March 17, 2011 Business Week

A Boom Behind Bars

Private jail operators like the Corrections Corporation of America are making millions off the crackdown on illegal aliens

Selvin Cardenas's three months in the U.S. immigrant detention system began in the usual way, with a knock at his door. At 5 a.m. on Apr. 21, 2009, three men in suits spotted him through the window of his Houston home. "We're here for you," one of them said. "You're Selvin Cardenas. Open up the door."

Cardenas says he arrived in Miami legally from his native Honduras in 1990, at the age of 32, working aboard a ship. He moved to Houston and for nearly two decades lived there working as a pizza deliveryman, dishwasher, and truck driver. He has four kids born in the U.S., in addition to one born in Honduras, and when the agents from Immigration and Customs Enforcement (ICE) appeared, his instinct was to wake his children and say goodbye.

He didn't open the door, but after stalling and calling a lawyer, he decided to cooperate, in the hope that if they took him away without a fuss, they might not arrest his wife, whose immigration status was also precarious. He says the agents were civil throughout the encounter and didn't cuff him, but they did lead him outside and into an unmarked green Tahoe. They cruised around Houston for three hours looking for other potential deportees. Finding none, they drove him to ICE's Houston Contract Detention Facility.

Then, as quickly as ICE detained him, it released him. His freedom lasted about 10 seconds—the time it takes to walk from the ICE building on Greens Rd. to its neighboring building, the Houston Processing Center, a prison owned and operated by Nashville-based Corrections Corporation of America (CXW) (CCA). A publicly traded company, CCA is the largest private prison contractor in the U.S. ICE pays CCA about $90 a day per person to keep immigrants behind bars and to manage every aspect of detainees' lives, running its prison much as the government does. The main difference is that CCA locks people up for profit.

The private prison system runs parallel to the U.S. prisons and currently accounts for nearly 10 percent of U.S. state and federal inmates, according to the Bureau of Justice Statistics. Those numbers rise and fall in response to specific policies, and CCA has been accused of lobbying for policies that would fill its cells—such as the increase in enforcement of regulations like the one that snagged Cardenas. Tougher policies have been good for CCA. Since the company started winning immigrant detention contracts in 2000, its stock has rebounded from about a dollar to $23.33, attracting investors such as William Ackman's Pershing Square Capital Management, which is now its largest shareholder.

CCA has current contracts with ICE and other federal clients, as well as 19 state prison systems. Its largest competitor, the Geo Group (GEO), is slightly smaller, and together they account for more than $3 billion in gross revenues annually. The next-largest player, MTC, is privately held and does not disclose numbers, but the industry as a whole grosses just under $5 billion per year.

In Houston, ICE is paying CCA to hold about 1,000 alleged illegal immigrants while they are processed for potential deportation. CCA manages them until the moment they leave U.S. soil. If they are Mexican, it puts them in white CCA buses with tinted windows and drives them on its daily run to the Mexican border. If they're from somewhere else, it drives them across the road to the airport, marches them to an airline counter, and watches them fly away.

CCA declined interview requests but did answer some questions by e-mail and issued a written statement that outlined their strategy—to try to do what government does, but more efficiently. When the federal government or states want to build a new prison, they take as long as six years; CCA says they build theirs in 18 months, at less than half the cost. Despite their speed, they claim to meet and exceed public prison standards and point to the high marks their facilities have won from the American Correctional Assn., the main trade organization in the corrections community.

CCA's opponents, such as human rights and pro-union groups, say the firm is run by amoral penny-pinchers who are in a business best left to the state because of the perverse incentives prison companies have to lobby the government to adopt policies that will increase America's already high rate of detention. When every prisoner is a daily $100 bill, say these opponents, you'll do everything you can to get as many of them as you can.

Built in 1984, the Houston Processing Center is located amid the Texas industrial parks near George Bush Intercontinental Airport. Expanded in 2005, it now looks from the outside like a fairly normal government-run jail, save for a maroon and white CCA flag flying alongside the colors of the U.S. and Texas. Planes roar overhead now and then, but the area is generally calm, with none of the highway signs one sees around prisons, warning passersby not to pick up men in orange jumpsuits.

The Houston facility is a stopping point for illegal immigrants from all over the region, and Selvin Cardenas was a typical case. He had had two misdemeanors, and appeared on ICE's radar as a result. A court sent him a summons for an immigration hearing in 2004, but he had moved from his old address. When he failed to show up, the court ordered him deported in absentia. Five years later, ICE tracked him down.

"They were well-educated, good people," Cardenas says of the agents who detained him. "They only put on my handcuffs a block before we arrived." Others are not so lucky: Many arrive handcuffed in CCA buses, which provide door-to-door service from local jails.

After being marched out of the SUV, the agents brought Cardenas into a sallyport, a secured entry-exit point with multi-stage doors. After a couple hours with ICE personnel, who processed him to confirm his identity, catalog his property, and ask about medical conditions (Cardenas has Type 2 diabetes), he crossed into the detention facility, across 20 feet or so of sidewalk that is the magic line separating government territory from CCA's. No one crosses through that chain link-fenced corridor without much clanging of metal gates and bolt locks. Once Cardenas was on the other side, he met only CCA employees and other detainees—"from all over," he says, "Chinese, Lebanese, Indian, but mostly Central American"—until his departure a little less than a week later. The average stay is 21 days, and the longest is about two years.

There is corporate spirit all over the Houston facility. The creamy-white cinder-block walls are painted with the CCA logo. Cardenas's identity bracelet, printed out by CCA, included both an ICE code and a unique number that identified him in the CCA system. He received orientation from CCA officials, explaining the center's protocols, both visible and invisible, such as lines on the floor to indicate zones where the detainees may not walk.

As in most prisons, the inmates take on chores. (CCA wouldn't comment on how much its inmates worked.) Cardenas received a blue uniform, to indicate that he would be grouped with the least dangerous detainees. The worker who handed over his jumpsuit was a fellow inmate, who an ICE official said was paid about a dollar a day by CCA. Orange and red uniforms indicate higher levels of threat, with the red suits reserved mostly for inmates with criminal records, and green ones for problem cases who require segregation from the general population.

One critic of CCA, Bob Libal, the Texas coordinator for anti-private prison coalition Grassroots Leadership, says the corporation devises ways to skim the better-behaved (and therefore cheaper to control) inmates from the general population, leaving government facilities to deal with a more violent and expensive group. For inmates with medical costs, for example, expenses that exceed a certain threshold are often marked for payment not by CCA but by the states that have contracted the facility out. CCA counters that it houses the prisoners it is sent, and the government chooses which ones to send. Along these lines, a study by the Auditor General of the state of Arizona found that the inmates who end up in CCA facilities tend to cost less to handle than the population in state facilities.

Inmates also clean and cook. With their paltry earnings, detainees can buy calling cards (according to Cardenas, the prices are extortionate, with a $9 card allowing only three calls of modest length). Cardenas found the lack of cold water and the quality of food most distressing. "Inadequate," he says, "mal, mal, mal, mal." When he complained, he was told that for a price, he could buy items at the CCA commissary: "They gave a list, and you could choose and buy things—a popsicle, a chicken leg."

Cardenas's short stay was difficult, mostly because of fear for his family. "I was working two jobs to support my family," he says. "I was sad for my kids, because they were little, and for me to go back to Honduras would have been hard on them." He says he was kept in a room filled to capacity with about a dozen other men in bunk beds. The shackles, he said, were the worst experience of all: "When you're not used to that situation, it feels very ugly."

Other detainees have had worse experiences. Mohammad Abu-Kaff, a Jordanian national who had spent all his adult life in the U.S., was sent to CCA after being picked up on a traffic warrant. He had overstayed his latest visa and spent the next year and a half fighting his deportation. During the whole period, he had little to do but wait and pass the time by doing work for CCA at wages that would have been criminal to pay him just a few months before. "I did everything—cooking, cleaning, anything to make the time go by," he says.

Many of Abu-Kaff's complaints about his detention are familiar jailhouse objections. He was denied all but the briefest visits, separated by glass, with his girlfriend, who had to wait two to three hours on busy days to see him. He needed medication for psoriasis, and he says CCA made it difficult for him to get it. (There is, however, a free clinic at the facility, staffed by officers in the U.S. Public Health Service.)

His experience may seem in line with typical jail stories, but it's important to note that Abu-Kaff's detention was not intended to discipline or punish, merely to park him while immigration courts determined when and whether to deport him. No court had convicted him or any other detainee of anything, or imposed any sentence. The traffic warrant alone probably wouldn't have merited much jail time, let alone 18 months.

Abu-Kaff says the guards felt free to inflict needless indignities on him. "They didn't respect Islam," he says. In the days before his 21st birthday, he told a guard that all he wanted was a slice of cake. He says the guard appeared with chocolate cake, brought from the outside, and ate it in front of him.

As might be expected, other CCA inmates have allegedly suffered much worse fates than being taunted with baked goods. Public prisons are well known for their brutality in this country, but it is rare for a publicly traded company to have to answer for violence and fatalities at its facilities. In the late 1990s in Youngstown, Ohio, CCA housed 1,700 violent offenders in a medium-security facility; within a year, 20 had been stabbed and two murdered. And in CCA facilities for immigrant detention, inmates have become lost—sometimes fatally—in the ICE churn. CCA's Eloy Detention Facility in Arizona had more deaths than any other immigration jail listed in a congressional report last year. In one case, a 62-year-old Ghanaian barber named Emmanuel Owusu spent two years in a CCA facility contesting his deportation from the U.S., and died there of diabetes-related heart problems. He had lived in the U.S. for 33 years. In internal documents, ICE employees wondered why he ever ended up in an ICE facility to begin with.

CCA's business depends on the ebb and flow of federal and state budgets—particularly the ebb. "The challenges for our government partners are mounting as budgets are strained and their inmate populations grow," CCA wrote in an e-mail to Bloomberg Businessweek. CCA stands ready to provide solutions, and nearly half of all states have availed themselves of its services.

The demand for prison beds has increased for many reasons, not all related to immigration. Mandatory minimum sentencing laws and three-strikes rules helped expand the U.S. prison population from 200,000 to 2.2 million in the 40 years leading up to 2008, and the peak years of overcrowding in the 1980s and 1990s were a gold rush for private prisons. Other companies, such as the Geo Group (formerly Wackenhut), won separate contracts, largely with state prisons, but CCA remains the champion, controlling around half the private prison beds in the country.

The company has had lean years. In 1999 and 2000, CCA made a series of catastrophic decisions involving real estate trusts, and shares plunged from a high of $146 in 1997 to under a dollar in 2000. In the ensuing decade, as states faced budget shortfalls, the business experienced hiccups in its criminal detention business. "We're in unprecedented times," then-Chairman and Chief Executive Officer John D. Ferguson told investors in 2008, as the crunch became acute.

At the same time, CCA received what Alex Friedmann, an associate editor at Prison Legal News and opponent of contract prisons, calls "a federal bailout," in the form of Criminal Alien Requirements, or CARs, which mandate federal contracts to house immigrant detainees. (Friedmann knows CCA well, having served six years, for armed robbery and attempted murder, at a CCA prison in Tennessee.)

A few years later, another initiative, Operation Streamline, further increased the demand for detention space. Previously, when immigrants were caught, they would generally be released, and their transgression would be treated as a civil matter. Under Streamline, prosecutors began going after them for illegal entry as well, which meant longer stays as guests of the U.S. government.

CCA rapidly reestablished itself as the preeminent federal prison contractor. The get-tough approach on immigration that began in the George W. Bush Administration and has continued through the Obama years has left the government pressed for bed space, and CCA is ready to oblige. The federal contracts also more often include minimum occupancy provisions, which guarantee payment for a certain amount of beds even if they go unused. So far there is little danger of that, with some states, such as Arizona, at occupancy rates over 110 percent.

More CCA revenue comes from federal ICE detention than from any single U.S. state. ICE budgets have grown modestly—Obama requested an extra $97 million for 2011, bringing the total allocation to $5.4 billion—but no new funding provides for building or maintaining detention facilities. As CCA CEO Damon Hininger told investors last year, with some understatement, locking up illegal immigrants will provide "meaningful opportunity for the industry for the foreseeable future."

"Last year we removed more criminals out of this office than from any office across the country," Tai Nguyen, the ICE assistant field office director, says with some pride, as he leads a tour through the Houston Processing Center. "And typically, we always exceed last year's numbers." The CCA facility's volume has grown so fast that in 2005, as the illegal immigrant crackdown began in earnest, it underwent an expansion and overhaul that doubled its bed space. In that year alone, ICE nationwide increased its demand for beds from 19,000 spaces to 27,000, as a result of stricter enforcement of immigration law under Michael Chertoff's Homeland Security Dept.

According to Nguyen, the CCA building is "pretty much the same" as an ICE-run facility, except that here the officers watching the detainees are employed by CCA. When Nguyen walks through the building, he's technically a guest. "This is one of the best facilities in the country," he points out, and says Homeland Security's independent inspectors gave it a rating of "superior" on its inspection visit last year. CCA "works for us," he says, "but they know the business better than we do."

CCA has built its facilities and targeted its business carefully, aiming to corner the immigrant detention business. Friedmann, the editor at Prison Legal News, points out that CCA facilities form an archipelago extending all along the U.S. South, from California to Georgia. He says the clustering in the South is also due to labor costs. Workforce turnover is a major issue in the industry and accounts for a large share of operating friction. Friedmann says the conditions at any prison are brutal, and at private prisons they are particularly grave. "See a co-worker shanked in the face a few times," he says, "and you might not want to stick around." In response, CCA says that "turnover has been an inherent challenge for the corrections profession—public or private—given that not everyone is suited for the unique challenges associated with our work." The company points out that Hininger, the current CEO, was himself a former guard at a CCA prison in Leavenworth, Kan., writing, "Our officers are among the best-trained and best-paid professionals in the business."

In the South, prison guards are cheaper and much less unionized than their counterparts in the North. There's nothing wrong with a company doing business where it's most likely to turn a profit, of course, but Friedmann alleges that CCA's eagerness to cut corners makes it less conducive to rehabilitation and more dangerous than the government facilities it replaces. At the Houston Processing Center, because the CCA contract is federal, guards receive a competitive wage. But even there, Abu-Kaff claims that the guards napped on the job and failed to find even obvious contraband such as cell phones.

In the case of immigrants in custody, the rights to challenge administrative detention—as opposed to imprisonment for criminal sentences—are more opaque and harder to exercise, particularly for detainees who speak little English and have only a vague understanding of the justice system. Veronica Sainz, an attorney who provides free legal training at the Houston Processing Center, says confusion and suspicion are common among detainees, and directed even toward advocates like her. "They don't know who we are," she says, "and they think anyone they meet is going to be ICE."

Judy Greene, a criminal justice expert at Justice Strategies, a Brooklyn-based nonprofit research group, says that when contract prisons do save money, they often do so at the expense of their labor. At the privately operated prisons, she says, "labor is cheap, wages are lower, and benefits are few. And across the board you see the impact of that." The rate of escapes, violence, and contraband in the private facilities tends to be higher than in their public counterparts, she says. CCA denies this and says its rates have compared favorably with the public sector. Friedmann tells an anecdote about a CCA guard who requested a 10-foot pole to let him poke into trash cans leaving the prison for the dump, so that he could more easily check whether someone was trying to sneak out in a can. The request for the pole was denied, and a prisoner escaped soon after.

CCA says its facilities perform as well as or better than regular ICE facilities or state prisons: "We view ourselves as part of the system, and a complement to what our government partners do. Both our government partners and our industries have evolved over the last 30 years and don't view it through that frame. We are trying to partner with them and be a complement to the existing system." And it vehemently denies that its business harms the public good—indeed, it claims to trim budgets and provide a more flexible alternative to the public prison industry. Still, many of the industry's critics regard its work as repugnant under any circumstance, because of the perverse incentive of CCA and others to increase the volume of people behind bars, with an emphasis on people ill-suited to advocating for their release. CCA's business model is similar to that of the hotel industry, in that profits come from filling beds with paying customers. And just as the Bellagio markets hard to persuade travel agents to bring their customers to Las Vegas, CCA lobbies hard to get state corrections departments to send their clients to Club CCA.

Its lobbying arm spends on average $1 million to $2 million annually—a minuscule amount, CCA says, compared with the lobbying efforts of comparably sized companies and other organizations, such as public employee unions. In fact, the amount is slightly above average for corporations of its size, as judged by publicly available lobbying records maintained by the website OpenSecrets. CCA's opponents, however, say they are more concerned about the effect of the lobbying than the number of dollars spent. They claim the lobbying has resulted in harsher laws, and thus more demand for CCA bed space.

In 2010, National Public Radio reported that the company had lobbied successfully for the passage of Arizona Senate Bill 1070, which permits police to detain suspected illegal immigrants and bring them to a federal facility. According to the report, the controversial legislation was proposed by the American Legislative Exchange Council (ALEC), a group that brings together legislators and industry members like CCA. When Arizona's Senate passed the law, it created a potentially enormous new reservoir of civil detainees for CCA-operated ICE facilities.

CCA says its ALEC representative participates only to keep abreast of industry developments. The company points out that the bill's sponsor, State Senator Russell Pearce (R), has introduced very similar legislation repeatedly since 2003, and when he brought the bill to ALEC's task force on Public Safety and Elections, its language was already set. Critics such as Friedmann say this only demonstrates CCA's influence, since Pearce presented the legislation fruitlessly for seven years before getting it passed with CCA involved.

Whether or not CCA is responsible for the recent surge in demand, the boom is under way. In October, CCA passed the 80,000-bed mark for the first time. Judy Greene sees the expansion as inexorable. "It's a politically popular solution to a problem that should be managed in a more thoughtful way," she says. "The private sector is there ready with beds, offering the easy answer." CCA's current capacity is more than 90,000 prisoners.

As for those who have moved through the company, Mohammad Abu-Kaff was taken to the airport (in a CCA bus, just as he came in) and deported in December 2007. He's now in Jordan, making a new life in the country where he was born but has come to know as an adult only in the past couple of years.

Selvin Cardenas last saw the inside of a CCA prison a year ago when he shuffled, confined by shackles, out of the Houston Processing Center and into an ICE vehicle that took him to an ICE-run facility in Livingston, Tex. Three months later, he posted bond, and slightly less than a year after that, he was given status as a permanent lawful resident, due to the hardship that deporting him would impose on his American family. He's now back in Houston, driving his own 24-foot truck for a living.

In conversation, Cardenas says he's glad to be out of detention, and unshaken in his faith in his adopted country—even though it briefly paid a profit-seeking private entity to lock him up and prevent him from seeing his wife and children. Other countries' prisons are, after all, often worse. "If you work and act properly in this country, you get respect," he says. "And if you're a criminal, they'll punish you." Who, precisely, "they" are doesn't seem to matter much to him, as long as it seems fair.