“What happens if you privatize prisons is that you have a large industry with a vested interest in building ever-more prisons.” -- Molly Ivins, 2003

The GEO Group's 2010 Q1 Conference Call Focuses on Cornell Merger

The GEO Group Logo
The GEO Group Logo
The GEO Group's 2010 Q1 call was fairly uneventful, filled with more of the common prepared remarks to reassure shareholders. The big news was obviously their planned merger with Cornell Companies which they hope will "prove beneficial to both parties," as they said about five times. GEO also said that once the merger is completed they will go under some re-branding to think of a new way to market their company. During the question and answer session, one of the investors asked about their customers and whether or not they disapproved of the deal. GEO stated that no customers disapproved of the deal when GEO called them.

To get into the details, their Q1 revenue was $288 million, up from $259 million this time last year. With regards to their stock buyback program, 2.7 million shares were bought up at $54 million of the available $80 million. 

Wayne Calabrese did the business overview section, and he had some notable quotes about speculative building in Michigan and Colorado (which was also covered in the 2009 Q4 call):

"In Michigan, our 530-bed Northlake facility is being expanded by 1,225 beds. As you may know, we previously submitted this expanded facility in response to the Bureau of Prisons' CAR-9 procurement. In March, the Bureau decided to cancel CAR-9 due to a funding shortfall, but we believe the agency continues to have a strong need for additional criminal alien beds. We are continuing our efforts to market the facility to state and federal agencies and we are hopeful that the Northlake facility will be activated later in the year or some time next year.

In Colorado, our 432-bed Aurora Immigration Detention Facility is being expanded by more than 1,000 beds. We believe our federal clients, primarily ICE and the U.S. Marshals, will continue to require beds as they consolidate existing populations into larger facilities such as our expanded Aurora facility. However, we currently do not have a contract for the use of the expanded beds."

The state markets (other than California, Arizona, and Florida) continue to have the lowest need for private prisons, and GEO has specifically stated they are mostly going after Federal contracts, and mostly after the detention of undocumnented immigrants and "criminal aliens". Calabrese also had this quick statement about their Bridgeport facility:

"In Texas, our managed-only 520-bed Bridgeport facility is currently being re-bid with a contract decision expected by the third quarter."

Another notable instance was when CFO Brian Evans stated,

"The Newton County facility, which was about an 850-bed facility, The Jefferson facility, also in Texas, and then the Fort Worth Community Center. Between those three facilities, I'll say it was about 1,700 beds that we exited from that were lower per-diem, lower margin contracts..."

The investors took interest in this statement because they wondered why GEO would just leave a facility and make no money rather than a little money. Their reasoning was that their new speculatively-expanded facilities in Michigan and Colorado would make up for the lost beds in Texas because they claimed Federal contracts were usually more long-term than State contracts. This was also discussed in the 2009 Q2 conference call to more detail.

For the most part the call was uneventful and focused on business dealings with the merger which is under litigation. Fell free to review our coverage of the past few GEO conference calls for a richer business history of the company.


Problems continue to plague the Coastal Bend Detention Center

LCS Corrections
LCS Corrections
About two months ago, the LCS Corrections-owned facility, Coastal Bend Detention Center (CBDC) had just finished its "at-risk" status probationary period due to a failed inspection and an inmate walking out of the facility. Despite their new warden and good behavior during the "at-risk" status period, it appears that the problems are not over for this struggling facility. Earlier this month, the Texas Commission on Jail Standards (TCJS) ruled that the facility does not meet state-defined standards, skipping the "at-risk" status altogether after the facility failed to report the deaths of two inmates, while the warden and deputy warden still lack jailers' licenses (along with 72% of the guards). The Caller-Times reports:

Discussions with the deputy warden and the chief of security of the facility revealed that neither official knew of the requirement to notify the state agency of the deaths in custody, Muñoz said.

Jail commission assistant Director Shannon Herklotz told prison officials their lack of reporting was a noncompliance issue.

LCS’ vice president of operations Dick Harbison said the warden and assistant warden were recent hires from out of state who did not know they were required to report the deaths.

Herklotz discovered neither of the top two prison managers had proper state licenses, also a violation of state standards.

“Both the lack of the jailer licenses by the warden and deputy warden, the lack of properly or entirely filling out the inmate screening form and failing to report the April 18, 2010, death in custody within 24 hours as required will immediately result in a notice of noncompliance with minimum jail standards for the Coastal Bend Detention Center,” Muñoz said.

Harbison said after 10 years in the Texas private prison business, he had never been told that his wardens needed jailers' licenses. (Jaime Powell, "Robstown private prison fails state standards again," Caller-Times, 3 May 2010)

With CBDC's rocky history of not faring well with the TCJS, I wanted to find out what this finding meant for the facility and what could happen in the future if CBDC continued to fail their inspections. The TCJS Assistant Director Shannon Herklotz told me that "officials at the Coastal Bend Detention Center have submitted a plan of action and are working towards achieving compliance." However, given that CBDC has a rocky history and continues to promise positive change for the future, I take these promises from CBDC with extreme skepticism. 

He also told me that:

The Coastal Bend Detention Center, along with any other facility found to be in non-compliance, will be give a reasonable amount of time to correct their deficiencies.  If they fail to initiate corrective action, then the Commission has other options that we can pursue.

The Commission meets once a quarter to determine if the actions taken by facilities such as CBDC were sufficient enough to make up for the failed aspects of their inspection. If the responsible party fails to initiate corrective action (in this case, if CBDC fails to get their warden and deputy warden licenses) to the notice of non-compliance, the Commission may issue a remedial order. This order mandates that all or any of the inmates confined in a jail be transferred to and maintained in a compliant facility at the cost of the non-complying entity (the county or the company). According to Herklotz, there is no policy of TCJS stating a limit to the number of times a facility can fail before getting shut down.

CBDC will remain under the eye of scrutiny as the facility systemically fails inspections. Whether or not it will come to a remedial order has yet to be seen. We will continue to bring you the latest news on CBDC to see if LCS Corrections lives up to their promised improvements.

CEC ditches contract in Johnson County for lack of profit

After signing a three year contract with Johnson County, CEC is using an escape clause to end their contract over the next six months because the company was losing money in its operation of the jail. The Johnson County Jail has a capacity of 776 beds with an average yearly inmate population of 450 to 500 people.  It was the empty beds that CEC expected to fill with a contract from Immigration and Customes Enforcement (Pete Kendall, "CEC bailing out," Cleburne Times-Review, 24 March 2010),

“The average population is 450 to 500,” [Warden] Duke said last year. “There are empty beds. That’s attractive to us. We take those empty beds and help the county get contracts with other entities such as Immigration Customs Enforcement. Corrections 2 [block] has 176 beds. We put ICE detainees in those beds. ICE pays Johnson County, and the county reimburses us.

“The county makes $5 off every detainee. The county makes money, and we make money.”

That wasn’t the way it worked out, [County Judge] Harmon said.

“Part of the problem came with the contract CEC had with immigration services,” Harmon said. “CEC thought it would be housing the detainees for a period of time. But [ICE] was calling on CEC to take on the expense of transporting detainees. CEC was being paid mileage to do that, but sometimes they didn’t have time to get the detainees back here and in the jail before [ICE] said, ‘Take the detainees to the border and release them.’ ”

So CEC had fewer bodies to fill the empty beds, and then the empty beds began multiplying.

“When CEC contracted with us, we were running about 600 inmates per day,” Harmon said. “Nobody knows why, but the numbers recently have been running around 400 per day. Incarceration numbers are down statewide and nationwide, from what I understand. You wouldn’t think it would be that way with high unemployment, but it is.” 

As Scott Henson at Grits for Breakfast noted,

As of March 1, according to the Texas Commission on Jail Standards, Johnson County had just 338 inmates in the jail, so the supposed profitmaker has now become a money suck. By contrast, Cameron County entered into a similar scheme and encountered the opposite problem: Their jail has so many federal prisoners they now must send pretrial detainees three hours away to be housed by other counties at higher costs. So Texas counties have been burned by these deals coming and going. It's never as simple or cheap as it sounds up front when it's pitched. Never.

This scenario illustrates a number of risks which Texas counties should remain aware of. The first is that prison companies are not out to help counties.  Rather, profit is their primary motivation. When their profit is gone, so are they. Secondly, the promise that money will get produced in the future through either a soon-to-be contract with a federal agency is always a risky move for the county and any promises by prison companies should be compared with their history of not living up to these promises.

We will continue to monitor the situation in Johnson County to see if they choose another private company to take over or if the county will do the job.


Contraband investigation at CEC's Liberty County jail

Liberty County has opened an ongoing investigation into contraband found in it's privately operated jail, according to a story in the Liberty Vindicator (Contraband found in Liberty Co Jail, May 7):

Liberty County Sheriff’s Department Public Information Officer Steve Greene recently reported ongoing investigations regarding contraband found in the Liberty County Jail. 

The jail is managed by a contractor, Civigenics, a subsidiary of Community Education Centers, Inc.

Greene said “basically, we have been getting information that there was a lot of contraband in the jail, and some of it was being brought in by corrections officers. Thursday, (April 29) we searched the evening shift as they were coming in and we had a drug dog pass by their cars. For those cars that the dog alerted on, we asked for consent to search. We searched the vehicles. We have ongoing investigations regarding a couple of guards. Two or three were terminated.” 

Back on approximately April 8, one guard was arrested by US Marshals for taking contraband into the jail. He is being held at a detention facility in Beaumont, on charges equivalent to “prohibitive substances in a correctional facility."


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