This Week, Industry Snapshot Looks at
Private Correctional Facilities

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Cornell Corrections, Inc.

Correctional Services Corporation

Corrections Corporation of America

Wackenhut Corrections Corporation

Youth Services International, Inc.

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This Week's Industry Snapshot

Over the last ten years the compelling cost benefits of privatization have slowly begun to erode the holy ground of the State's "corrections function." Many have argued that the task of incarcerating society's lawbreakers should reside solely with the State as a means of assuring accountability as well as enforcing uniform standards of detention. However, the realities of tighter budgets coupled with the exigencies surrounding rampant prison overcrowding have provided fuel for the mechanized divisions of privatization. Wherever there are dollars and a compelling need, capitalism's forces are mobilized. The dismal crime statistics have analysts gleefully rubbing their hands together, anticipating strong earnings growth and capital appreciation from private correctional facility stocks.

Body Count

Currently an estimated $30-40 billion is spent on adult corrections each year in the U.S. By the year 2005 that number is estimated to jump to $60 billion, which represents a compound annual growth rate of 7%. The adult corrections industry has experienced enormous growth since 1980, which is often looked upon as a turning point with regard to violent crime in America. The inmate population (federal, state, and local) has swelled in the fifteen-year period from 1980 to 1995. In 1980, inmate numbers stood at 501,886, while a year ago the number was 1.6 million, an increase of 216%.

At the end of 1995, one in every 167 U.S. residents was housed in a correctional facility. One large, contributing factor to the rising numbers behind bars has been the increase in drug-related offenses. The number of inmates in prison for drug offenses increased from 25.2% in 1980 to 59.2% in 1995. In addition, the number of inmates in state facilities for drug-related offenses increased from 6.7% to 30% during the same period.

What about the highly publicized decrease in crime rates over the last two years? Many high-profile crime cities have touted slackening crime numbers. Some analysts view this development as a result of the bottoming out of the 14-24 year-old population, the ages at which youth are most likely to violate the law. The number of individuals in this group has dramatically decreased from over 42 million in 1980 to approximately 36 million in 1995. Despite this 13% decline in the teen terrors, the incarceration rate per 100,000 individuals more than doubled in the same period.

With the 14-24 age group trending upward and expected to grow to 40 million by the year 2004, crime is expected to jump in tandem. In 1995, individuals aged 15-24 accounted for over 41% of all violent crimes committed in the U.S. The "baby boomlet" that began in 1992 is forecast to expand the number of 15 to 17 year olds, the highest risk juvenile age group, at twice the rate of the overall population, or 30%. All this potentially bodes well for the private corrections industry.

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