Texas Prison Bid'ness

While Corrections Corporation of America is dealing with the fallout from the indictment of one of its former supervisors for sexual abuse of detained female immigrants at the company's T. Don Hutto detention center, another interesting article in the Nashville Post (Geert De Lombaerde, "Out of options," August 17) caught my eye:

Former Corrections Corp. of America CEO — and current chairman — John Ferguson has taken one for the team. Ferguson has signed a deal with the prison management firm to hand over almost 166,000 stock options so the company can divvy them out to other employees. The options would have expired in 2017 and 2018. It’s a magnanimous gesture, to be sure, and consistent with Ferguson’s request last year that he not be given equity awards.

But it’s also worth pointing out that Ferguson, who led CCA for more than nine years, last year pocketed $11 million from the exercising of options and still controls another $13 million in company stock. Plus, the surrendered options had strike prices above $26, where CCA (Ticker: CXW) hasn’t traded since September of 2008.

We pointed out last week that GEO Group's top executives also brought in nearly more than $7 million and $3 million respectively, and that all of this wealth is accumulated through taxpayer dollars. 

The GEO Group completed its takeover of Houston-based Cornell Companies last week, and yesterday announced the results of Cornell shareholder vote on the takeover.  There has been little analysis of this deal, and how it will effect exisiting Cornell facilities, including its 10 facilities in Texas or otherwise. 

The exception is, as usual, Scot Hensen at Grits for Breakfast, who argues that the deal may add to GEO's problems being highly leveraged:

The same warning was included in Geo's most recent 10K, but after the purchase of Cornell it deserves to be amplified. The more debt the company has, the greater risk they must "dedicate a substantial portion of our cash flow from operations to payments on our indebtedness." (They'll also be dedicating a portion of their revenue, btw, to pay the board chairman's son-in-law a fat $144K salary plus stock options, which is the kind of executive hire that to me raises a red flag.) 

...

I'd also pointed out back in 2007 that GEO making its debt payments required the company to rely on payments from subsidiaries that it could not guarantee:

The 10-K declares that Geo relies on "distributions" (i.e., "profits") from its subsidiaries to pay its increasingly large debt. Profits from subsidiaries made up more than 28% of Geo revenue last year, but the 10-K cautions that "Our subsidiaries are separate and distinct legal entities and are not obligated to make funds available for payment of our other indebtedness in the form of loans, distributions or otherwise."

In other words, we're not solvent without payments we can't ensure will keep coming, and our subsidiaries are "separate and distinct legal entities" who we don't control. That works out nicely for Geo if they go bankrupt, doesn't it?

That was written when subsidiaries made up 28% of Geo's revenue. Today, according to Geo's 10K, "For the fiscal year ended January 3, 2010, our subsidiaries accounted for 50.1% of our consolidated revenue, and, as of January 3, 2010, our subsidiaries accounted for 59.0% of our total segment assets." If the Cornell acquisitions are treated as subsidiaries, that risk will be even further magnified. The Geo Group is a heavily leveraged company.

Scot's article is worth a full read, and feel free to check out our past coverage of the GEO Group.

The private prison industry makes good sense for at least one group of well-heeled individuals - executives at the biggest private prison corporations who make big bucks operating these companies.  We reported last month GEO Group CEO George Zoley and chief operating officer Wayne Calabrese were amongst the highest paid south Florida executives. 

Now, Calabrese is selling two South Florida homes for a combined value of more than $3 million.  The first, a modest 1,810-square-foot house in the Boca Raton Riviera subdivision, is going for a mere $575,000.  The second is a 6,105-square-foot house Royal Palm Yacht & Country Club subdivision that is on the market for a less modest $2.475 million. Clearly, the prison business has been good to Mr. Calabrese.

Sometimes we forget that the wealth accumulated by private prison corporations and their executives comes soley from taxpayer dollars paid to companies that in turn don't spend all that money on correctional services.  Calabrese's $3.6 million compensation was more than than 19 times the salary of TDCJ director Brad Livingston and more that 16 times the starting salary of the Secretary of Corrections for the state of California. GEO head George Zoley's total compensation last year was more than $7 million, and Zoley listed a home in Fort Lauderdale for sale for nearly $11 million last January.  Private prisons are clearly good business for some. 

A new "green paper" released Monday entitled Operation Streamline: Drowning Justice and Draining Dollars along the Rio Grande takes a look at the impact of Operation Streamline on the private prison industry.  I co-authored the report for Grassroots Leadership, a sponsor of this blog. 

Operation Streamline, initiated in 2005 in Del Rio and expanded to much of the Texas and Arizona border, mandates that immigrants apprehended at the border are detained, prosecuted, and incarcerated in the criminal system in addition to the civil immigration system.  This is a departure from previous policy in which most immigrants were only dealt with in the civil immigration system.

The result has been a mess.  In Texas alone, 135,000 immigrants now have criminal records and many have done real prison time under the Streamline before being deported (far from streamlining the process, the policy adds another layer of incarceration on top of the existing civil detention system). 

While most researchers believe that the program hasn't deterred unauthorized immigration, the program has affected the judicial system in serious ways.  The federal court system is horrendously over-booked.  54% of 2009's federal prosecutions across the country were for immigration violations.  In the Southern District of Texas, a district that includes Houston, a full 84% of April prosecutions were for two immigration violations - unauthorized entry (1325) and unauthorized re-entry (1326).  With a mandated focus on prosecution of immigration violations, diligence to other prosecutions has fallen off dramatically.

So, who wins in this scenario?  Our research indicates that, since 2005, more than $1.2 billion in federal money has been spent on the detention and incarceration for unauthorized entry and re-entry in Texas alone.  Nearly all of that  prison beds - contracted by the US Marshals and Federal Bureau of Prisons - are operated by private prison corporations.  Prisons like the GEO Group's Laredo Superjail, Emerald's LaSalle County Detention Center, and LCS's Coastal Bend Detention Center have sprung up around south and west Texas to win US Marshals contracts, largely driven by increased immigration prosecutions.  Could it be that Operation Streamline is a billion dollar give-away  to the private prison industry?

Check out the full report and a new blog on Operation Streamline at www.grassrootsleadership.org.