs projected over a number of years and rent out the space that is not needed in the short term.

The vice president in charge of the Facility Justice Group is Peter Rich.

CCJC to take legal challenge?

       The  fifth Round Table Conference  of  the Corrections and Criminal Justice Coalition (CCJC) took place in Washington DC from 5-8 February 1998. One of the issues discussed was the possibility of testing the legality of private prisons with a constitutional challenge in the Supreme Court. Representatives from 35 organisations from 25 states, the District of Columbia and Canada are now involved in the CCJC. The next conference will be in  San Antonio from 9-11 June 1998. The CCJC website is at: www.ccjc.com

Ethical investment?

       Denver’s Public Schools Pension Fund made a quick profit from buying and selling stocks in Corrections Corporation of America’s Prison Realty Trust last year. But some school board members have questioned whether it is ethical for stocks in prison companies to be included in a school district’s portfolio.

In July 1997, the Pension Fund bought 15,000 shares at $21 each and sold them two months later at $34, making a profit of some $200,000. The Social Investment Forum in Washington regarded the fund’s investment as ironic as investing in prisons does not set a good example. According to CCA,  although Denver was the only school board that had invested in the company, “a couple of cities” were considering investing.

CORPORATE WATCH

Top companies’ record profits

       Corrections Corporation of America (CCA),  Wackenhut Corrections Corp (WCC),  Cornell Corrections Inc and Correctional Services Corp all increased revenues and profits to record levels for the financial year to 31 December 1997.

CCA is the largest corrections company in the US and this year celebrates fifteen years in business.  WCC is the second largest in the US and has been operating for ten years. Its international operations have expanded faster than CCA’s. Cornell claims to be the third largest in the US but has no contracts abroad.

In 1997 CCA’s revenues grew to $462m from $293m in 1996, an increase of 58 per cent. Net profit increased from $30.9m to $53.9m. At the end of 1997, CCA had 38,509 beds in operation compared with 24,310 in 1996.

WCC, which is 54 per cent owned by the Wackenhut Corporation (which itself had revenues of over one billion dollars in 1997) increased its revenues from $138m in 1996 to $210m in 1997. Net profit increased 44 per cent from $8.3m in 1996 to $11.9m. The company increased its design capacity  from 12,235 beds to over 20,000.

Cornell’s revenues increased 117 per cent from $32.3m in 1996 to $70.3m in 1997, partly through acquiring two companies during the year and the opening of new facilities in North Carolina, New Mexico and Utah. The company’s net profit after tax was $3.5m. As at 31 December 1997, Cornell had 5,061 beds in operation compared with 2,899 in 1996.

Correctional Services Corp (CSC, formerly Esmor) had record revenues of $59.9m compared with  $31.5m in 1996, an increase of 90 per cent. Net profit was $3m compared with a loss of $1.9m in 1996. The company attributed its growth to opening new facilities, taking over existing ones and “the leveraging of the company’s infrastructure”.  During the year CSC also took over the operation of some “troubled juvenile facilities”. It has three divisions: adult; juvenile; and community corrections. As at 31 December 1997, CSC had 24 contracts for 4,444 beds at facilities in Florida, New York, Arizona, Texas, New Mexico, Washington,  Mississippi and Puerto Rico.

Happy new year

The companies are continuing 1998 in the same vein.

As at 9 March 1998, CCA claimed 54,944 beds in 68 facilities under contract or development in the US, Puerto Rico, Australia and the UK. As at 23 February 1998, Wackenhut claimed contracts and awards to manage 46 facilities in North America, UK and Australia with a total of 30,424 beds and additional contracts for prisoner transportation, health care services and the maintenance of secure facilities.

During the first quarter of 1998, Wackenhut is opening five new facilities with 2,500 beds. They include a 600 bed young offender facility in Arkansas; a 600 bed facility to house all adult female offenders in the Arkansas state system; a 500 bed adult facility in Karnes County, Texas; a 300‑bed work release center in Broward County, Florida and a 500 bed facility in Nottingham, England. WCC also has  ten more facilities  under development  with four of them totalling over 2,500 beds scheduled for completion and opening before the end of 1998.

Although no new contracts or acquisitions have been announced recently, Cornell expects to continue its strategy of making new acquisitions and gaining new contracts. In 1998, Correctional Services Corp expects “continued recognition of our expertise...”

REIT stuff

Following CCA’s lead, Wackenhut has now also formed a real estate investment trust (REIT). Correctional Properties Trust will acquire correctional and detention facilities in order to “capitalise on the growing trend toward privatisation in the corrections industry”. The trust has developed what it calls “a strategic alliance” with WCC and is listing its  shares on the New York Stock Exchange. Some 6.2 million shares are to be offered for sale. With the proceeds, the company will acquire the eight correction and detention facilities currently operated by WCC and will also have the option to acquire three additional facilities currently under development.

n The prison companies’ strategy of creating  a REIT to gain access to cheap financing for their expansion has come under scrutiny in a recent issue of Business Week.

Noting that the value of shares in CCA’s Prison Realty Trust has doubled, the magazine describes how REITs have also been formed by  McDonalds, Walt Disney and companies owning car dealerships, golf courses and cinema multiplexes.  Investors are warned that “although the REIT and its parent are separate entities, often the same management controls both ... if management has a much larger stake in the parent than in the REIT, which is typical, it would have an incentive to favour the parent over the real estate entity...”

n According to CCA Prison Realty Trust, “tax increases are difficult to pass and bond issuances are coming under greater security, yet taxpayers are demanding more services, improvements in education and public safety, and balanced budgets. Prison Realty Trust offers a unique solution ... by allowing governments to free up capital for use in their communities through the sale-leaseback of existing prisons and jails, and the design, construction and financing of new facilities. The capital which is raised ...can be used for any purpose...”