CoreCivic execs: Biden administration will still need private prisons

During his presidential campaign, Joe Biden committed to ending the federal government’s use of private prisons. Given that commitment, many investors jumped ship after vote counts led to Biden being declared the next president.

CoreCivic’s stock price (Ticker: CXW) fall about 20 percent from Tuesday afternoon through Friday. But executives at the Brentwood-based private prison company say that a Biden administration will still need to use private prisons. As a practical matter, CoreCivic leaders said on a conference call last week they don’t think the idea of ending the federal government’s use of private prisons is very realistic. They say the government simply doesn’t have enough of its own facilities to house people held by agencies like Immigration and Customs Enforcement, the U.S. Marshals Service and the Bureau of Prisons.

"They have no alternative. They either rely on us, the private sector, or city and counties for space," CEO Damon Hininger said on a conference call Wednesday. 

ICE and the Marshals are the company’s biggest clients, accounting for 46 percent of revenue in the second quarter of 2019. According to a CoreCivic investor presentation, ICE uses private prisons for 95 percent of its detainee capacity and the Marshals Service outsources about 80 percent of its capacity.

While ICE continues to rely heavily on private prisons, other agencies are moving away from the industry. In 2016, the federal BOP started phasing out the use of private prisons, arguing that private facilities compared poorly to government-run prisons. In 2019, lawmakers in California passed a bill to phase out the use of private prisons, which Gov. Gavin Newsom alleged were contributing to over-incarceration.

Those agencies accounted for 28 percent of CoreCivic’s revenue in 2010. By the second quarter of last year, that number was only 6 percent.

CoreCivic has been preparing for this kind of shift and had started adapting even before these initiatives at the BOP and in California. The company created a division to lease buildings to government tenants in 2012. In many cases, these are regular office buildings leased to non-correctional agencies like the General Services Administration or the Internal Revenue Service. In 2013, it created a division focused on re-entry facilities and services like electronic monitoring.

Now, those divisions account for more than 10 percent of the company’s revenue, which could provide a small buffer for an effort to ban private prisons.

Despite Biden’s commitment to end the use of private prisons, CoreCivic execs are still feeling confident. They pointed out that the federal government, under both Republican and Democratic presidents, has normally increased funding for those organizations or at least held it stable. According to the advocacy group the American Immigration Council, funding for ICE has tripled since its creation in 2003. Funding increased during the George W. Bush administration. The budget fluctuated during Barack Obama’s administration but mostly stayed flat. Under the Trump administration, the budget increased to about $8.4 billion.

"We think that indicator is a sign that, regardless of what the outcome is in this week's election, ICE has a need for capacity,” Hininger said.

CoreCivic CFO David Garfinkle added that Biden — as a part of the Obama administration — relied heavily on private prisons to house people trying to cross the U.S. border.

“Hopefully, memories are long and can recall the solutions we helped provide," he said.

Ending the federal government’s use of private prisons would likely require a massive building project over a period of several years, if not decades. Of course, the government could buy or lease existing prisons rather than building new ones. In that case, government agencies would likely still have to turn to CoreCivic.

“We're willing to have that conversation if appropriate,” Hininger said.

In addition, it’s Congress, not the president, that has the power of the purse. Depending on the outcome of several remaining races, Republicans could still control the Senate. Hininger said he believes it would be hard to convince a Republican-led Senate to go along with an expensive plan to buy or lease private prisons.

All of that makes CoreCivic executives feel fairly comfortable despite Biden’s promise to end the line of business that accounts for more than 46 percent of their revenues. Besides, Garfinkle pointed out, he will have a few other things to worry about.

“When you think of all the other initiatives that are on his plate — health care, tax reform, climate change, trade negotiations. It's probably a while before you would expect the focus to come on private prisons,” he said. “It's such a complex area to solve because we provide such an essential governmental service there, that I can't believe that would be one they would want to tackle out of the box."

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