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U of Pittsburgh shouldn't lend its name to prison privatization

By Michael Darling,
The Pitt News; Source: U. Pittsburgh
University Wire
November 15, 2004

Alex Friedmann knows a few things about life behind bars. Paroled in 1999, he was once an inmate in a Tennessee prison run by Corrections Corporation of America, the nation's leader in the construction and management of private prisons, and since his release, he has become one of the industry's most outspoken critics.

"The issue isn't privatizing prisons," Friedmann wrote in a feature for CorpWatch, "but rather privatizing prisoners. Inmates, traditionally the responsibility of state and federal governments, increasingly are contracted out to the lowest bidder. Convicts have become commodities. Certainly, offenders should be punished for committing crimes, but should private companies and their stockholders profit from such punishment?"

Friedmann's question poses one of many issues central to the debate over whether prisons should be privately managed.

My interest in private prisons started over the summer when I learned of allegations that the University of Pittsburgh and several other colleges indirectly -- and often unknowingly -- support their existence.

Prison privatization started in the early '80s, ostensibly to ease the burden on taxpayers by offering financial relief to overcrowded state-run prisons. Thomas Beasley founded CCA in 1983 with assistance from venture capitalist Jack Massey, known for his role in building franchises like Kentucky Fried Chicken. CCA builds its own privately managed prisons and contracts with state governments to house its inmates.

Private prisons have been publicly scrutinized over the years because of well-publicized breakdowns in places like Kit Carson, Colo., where the Department of Corrections once investigated a CCA-owned facility and deemed the situation "intolerable." There were reports of inmate-guard affairs, felons hired as guards and a high job turnover rate, according to the Denver Rocky Mountain News.

"In January of that year, a prisoner whose stepdaughter worked as a correctional officer in Kit Carson died of a heroin overdose there, and in March, the prison lacked the minimum number of guards to safely run an overnight shift when state monitors stopped in to check," the News reported.

CCA spokesman Steve Owen said the facility is now functioning properly and is certified by the American Correctional Association, one example of the high standards to which the industry purportedly holds itself.

But a study conducted by the American Federation for State, Local and Municipal Employees concludes otherwise, citing a wide disparity in guard salaries as one rather dubious example of how private prisons save money for taxpayers.

When CCA assumed control of a state-run prison in Tennessee, the study said it "lowered wages and eliminated benefits ... employees were not provided with family hospitalization insurance that the county had provided." Instead, CCA "replaced employees' retirement plan with a stock program that gave employees 1 percent of their salaries per year in CCA stock."

Since 2000, Pitt has commissioned an investment banking firm called Lehman Brothers to underwrite more than $250 million in bonds used for annual capital equipment needs like computers, power generators and student housing, as well as the construction of Sennott Square and a high-density library storage facility on Thomas Boulevard, according to Art Ramicone, Pitt's senior vice chancellor for finance.

Lehman Brothers structures and facilitates the ratings process, which attracts wealthy investors who purchase the bonds. Standard & Poor's currently rates Pitt as an AA-class bond, an excellent rating based upon its superior financial condition and profit potential.

Lehman has earned more than $30 million from underwriting higher education bonds over the last two years. In October of 2001, student activist organization Not With Our Money, known for its success in pressuring food service provider Sodexho-Marriott to divest its shares in CCA, launched a second campaign targeting Lehman Brothers.

In 2002, CCA announced an agreement with Lehman Brothers to refinance the company's $800 million credit facility. As part of the deal, Lehman arranged $715 million of syndicated loans and underwrote $250 million of notes in private placement, the largest private prison deal in history.

College students in particular need to be wary of this increasingly intimate relationship between state governments and private contractors.

In 1995, states cut $954 million in funding for university construction, but increased funds for prisons from $926 million to $2.6 billion. From 1987 to 1995, prison funding increased by 30 percent, while spending for universities declined by 18 percent.

Twenty-one prisons were built in California in 1996, but only one university campus was. Though Pennsylvania does not report its annual inmate expenses, in Ohio, it costs $36,335 per year to keep one inmate incarcerated. For that money, at least three students could attend Pitt on a full scholarship.

I approached Robert Hill, vice chancellor for public affairs at Pitt, with these alarming discoveries and asked whether or not it would affect future relations with Lehman Brothers. In an e-mailed statement, Hill responded, "Pitt respects the right of all of you, but must not make its public finance decisions based upon referenda on the issues of the day." Hill added, "Private prisons' involvement is not a criterion upon which Pitt makes a judgment when engaging a bond house."

Hill's refusal to articulate a firm ethical position against for-profit prisons is disappointing, but not surprising given Pitt's long-standing relationship with the firm. I wanted to get a statement from Lehman, but repeated telephone calls, including two conversations with a Lehman media contact, and an e-mail through the firm's Web site, resulted in no official statement.

U.S. incarceration rates reached an all-time high in 2003, meaning future demand for CCA's services is all but guaranteed. A study by the Justice Department in August of 2003 revealed that more than 5.6 million Americans are in prison or have served time. Today, with 9.3 percent of all black men between the ages of 25 and 29 in jail, meaningful reform is desperately needed.

Pitt's name may be valuable currency, but it is more than a commodity to be bought and sold. It is also a home and an alma mater for thousands of students, faculty and alumni.

As a bond, our value will continue to soar. But as an institution, we are losing something far more important, something invisible in charts and graphs.