by Bob Libal, Holly Kirby and Cristina Parker

In July 2016, executives from private prison companies Corrections Corporation of America (CCA) and the GEO Group (GEO) held investor calls to report on second quarter earnings and to discuss their financial outlook going forward.

The calls demonstrated that policy reforms that reduce incarceration and immigrant detention are bad for private prison firms, and that criminal justice reform measures – including reductions in California’s prison population – are a threat to future profits. Both CCA and GEO officials also reported expansion of their interests in alternative areas of the correctional market, including reentry services, GPS monitoring and community corrections.

Family Detention Drives Profits

The investor calls revealed to shareholders of both companies what many in Texas already knew: Two massive lockups for refugee mothers and their children in South Texas have been key to record profitability for private prison companies since 2014. CCA’s Dilley detention camp and GEO Group’s Karnes County lockup have been lucrative sources of revenue for the companies, which have reported gains in every quarter since the facilities opened.

But continued record revenue from family detention is not guaranteed. The federal government’s policy of detaining immigrant families faces two court challenges, another pending lawsuit from detained mothers and Grassroots Leadership over licensing the detention centers as childcare facilities in Texas, and a presidential candidate – Hillary Clinton – who has said she would end family detention.

CCA executives reported a $7.7 million drop in net income in the second quarter of 2016, down from $65.3 million a year earlier. The Dilley family detention center accounts for nearly 16% of CCA’s total revenue by one estimate. If the Dilley center is closed, as immigrant rights advocates have been demanding for more than two years, it would be a significant blow to CCA’s bottom line.

GEO Group CEO George Zoley was happy to say that his company’s Karnes family detention center, which was at the center of a sex abuse scandal before the state of Texas awarded it a childcare license earlier this year, continues to be profitable. But that didn’t stop stock analysts from asking about his outlook given the forces aligning against family detention. Zoley painted a rosy picture and highlighted the childcare license, which might not survive an upcoming court challenge.

While CCA and GEO have tied their corporate bottom lines to the detention of immigrant mothers and children, they also should be concerned about reforms to state and federal sentencing laws that would reduce the need for prison capacity.

California Woes for CCA

CCA’s Chief Financial Officer, David Garfinkle, announced on the company’s investor call that a decline in California’s prison population had the most significant negative financial impact on CCA during the past quarter.

The state’s practice of shipping prisoners to out-of-state private facilities as a “solution” to overcrowding has long resulted in a steady revenue stream for CCA. In November 2013, nearly 9,000 California prisoners were locked up in four CCA facilities in Oklahoma, Arizona and Mississippi. In less than three years that number dropped drastically to a little over 4,800 in two out-of-state prisons. The decline may be attributable to the implementation of Prop 47, enacted in 2014, which reduced the classification of many nonviolent crimes from felonies to misdemeanors. [See related article in this issue of PLN].

While Prop 47 helped to significantly lessen California’s reliance on for-profit prisons in other states, CCA CEO Damon Hininger hinted on the investor call that another upcoming ballot initiative, Prop 57, may also be cause for concern. If enacted, Prop 57 would implement reforms intended to reduce the number of people incarcerated in California, including authorizing parole consideration for prisoners convicted of nonviolent crimes who complete the full sentence for their primary offense.

Hininger warned that although it is difficult to assess the impact of Prop 57, the California Legislative Analyst’s Office reported the anticipated cost savings would be in the tens of millions of dollars annually. That would allow state prison officials to scale back their use of private facilities, and thus CCA may be bracing for another reduction in its contracts to house California prisoners.

Grassroots Leadership’s 2013 report, “Locked Up and Shipped Away,” documented the detrimental effects of transferring prisoners to out-of-state, for-profit prisons. While continued efforts to reduce California’s prison population may be good for both prisoners and taxpayers, it is clear from CCA’s comments that they chip away at the company’s bottom line.

CCA Loses Lucrative BOP Contract

In August 2016, CCA announced that it had lost a federal Bureau of Prisons (BOP) contract for the 1,129-bed Cibola County Correctional Center in New Mexico. CCA’s contract to run the Criminal Alien Requirement (CAR) prison, which houses immigrants serving federal prison terms, was scheduled to expire on September 30, 2016.

The contract had been renewed since 2009 despite repeated violations according to an exposé in The Nation magazine that excoriated the BOP for improper oversight of CAR facilities. Another of CCA’s CAR prisons in Eden, Texas erupted in protests over inadequate conditions in July 2016.

Many of the immigrants held in CAR facilities were sentenced for one of two charges: misdemeanor illegal entry into the United States or felony illegal re-entry. The book Indefensible: A Decade of Mass Incarceration of Migrants Prosecuted for Crossing the Border, published by Grassroots Leadership and Justice Strategies, revealed that these two charges account for half of all federal prosecutions even though they are merely status offenses for crossing the border without proper documentation, and do not fall under Department of Justice (DOJ) priorities.

On August 18, 2016, the DOJ announced that it plans to phase out its privately-operated CAR facilities, which will have a significant impact on both CCA and GEO Group – though the companies continue to operate a number of immigration detention centers. [See related article in this issue of PLN].

Prison Firms Expand into “Treatment Industrial Complex”

CCA and GEO Group also sent a clear message to investors that they view the growing call for prisoner treatment, community supervision and reentry facilities as lucrative opportunities they will continue to pursue. GEO described them as “growth opportunities for our company,” while CCA said “we are strategically pursuing additional investments to further grow in this area.” As the tide continues to slowly turn against mass incarceration, private prison companies have capitalized on the growing shift to an array of options touted as alternatives – although in reality they are simply other forms of confinement and control.

CCA touted its recent acquisition of Correctional Management, Inc., which owns seven reentry facilities in Colorado. CCA also acquired Correctional Alternatives, Inc., which operates community corrections facilities, in 2013. Today CCA owns or controls 25 residential reentry facilities in six states totaling approximately 5,000 beds. GEO Group, on the other hand, also experienced growth in its GEO Care division comprised of halfway houses, day reporting centers, youth residential facilities and community supervision. GEO owns BI, Inc., one of the nation’s largest providers of GPS monitoring. GEO Care president Ann Schlarb proudly announced, “Our BI subsidiary continues to grow its supervision electronic monitoring services at the local, state and federal levels nationwide.”

Private prison firms may attempt to hijack efforts to curb mass incarceration by rebranding themselves as providers of rehabilitation programs and residential reentry facilities. But in reality, these companies provide little more than a troubled model of expanding correctional custody and warehousing people – for profit, of course.

Bob Libal is the executive director, Holly Kirby is the criminal justice programs director and Cristina Parker is the immigration programs director at Grassroots Leadership, an Austin, Texas-based national organization that works to end prison profiteering and reduce reliance on criminalization and detention through direct action, organizing, research and public education. They provided this article exclusively for PLN.