Corrections Corp. of America wants to lock up the state of Tennessee for 99 years.
In an aggressive bid to increase the role of private enterprise in government affairs, Nashville-based Corrections Corp. of America (CCA) has asked Tennessee for the right to operate the state's troubled prison system for the next 99 years.
"It is dramatic, it is bold, it is unprecedented," CCA's Dennis Bradby said last week, when asked to describe the CCA proposal to operate a prison system with more than 7,000 inmates.
It is also controversial -- raising questions about whether so profoundly a public responsibility as the administration of justice can be turned over to the private sector.
"We have concerns particularly about turning over to private industry the entire prison system," said State Attorney General W. J. Michael Cody. "I think that would be more than the state ought to do.
"What do you do when somebody escapes? What right does the private prison have and when does the state take over? How much of a basic obligation to run the prison system belongs to the state, and how much can be contracted out like services?"
CCA, a leader among the handful of private companies in the nation's small but growing prison-management business, is offering the state $50 million in cash and $50 million in notes for the exclusive right to manage Tennessee's prison system. CCA is offering to spend an additional $150 million, which it would raise without government assistance, to build two new 500-bed maximum-security prisons and upgrade existing facilities.
Government officials plan to consider the CCA proposal, which calls for hiring the state's 4,500 corrections employes, and others during a special session of the state legislature in November.
In return for its investment, CCA wants to be paid by the state for operating the prisons, with company officials estimating they will be able to build in a profit margin of about 8 percent. (CCA charges the federal government about $25.50 a night per person for operating an illegal alien detention center in Texas, but CCA officials would not disclose their price estimates for operating the Tennessee system.) Tennessee would have the option under the CCA proposal to get out of the contract after three years, and every five years thereafter, provided that it reimbursed CCA's investment.
Already under contract to operate seven prisons and illegal alien detention facilities in Texas, North Carolina, Florida and Tennessee, CCA says it made the sweeping proposal to take over the entire Tennesse system because it can operate the overcrowded facilities more efficiently and effectively than the state. CCA said it can build the new maximum security facilities in two years, less than half the time it would take the state on its own. CCA officials said no maximum security facilities currently are managed by private companies.
"The governor indicated he was surprised and a little bit shocked at the fact that we made such a total proposal," said CCA executive vice President and Director T. Don Hutto, a former head of corrections in Virginia and Arkansas.
Last Monday, Tennessee Gov. Lamar Alexander unveiled his own proposal to reform the state's beleaguered prison system. Tennessee, under court order to relieve overcrowding before the end of the year, is one of more than 30 states and the District of Columbia operating under court supervision, a situation that creates a lot of opportunities for CCA, Hutto said.
While the governor's proposal does not include turning the management of Tennessee's entire prison system over to the private sector, his plan recommends that private firms build, own and/or operate the two new 500-bed prisons. Alexander said last week that otherwise the state may have to raise taxes to pay for new prisons. The announcement amounted to a powerful political endorsement for putting the prison construction in private hands.
"If we can bring $250 million to the table, maybe there wouldn't have to be any tax increase," CCA's Hutto said.
CCA's financial and political clout in Tennesse makes the company unusually well equipped to deal with the controversial legal, constitutional and philosophical questions that surround the company's proposal to manage the state's prison system for a profit. The company's chief financier is Nashvillian Jack Massey, one of the wealthiest men in the southeast. Known as a man with "the Midas touch," Massey developed and financed well-known Wall Street giants including Kentucky Fried Chicken and Hospital Corp. of America.
HCA, the nation's largest for-profit hospital management company, is based in Nashville, not far from CCA's offices. Massey's role with the company has helped CCA raise more than $18 million through private stock placements, including stock sales to some Tennessee businessmen who have made millions of dollars in the hospital business.
Massey's presence also helped CCA put together the $250 million proposal to take control of the state's prison system by attracting strong backing. The company said it has retained investment bankers, including Merrill Lynch Capital Markets, who might help sell CCA stock to the public to raise the money needed to finance the proposal.
Gov. Alexander's wife, Honey Alexander, and Tennessee's Speaker of the House, Ned Ray McWherter, have been stockholders in CCA. CCA officials said Honey Alexander and McWherter, who is a leading candidate to be the state's next governor, have sold their shares to avoid any conflict of interest.
Tennessee insurance commissioner John C. Neff is a stockholder in CCA. CCA President and Director Tom Beasley, former head of the state's Republican Party, has close ties to Alexander's Republican administration.
Despite CCA's strong political ties and the governor's willingness to consider the privatization proposal, some state officials have raised serious questions about the proposal. State Attorney General Cody said last week that the proposal is risky for the state since CCA could propose raising its rates or decide to get out of the prison management business in the future, if the company does not make sufficient profits. The state might be in a weak bargaining position over rates in the future since it might lack the expertise needed to take over the system if it decides it is unhappy with CCA, Cody said.
Cody also is concerned about a private company having the authority to make disciplinary decisions in the prisons that he believes ought to be made by employes of the state. He does not agree with CCA officials who argue that private prison management is just like private management of transportation or waste removal, which local and state governments increasingly have transferred to the private sector.
"You are putting a private guard in a quasijudicial function," Cody said. "They become an integral part of the criminal justice sytem when you contract out to this extent. They are going to enforce discipline and they are going to judge whether infractions have occurred. They are going to impose punishments. They are going to advise parole boards. All of that is very different from private businesses providing government with transportation and food services."
Ted Nissen, president of Behavioral Systems Southwest, a Pomona, Calif.-based competitor of CCA, said he thinks CCA is making a mistake by offering to take over an entire state's prison system, including all of its employes.
"I think the value of privatization is that we can be innovative," Nissen said. "When you take over an old-time facility with old-time staff, I am thoroughly convinced there will be old-time problems."
The company has said it will indemnify the state, the governor, members of the legislature and state employes as part of its proposal to operate Tennessee's prison system and that it has adequate insurance to do so. Nevertheless, Cody is concerned about the state's liability.
"While the private company contractually may hold the state harmless for any litigation cost and judgments for violations of prisoners' rights," Cody said, "the state's responsibility for ensuring the constitutional rights of prisoners must not be eliminated. Even if the state is not responsible under the contract for the maintenance of prisoner's rights, the state will nevertheless remain accountable to the courts to maintain the constitutional adequacy of conditions and other prisoner rights. However, the state will not have direct control over these conditions."
CCA contends that the state will be in a better position to objectively monitor conditions in the prisons under its plan. "A major advantage of management by CCA is that the correction commissioner's major task will be to monitor and evaluate the status of contract compliance, thus providing the state with an objective view of the status of the correctional system," CCA's proposal says.
Cody disagrees. "As a matter of philosophy, the state should be responsible for confinng those that its judicial system orders incarcerated," he said. "Without management control of this penal system, the state may not be able to ensure implementation of and compliance with its policies regarding the confinement of persons who violate its criminal laws."
American Civil Liberties Union-National Prison Project lawyer Ed Koren said he is opposed to the privatization of Tennessee's prison system because it may make the state less accountable for conditions. He said the ACLU has been able to force some states to relieve overcrowding and to improve conditions by filing lawsuits. This process could be complicated if a private company is managing the prisons, and the state is only monitoring the situation, he said.
"We're skeptical and we oppose privatization until we can be sure these people will be held to the same kind of standards public authorities would be held to," Koren said.
Tennessee State Sen. Bob Rochelle, a Democrat, predicted last week that the state would not endorse the revolutionary CCA plan to take control of the entire prison system but would probably allow CCA or another private company to build the new facilities. No other companies have bid so far. Rochelle, chairman of the state's House-Senate Committee on Corrections, said he thought the comprehensive CCA proposal was made for bargaining purposes, giving CCA the opportunity to alter its proposal and still end up managing at least part of the Tennessee system.
"Offer to take it all, settle for what you can get," Rochelle said.
Hutto said the CCA proposal is not a bargaining ploy. "You don't put $250 million on the table and not be serious," Hutto said. "We have a team of Merrill Lynch, Prudential Bache, Massey Burch Investment Nashville-based venture capital firm backed by Jack Massey and John R. Wald consulting firm specializing in industrial enginneering for prisons . You don't put this kind of team together and talk about $250 million as a bargaining point.
"The major issue is that government is not turning over control of its services to somebody else," Hutto said. "It is hiring someone to manage and implement its services under government control. They are not abdicating their responsibility or their authority."