CCA operates the fifth largest prison system, public or private, in the system in the US. Under its control include 51 owned-and-operated facilities in 16 states and contracted management of 18 more state-owned facilities in 7 states. This network allows CCA to maintain a 44% stake in the $7.4 billion private corrections market for a market cap of $3.53 billion. All of this equates to a massively profitable operation for CCA who recorded $1.64 billion in revenue, $883.1 million of which came from state governments in 2012.
Studies mostly agree that privatized prisons save money on the balance sheet—with short run savings averaging about 19.25% and long run savings averaging about 28.82%. In fact, many states have statutes that require a certain percentage of savings—Florida 7%, Texas 10%, Kentucky 10%, Mississippi 10% –in contracts with private corrections providers. On paper, private corrections facilities are almost always more efficient than public ones. CCA reports savings of 68-74% vs. various government agencies for 1000 new beds added. Astonishingly, CCA was able to generate these savings while also recording a 29.6% operating margin of $17.53 per man, per day in 2012. Are private prisons really that much more efficient or are we missing something?
Let’s break this down further. In 2012 CCA received $59.14 in revenue per compensated man-day from the government. Of this $59.14, CCA committed $41.61 to operating expenses per man-day. This effectively means CCA commits $41.61 to each prisoner each day. According to CCA’s SEC filings 65% of these operating expenses, or $27.05 goes to employee salaries and benefits. This leaves $14.56 per man-day for the combined costs of food, medical care, and contracted drug rehabilitation and education programs.
Considering that this is the area private prisons choose to cut costs, it is little wonder they come with hidden costs unaccounted for by their reported savings. For instance, a study on recidivism performed in Oklahoma between 1997 and 2008 showed that prisoners released from private prisons had almost a 4% higher rate of recidivism (returning to prison). This means, that for every 1000 prisoners released, private prisons have the additional annual cost to the Oklahoma taxpayer of $554,010 (based on average annual cost per inmate). If you extrapolate this recidivism gap to a state like New Jersey that spends more per prisoner, the hidden cost of releasing 1000 inmates jumps to $1,645,950.