Does Private Prison Decision Cut the Legs Out From Prison REITs?

Leaving aside Congress' move to limit the prison REITs' tax exemption, a look at these companies' larger market share suggest that they are only losing a part of a larger, and in some cases more diverse, market.

The IG report itself noted that as of December, contract prisons housed roughly 22,660 federal inmates, or approximately 12% of the Bureau of Prisons' total inmate population. The two REITs' own numbers tell a similar story: Of CCA's total revenue, the Bureau of Prisons only accounted for 11% last year. In response to the Justice Department announcement, CCA told investors the Bureau of Prisons' three contracts with the REIT were worth approximately $131.2 million in annual revenues, or 7% of CCA's total annual revenue. For GEO Group, that percentage was 15% of total revenues for 2015, according to regulatory filings.

The states are another user of these prisons, as are other federal clients such as the Immigration and Customs Enforcement and the U.S. Marshals Service. While both law enforcement branches fall under the Justice Department, they reportedly are not affected by the new mandate.

And in the case of MTC, it is also involved in entirely different operations as well. It is the largest operator of the federal Job Corps program — at the start of this year, as one example, it was awarded a contract to operate the Hubert H. Humphrey Job Corps Center in St. Paul, Minnesota. A Larger Shift in Policy as Prison Reform Gains Ground

None of this is to say that the companies can afford to shrug off the Justice Department's decision, which in some instances is having an immediate effect. The day after the Justice Department made its announcement, the GEO Group reported that the Bureau of Prisons rescinded its extension of GEO's contract to operate the D. Ray James Correctional Facility under existing terms through Sept. 30, 2018. "Based on ongoing discussions between GEO and the BOP, GEO expects to receive a new contract modification to operate the facility under new terms to be negotiated," it said.

Also, the prison reform movement is gaining momentum — in June, the Justice Department reached an agreement with the Mississippi county of Hinds to reform its prison system after finding numerous violations of the constitutional rights of its inmates.

Separately, the magazine Mother Jones published a devastating look at operations in one of these facilities recently.

CCA, whose facility was the target of the article, posted a rebuttal to the article here.

Meanwhile, prison reform advocates in Congress see the Justice Department's measure as just the first step in a longer war.

Sen. Patrick Leahy, D-Vt., weighed in. "Today's announcement from the Justice Department is an important first step," he said.

"We must see greater transparency and accountability for the private facilities that continue to be used. And we must insist that these changes are adopted by all federal agencies, including the Department of Homeland Security, which relies heavily on private prisons even for housing vulnerable mothers and children. Incarceration should not be a for-profit business."

Then there was Sen. Bernie Sanders, I-Vt., who will be returning to the Senate with a far, far louder microphone than he has ever had in the past. "We have got to end the private prison racket in America as quickly as possible," he said.