On August 3rd, The GEO Group held their second quarter conference call for investors. In this meeting, the company outlined the deals that have been enacted so far this year as well as plans for future profit. Their total Q2 revenue came to $276 million, which they stated would rise to $300 million by the end of next quarter. The company CEO, George Zoley, attributed this expected rise in revenue to the 5,900 additional beds created in 2008 which have been filling up. He additionally noted the significance of the 100 bed addition to the Florida's Broward Transition Center contracted with ICE, as well as the 192 bed expansion to Georgia's Robert Deyton Detention Facility which is contracted with the U.S. Marshals.
The most discussed change within the investors (if the question and answer portion of the call is any indication) was the U.S. average per diem cost increase for holding detainees, up to $53.97 from $53 during this time last year. The per diem rate is what a private prison company charges its clients per day for each detainee in their facilities. This rate is a key component of how a company accrues its income, and is different for each contract, as each state has their own rules, regulations, and costs of living (but the per diem rates are also largely negotiable and dependent on the hardball negotiations of those doing the "dealings"). The per diem rate is a lump sum includes services for inmates such as food, healthcare, utilities, etc. as well the costs of staff salaries and facility maintenance. If a per diem is too low and expenses too high, the company will begin to lose money. Additionally, if a per diem is too high, the company's services will seem less appealing to their clients who think they could do the same job for cheaper--the key is to find the lowest per diem rate that will both cover the necessary expenses for running a prison while giving a desirable profit for the company without gouging their clients. One reason that GEO board members attributed this rise in per diem rates to was the increase in the Department of Labor's mandated salary requirements. Because their prison employees are required to have higher wages, prison companies are asking for more money to cover the pay difference. The GEO representatives stated that staff turnovers in their facilties are low (meaning that there are less new guards who need training--an expense) except for in two unnamed Texas facilities where employment is low. Having low staff turnovers means they have less required expenses for training, and more room for profit. However, a critical investor was worried that the cost of living in a recessing economy might surpass the per diem rates (if not now, maybe in the future), but GEO's representatives skirted the comment without declaring their average per diem or total expenditures and simply reassured the caller that their low staff turnover and refined staff vacation policies are sufficient enough to keep their expenses below their per diem rates.
Zoley also went over their newest additions for the year as well as outlined upcoming projects that are scheduled for completion in the near future. In January, the company completed a 192 bed expansion at the Robert Deyton Detention Facility in Georgia, as mentioned before, and stated that it will add $4 million to their operating revenues. This year, the company has also assumed management of the 256 bed Harmondsworth Immigration Removal Centre in the United Kingdom, and stated that they plan to expand it by another 364 beds by the end of June 2010. Other noted important expansions are with Florida's Graceville Correctional Facility where another 384 beds will be added to the already existing 1,500 by the end of the year. Also, The Geo Group's 1030 bed immigrant detention facility, the Northwest Detention Center in Tacoma, WA is planned to see an additional 545 beds by the end of the year. Lastly, in Aurora, CO, the company plans to expand its 400 bed facility almost 200% by adding 1,100 beds to their Aurora ICE Processing Center by the year's end. Zoley cited that the Tacoma and Aurora facilities are expected to have "a material impact" on the company, and The GEO Group plans to put the majority of their remaining fiscal yearly budget of $84 million into these facilties over the next two quarters, as they are planned to be the largest money-makers for the company.
George Zoley discussed why these expansions were necessary and had the following to say:
"The main driver for the growth of new beds at the federal level continues to be the detention and incarceration of criminal aliens. The U.S. Marshals service and the [Bureau of Prisons] both house criminal aliens facing criminal charges or are serving time as a result of a conviction. The ICE population includes approximately an equal number of undocumented aliens and criminal aliens who have completed their Federal or state sentences and are awaiting deportation. More than 2/3rds of the 10,000 aliens housed at our federal facilites are criminal aliens with less than 1/3rd being non-criminal aliens."
With the $1.4 billion in federal funding for ICE's Secure Communities Initiative, The GEO Group is wasting no time to get their piece of the proverbial pie.
Since the conference call and the end of the company's second quarter, GEO's subsidiary company GEO Care has bought out Just Care, Inc. for $40 million. GEO Care is The GEO Group's project to house mentally-ill inmates as well as sex offenders in separate housing facilities to try and rehabilitate them in a more conducive atmosphere for their illnesses. The acquisition is expected to increase the yearly revenues by $30 million, meaning the company's projected 2009 total yearly revenue is expected to exceed $1.1 billion. With the Federal prisons operating at 137% total capacity, some serious legislative work for crime control and alternative sentencing is needed to decrease the prison population or else we can expect to see these staggering numbers rise in the near future.
See the latest economic developments for GEO Group's largest competitor, Corrections Corporation of America here.
In a fascinating and disturbing example of what can go wrong when a locality finances a speculative prison, the Fitch ratings agency has downgraded the City of Littlefield's bond rating after the city's GEO-operated Bill Clayton Detention Center lost its contract to hold Idaho prisoners, and has subsequently been dumped by the private prison corporation.
According the Ad Hoc News article ("Littlefield, - Fitch Downgrades Littlefield, TX' COs to 'BB'; Outlook Negative," August 24th)
Fitch Ratings has downgraded to 'BB' from 'BBB-' the rating on Littlefield, TX's (the city) outstanding $1.3 million combination tax and revenue certificates of obligation (COs), series 1997, and removed the ratings from Rating Watch Negative. The CO's constitute a general obligation of the city, payable from ad valorem taxes limited to $2.50 per $100 taxable assessed valuation (TAV). Additionally, the COs are secured by a pledge of surplus water and sewer revenues. The Rating Outlook is Negative.
The downgrade reflects events related to the operation of the city's detention center facility, which accounts for the majority of outstanding debt (which was not rated by Fitch but is on parity with the series 1997 bonds). To the surprise of city officials, Idaho announced their plans to leave the Littlefield facility in January 2009, citing the need to consolidate all of its out-of-state prisoners into a larger facility in Oklahoma. In addition, the detention center's private operator, the Geo Group, unexpectedly announced termination of their agreement to manage the facility effective January 2009. The move to leave Littlefield by the Geo Group is significant, given that the established private operator had made sizable equity investments in the detention center reportedly totaling approximately $2 million. In the past, the ability of the Geo Group to quickly replace prisoners with little disruption in operations, as well as their investment in the Littlefield detention center were cited as credit strengths.
The article isn't quite accurate in saying Idaho's decision to remove prisoners from the facility was a surprise. The decision followed the suicide of Idaho prisoner Randall McCullough, who killed himself after the GEO Group held him in solitary confinement for more than as a disciplinary measure. McCullough's death followed the tragic death of Idaho prisoner's Scot Noble Payne a year prior at GEO's Dickens County Correctional Center. After Noble Payne's suicide, a subsequent investigation revealed squalid conditions and the Idaho Department of Corrections Health Director called the GEO prison the worst facility he'd ever seen.
Still, the outlook for Littlefield isn't good. According to the Ad Hoc News article,
On Dec. 9, 2008, Fitch placed the series 1997 bonds on Rating Watch Negative, reflecting the city's active pursuit of various alternatives to remedy the situation and possibly resolve it within the next several months. Funds to repay debt service on detention center COs through August 2010 had been identified through available city funds as well as a debt service reserve fund. The city indicated to Fitch in May 2009 that it was in negotiations with another established jail operator (the operator) to assume management of the Littlefield facility and that the operator was attempting to secure an agreement with a federal agency to house prisoners. Resolution or near resolution of this agreement was expected by August 2009. However, the operator has yet to secure a prisoner agreement and the timing for resolution remains uncertain.
Littlefield's story should be a cautionary tale for other cities and counties considering floating debt to finance a private prison corporation. We'll keep you posted on how this story develops. In the meantime, see our previous coverage of the Bill Clayton Detention Center:
Idaho Cancels Contract with GEO's Bill Clayton Prison, Nov. 6, 2008
Idaho Removes Some Prisoners from Texas Private Prisons, Oct. 15, 2008
AP on Idaho Inmates in Texas Private Prisons, Sept. 24, 2008
It has only been about two weeks since the Montgomery County scandal regarding budget shenanigans providing an under the table contract for The GEO Group to open a new psychiatric hospital to shadow the County jail. However, the jail is in the news again, this time because of reports from the counsel of R. Allen Stanford ("Stanford feels the heat in Conroe cell," Houston Chronicle, July 27):
"Lawyers for R. Allen Stanford want him moved from a private prison in Montgomery County because there's no air conditioning, and at times no lighting, in the cell he shares with up to 10 other inmates... [he] has been held at Joe Corley Detention Facility in Conroe since he was arrested and brought to Texas from Virginia last month. He and other Stanford executives are accused of running a multi-billion dollar fraud through an offshore bank and a Houston financial services firm. He has pleaded not guilty. Although other defendants are free on bail, a Houston federal judge ordered that Stanford remain in custody, saying he is a flight risk. In court filings, attorney Dick DeGuerin says the cell Stanford shares was without power for part of last week when temperatures topped 100 degrees and 'has been without air conditioning for at least a week. There are no windows for light or ventilation and the conditions are intolerable."
Another report claimed one of Stanford's cellmates is an elderly diabetic and another man has a heart condition, each person spending a "week in total darkness" and in the Texas heat without air conditioning (or presumably fans if the electricy is off) ("Stanford in the dark," WaToday.com.au, July 28). Additionally, local weather reports for Conroe, TX have only reported three days this month where temperatures have broken 100 degrees, so these allegations of temperatures going higher than 100 last week were most likely exaggerated. Below is the observed temperatures in Conroe for the week prior:
While the temperatures were below 100, the added factors of no electricity and high population cells would certainly add to the heat. The GEO Group did not comment on the condition of the facility, so there was no indication that the problems have been solved. Since The GEO Group plans to open a psychiatric hospital in this very same city, citizens and skeptics hope that they will fix the existing problems before creating a facility that will create more problems.
Via Grits' excellent post ("Geo Group secretly snagged forensic psych hospital contract in budget conference committee," July 11), we find out that the GEO Group has won a contract for a new state psychiatric hospital in Montgomery County, through it's medical subsidiary GEO Care.
Here's how the Dallas Morning News's Emily Ramshaw ("Troubled prison firm's deal for new psychiatric hospital raises questions," July 11) starts that paper's Saturday story on the scandal,
A private prison company's history of filthy conditions, sexual abuse, suicides and riots in some of its Texas lockups isn't stopping the state from paying it $7.5 million to run a new psychiatric hospital near Houston.
Lawmakers inserted an earmark into the state budget to fund the future Montgomery County facility starting in 2011. But they said they didn't know until this week that the county had selected the GEO Group to operate it, although GEO lobbyists were pushing for it as early as February.
The new facility came as a post-session shock to mental health advocates, who acknowledge the need for it. But they say they weren't informed about it and never would have signed off if they knew Florida-based GEO was operating it.
Mental health advocates are rightly pissed off about what appears to be an allocation of money behind closed doors and without Department of State Health Services requesting the funding.
"Why would we want to use an entity that hasn't had a stellar reputation?" asked Monica Thyssen, children's mental health policy specialist with Advocacy Inc. "If the process had been more transparent, there probably would have been other state officials who would've said, 'I don't know if GEO is the best use of state dollars.' "
GEO officials, who run more than 50 facilities in the United States, including five mental health facilities in Florida, declined to comment, saying in an e-mail that they don't discuss "specific business development efforts and/or contracts."
Grits proposes an interesting theory on why the GEO Group may have been pushing so hard for the psychiatric contract in Montgomery County:
UPDATE: A commenter points out that Montgomery County commissioners last year made a conscious decision to substantially overbuild their jail beyond current needs on the assumption that the facility, to be run by the Geo Group, would make enough profit from immigration detention to "spare taxpayers additional costs." One supposes that immigration detention is no longer paying the bills if the county and Geo are seeking to use the Montgomery County Jail for competency restoration beds! I wonder if that's the facility they're talking about?
Clearly, if the state agency, mental health advocates, and elected officials were unaware of this contracting process, it should be reviewed. We'll keep you posted.