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Private Prisons Are Poised for a Comeback Under Trump. Here’s How to Reform Them.

By improving the contracts with private prisons and changing the incentives, we can make them more accountable and hopefully more effective in curbing the endless cycle of arrests and incarceration that plague our criminal justice system.

January 13, 2017

Cross-posted from Vox.

Just a few months ago, things were looking very bleak for the private prison industry. In mid-August, the Justice Department’s inspector general issued a report finding that privately operated federal prisons are more dangerous than those managed by the federal Bureau of Prisons and need more oversight. Within a week, the Justice Department announced it would phase out private prisons to house federal inmates. Later that month, the Department of Homeland Security announced it would evaluate whether detention operations conducted by Immigration and Customs Enforcement should move in the same direction. Not surprisingly, shares of the nation’s private prison companies tanked.

But Trump’s win has turned the prospects for private prisons around almost immediately. Trump’s racially charged law-and-order rhetoric, and his promise to deport or incarcerate millions of immigrants — with the help of a like-minded attorney general, Jeff Sessions — have breathed new life into the industry.

Trump’s victory was “nothing short of a game changer for the beleaguered private prison contractor industry,” said CNBC. Stock prices for the nation’s two largest private prison corporations rose dramatically; since Election day, CoreCivic (formerly known as Corrections Corporation of America) shares were up by over 70 percent and GEO Group shares have climbed more than 50 percent.

For-profit corrections are a $5 billion industry. In 2015, CoreCivic and GEO earned a combined $2.6 billion. CoreCivic is the fifth largest prison manager behind California, the US Bureau of Prisons, Texas, and Florida. A little more than 126,000 (8 percent) of the nation’s inmates are housed in private prisons, and over 70 percent of US Immigrations and Customs Enforcement detainees are held in private detention centers. The companies have been aggressive about expanding their market share, and they maintain a significant Washington, DC, presence. As the Washington Post recently reported, they’ve spent $35 million on lobbying since 1989.

Private prisons have received their fair share of criticism over the past few decades. Today, states and the federal government continue to draw up irresponsible contracts with private prison firms that give them far too much leeway. This has led to a lack of accountability and transparency, a lack of programming in many prisons, and no way to ascertain recidivism rates.

But whether or not the Obama administration was right to phase out its reliance on private contracts (state prisons are hardly without their own problems), the likelihood is that the Trump administration will increase the private prison industry’s share of the corrections business.

That means we should think hard about ways that private prison firms might innovate — including how they might devise new strategies to reduce recidivism. By improving the contracts with private prisons and changing the incentives, we can make private prisons more accountable and hopefully more effective in curbing the endless cycle of arrests and incarceration that plague our criminal justice system.

As I’ve discovered researching for my upcoming book, Inside Private Prisons, the private prison industry is relatively young and didn’t explode until the early 1990s.

The overcrowding of state prison systems in the early 1980s provided an opening for incarceration entrepreneurs. At that time, lawmakers were faced with reducing the number of people behind bars or building additional, expensive facilities. But taxpayers were unwilling to foot the bill, and legislators believed they would be voted out of office if they appeared soft on crime. As correctional agencies raced to comply with court orders to reduce overcrowding, a group of astute businessmen pored over inmate projection reports and analyzed a new growth industry. Private prisons were born out of “the unlikely meeting of pinstripes and prison stripes,” Barron’s noted in 1985.

The private-prison system is governed by perverse incentives

Some argue private prisons are so driven by their bottom line that they cut costs in areas like staffing and healthcare, which decreases the quality of life for inmates. Others take moral issue with the idea that a corporation is profiting off of the nation’s predilection for incarceration as a one-size-fits-all answer to crime, and rewarded for the sheer number of inmates they can warehouse, rather than for developing successful rehabilitation programs and producing positive reentry outcomes. But others — not just industry shills — support the industry, arguing that it can circumvent government procurement laws and step in when government-run corrections agencies find themselves with too many inmates for their own jails and prisons.

There are dozens of organizations in the US devoted to eliminating any sort of profit motive when it comes to corrections, and it’s not hard to understand why. In one of the more infamous cases involving a private prison company, in 2010, an Associated Press video revealed prison guards at Idaho’s largest prison, the CoreCivic operated Idaho State Correctional Institution, failing to halt an attack on a prisoner whose head was stomped several times, leaving the inmate permanently disabled. The prison was so violent that prisoners used to call the facility “Gladiator School.” But corrections is a tough business, whether government run or in the hands of a private company. Many government operated jails and prisons struggle with controlling abusive guards and rampant sexual assault perpetrated by both inmates and correctional employees. According to one Justice Department study, almost 10 percent of former state prisoners reported one or more incidents of sexual victimization during their most recent period of incarceration. Suicides are all too common behind bars.

Nearly one out of three deaths in jail are attributed to suicide. For example, New York City’s notorious Riker’s Island Jail Complex, wedged between the Bronx and Queens next to the LaGuardia Airport, garnered headlines for its violent treatment of its prisoners. In fact, conditions at the jail complex are so dangerous that Riker’s Island is considered one of the most dangerous correctional facilities to work at.

Leaders of the private-prison industry haven’t innovated much through the decades because they haven’t had to. The “War on Drugs” in the 1980s and 1990s maintained or expanded the need for mass incarceration. Private prison operators were uniquely positioned to benefit from mandatory minimum sentencing, “three-strikes” laws, and a reduction in the number of inmates eligible for release on parole.

The perverse incentive structure in private prison contracts encourages states to keep private prisons full, or very close. Often, private prison corporations benefit from contracts that are written so favorably to them that they receive money for empty prison beds. A good number of private prison contracts include occupancy requirements mandating that governments keep the facilities between 80 and 100 percent full. If the state fails to supply enough prisoners, it must pay a fine to the private prison for each prison bed that goes unoccupied. For example, Arizona agreed to pay CoreCivic at a guaranteed 90 percent occupancy rate for a thousand-bed, medium-security prison in Eloy.

In short, even if the state of Arizona runs out of inmates, CoreCivic is guaranteed revenue. And if states are paying for prison beds no matter what, there is little motivation to rethink its sentencing laws. Another criticism centers on the fact that private prisons earn more revenue when inmates serve more of their sentence, an incentive for private prison officials to give inmates more infractions, to forestall their release.

Let’s shift from filling beds to incentivizing good performance

As suggested by the Brennan Center for Justice, a good first step would be to reorient incentives through performance-based contracting. States and the federal government should ensure contracts with private prisons contain incentives that focus on reducing recidivism and improving outcomes for the 2.3 million people incarcerated. This would be a marked changed from today’s incentive structures that focus on rewarding private prison operators for building more bed capacity.

Private prison contracts in other parts of the world can serve as a model. Two new private prison contracts in Australia incentivize a reduction in recidivism rates through bonuses paid to the companies. The GEO Group will operate Victoria’s Ravenhall Prison (due to open this year), and the firm will be compensated on the basis of the rate of re-offending among its released prisoners. Specifically, the company has been promised a $2 million bonus payment annually if the rate of reoffending among inmates released from the facility is 12 percent lower than at other governmentally run prisons. And Sodexo, an international prison industry titan, recently signed a contract with Western Australia’s Department of Corrective Services to run a 256-bed women’s prison; it will receive a bonus of $11,000 for every inmate who remains out of prison two years after release.

Pennsylvania is experimenting with a similar idea. In 2013, Republican Gov. Tom Corbett’s administration announced it would cancel all Department of Corrections contracts with private community corrections companies (also known as halfway houses) and rebid them, with incentives for good performance built into the contracts. At the time, individuals who transitioned from prison to the community through the state’s community corrections centers were more likely to return to prison than those who were “paroled directly to the streets.” Under the new contracts, providers are evaluated and paid according to their success at reducing the recidivism of those who have just been released from prison. The new contracts provide that if the overall recidivism rate of individuals in their facilities falls below a certain level, the state will reward the providers by paying one percent more per prisoner. The state can cancel a contract if the recidivism rate increases over two consecutive years.

Pennsylvania’s approach worked. The recidivism rate for individuals released from private community corrections centers in the state fell 11.3 percent in just the first year after these new contracts. Private contractors were able to reduce recidivism by providing programs that are proven to work such as cognitive behavioral therapy, substance abuse counseling, educational classes, and job training.

Other innovative practices exist that use private funding to try to reduce recidivism rates for inmates exiting mostly governmentally run jails and prisons. Recently, New York and Massachusetts explored performance based contracts aimed at improving outcomes of those who cycle in and out of the justice system. Under a pay-for-success or social impact bond program, private firms fund what is usually a brand new social justice or public interest program and only get paid back if the project meets certain benchmarks.

In August 2012, New York City announced the first U.S. social impact bond aimed at reducing the rate of reincarceration among juvenile inmates released from Rikers. Goldman Sachs backed the program in New York through a $9.6 million loan to MDRC, a leading social policy organization. Bloomberg Philanthropies then provided a $7.2 million grant to MDRC to guarantee a portion of the loan, reducing the lender’s risk. The financial structure of these bonds was complex, but the lower the program’s recidivism rate, the greater the interest paid. If the program cut participant recidivism by more than 10 percent, Goldman would earn up to $2.1 million.

Even failed experiments can lead to improvement

In August 2015, the Vera Institute of Justice evaluated the program and determined it “did not lead to reductions in recidivism and therefore did not meet the program’s pre-defined threshold of success.” That was disappointing, but many considered the experiment a success, given that it cost taxpayers nothing and had allowed government officials to try something new.

A similar experiment is underway in Massachusetts. In 2014, then-Gov. Deval Patrick’s administration signed a pay-for-success contract with Roca, a nonprofit located outside of Boston, Massachusetts. Roca received an investment of $27 million from private foundations and the Goldman Sachs Social Impact Fund. The money pays for support services, skills training, and job placement, and the program will cost the state nothing unless it succeeds; significant recidivism reductions will produce bonuses for investors.

In my book, I pose the following question: Is it fair to ask the private sector to meet very high levels of performance in an area where the state has so badly failed? After all, recidivism rates in the US are high — more than half of prisoners released are reincarcerated within three years — and most of these individuals are housed in public correctional facilities. My answer, based on research, is: yes, it is fair to hold private prisons to a higher standard. Private prison firms are making billions of dollars off the corrections industry, providing them with the resources to innovate and experiment in a way that government correctional agencies simply don’t.

Restructuring contracts around the nation’s public policy goals would ensure that private operators provide more educational programming and job training — and that they prepare their inmates for successful reentry to the community.

Like it or not, all signs indicate the private prison industry is here to stay under Trump. Asked about his views on prison reform by Chris Matthews on the campaign trail, Trump replied, “I do think we can do a lot of privatizations, and private prisons it seems do work a lot better.”

His administration would do well to adopt some of the innovative ways state officials have reined in the worst excesses of privatization.

Building the proper incentives into contracts has the power to move the for-profit prison industry away from focusing on cost-cutting and filling beds toward a world where public and private incentives align.

With more than three decades of experience under their belt, it is time for private prisons to up their game — and aim to produce better outcomes than their public counterparts.