Private Party
By Matthew Crawford (08/06/2007)

Ferguson

As the largest owner and operator of private prisons in the United States, Corrections Corporation of America generated $1.3 billion in revenue in 2006 and manages 45,000 inmates a year for state governments and 30,000 inmates for the Federal Bureau of Prisons.

With an increased emphasis on illegal immigration on the national political agenda and several indicators that the inmate and detainee population will continue to grow, CCA President and Chief Executive Officer John Ferguson expects revenues to continue to increase.

Ferguson spoke with Correctional News from his office in Tennessee.

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Q: What has allowed CCA to get ahead of other private prison operators?

A: We have gotten ahead by having beds available when our customers need them and by having a national platform. We do business with 20 state governments and three federal agencies. We have a pretty good customer base and as they grow, we grow. We have the beds available when they need them and we meet the expected threshold of safety, security and quality.

Q: There was a dramatic jump in profits for CCA last year. Do you expect to see the same thing in 2007?

A: We feel that we will continue to grow, which is demonstrated by our first- quarter performance. I can't say whether it will be more or less than last year.

Q: Where do you expect the most growth to occur?

A: In the last two years, we have seen our revenue growth stay in lockstep with state and federal governments. Two years ago, about 40 percent of our revenue was from the federal government and about 50 percent was from state governments. Each have grown proportionately, so one is not necessarily growing faster than the other, and we think that will continue.

Q: Where does California fit into the picture?

A: California is high on the visibility chart for everybody. It started last fall when the governor made the decision that he had a crisis and he had to deal with it with an executive order. He contracted with a couple of companies to satisfy what he thought was the most immediate demand.

The state expanded the contract with CCA, but at the same time the correctional officers union went to court to stop the transfer of inmates to facilities in other states. For a period of time they were successful.

Since then, the California assembly has passed legislation that gives the governor a lot of the authority he was charged with exceeding. The court of appeals has said that it will hear an appeal of the lower court's order and during that appeal it will stay the order of the lower court.

With that, California has plans to continue the transfer of inmates and I believe that will get started in late July or early August.

Q: How is that relationship with California going to affect your business?

A: That's hard for us to forecast right now. The governor has expressed that he would like to transfer up to 8,000 inmates by the first quarter of 2009. That would be a meaningful amount of prison beds that CCA and the industry would have to make available.

Q: What are your thoughts on the immigration issues that are in the news, and how is that affecting CCA?

A: We have seen a substantial increase in the number of detainee beds that Immigration and Customs Enforcement has needed in the last two years. They have gone from funding 19,500 beds to funding 27,500 beds. There is an increased funding request in the president's 2008 budget.

It seems to me that, as securing our borders becomes a priority, any reform will mean more individuals being detained. In the long term, it's hard to know exactly, but if you have one million people coming into the United States illegally every year, 28,000 beds isn't really a lot of beds.

Q: Since immigration has been such a big issue in the media, has it created more scrutiny for CCA?

A: It hasn't created meaningful scrutiny. Every government contract that we have has contract monitoring. Our state customers have full-time or part-time monitors that are constantly checking to make sure that we are performing under the terms of the contract, and our federal customers are the same way.

In most of our immigration and customs enforcement agreements, we have ICE staff that we provide office space for. It's not like we are free to do whatever we want to do, and even if we were, we would still provide the same quality.

Our intragovernmental relations with our customers probably haven't changed much. But now that immigration reform is being discussed, there are a lot of people who are adding scrutiny to these detention issues, and unfortunately they say things and have never been to one of our facilities.

It's new to California, so a lot of people assume that there is something wrong with this approach to housing inmates, when in reality I think we are providing a meaningful public service. I think rehabilitation will occur if an inmate is in a facility that is not overcrowded and offers sustainable programs, which is what we do. We are not a system that uses program space for bunk beds.

There are a lot of people that say being a way from family could affect inmate rehabilitation. I think in some cases being near your family could help, but I think inmate programs and good medical care are really better for inmate rehabilitation than just being close to family.

Q: Some people claim that CCA saves money by cutting corners operationally. Is that true?

A: I will just say that is BS. We don't have that latitude. We are held to some pretty strict contract requirements. But, that doesn't mean that we don't have some issues come up from time to time that we have to deal with.

When we have contract requirements and our government customers are monitoring us on a daily basis, the rational person would see that we are probably more likely to do what is expected than someone who is given the responsibility of monitoring themselves.

We have increased our business with our federal customers every year since I have been running this company — 7 years — and if any of the accusations were true that wouldn't happen.

Q: You mentioned that there are monitors at CCA facilities, but do states really have the resources to monitor facilities when they are lacking funding and are in desperate need of inmate beds?

A: Yes. They make the time because they want to make sure that we are performing under our agreement. In some cases we are funding that person. They don't have a whole apparatus in some places, but some of our customers do. We have monitors at every facility we operate.

Q: How do you address complaints from the various correctional officers unions that interject in the process, such as the union in California?

A: We don't really have any business relationship with the union in California . The inmates that we are going to be taking care of in Tennessee , Oklahoma , Arizona and Mississippi will be at facilities where staff is hired from those locations. We have two facilities in the state of California , but they are both managing federal populations, and our correctional officers are not part of the Correctional Officers Union.

The big issue is they don't like what we do, and that's about it.

Q: Have you dealt with the same situation in other jurisdictions?

A: Not to the extent that you see in California .

Q: What is your response to complaints that you are undercutting the unions, and you are providing less protection and wages?

A: A lot of it goes back to what I was saying earlier. We run a correctional system with more than 72,000 inmates, which makes us the fifth-largest correctional system in the country. We are not as big as California , but we are bigger than 47 state governments. The average state government population is probably 22,000 inmates, so we are running a system that is three times the size of the average government.

If any of the things that people are saying about us — which sometimes are horrible — were true, I don't think this company would continue to maintain the customer relationships that we have. Nobody would put up with it. It is illogical to say those things when all of our government customers have increased their business with us.

Q: You have 6,000 new beds in development and 4,000 to 6,000 more expected by 2008-09. Do you prefer to build new facilities or take over operations at a customer's existing facility?

A: We have never and I don't think anybody in the industry has ever grown their business by taking over a public-run facility. Everybody's growth comes from the next bed that government customer needs and providing space for management of new prisoners.

We would prefer to own our facilities because we believe that we use best practices that we have learned from being in business for 25 years. We can pass savings along to our customers because we have learned techniques about building prisons that provide operational advantages that some other correctional systems don't have. If we have to use a facility that a government has built, we have to use some legacy systems. We believe we can be a better operator and manager with facilities that we have built.

Q: You have close to 9,000 beds in Arizona. Why is that state a major hub for CCA?

A: Border security has continued to require additional detention beds for people who are being detained before being adjudicated, deported or given asylum, but it has also created the need for additional beds for people who commit federal crimes.

A couple of our long-standing customers that we started providing prison beds for — Alaska and Hawaii — have continued to grow and we have continued to expand in Arizona so they can house their inmates there. They decided that we do a better job managing their inmates because it's so prohibitively expensive in Alaska and Hawaii .

Q: Is it easier to build in Arizona?

A: It is easier to build because you have a 365-day building year, it is fairly flat and we start to get some economies when we build there. Siting a prison is not easy, and we've had willing and acceptable communities in Arizona . There are also a lot of state prisons in the area.

Q: What do think is going to happen in the future with corrections? Will the upward tick continue?

A: In my opinion, it will continue. I remember we had a capital markets transaction where we were dealing with a lot of investors and putting together a presentation. We were talking about the demand that we saw materializing and, three or four years later, it actually looks a little bit larger.

According to a study by Pew Charitable Trusts, there will be an increase in prison beds. Also, the population of males between the ages of 18 and 24 was declining for a while, but now it is growing with the baby boom echo. That age group typically commits more crimes.

Also, we just reached 300 million citizens a few years ago and we are expected to hit 400 million citizens in the year 2043. Some of those 100 million people will do bad things.

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