We republish a superb article on NH prison privatization

Forward by Dr. Peter Bearse

Award-winning investigative reporter Bob Sanders of NH Business Review recently published a probing piece on the four bidders to privatize the New Hampshire prison system. We are pleased to reprint his work with permission.

Until now the media have largely ignored the state’s requests for bids to build a prison for men, a prison for women and/or a prison for both. An interim legislative report last December advised outsourcing at least 1200 inmates, even if they have to go out of state.

This month the Department of Corrections is evaluating several prison construction and management proposals from private companies, even as lawmakers continue developing a prison privatization plan. 

In my opinion as an economist and as treasurer of Citizens for Criminal Justice Reform, the incentives to privatize this vital state responsibility are all wrong. It would be like privatizing the Supreme Court or the State Police. Too many fundamental rights are implicated.  

Private corporations have every incentive to cut costs and keep inmates in prison as long as possible. They have few, if any, incentives to reform and restore inmates and make them less likely to return to crime. The basic lesson here? Corporations will profit, taxpayers will pay. —Peter Bearse, Ph.D

Proposal under review would put all New Hampshire prisoners in private, for-profit facilities -- the first state to do so

By Bob Sanders

Friday, April 6, 2012

Will New Hampshire become the first state in the nation to hand over its entire prison population to a corporation based out of state? And is it in the middle of doing so right now?

The New Hampshire Department of Corrections has put out a request for proposal that would essentially hand over the keys to a future penitentiary to an outside contractor for 20 years. Though the RFP still has to clear several hurdles, four companies have responded with plans to build, and probably run, a new prison for all of New Hampshire's male (and perhaps female) inmates.

Two of the firms interested are publicly traded -- Nashville, Tenn.-based Corrections Corporation of America and The GEO Group of Boca Raton, Fla., with combined annual revenues of over $3 billion.

Another, Management & Training Corp. of Centerville, Utah, is a privately held company, and The Hunt Companies of El Paso, Texas, is apparently a newcomer to the field.

Thus far, the MTC bid is the only one about which anything is known.

According to Manchester Realtor Richard Danais and self-described MTC consultant, the firm plans to build a $100 million men's or hybrid prison on 25 of the 100 acres of his land in the Hackett Hill area of the Queen City.

Danais, a former state senator, said he got in touch with MTC through their lobbyists, Bruce Berke and Elizabeth Murphy of Sheehan Phinney Capital Group.

Danais added that he had no interest in corrections during or after his four-year tenure as senator in the 1990s, and he was not contemplating a prison when he bought the land from the city last year.

MTC, which has purchased an option on the site, would also acquire and conserve the remaining 75 acres to hide the prison from the Hackett Hill neighborhood, Danais said.

Danais, emphasized that prisons have their economic benefits. MTC would offer about 600 jobs as well as construction work to local contractors.

But Hackett Hill resident and former Union Leader city editor John Toole, who is leading the neighborhood opponents of the project, said the land is better suited for a business park. He said the prison would be an "economic disaster for the state of New Hampshire."

"It would discourage any business from coming here. It's a waste," said Toole.

Toole has nothing to say about prison privatization in general. Indeed, some neighbors are proposing -- and Manchester is considering -- a zoning ordinance that would bind any prison in the city to a small industrial section of the city near the Manchester-Boston Regional Airport. The New Hampshire Supreme Court, however, has struck down previous ordinances covering private prisons.

Meanwhile, an MTC spokesperson would not confirm or deny which location or locations the company is proposing in the RFP, citing the confidentiality of the bidding process.

Indeed, all the details of the bids are being kept under wraps until a selection is made -- actually, if a selection is made, since the Corrections Department officials have not been too crazy about the privatization idea in the first place.

Shrinking population

That doesn't mean that various parties -- including the vendors -- aren't taking the process seriously.

The big three have all hired lobbyists. CCA has so far paid $65,000 for David Collins of Rath Young and Pignatelli to represent it at the State House. The other firms have more recently entered agreements with lobbyists, so comparable figures aren't in yet.

MTC started its lobbying effort in November and paid Sheehan Phinney $6,000 for its work until the end of the year. The GEO Group started with lobbyists Michael Dennehy and Jim Bouley in January.

If one of the four vendors succeeds and actually lands a contract, New Hampshire will become the first state that would place all of its inmates in private prisons. Currently, there are no privately run prisons in New Hampshire.

Almost half the states use private prisons. New Mexico incarcerated 43.6 percent of its prisoners privately in 2010 -- the largest percentage in the nation, followed by Montana (40 percent) and Alaska (33.5 percent), according to the Bureau of Justice Statistics' inmate population report released in December.

The federal government -- the private prison industry's biggest single customer -- relies on them to house 16.1 percent of its prisoners.

Vermont, which has no private prisons of its own, is sixth in the nation, shipping off 27 percent of its prisoners to institutions run by the same prison companies that are proposing facilities in New Hampshire.

Indeed, if New Hampshire transferred its inmates to the private prison envisioned by the RFP, there is a good chance that they will be joined by inmates from Vermont as well as from other nearby states. That's partly because there are no private prisons located in New England -- the closest private prison run on behalf of a state is in Ohio.

But more importantly, the minimum capacity required by the RFP -- about 1,500 for men and about 1,700 for a hybrid facility of men and women (an RFP for a women-only facility attracted no bidders) -- is expected to be too large for the state, thus requiring the importation of inmates.

And that's because the RFP projects that New Hampshire's inmate population will be shrinking as opposed to growing, as it has for the past three decades. Some expect most bidders to propose a facility with an even larger capacity than the minimum in order to give it an economy of scale to be competitive.

Vacant beds

New Hampshire's prisoner shrinkage reflects a nationwide trend. In 2010, prison releases exceeded prison admission for the first time since the Bureau of Justice Statistics started collecting data in 1977.

Private prison populations, which went up over the last decade by 9.1 percent, fell by nearly a percentage point between 2009 and 2010. And the industry's market share -- which grew from 6.3 percent of all prisoners in 2000 -- has stalled at 8 percent for three years since 2008, as the private prison industry is losing almost as many contracts as it is gaining. Most of the losses are at the state level, and most of the gains are from the federal government.

This has left the prison industry with extra capacity to fill, according to recent filings with the Securities and Exchange Commission.

GEO, for instance, was marketing some 7,700 vacant beds at the beginning of this year, according to an SEC report filed in February. The carrying capacity of the idle facilities totaled $297.3 million, costing the company $16.6 million in 2012. This -- along with some $246 million in projects under development -- contributed to a "significant level of indebtedness" of $1.3 billion, the company said.

That debt could mean the company "may not complete some or all of the projects on time or on budget."

CCA has five idle facilities resulting with a carrying cost of $103.7 million, according to an SEC filing in 2010.

CCA revealed that vacant beds cost it $4.8 million in expenses in 2010, with a cost of roughly $1,000 per vacant bed. CCA did not provide similar figures for 2011.

Doing the math

It was the exportation of inmates that led to the push to privatize New Hampshire's prisons.

During the state's last budget crunch, when lawmakers were trying to cut spending in every department to prevent any tax increase, the Department of Corrections was a particularly difficult case. Lawmakers figured that they could save about $5 million to $6 million by adding an amendment to an unrelated bill that would ship about 600 inmates out of state.

The rationale was as follows: The state pays an average of $33,000 a year, about $90 a day, to incarcerate an inmate. Vermont ships them off for $60 a day. Thus the difference would be roughly $10,000 a day, which comes out to $1 million of savings for every 100 prisoners.

But the math doesn't quite work that way, explained Corrections Commissioner William Wrenn to the Senate Finance Committee at a hearing last year.

The state's average includes various overhead costs that don't just go away when a prisoner is sent away. Plus, there are various other costs the state has to take on to keep on top of private prison authorities to make sure they do their job, since the state is still liable for the inmates that it put away.

There are social costs as well, as a parade of advocacy groups and family members of prisoners spelled out at the hearing last year.

Visitations will be more difficult, thus making it harder for families to stay together, and more likely for prisoners -- without that social fabric -- to commit crimes again.

The amendment didn't fly, but the idea of privatizing prisons picked up steam.

While at the time, Wrenn said the idea of "putting all our ducks in one basket" by placing all prisoners in private facilities is something "no state that I know of has even thought about doing."

But lawmakers created a study committee to think about exactly that, tucked -- relatively unnoticed -- in the massive trailer bill to the budget.

The proposal was to "privatize the Department of Corrections", which was to issue a report on the plan by Dec. 1, 2011. Also included was the requirement that the Department of Administrative Services issue a request for proposal for "provision of correctional services or any other services provided by the Department of Corrections." However, it added that the commissioner "may enter into one or more contracts" for the "transfer and reception of not more than 600 inmates."

It is unclear from the wording whether Administrative Services or Corrections can go beyond that and contract out the entire prison system without legislative approval.

However, many of those involved in the process think that the state can, even though some say that such a maneuver won't fly politically.

"I don't think the Legislature has anything to do with it," said Danais, saying that Executive Council and the governor could approve the contract without oversight of legislators.

"Technically they could probably do that," agreed Rep. Dan McGuire, R-Epsom, who heads the study committee on privatization. "But we have influence behind the scenes. We are friendly with the executive councilors, so if we weren't comfortable, they could easily slow down the process."

But without the results of the RFP, the committee had very little to report on last Dec. 1, so it is seeking an extension - in Senate Bill 376 - to May 2012.

That bill has been the target of opponents of prison privatization, such as the American Friends Service Committee, New Hampshire Legal Assistance and Citizens for Criminal Justice Reform, all of which criticize the proposal on economic and moral grounds.

"The research says private prisons can be marginally cheaper to operate when they serve their preferred kind of inmate, the population that is docile and healthy. It's the same way profit-making HMOs cherry pick the youngest and healthiest subscribers," said Chris Dornin, founder and spokesperson for Citizens for Criminal Justice Reform. "But study after study shows that government-run programs generally do better with the challenging prisoners, and the quality of rehabilitation is consistently better for all inmate classifications." Dornin added that "private prisons tend to skimp on pay, training and staffing ratios. The result is often high turnover and personnel shortage. That's a dangerous combination behind razor wire."

MTC, however, said that private prisons do save the state money.

"A 2009 survey of 30 state correctional agencies, many of which use privately operated correctional facilities, also demonstrated contracted prisons are lower in cost than the public sector by 28 percent," according to its literature.

A report released at the end of January by the Citizens Advisory Board of the New Hampshire State Prison for Women contended that many of those studies don't take certain items into account, such as medical costs associated with the most severely ill inmates.

Both could be right, said McGuire, but the "competitive tension" between public and private prisons seems to bring down the cost of both when compared to states with no private facilities. And that's one of the reasons McGuire is hesitant to give all New Hampshire prisoners to one contractor.

William McGonagle, the state's assistant corrections commissioner, said it would take at least another month before a recommendation can be made.

Companies in the bidding

Some background on the private, for-profit companies that have answered New Hampshire's request for proposal to build and perhaps operate a new prison in the state:

  • Corrections Corporation of America, a publicly traded company based in Nashville, Tenn., has 75,000 inmates locked up in 60 facilities in 19 states and the District of Columbia. Last year, the company reported $438.3 million in revenue with a profit of $43.7 million.
  • The GEO Group of Boca Raton, Fla., another publicly traded company, owns 114 correctional detention and residential facilities, encompassing about 80,000 beds. Last year, the company reported $406.5 million in revenue and $18.6 million in profits.
  • Management and Training Corp. of Centerville, Utah, is a privately held contractor involved in management of U.S. Job Corps facilities as well as prisons. MTC says it has the capacity to service nearly 26,000 inmates, with 19 management contracts in seven states. The firm, however, got a little pre-publicity in New Hampshire when developer and former state senator Richard Danais revealed that he was talking with MTC to build a private prison on a 100-acre plot he bought from the city of Manchester last year in the Hackett Hill neighborhood.
  • NH Hunt Justice Group LLC, whose corporate paperwork was signed by a vice president of Hunt Companies Inc. of El Paso, Texas, and operates out of its headquarters. Hunt Companies is a family-run real estate and construction company involved in a number of public-private partnerships, but its website does not mention prisons. It claims it has built some 70,000 military housing units, with 40,000 still under its management in 20 states. It also claims to have 17,864 non-military multifamily housing units. -- BOB SANDERS

Legal, safety issues raised at private prisons

One of the costs associated with privately operated, for-profit prisons that is often not taken into account is litigation.

For instance, in 2008, the state of Texas indicted the GEO Group for an inmate death at a Texas facility it operated, resulting in a $42.4 million out-of-court civil settlement, according to a report issued by the Citizens Advisory Board of the New Hampshire State Prison for Women.

And, according to GEO's SEC filing, on June 22, 2011, a jury verdict for $6.5 million was returned against GEO in a wrongful death action in Oklahoma, citing the company's negligence. The court upped the amount to $8.4 million, a judgment that GEO is appealing.

(GEO Group would not comment for this article, citing the bidding process).

Private prison owners are certainly the target of many lawsuits. In the last 10 years, Corrections Corporation of America was a defendant in 1,591 federal lawsuits, Geo Group faced 214 and Management and Training Corp., 66.

There were other disturbing incidents cited in the Citizens Advisory Board report:

  • In 2010, two escaped prisoners from an MTC facility killed an Oklahoma couple. "A faulty alarm that would ring as often as 200 times a shift for over a two-year period was ignored by prison staff," according to the report.
  • In March 1998, the city of Youngstown, Ohio, filed suit against CCA on behalf of all prisoners, alleging that they were put at risk by being sheltered with maximum-security prisoners in a facility. Five years later, the Northeast Ohio Correction Center said that violence at the prison - 13 stabbings, two murders and six escapes over a 14-month period - was very high compared to public facilities.
  • "There have been incidents in public facilities too. There is no one group that tracks riots and incidents in public and private incidents," said Issa Arnita, a spokesperson for MTC, who emphasized that private prisons are still under public auspices. "We do whatever they tell us we should do."

"It's the best of both worlds: accountability of government and the innovation of business," said Steve Owen, a CCA spokesman.

As for reports, "Quite frankly, many of them are no more than googling old articles and making a report out of them. There isn't a corrections system that never had an incident in one of their facilities. You are judged on how you respond to them." —BOB SANDERS