US prisons in a hole as pandemic slows inmate flow

US prison companies have lost more than $1bn in market value this year after the pandemic halted most detentions along the southern border and prompted a slowdown in apprehensions elsewhere.

Private prisons house 8.6 per cent of the 2.3m people locked up in America, according to the Prison Policy Initiative. They are the most visible part of a prison services industry that also provides inmate medical services, telephone systems and other essential facilities.

Shares in CoreCivic, which operates 50 “detention and correctional facilities”, are down 45 per cent since the beginning of the year, while those in rival The Geo Group, which claims to run the seventh-largest US correctional system by number of beds, fell 29 per cent over the same period. That contrasts with a broader stock market that fell sharply in early March but has since largely recovered to trade close to its January level.

Labour representatives have warned for years that the incarceration industry is a risky bet on which to stake workers’ pension savings. The American Federation of Teachers in 2018 began urging pension schemes to divest from prison-related investments, including Geo and CoreCivic.

“Making money from injustice is no longer something that Wall Street countenances,” said AFT president Randi Weingarten. “Mass incarceration disproportionately hurts people of colour . . . There is an awakening and a reckoning that making money off injustice is not OK.”

Geo, which has a market capitalisation of $1.4bn, warned investors in April that adjusted net income per share would be 18-27 per cent lower this year than previously expected unless prisoner numbers picked up.

Making money from injustice is no longer something that Wall Street countenances

CoreCivic, whose equity is now worth $1.1bn, has also registered declines in occupancy and pulled financial guidance. The company said it was “financially strong”, and blamed recent share price declines not on the pandemic but on a dividend suspension and announcement it was considering ditching its status as a tax-advantaged real estate investment trust.

Both companies rejected claims they profited from injustice, saying they had never taken positions on policies related to sentencing. Geo added that “the divestment efforts against our company are based on a false narrative and deliberate lies”.

The financial pain suffered by jail operators suggests Covid-19 could inflict long-lasting damage on a range of businesses that rely on prisoner populations for revenue.

At least 548 inmates have been killed by the coronavirus and another 48,000 have been infected, according to data from the Marshall Project, a non-profit organisation that tracks the US criminal justice system.

Among companies facing additional scrutiny is HIG Capital’s Wellpath, which runs healthcare in prisons.

A court-ordered inspection of Shelby County Men’s Jail in Memphis, where the company has a contract to provide medical care, last week concluded that “the Wellpath Covid-19 response plan is inadequate to protect . . . vulnerable inmates.”

It recommended that all incoming prisoners be tested for the virus, instead of just those showing symptoms, adding that the company’s efforts to isolate recent arrivals were made “ineffective and useless” by prisoner movements it was powerless to control.

The expert opinion was ordered by the judge in a class-action lawsuit that aims to secure the release of some elderly or chronically ill prisoners who could face a higher risk of severe illness.

Wellpath, which has not been accused of wrongdoing, did not respond to a request for comment. A federal judge has yet to decide whether to order the release of any prisoners.

In a separate lawsuit filed in Maryland this week, two operators of prison phone systems that inmates use to make contact with their families were accused of conspiring to fix prices, “while also repeatedly lying to local governments and their own customers about the costs of those calls”.

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Securus, which is owned by Platinum Equity, and Global Tel*link Corp, a portfolio company of American Securities, both charged $14.99 for a call lasting up to 15 minutes, and kept approximately $10.64 of that as profit, according to the complaint.

GTC and American Securities declined to comment. Dave Abel, who took over as Securus chief executive in January, said the alleged conduct “does not reflect the practices, policies or values of Securus today”.

Mr Abel added that the company would “renegotiate older contracts that had higher outlier rates,” and had offered free call credits during the Covid-19 pandemic. He said a response to the lawsuit would be filed in due course.