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Cornell Company - The Prison Industry's Enron

It was not an earthshaking day when Cornell Corrections was founded in 1991. It was more like a pebble plummeting over a cliff, leading to a landslide of greed and corruption. Backed by Dillon Read Venture Capital, David Cornell's callous creation rose like cream to the top of the prison-building program.

Imprisoning citizens became popular business in the early 1990's. Companies like Corrections Corporation of America (CCA), Wackenhut Corrections Corporation (WCC) and Cornell were quick to take up the cause. CCA is the largest private prison company in the U.S. with fifty-nine facilities and nearly sixty-thousand prison and jail beds under its control. WCC maintains over forty-thousand prison and jail beds and employs about ten thousand people world wide. Cornell has fifty five prisons in twelve states and Washington D.C., holding around 13,000 prisoners.

Specializing in half-way houses and juvenile detention facilities, Cornell managed to corner close to seven percent of the private prison market. Only Correctional Services Corporation (CSC) rivaled Cornell in locking up adolescents.

For a while these merchants of human misery profited handsomely. But when the demand for prisons dwindled in the late 1990's their unscrupulous profits diminished like thirty pieces of silver in the hands of the Hunt brothers. (PLN , Nov. 1999) Overbuilding, mismanagement, unfruitful political donations and poor speculation threatened to sink the private prison giants CCA and WCC into a pool of stagnant excess. [PLN, July 2000] CSC became virtually defunct amid scandal and a drastically decreased demand for its services. [PLN , Aug. 2002]

But something strange was happening at Cornell during this period. At first Cornell also was feeling the pinch. Then, mysteriously, balance sheets were in the black and profits were rising. It appeared Cornell had found providence. What they had actually found was Provident a company so slippery it even raised the eyebrows of Cornell's not so reputable accountant Arthur Andersen.


When Lehman Brothers brokered the sale/leaseback agreement between Cornell and the Provident Foundation the transaction was touted as the most innovative enterprise ever to hit the private prison industry. The deal boasted "low cost, fixed rental rates and no requirement to pledge future revenues," a veritable boon for the financially floundering Cornell. Steve Logan, Cornell's chairman and CEO, heralded a "new day for the private corrections industry.. . [we] have provided a significant financing instrument that could revolutionize the financial foundation of our industry."

Provident was the brainchild of Steve Hicks, a Baton Rouge lawyer, Donovan Hicks, his brother, and Joseph H. Torrence, a former director with Shearson Lehman Brothers. Steve Hicks was also a former member of Bill Clinton's National Finance Campaign Committee in 1992. Three years later President Clinton appointed him to serve on the advisory committee for the John F. Kennedy Center for the Performing Arts in Washington D.C.

This impressive trio was joined by Thomas H. Hudson, a partner with the Washington law firm Brownstein, Hyatt and Farber, and J. Dan Hall II, vice president with UBS Paine Webber in Atlanta.

In September 1999, the quintet presented Provident Foundation Inc. to the Internal Revenue Service (IRS) for approval as a tax-exempt charity devoted "exclusively for public charitable uses." Hicks described his motives as stemming from a "genuine compassion and concern for healthcare, especially senior citizens." In a follow up letter to the IRS in May, 2000, Hicks emphasized his desire to retire from his lackluster 25-year career in bond closings to pursue more altruistic aims. "Call it burnout," his letter lamented.

The IRS bought the spiel. Hicks' plea for a more gratifying career was rewarded the following month when the IRS granted Provident its tax-exempt status.

Before the ink was dry on Provident's approval, Hicks had already expanded their mission statement to include prisons. His "genuine compassion and concern" had come to encompass the desire to help state governments alleviate their burden of housing prisoners, an objective recognized by the IRS.

The Experiment

North Carolina offered the perfect opportunity for Provident to launch its campaign of pseudo-compassion. North Carolina had bought into the prison building boom of the early l990's and was busted and broke by 2000. Rather than change its sentencing policies, the state decided it desperately needed more prison space, without the debt. The state searched frantically for interested bidders. Provident came to the rescue.

Hicks and company formed the Provident subsidiary Carolina Corrections LLC which easily won the contract to construct three 1,000-bed facilities. Under this arrangement, the subsidiary would then lease the space back to the state without North Carolina or Provident adding any debt to their books. The cost of the 20- year lease to North Carolina would be $370 million, $146 million more than if they had built the prisons themselves.

Bob High, deputy treasurer for North Carolina, admitted that using Provident was more expensive in the long term but insists that the additional cost was justified. Naturally, Hicks agreed. "We know we have substantially lowered the cost associated with operating the facilities in North the millions of dollars," he said.

Lowered cost and better service has long been a private prison mantra [PLN Dec. 1997]. Close scrutiny and financial analysis, however, points to profit as the genuine motive. While private prison companies may in fact operate prisons less expensively than the state does, such savings are not passed on to the state, instead they are pocketed as profit by the company and its financial backers. Lehman, who sold the bonds to build the prisons, pocketed over $2 million. Provident's gross income totaled $20 million plus a "development fee" and an "administration oversight fee." And because Provident is tax exemptwell---you do the math.

Onward and Upward

Provident's North Carolina venture worked so well that David Lavell, Lehman's lead banker, brought another deal to the table, a virtual smorgasbord of potential, namely Cornell Corrections. Hicks seized the opportunity.

On August 14, 2001 Municipal Corrections Finance LP. (a Cornell/Provident creation) purchased eleven prisons from Cornell who promptly leased them back. Cornell still ran the prisons but no longer owned them. The transaction netted Cornell $173 million and freed the company from debt. Financed by the sale of $165 million worth of bonds, Lehman passed the financing on to large private investors. Sale/leaseback arrangements are not uncommon in real estate transactions.

CCA had used them before with disastrous results, as previously reported in PLN. However, with respect to a non-profit entity the concept was completely unique. This was the "revolutionary" brainchild heralded by Steve Logan. Municipal Corrections LP. was a completely separate entity responsible for the debt passed on by Cornell. Lehman assumed limited partnership of Municipal, investing $8.2 million. Provident assumed a general partnership with an $82,525 investment. The arrangement only required that Municipal maintain a 3% independent equity investment. Lehman provided the financing; Provident (the charity) provided the independence.

Returns from the transaction were designed to yield Lehman $2 million from the sale of bonds and 99% of the rent paid by Cornell. Provident would garner a tax-free 1% of the rent apart from any price it might receive from the sale of its general partnership.

While the deal raised a few eyebrows, Hicks maintained that it was not out of line with Provident's original goal. The transaction, claimed Hicks, allowed Provident to examine opportunities to offer "special care and housing for aged and infirm inmates." Lavelle declined to comment on either the deal or the dogma.

For over a year Cornell rode a financially black-cresting wave of success. From the fourth quarter of 2000 to the fourth quarter of 2001 Cornell stock rose from $3.50 to $17.00 per share. Three months following the sale/leaseback arrangement Cornell sold another $3.5 million shares, netting Lehman $2.1 million. Additionally, close scrutiny revealed that Cornell was completely controlled by only thirty-four stockholders including Logan and several private investment concerns. All of these investment funds enjoyed ever-rising profits, having sheltered themselves on the tax-friendly shores of Bermuda and the Cayman Islands.

The Spoilers

But what promised to be blue skies and boundless profits quickly evaporated into a storm of fiscal turbulence manifold1y christened Enron, Wor1dcom and, Cornell's own accountant, Arthur Andersen LLP. Enron and WorldCom [now known as MCI] had bilked thousands of investors, customers and employees out of billions of dollars by falsifying profit reports. While both companies were going belly-up, top executives were selling off major blocks of company stock while freezing employee-owned shares. When Enron and WorldCom finally folded, thousands of employees were fired. Many lost their life's savings and retirement packages. It was also revealed that Arthur Andersen had helped both companies falsely bolster profit reports.

Ironically, Logan was originally an auditor with Andersen in Houston, before joining Cornell. So it was with a special sense of satisfaction that he had addressed Wall Street analysts saying, "there is a financing transaction that we are working on that, if successful, will change our entire [debt-ridden prison] industry."

On January 31, 2001 the tsunami came crashing against the concertina cliffs. Andersen came under investigation for questionable accounting and was being forced to scrutinize their client's books for even the slightest. That's when they noticed the glitch in the Cornell glitter. At some point, Cornell had paid Lehman $3.7 million while Provident had assumed a major chunk of Cornell's debt. Andersen questioned whether this undermined the required 3% investment necessary for Municipal to retain its status as a financially independent entity. Cornell insisted that the money paid to Lehman was a retainer for work to be done in the future, not to shore up Municipal. But the question by Andersen was enough to catch Cornell in the riptide of a chaotic economic arena.

Six days following the Andersen inquiry, and despite assurances that the questionable payment could easily be undone, Cornell stock fell 43% in a single day. In April 2002, Cornell restated its earnings for 2000 and most of 2001. They also reassumed the debt they had transferred to Provident. William J. Ahearn, spokesman for Lehman said the payment by Cornell "was entirely separate from the [Municipal LPJ investment."

Double Dealing

Chairman Logan defended his company's position and insisted that Cornell's retainer represented "a legitimate arms-length transaction to pursue separate future projects that are unrelated to the 2001 sale/leaseback" deal.

But Logan clearly had his own definition of the term "arms length." In July 2000, Logan had formed his own company named Municipal Corrections Inc. Like Municipal LLP, Logan's company was also tax-exempt. As the sole proprietor of Municipal Inc., Logan was free to buy from Provident and any of its subsidiaries including Municipal LLP. Had not the Andersen debacle thrown Cornell into chaos, Logan had essentially put into place a deal that could have left Cornell renting from him, their chief CEO, rather than an independent third party.

Charles Elson, director of the Center for Corporate Governance at the University of Delaware, called Logan's effort a "conflict of interest transaction" that would invite share holder lawsuits and scrutiny from the SEC because it puts a Cornell officer "on both sides of the transaction."

Logan insisted that Municipal Inc.'s only purpose was to provide Cornell with "a vehicle to protect its interests in the unlikely event that [Municipal LLP] could not fulfill its responsibilities."

Meanwhile, Logan was removed as chairman and CEO of Cornell. Milberg, Weiss, Bershed, Hynes and Lerach, the nation's largest shareholder firm and counsel for the lead plaintiffs against Andersen and Enron, also represent the shareholder plaintiffs who have sued Cornell for misleading and defrauding its investors.

Corrections & Contributions

Though not the biggest private prison vendor, Cornell epitomizes the proactive agenda of the prison-for-profit industry. Fueled by an inane social desire for mass incarceration, politicians have responded with increasingly harsher laws. Yet nowhere in this madness has there ever been a public demand for private prisons. Instead, unscrupulous merchants like Cornell have pandered, paid and wooed politicians into sacrificing private citizens on the altar of penal detention.

Figures for 1998 indicate that the Big-3, CCA, Wackenhut and Cornell paid 361 state candidates in 25 states over $590,000 in contributions. In spite of the fact that it is considerably smaller than the other two, Cornell contributed $110,575, over 20% of the total figure. The same three companies have also donated more than $528,000 to federal campaigns between 1995 and 2000.

The Houston, Texas based Cornell joined its fellow peddlers of ignoble profit in giving more than $1.1 million to 14 southern states in 2000. In Texas, 156 candidates received $361,000; in North Carolina 107 candidates received $226,500 and in Florida 122 candidates received $158,500. Louisiana, Virginia, Georgia, Tennessee, Oklahoma, Mississippi, Arkansas, Kentucky, Alabama, West Virginia, South Carolina together garnered another $350,000 from the Big-3. Donations coincided perfectly with state elections and went almost exclusively to incumbents who either favored or were directly involved with private prison legislation. While these figures are excessive and it is obvious that private prisons are actively creating a demand for their services, it should also be noted that unionized guards in state prison systems and the federal Bureau of Prisons (BOP) union contribute far more to political supporters. Not coincidentally, prison privatization has been least successful in those states with strong labor movements and/or strong guard unions.

Between 1990 and 1998, Cornell donated $120,000 to state political campaigns. Many of those contributions were accompanied by considerable controversy. Before an ensuing rift with the city council in Delta Junction, Alaska, Cornell had contributed $6,375 to Governor Tony Knowles, the largest in the country that year. Another $5,500 went to Lt. Governor Fran Ulmer and $5,000 to Rep. Ramona Barnes, R-Anchorage. In 1996 and 1998 Cornell gave Eldon Mulder $5,100. Mulder was co-Chair of the House Finance Committee and author of the Delta legislation. Mulder's wife received $85,000 to work as office manager for Cornell lobbyist Joe Hayes.

Richmond, Virginia City Mayor Leonidas Young supported Cornell and successfully encouraged them to invest $50,000 in his campaign in exchange for his garnering support for their prison. Cornell also paid $27,500 to one of Young's close friends and campaign consultant. His friend's wife was paid $17,000 for a mailing campaign, for which she had no experience, and that never mailed anything. Cornell denies that the payments were bribes but three years later, in an incident unrelated to Cornell, Young was indicted and eventually pled guilty to federal racketeering and money laundering.

Noting that Cornell never complained about Young's failure to deliver what he promised, U.S. Attorney Robert Trono commented that Cornell's expectations of Young were hard to pin down. "That was always a very good question," said Trono. "These people [Cornell] weren't stupid. What did they think they were getting?"

An editorial in the Wilmington N.C. Morning Star noted how Cornell had successfully stifled all competitive bids for a juvenile prison by buying support from State Rep. David Redwine. Redwine and his cronies so blatantly manipulated the bidding rules in favor of Cornell that all other interested parties, who did not see fit to buy their own support, quickly got the hint and withdrew their bids.

Cornell has also been extremely active in lobbying politicians in Alaska, New Mexico and California. A financial breakdown of contributions show that Cornell donated nearly $20,000 to select candidates in the 1998 California Primary Election.

In fact, Cornell is so persistent in pushing its unsolicited services that in Alaska they have used political donations to override the public's rejection of their prisons being built in local communities. Delta Junction and Kenai Peninsula are perfect examples.

In 1998, Cornell lobbied to become the first private prison in Alaska. First the conglomerate co-opted the fiscally collapsing Allvest Inc., an in-state operator of pre-release halfway houses, for a price of $21 million. Cornell then convinced city council members to give them an exclusive contract to open a private prison. However, when an intervening election changed the makeup of the Delta Junction City Council, the city rescinded the contract that would have made Allvest [Cornell] the recipient of the prison contract without competitive bids. Cornell responded by suing the city for breach of contract. Had the deal gone through it would have netted Cornell more than $800 million over twenty-five years.

Undaunted, Cornell turned their focus to the Kenai Peninsula where they again persuaded local politicians to back their efforts to build a prison. But local residents voted down the proposed prison by a margin of 3-to-1.

Cornell Corruption

While Cornell may have succeeded in making its services look cheaper on paper, there is an underlying cost that they are not so quick to advertise. Since their inception Cornell, like the rest of the private prison industry, has been plagued by corruption and scandal at every level. New Mexico alone has been buffeted by a blizzard of malevolent misdeeds by these less-expensive Cornell employees.

Lawrence Barreras was hired by Cornell as warden of Santa Fe County Detention Center in March 1999. Barreras brought with him a legacy and a lawsuit. His legacy included his termination as warden from Roswell State prison. The lawsuit was for "conspiring to misappropriate public funds for private gain" from the Roswell State prison.

In August 1999 State District Judge T. Glen Ellington gave Cornell an ultimatum: come up with an established release policy or have their prisoners moved to another jail. Cornell, it seems, had become so covetous of the $65 per day fee it was receiving from the city for housing prisoners that the Cornell run Santa Fe jail was refusing to release them. Prison officials became so bold that they literally ignored court ordered release papers. Hence the ultimatum from Judge Ellington.

The Santa Fe New Mexican reported in October 1999 that "Cornell and the company's contractor, Landmark Organization, paid workers 40% less than was allowed under the state's minimum wage law." Cornell settled out of court for $80,000.

In October 1997 two Cornell guards were arrested on charges of kidnapping two men at gunpoint. The victims claim they were abducted and pistol-whipped by the guards following a party.

In April 1999 a guard at a Cornell facility was arrested for molesting a 15 year old girl. That same month investigations exposed three Cornell guards with criminal records working in their youth facilities.

Also in 1999, at the Cornell owned Santa Fe Youth Detention Center, 41 year old Calvin Campbell was fired when he was accused of raping and molesting a 14-year old female prisoner. Maria Carreon claims Campbell sexually groped her, kissed her and even bit her during the attack. The rape triggered a riot by the prisoners.

Also in April 1999, another Cornell guard was arrested and charged with forcibly demanding oral sex from a male prisoner.

Four female federal prisoners accused Cornell guard Marcus Trujillo of sexually assaulting them while he worked at the Santa Fe County jail between April 2000 and March 2001. Mary Lucinda Valdez says Trujillo entered her cell, pinned her against the wall, then kissed her and groped her against her will. Valdez reported the problem to jail management but no action was taken. She then spoke to detectives and was harassed by guards for her effort. Valdez insists that after her encounters with Trujillo she was also raped by other guards. A criminal investigation found no wrong-doing although Valdez was eventually moved from the unit.

In May 2001, Valdez brought suit against Trujillo and Cornell for negligence, assault, battery, emotional distress, sexual harassment and rape. Her lawsuit reads that "Trujillo and other guards `sexually harassed' her and `assaulted and fondled' and repeatedly coerced her into having sexual relations." Records show that Trujillo was fired on March 1, 2001 for an unrelated incident.

Meanwhile, Carmen Jaramillo, Michele Montano and Bertha Martinez's are suing the Santa Fe County jail for the illegal intrusion of males into their cells. On March 10th and 11th, guards decided to make the Santa Fe Jail a coed facility. Both days a locked metal door that separated the men's and women's cells was purposely left open.

"It was scary," said Jaramillo. "It could have been somebody that could have killed me, raped me."

Attorneys Cliff McIntyre and Edward Chavez represented Jaramillo against Cornell. Jaramillo says that she was accosted by a male prisoner who kissed her and fondled her against her will. Jaramillo is out of jail now but insists that the experience was extremely traumatic. "I was very upset and I was scared. I did not know what was going on." Two Cornell guards were fired behind the incident.

Marcus Cordova, a Cornell guard was jailed after being indicted on five separate counts of criminal sexual penetration of a female prisoner in his care. All five incidents occurred within a three month period between December 2000 and February 2001.

Stephanie Angus filed civil rights charges against Cornell after she was taken hostage by convicted bank robber Byron Shane Chubbuck. Chubbuck escaped from the Santa Fe County Detention Center on December 21, 2000 after he obtained a handcuff key, unlocked his cuffs, waist chains and leg shackles and kicked out a steel-grated window. Once outside Chubbuck kidnapped Angus and forced her to "transport him via the streets of Albuquerque for over two hours."

Francisco and Sara Holguin are also suing Cornell for a stray bullet fired through their mobile home, barely missing their heads, from the resulting shootout during Chubbuck's capture.

According to Santa Fe's Deputy Police Chief, Cornell's bills to the County Jail have a "30% `error rate'" The Santa Fe New Mexican reported in March 2000 that Cornell "regularly submits bills to the city of Santa Fe for housing prisoners that are so over inflated Santa Fe simply refuses to pay them." There are so many corrections necessary that a full-time employee is required just to dispute the charges. Which illustrates the illusory nature of any purported savings to taxpayers from privatized prisons.

The New Mexican also reported that on March 31, August 30 and October 11, 2000 tours of the Santa Fe jail by a grand jury revealed medical conditions so atrocious they "failed even the most minimum sanitary requirements."

In similar incidents, Cornell was fined $168,750 by the Oklahoma DOC for providing inadequate medical care and withholding information from the state at their Great Plains Correctional facility. And a report filed by Georgia inspectors in 1998 cited the Cornell-run prison in Charlton County for lax security, deficient medical facilities, unsanitary conditions and careless record keeping.

In April 2001, Cornell guard Lawrence C. Candelaria earned himself a 366-day jail sentence for helping three prisoners escape from the Santa Fe County Detention Center. Candelaria supplied the three escapees with a cell phone, hacksaw blades, a hammer and a chisel. One of the prisoners, Vicente Manuel Tijerina, was captured in Mexico City and extradited back to the United States. Luis Ramon Lopez and Rodolfo Ruiz-Godinez remain at large.

On June 8, 2002 the Albuquerque Journal reported the arrest of an unnamed Cornell guard who was caught selling drugs to prisoners in the Valencia County jail. Sheriff's Deputy M. Torres told reporters that the guard was jailed under $160,000 bond on three counts of drug trafficking, one count of conspiracy and one count of bringing contraband into a jail.

In August 2003, Cornell guard John Robertson was convicted of having sex with a minor at the Santa Fe County Youth Development Program. Judge Michael Vigil refused Robertson's request for bail prior to sentencing saying, "I don't want to be responsible for something happening while he's out. I need to know a little bit more about what is going on upstairs."

Robertson admitted having sex with the l6-year old female prisoner but his attorney, Damien Horne, insists that "there is no indication that he is a sexual predator."

The girl, who has since been released, now lives out of state. District Attorney Barbara Room said the girl's "main concern is getting this over with and getting him registered as a sex offender."

New Mexico is not Cornell's only victim. Other states have also suffered from Cornell's incompetence.

In 1999 a resident of a Cornell half-way house in Bethel, Alaska slipped out one night and raped his ex-girlfriend.

In August,2002, two more residents of a Cornell half-way house in Anchorage, Alaska were arrested for armed carjacking after they escaped from the facility.

At Cornell's Alexander Youth Services Center (AYSC), in Little Rock, Arkansas, a l6-year old youth hanged himself in May, 2001, while Cornell guards were supposed to have him under suicide watch. Four months later, in September 2001, a second boy, 15, hanged himself in the same cell using the same method. He too was under suicide watch. State investigators charged Cornell with failing to adequately supervise prisoners diagnosed as suicide risks.

In August, 2002, a Cornell guard was convicted of third-degree felony battery after slamming a juvenile prisoner to the ground.

From July 15 to August 20, 2002, Carolyn Skaggs held the position of Counselor at AYSC with falsified credentials. During her one month tenure Skaggs counseled 15 youths and even provided testimony in court. She was eventually exposed and charged with a misdemeanor which carried a year in jail and a $1,000 fine.

Three employees of AYSC were fired after they decided to implement their own rehabilitation program. On December 16, 2002 two employees and a supervisor transported a 16 and 17 year old to a high-risk offender unit as a deterrent to the two boy's misbehavior. Ombudsman Steve Tanner reported that the two youths were confronted by eight other boys. Neither one was harmed although one was hit on the head. Tanner decried the tactic which "not only put juveniles at risk but put the state at risk as well." Arkansas State Police are investigating why it took four days to report the incident.

The Department of Public Welfare reported that 14 allegations of sexual assaults on prisoners had been substantiated and that four employees were suspended after they roughed up a 15 year old boy "to teach him a lesson."

The juvenile facility in Morgantown, PA has since cancelled its contract with Cornell. Two girls living at a Cornell group home near Pittsburgh, Pennsylvania, were sexually molested by staff workers. The Department of Welfare is also investigating sex abuse charges against 39 staff members at the same facility. The scandal, reported by the Pittsburgh Post-Gazette quoted clinical psychologist Ronald Davidson as saying, "I would recommend that an outside organization take a very close look at the agency..."

The list of misdeeds above is by no means exhaustive. In a real free-market Cornell could never have survived the mountain of scandal that follows in its wake. So why are they still around? The answer to that question can be summed up in two words Federal Bailout.

Fleecing the Feds

In the May, 2002, issue of PLN we reported the federal government's bailout of the private prison industry. Without that bailout, most of the private prison companies would now be out of business. The current Bush administration has accelerated this trend.

Private prisons have for years sought to gain a foothold in the federal prison system but have often met heavy resistance from the Bureau of Prisons (BOP), organized labor and some state politicians. In the past the BOP guard's union has commanded the loyalty of elected officials through extremely generous donations. But times have changed. Philipsburg, Pennsylvania is a case in point.

In 1999 the economy was still pretty good. So when Cornell announced to Pennsylvania legislators that it intended to build and run a federal prison in Philipsburg the company met such resistance the proposal was shelved. State Attorney General Mike Fisher was adamant that only the BOP should house federal prisoners. At one point, in a desperate attempt to gain Fisher's approval, Cornell even proposed to simply run the prison while the federal government held the title to both prison and property. Four years later, two GOP tax cuts and a BOP backlog have left Philipsburg residents clamoring for the prison and state legislators scurrying to get it built.

In spite of the gross ineptness and corruption that has virtually sunk the private prison industry, draconian federal sentencing policies have coupled with a constipated U.S. economy to put the Big-3 right back in the catbird seat. The federal prison system has been under growing pressure to deal with its ever-expanding prison population. Tough sentencing laws that mandate a minimum of 85% calendar time before a federal prisoner is released coupled with more arrests and prosecutions have left the BOP overextended and overflowing.

So when struggling private prison owners came begging for business Uncle Sam should have brokered a real bargain. But true to form, Washington bureaucrats coddled their special interest cronies at the expense of the taxpayers. Current contracts with the Big-3 include such amenities as performance bonuses and guaranteed occupancy payments. Companies will be paid for 95% capacity whether the beds are filled or not. Cornell is included in a 6,000 bed, $1 billion dollar deal offered by benevolent administrators.

As Steve Logan puts it, "the reason why we're so excited about the federal side [is they will] cut you that check every month" even if the cells are empty.

The BOP is still no fan of privatization. Many employees fear that the outsourcing of prison contracts will eventually cost them their jobs.

Dr. Kathleen Hawk, former BOP Director with a doctorate in counseling and rehabilitation wrote, "We did not pursue this change in the Bureau's approach to private contracting. [P]rivate prison companies often seek business by promising to federal and state legislators that they can provide comparable services at a reduced cost" claims that "have not been proven."

Several studies affirm Hawk's claim. National surveys conducted by Abt Associates and the General Accounting Office concluded that "there is no evidence that meaningful cost savings have been achieved by prison privatization." A study by Policy Matters Ohio done in 2001 found that "Private prisons create illusory savings by selecting the least costly prisoners."

Two County Commissioners in Pennsylvania requested that a contract with Cornell be terminated because the private prison was not only losing money it was $1 million over budget for its 2001 projections.

A Cornell run prison in Santa Fe, New Mexico also lost nearly $1 million in 2002. The $800,000 deficit reported in December 2002 was only expected to get worse.

Additional research has shown that the private prison trend has undermined justice for the sake of profit and once inside prisoners suffer higher rates of violence, medical neglect and are offered fewer rehabilitative programs than in public prisons. A 1997 survey by criminologist James Austin revealed that violence is more than 20% higher in private prisons. The Corrections Yearbook 2000 showed that employee turnover in private prisons is almost 40% higher than in its public counterpart.

A Regional Vice President for Cornell addressed the sexual abuse in their Pittsburgh facility as stemming from "great difficulty recruiting a sufficient number of staff and the appropriate quality of staff. In its two years of operation, [the facility] went through three directors and a turnover of its entire senior staff."

This admission by Cornell's own executive vindicates the view that private prisons are not only more expensive financially, they also foster a fertile environment for moral corruption as well.

The Sobering Reality

As of December 2000, states housed some 53,000 prisoners in private prisons. Cornell has at least one for-profit prison in 27 states.

A post-9/ll homeland security budget of $615 million allocated by the federal government sent private prison vendors into an unabated feeding frenzy. Immigrants are being incarcerated in staggering numbers even though the vast majority are non-violent.

Citizens are not faring much better. The U.S. ratio of prisoners to population was 110 per 100,000 between 1900 and 1975. In less than thirty years that figure has increased 4-fold to 445 per 100,000, a total of over one million caged citizens.

The U.S. is trapped in a penological tautology predicted by President Dwight D. Eisenhower four decades ago. A decrease in crime heralds the success of building prisons; and so we build more prisons. An increase in crime means we need more prisons; and so we build more prisons. This is exactly the corrupted reasoning on which private prisons thrive. This is exactly the corrupted reasoning that state and federal legislators are using tax dollars to support. And the reality is that there is no end in sight.

Sources: AFCME (Union), Albuquerque Journal, American Capital, Anchorage Daily News, Associated Press, Centre Daily Times, Corrections Professional, Dow Jones News Service, Houston Chronicle, Pittsburgh Post-Gazette, PR Newswire Associations Inc., Providence Journal Bulletin, The Arizona Republic, The Daily Oklahoman, The Mississippi Link, The Santa Fe New Mexican, The Wall Street Journal

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