The Downside of Private Prisons

By Becker, Craig; Stanley, Amy Dru | The Nation, June 15, 1985 | Go to article overview

The Downside of Private Prisons


Becker, Craig, Stanley, Amy Dru, The Nation


"Punishment for Profit," "The Corporate Warden," "Incarceration Unlimited." With these headlines, business journals hav eproclaimed a new opportunity for venture capital: criminal punishment. From prison financing to prison management, business has entered the corrections field. "There's a whole new industry developing," says Baron's, "from the unlikely meeting of pinstripes and prison stripes."

More than business interests are at stake in the increasing resort to the private sector to finance, service and even run state and Federal correctional institutions. Senator Arlen Specter calls this trend "the major unexamined new social policy of the 1980s," and held hearings on the subject before a subcommittee of the Senate Appropriations Committee last month. It is also high ont he agendas of politicians on the far right. In his current bid for the Republican nomination for lieutenant governor of Virginia, political fund-raiser Richard Viguerie has endorsed the transfer of the state's entire penal system to private control.

Prisons are big business. Last Year, Federal, state and local governments spent a total of $10 billion on corrections; Federal and state prisons house nearly 450,000 inmates; local jails hold over 200,000. The prison population has doubled in the past decade. Penal institutions are more than 10 percent above capacity, and more than two-thirds of them are under court orders to ease overcrowding.

Despite the states' growing desire to place people behind bars and popular demand for tougher sentences, taxpayers have been unwilling to pay for the prisons they want to fill. That contradiction has created an opening for private capital. With state governments expected to spend $5 billion on construction of new prisons over the next four to five years, brokers have devised lease-purchase agreements, a new form of financing prisons that is attractive to investors and public officials. Capital to pay the construction costs is raised by private offerings, and the facility is leased to the government, which acquires title when the term is up. The interest on these "certificates of participation" is tax-exempt, and the investment is secured by the inmates themselves, since default would lead to their eviction. As a Miami businessman boasted to Financial World, "It is the only real estate investment where you're guaranteed 100 percent occupancy--at least." Finally, lease-purchase deals offer a way of bypassing taxpayer opposition. After voters in New York State rejected a $500 million bond issue for a prison ina 1981 referendum, the Legislature authorized the Urban Development Corporation to float bonds and begin construction. Citizens' groups sued the state, arguing that the measure deprived the public of its constitutional right to vote on the creation of state debt. The State Supreme Court, however, dismissed the suit, holding that taxpayers lack standing to contest the matter.

New York Senator Alfonse D'Amato has sponsored legislation to enhance the attractiveness of lease-purchase deals. His Prison Construction Privatization Act of 1984, currently in committee, would permit prison financiers to claim investment tax credits and accelerated depreciation. D'Amato contends that the bill would "unleash private capital" to build $1.5 billion worth of prison space for $50,000 inmates. "The private jail market is ripe," Barron's claims. "And it's the brokers, architects, builders and banks--not the taxpayers--who will make out like bandits."

Financing prison construction is only one facet of private interest in the corrections field. In thirty-nine states and the District of Columbia, private firms provide services ranging from job training to meal preparation within publicly managed prisons. Several of these companies are now preparing to own and operate penial institutions. Hundreds of halfway houses for prisoners are already managed by private groups. According to the Justice Department, six states have contracted with private firms to operate juvenile detention facilities. …

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