August 20, 2009 / 6:16 PM / 9 years ago

Private prisons seen taking more U.S. inmates

NEW YORK (Reuters) - The biggest publicly traded U.S. prison operator, Corrections Corporation of America (CXW.N), is ready to take thousands of prisoners from budget-strained states, but it is not yet investing in additional capacity, its incoming chief executive said on Thursday.

Private prisons operators will grow market share in coming years, Correction Corp.’s Damon Hininger, said in an interview on Thursday.

Private prison operators currently hold about 8 percent of the states’ and federal government’s inmates, up from less than 6 percent at the start of the decade. Market share has never fallen in the industry’s quarter-century history, Hininger said.

“We will see a higher percentage of the population housed in private facilities, versus a state making a decision to appropriate dollars to build new capacity, and I think that will be exacerbated further by budget deficits,” he said.

Growth in market share will be gradual, he added.

The company, which runs 65 facilities in 19 states, said this week CEO John Ferguson would retire on October 15, while remaining chairman. Hininger, the current president and chief operating officer, will then become CEO.

Corrections Corp. houses about 77,000 inmates and has about 6,500 empty beds, about a third of which are being held in reserve for a possible transfer of prisoners from cash-strapped California.

Current open capacity is above the typical range of about 4,000 to 6,000 beds. At profit margins of about $22 to $23 per inmate per day, filling those extra beds could mean a double-digit boost to earnings, Hininger said.

The incoming CEO said the company tries to always have spare capacity ready, since a contract could come on short notice, but it is not yet willing to boost capacity further until more of its empty beds are filled.

“We’d like to see more meaningful absorption before we turn on any more new capacity,” he said.


A three-judge panel this month ordered California to reduce its prison population by about 40,000 over two years to address severe overcrowding. Many of those inmates may be released rather than transferred, and the state Attorney General, Jerry Brown, may appeal the judges’ ruling.

“We’d love the opportunity” to take more California prisoners, Hininger said. The company currently houses about 8,000 California inmates, including some in Arizona.

Correction Corp., which has about half the market share of privately-managed prison beds in the United States, this month reported better-than-expected quarterly profits and raised its full-year forecast.

Its shares have more than doubled from their March lows, to above $20, and the company now trades at a higher price-to-earnings multiple that peers. These include the GEO Group Inc (GEO.N), Cornell Companies Inc CRN.N, America Service Group Inc ASGR.O, which handles health care, and privately-held Community Education Centers.

Hininger said it is too soon to gauge the impact of the current recession on prison populations, but the 2001-2002 downturn resulted in “pretty dramatic growth.”

    Already, U.S. state prisons are running, on average, at about 110 percent of capacity, while the Federal Bureau of Prisons is at 137 percent capacity.

    Some states have deferred investments in new capacity, forcing them to make do with existing facilities by cramming more people into finite space, but have avoided the cost of sending more inmates to private operators.

    “As states get more of a breather relative to their budget situation, that helps them be proactive on ... overcrowding,” Hininger said. “That could be an opportunity for us.”

    States have largely set their budgets for the current fiscal year, but may review those as conditions change. Whether states’ budgets have hit bottom may not be apparent for several quarters, Hininger said.

    Some states, like Florida, have a severe shortage of prison beds. Florida has the fastest projected growth in prison population over the next 5 years, but its current budget does not fund new construction.

    Hininger, who started as a corrections officer in Leavenworth, Kansas 17 years ago, said most people’s perception of prisons is colored by movies and by television shows like “Oz” and “Prison Break.”

    Visitors are often surprised.

    “Their reaction is, ‘It’s cleaner and brighter and a better environment than I’d have thought,’” he said.

    Reporting by Nick Zieminski, editing by Leslie Gevirtz

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