Governor Phil Scott’s administration is planning to create (hire a company to design and build) a 925- bed state prison/treatment complex in Franklin County. The plan involves partnering with the for-profit prison corporation CoreCivic (formerly Corrections Corporation of America). According to Vtdigger.com: [Sec. Vermont Agency of Human Services] Al Gobeille is proposing that the state contract out the design, construction and financing to a private entity, which then would lease the facilities to the state for 25 years. The state would make annual appropriations to pay for the use of the campus.[added emphasis]
For now, many specific details are a moving target but this feature of the proposed deal – Vermont would lease the facility from CoreCivic – is pretty interesting in light of recent changes in CoreCivic’s business model.
Historically CoreCivic political donations and lobbying are directed overwhelmingly to Republican Party candidates at all levels of government. They even ponied up $250,000 to support Trump’s inauguration celebration last year.
And under the Obama administration as contracts dwindled, for-profit prisons stocks fell. CoreCivic and another major for-profit prison corporation, GEO Group, were looking at hard times.
Then in 2013 CoreCivic (then CCA) and the GEO Group (that together own 80% of all US for-profit prison facilities) restructured themselves more profitably as real estate investment trusts (REIT). Now, thanks to the recent GOP tax code changes signed into law by Donald Trump, these two for-profit prison corporations will reap a windfall
The Guardian.com reports: Under the new GOP law, investments in so-called “real estate investment trusts” (REIT) will see a 25% reduction in tax, from 39.6% down to 29.6%. [added emphasis]
Before converting to a reit in 2013, Corecivic was subject to a 36% corporate tax rate. After the reorganization, it reported paying an effective tax rate in the first quarter of 2015 of just 3%.
Sooo much winning for prison corps!
And here’s how it works. Lauren-Brooke Eisen, an attorney at the Brennan Center for Justice, said: “The way they are able to get away with that, is that they’re not allowed to keep a lot of cash on hand, they have to give it back to investors though dividends. But it allows them to have an incredibly low tax rate.”
According to Eisen, prison companies have essentially argued that renting out cells to the government is the equivalent of charging a tenant rent, thus making such business primarily a real estate venture.
It is a debate whether or not a lease deal with CoreCivic is good for Vermont. But there’s little doubt it’s REAL GOOD for CoreCivic. In fact the profits might seem almost criminal.