FEATURE-Private prison business eyes big Florida prize

Thu May 12, 2011 10:45am EDT

Related Topics

* Florida-based GEO Group sees privatization windfall

* Up to $400 million in annual revenues up for grabs

* Plan driven by "politics and big donors" - senator

By Tom Brown

MIAMI, May 12 (Reuters) - Florida has opened the doors to one of the biggest prison privatization programs in U.S. history, as the cash-strapped state looks to cut the cost of keeping more than 100,000 people behind bars.

The privatization plan, touted by the industry as "an important milestone" for the private prison business, was approved by the Republican-dominated Florida legislature as part of a budget deal hammered out last week.

Private prison operators have already made big inroads in states like Texas and New Mexico. But Florida has the third largest state prison system in the United States, and no other state has sought to privatize so many lock-ups at any one time.

The move has drawn sharp criticism from law enforcement groups and even some leading Republicans, who say it endangers public safety in a state still trying to shake off a history of prison abuse and corruption, as depicted in the popular 1967 Hollywood film "Cool Hand Luke" set in Florida starring Paul Newman.

Others say private prisons don't have incentives to rehabilitate inmates and are focused instead on profits.

The plan has not yet been signed into law by Republican Governor Rick Scott, who took office in January after campaigning on a pledge to fight record-high unemployment.

But few doubt that Scott, who puts a premium on cost-cutting and close ties with the business community, will endorse the initiative even though it could lead to layoffs and sharply reduced wages and benefits for 4,500 prison guards.

Critics condemn the privatization move as an example of the corrosive effect of corporate money in politics.

Coupled with other austerity measures introduced under the leadership of the Tea Party-backed Scott, it could hurt Republicans in the run-up to next year's election in the pivotal battleground state.

"For the first time in my life I'm thinking about switching parties," said Jim Baiardi, a 45-year-old prison guard and life-long Republican who heads the correctional officers chapter of the Florida Police Benevolent Association.

The privatization plan is "not for the benefit of the state, it's for the benefit of the corporations," Baiardi said.

Under the plan, the state is required to privatize all of the prisons in South Florida, which is home to about one-fifth of the statewide inmate population of 101,000.

That includes at least 16 prisons along with numerous annexes, juvenile correction facilities, road camps and so-called work-release centers across an 18-county region.

"It's unprecedented in the United States," said Florida Senator Mike Fasano, a Republican who heads the Senate budget committee with oversight of prisons.

He said he tried to block the privatization plan but failed due to lobbying by politically powerful companies led by GEO Group (GEO.N), the Boca Raton-based firm that is the second-largest U.S. private prison operator.

"I'm a conservative Republican that believes in privatizing certain parts of government services but we should never privatize public safety," Fasano told Reuters.

"POLITICAL PAYBACK"

The privatization plan requires companies to operate prisons for at least 7 percent less money that it takes to run state-run facilities, but Fasano said that promises it would reduce up to $40 million annually were unconvincing and undocumented.

"It all comes down to politics and the big donors. GEO and the other private companies that run prisons are very big donors to the party here in Florida and to the elected officials, both past and present," he said.

GEO Group declined requests to comment. But top executives talked excitedly about the privatization deal in a recent earnings call with industry analysts.

"This is a very important milestone for our industries and we hope that additional opportunities such as this will develop at the state level in the coming years," said John Hurley, who heads the corrections division of GEO Group, formerly known as Wackenhut Corrections Corp.

George Zoley, the GEO Group's chief executive, called the Florida deal "one of the largest opportunities that we've ever seen in the history of our industry," suggesting it could add "several hundreds of millions" to the group's annual revenues.

Kevin Campbell, an analyst who follows private prison companies for Avondale Partners, said the Florida deal looked set to add anywhere from $300 million to $400 million in revenues to private operators. This is based on the assumption that they will be taking over the care of between 17,000 and 20,000 prisoners in South Florida, including their healthcare.

He added it was "the most ambitious" prison privatization to date, in terms of number of inmates being "outsourced."

"HISTORY OF FAILURE"

The state government has not yet said how contracts will be awarded. But the business may be broken up into multiple bids and the process is expected to get under way soon since the budget calls for it to be locked into place by Jan. 1.

Campbell said GEO Group was probably better positioned than Corrections Corporation of America (CXW.N), its larger rival, to benefit from the plan. "I think really why GEO has an advantage, more than anything, is they provide the full scope of services the state is looking to outsource here," he said.

The U.S. prison population dwarfs that of other nations, including Russia and China. The private prison business is expected to grow barring dramatic changes in crime and punishment.

But some analysts see inherent problems in a free market approach to prisons in the world's No. 1 incarcerator.

"The history of private prisons really is a history of failure," said David Shapiro, a Washington-based lawyer with the ACLU National Prison Project.

"The problem with private prisons is they just don't have incentives to rehabilitate," he added. "The more crime there is, and the longer sentences are, the more business private prisons get."

James McDonough, a former secretary of the Florida Department of Corrections, agreed that private prisons were problematic if the only clear incentive was to cut costs.

"I feel there are some things that the government has the obligation to run itself. And one of those, my own view, is the supervision, the housing, the caring for inmates that the state in fact has imprisoned. You don't contract that out." he said. (Editing by Pascal Fletcher and Philip Barbara)

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