Sunday, May 27, 2007
Texas likely to get caught up in profitable prison-building boom
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Come to Grits for your business news? Well, maybe on this topic, anyway -
More than a year after I called the trend The Coming Immigration Detention Boom," the Wall Street Journal reports that "The prison industry looks ready to stage a breakout." Reports the Journal ("Profits for private jailers," May 27):
the Department of Homeland Security's Border Initiative and of undocumented immigrants has further burdened the system. Federal prisons already have 33% more inmates than they were designed to house and state prisons are similarly overcrowded.
The upshot? A severe shortage of prison space -- and a robust outlook for the three biggest private jailers. ...
The vast majority of prisons are still owned and operated by federal or state governments; less than 8% of prisons are outsourced to private operators. But the private market -- dominated by Corrections Corp. of America, Geo Group and Cornell -- is expected to grow substantially over the next five years.
A February report from the Pew Charitable Trusts, a nonprofit research foundation, forecasts a 13% increase in the inmate population by 2011 -- in line with past growth rates, but further compounding the overcapacity problem. That amounts to as much as $27.5 billion in new prison construction and operation.
That kind of burden leaves states and the federal government with little choice but to outsource incarceration to private companies.
Corrections, Geo and Cornell are "far and away the biggest beneficiaries of that trend," says Patrick Swindle, an analyst with boutique investment bank Avondale Partners in Nashville, Tenn.
Astonishingly, but probably accurately, Journal writer Dan Burrows suggests that private prison stock might make a good "defensive" investment in case of a financial downturn. "When times are bad, more people tend to go to jail," Mr. [Jamie] Cuellar says. "It's awful, but it's true."
Bucking the national trend, actuarial estimates by Dr. Tony Fabelo indicate that with funding for alternatives, new treatment beds and the passage of several new laws, the state of Texas doesn't need to expand prison capacity (though budget writers have chosen to do so, anyway). But the feds are likely customers for these companies in Texas thanks to political pressures to increase immigration enforcement.
See the chart below to see how profitable this industry has become (Geo Group, incidentially, is the re-branded name for the company Wackenhut, which owns several facilities in Texas). As always, for more on private prisons in Texas visit the gals over at Texas Prison Bidness who track the subject much more closely than I do.
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Mike Orren Staff
This is being taken as data to recommend a stock buy on an, ahem, interesting investment site: http://tradinggoddess.blogspot.com/20...
1 year, 4 months ago ( Link to this comment | Suggest removal )
Dylan Cave Verified
Private companies housing inmates is wrong.
1 year, 4 months ago ( Link to this comment | Suggest removal )
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