Correctional Services Corporation
Correctional Services Corporation
Sales: $97.9 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: CSCQ
NAIC: 56121 Facilities Support Services; 922140 Correctional Institutions
Correctional Services Corporation (CSC) provides a full range of juvenile and adult correctional services. Operating 63 facilities with about 13,000 beds in 21 states and Puerto Rico, CSC is one of the nation’s largest companies offering jails, prisons, detention centers, and educational and training programs designed for a diversity of individuals, including both first-time offenders and habitual criminals. The company plays an important role in the major trend of local, state, and federal governments contracting with the private sector to take care of its many responsibilities.
Origins and Developments in the Early 1990s
In the 1970s some citizens became bitterly opposed to raising taxes for more government programs. For example, citizens in California, the leading trendsetting state, approved an antitax initiative. Criminal justice Professor Daniel Okada stated the recent “interest in privatization originated with the Reagan administration’s agenda to pass along many government responsibilities to the private sector.” This international trend set the stage for private prison management firms including Correctional Services Corporation.
James F. Slattery, the founder of CSC, previously had contracted with New York City’s Human Resource Department to provide at-risk individuals with residential services and various programs. He also used his expertise as a former real estate executive to help Correctional Services Corporation find good sites for its facilities and meet the requirements of government laws and regulations.
In 1989 Slattery’s firm started with two contracts. First, in June it began managing a variety of programs at the Brooklyn, New York Correctional Facility under contract with the Federal Bureau of Prisons. The next month it took over operations at the Seattle Detention Center owned by the U.S. Immigration and Naturalization Service. Under CSC management, this facility expanded from 50 to 150 beds and became the first INS facility to gain accreditation from the American Correctional Association.
In 1994 CSC’s annual revenue had increased to $24.3 million. By the mid-1990s other firms were also expanding, but the industry had considerable room for further growth. For example, in 1994 such firms managed less than five percent of all adult prisoners. A 1996 Business Economics article reported that over half the states had legalized private management of prisons, a field that was projected to increase 19 percent annually. It was the fastest-growing segment of the nation’s security services industry that also included private guards, alarm systems, armored cars, and trained dogs for protection and drug detection.
Florida, for example, began the process of privatizing its prisons and jails when it passed a law allowing the Florida Department of Corrections and county governments to contract with for-profit corporations to operate and maintain correctional and detention facilities. After the 1993 Florida Legislature created the state’s Correctional Privatization Commission, Correctional Services Corporation eventually managed nine facilities in its home state.
Expansion and Challenges in the Late 1990s
In 1997 Correctional Services Corporation began planning to operate a new women’s prison just east of Oklahoma City in McLoud, Oklahoma. The McLoud Economic Development Authority owned the property, while the Dominion Group built and leased the $20 million facility. This project involving two private firms, a government agency, and banks that provided the financing, illustrated the complexity of such private-public ventures.
Not surprisingly, some criticized the whole concept of privately run prisons. For example, Jenni Gainsborough, the ACLU’s public policy coordinator for its National Prison Project, argued in Oklahoma City’s July 3, 1997 Journal Record that there was a fundamental conflict of interest since private prison firms profited from the long-term operation of prisons, while the “whole point of a prison is to put itself out of business.”
In any case, CSC continued to hire well-trained individuals to head its programs. A good example was Louis Robison, who left the Sarasota, Florida public schools after 20 years of service to become the principal and coordinator of CSC’s education system. “We are in the business of corrections,” said Robison in the January 2, 1997 Sarasota Herald Tribune. “My job is make sure that the [CSC] educational program is in place for each one of these young men so that they can leave with high school credits, GED or some type of vocation and take that back into their communities.”
Some CSC plans failed. In 1997, for example, the company decided not to bid on a 500-bed women’s jail in Broward County, Florida, after being accused of mistreating immigrants and juveniles at two of its detention centers. Also in 1997, CSC submitted a proposal to the state of Arizona to build a prison in Mexico to house up to 1,600 of Arizona’s Mexican prisoners. Although supported by Arizona Governor Fife Symington and the state’s corrections director as a way to cut prison labor costs and take advantage of the North American Free Trade Agreement, that CSC proposal died on the vine. Nonetheless, the firm continued to grow and prosper.
According to President, CEO, and Chairman James Slattery in the firm’s 1998 annual report, “1998 was the best year in the history of our company.” Revenue in 1998 was $97.9 million, a huge increase from 1997 revenue of $59.9 million. In the same period, net earnings increased from $3 million to $4.6 million.
In 1998 Correctional Services Corporation began managing or signed contracts to operate several facilities, including the Colorado County Juvenile Boot Camp in Eagle Lake, Texas, a 100-bed secure facility for both males and females involved in a six-month military style program. Others in Texas were the 500-bed Jefferson County Detention Facility for adults; the 872-bed Newton County Correctional Center for adults; and the Dickens County Correctional Center, a 480-bed facility in Spur, Texas. CSC also began operating two juvenile facilities in Dallas, Texas: the Dallas County Youth Village Secure Program and the Dallas County II (Harry Mines) RTC and Detention Center, each with 96 beds. Outside of Texas, CSC began running or contracted to manage the Bayamon, Puerto Rico Metropolitan Treatment Center for juveniles; the Central Oklahoma Correctional Facility for adult women in McLoud, Oklahoma; the Crowley County Correctional Facility in Olney Spring, Colorado, the company’s first all-cell adult facility; the South Fulton County Municipal Regional Jail in Union City, Georgia; the Paulding Regional Youth Detention Center in Dallas, Georgia; two juvenile residential facilities in Crestview, Florida; and the Tallulah, Louisiana Correctional Center for Youth, “the largest privately run juvenile facility in the country,” according to the company’s 1998 annual report.
CSC financed its expansion by gaining a new $30 million line of credit from a syndicate of banks headed by NationsBank N.A. “We are very excited about this new financing structure,” said President/CEO James Slattery in the April 29, 1998 Business Wire. “Not only did we nearly triple the size of our bank line, but we have also put together a group of banks which should enable us to further increase our potential borrowings as the need arises.”
In August 1998 CSC announced that the American Correctional Association had accredited two large CSC facilities in Florida: the Pahokee Youth Training Center and the Polk County Youth Training Center, each with 350 secured beds. The association’s audit had occurred less than 18 months after the two facilities began operating. Cooperation between the company and the Florida Department of Juvenile Justice was cited as a major reason for the early accreditation.
CSC announced in February 1999 that it had contracted with the Nevada state government to operate its 96-bed secure juvenile facility in Clark County. The first such facility to be privatized in Nevada, it was expected to be operational in the second quarter of 2000 A.D. Also in February CSC and Puerto Rico’s Administration of Juvenile Institutions agreed not to renew CSC’s contract to manage the Bayamon Detention Center in Bayamon, Puerto Rico.
On March 5, 1999 inmates at the Crowley County Correctional Facility in Olney Springs, Colorado, caused about $10,000 in damages in a riot that resulted in some injuries but no deaths. Riot-control teams from four state prisons came to suppress the disturbance. John Suthers, the executive director of the Colorado Department of Corrections, said in a Denver Post article that the private prison’s “staff was not as well trained as it could have been.” After a two-day lockdown shortly after the prison opened in the fall of 1998, the prison’s warden admitted that about 70 percent of his guards lacked any prison experience, although all guards received four weeks of training.
The Correctional Services Corporation mission is to manage and operate safe, humane and secure correctional facilities that protect the public and provide offenders with training, education and treatment programs designed to reduce recidivism.
The Colorado riot illustrated one of the main concerns many have voiced about private prisons. Critics argued that for-profit prison management firms such as CSC were more interested in making money and thus did not invest in enough security measures and training. Contracting government agencies imposed stricter guidelines in order to prevent such incidents. In addition, courts stated that private prison management firms are liable for any damages at facilities they operate. However, some citizens opposed any private prisons because of such security problems. It was an ongoing controversy in several states that already had or were considering private correctional facilities.
In spite of such concerns, private prisons had become an integral part of the correctional industry in the 1990s. For example, in December 1996 the first conference on private prisons attracted about 120 individuals from financial, insurance, construction, and prison management firms. It was held in Texas, the leading state in privatizing its correctional facilities.
Because of the increasing interest in cost-effective ways to combat crime and make society safer, Correctional Services Corporation faced stiff competition from other firms, including Cornell Corrections, Wackenhut, Management and Training Corporation, and Corrections Corporation of America, acquired by Prison Realty Corporation.
The Merger with Youth Services International
In September 1998 CSC began its merger with Youth Services International, Inc. (YSI). Based in Owings Mills, Maryland, YSI was founded in 1991, and by 1998 operated 27 residential facilities for juveniles and ran several nonresidential programs for about 3,200 youths in 13 states.
“The combination of CSC and YSI creates a company with unmatched capabilities in the delivery of state of the art juvenile services,” said James Slattery, CSC’s chairman and CEO, according to a September 24,1998 press release. “The addition of YSFs transitional and academy oriented programs to CSC’s secure programs will allow us to offer governmental agencies the broadest spectrum of quality solutions for adjudicated youth, from first time offenders to the most serious habitual offenders. Since many of the facilities of each company are in states not yet serviced by the other, we believe significant new marketing opportunities will become available.”
On March 30, 1999 Correctional Services Corporation and Youth Services International shareholders approved the merger that made YSI a wholly owned subsidiary of CSC. James Irving, vice-president of CSC’s Juvenile Justice Division, was named the new president of Youth Services International in May 1999. His 30 years in the corrections industry included being deputy director of the Juvenile Division of the Illinois Department of Corrections and chairman of the Illinois Parole Board. He replaced Timothy P. Cole, who resigned in early 1999 as YSFs chairman, president, and chairman during the merger negotiations.
After the merger, CSC managed 63 facilities, mostly in Texas (21) and Florida (nine), with others in Georgia, Mississippi, Louisiana, Oklahoma, Arizona, New Mexico, Nevada, Washington, South Dakota, Missouri, Iowa, Minnesota, Michigan, Illinois, Tennessee, Virginia, Maryland, Delaware, New York, and Puerto Rico.
In 1999 Correctional Services Corporation continued to pursue new contracts. For example, in Pacific, Washington, CSC sought a contract to build a $30 million detention center for the U.S. Immigration and Naturalization Service. The center was planned to house illegal immigrants from Mexico, Southeast Asia, and other areas for a short time. Reporter Aimee Green in a phone interview said CSC was conducting an environmental impact study due to be completed in 2000. The firm hoped to get the new contract and eventually replace its over-burdened 150-bed facility in Seattle.
In 1999 Correctional Services Corporation’s prospects seemed positive. Although the general crime rate was declining nationwide, states continued to privatize more of their correctional facilities. In addition, some private prison management firms planned to offer their services in other nations.
Bailin, Paul S., and Stanton G. Cort, “Industry Corner: Private Contractual Services: The U.S. Market and Industry,” Business Economics, April 1996, p. 57.
Brooke, James, “With Jail Costs Rising, Arizona Wants to Build Private Prison in Mexico,” New York Times, April 20, 1997, p. 18.
“Correctional Services Corporation Announces American Correctional Association Accreditation of Its Two 350 Bed Youth Training Centers in Florida,” Business Wire, August 27, 1998, p. 1.
“Correctional Services Corporation Completes Merger with Youth Services International,” Business Wire, April 1, 1999.
Fugate, James L., “Understanding Florida’s Private Corrections System” (letter to editor), Tampa Tribune, June 1, 1997, p. 3.
Green, Aimee, “INS Holding Center May Be Built in Pacific/Corporation Wants to Construct $30 Million Detention Facility,” News Tribune (Tacoma, Wash.), November 15, 1998, p. B1.
Hoppe, Christy, “Locking in Profits, Private Prison Industry Holds Growing Allure,” Dallas Morning News, December 19, 1996, p. ID.
Jones, Leigh, “Seeing Profits in Prisons,” Journal Record (Oklahoma City), July 3, 1997, p. 1.
Kimm, Yvette, “Louis Robison Named Man of the Year,” Sarasota Herald Tribune, January 2, 1997, p. 2B.
Miniclier, Kit, “Olney Springs Prison Riot Exposes Problems,” Denver Post, March 16, 1999, p. B1.
Nevins, Buddy, “Bad Publicity Forces Company to Cede Jail Bid,” Sun Sentinel (Fort Lauderdale), August 22, 1997, p. 4B.
Okada, Daniel W., “Maybe This Will Work,” Infrastructure Finance, October 1996, p. 9.
—David M. Walden