Bidding for the Big House 

In corrections, connections are the name of the game

In corrections, connections are the name of the game

Inside Politics

In 1985 a young company headquartered in a small office on White Bridge Road made a startling proposal to the state of Tennessee. The company wanted to buy all of Tennessee’s state prisons. Total cost: $250 million.

The company—Corrections Corporation of America, or CCA—had very little to show for itself at the time. CCA operated only two facilities, but it was particularly proud of a brand-new detention center in East Texas for illegal aliens. In the mid-’80s people in government were fond of talking about the privatization of public services, but they rarely had the guts to act on it. Labor hated the concept. Democrats were suspicious of it. Privatization was not a radically new concept, but it still could attract only the most adventurous venture capitalists.

When CCA made its bold proposal in 1985, the company had a nucleus of employees and advisors that included its top official, Tom Beasley, who had given birth to the idea of privatizing Tennessee’s prisons; Doc Crants, a financial whiz who had been Beasley’s West Point roommate and was the firm’s number-two official; Ed Blank, the firm’s lobbyist on Capitol Hill and a former state senator, whose wife was the politically skillful Peaches Blank. (After Ed Blank’s death, she would go on to marry Banner publisher Irby Simpkins.) Tom Ingram, who assisted in putting together CCA’s public-relations package, had previously served as chief of staff for then-Gov. Lamar Alexander.

Ingram, Blank, and Beasley provided the firm with more political moxie than you would have found around most any lunch table at the City Club at the time. What’s more, when CCA made its proposal, the state of affairs in Tennessee’s penal system seemed to be so rotten that the state might well have been willing to give the system away. Every day brought new problems for Alexander and his prisons. Riots, break-outs, overcrowded prison cells, and numerous other problems had his press secretaries, usually an optimistic bunch, grimacing.

The bottom line was that Alexander didn’t really give a damn about prisons. By the time he held a press conference to announce that he was going to give serious consideration to the CCA proposal, it looked as if the company might have had a serious shot at getting the state of Tennessee’s business.

CCA had rounded up a nice group of investors to assist in its efforts in Tennessee. Alexander’s wife, Honey, owned a nominal amount of CCA stock, $5,000 worth. In the hallways of the state Legislature, House Speaker Ned McWherter, the most powerful of Tennessee’s 132 state legislators, was another investor. CCA had other friends, including state Rep. John Tanner, who now represents West Tennessee in the U.S. Congress.

Tanner ultimately signed on as a sponsor of the bill to sell the state’s prison system to CCA. Unfortunately, because he had a habit of staying up rather late at night, Tanner was usually late for the committee meetings at which the CCA bill was scheduled for debate.

In the end, though, Tanner’s presence probably wouldn’t have mattered anyway. The CCA proposal died a lingering death, stifled by pressure from labor, newspaper editorial boards, critics who questioned the propriety of Alexander’s and McWherter’s investments, and others who just wondered whether selling the state’s prison system would not be an act of utter lunacy.

Cellular system

Today, CCA is renewing its push for the state to hire a private-prison operator to take over its correctional system. The company has been holding meetings with lawmakers, many of them Democrats, in hopes of finding common ground. With the state budget extremely tight, and the approval of any tax increases looking like a political death wish for any elected official, the solution of selling state assets to a private bidder has gained a new luster. The political climate has changed too. The concept no longer seems as crazy as it once did.

Many of the players are still the same. Beasley, who now owns something like 2.9 million shares of CCA stock, valued at approximately $80 million, kicked himself upstairs several years ago so he wouldn’t have any day-to-day involvement with the company. CCA is instead run by Crants, who is worth only about $50 million.

It is worth mentioning that Beasley, Ingram, and Blank’s widow, Peaches Simpkins, who is still a CCA stockholder, continue to be important players on the political scene, even if Simpkins and Ingram aren’t as close to CCA as they once were.

When Don Sundquist, then a U.S. Congressman, ran against Nashville Mayor Phil Bredesen in the 1994 gubernatorial campaign, the outcome of the contest seemed very much in doubt. Bredesen, the mega-millionaire mayor, was unleashing a barrage of high-dollar political advertising, but Sundquist’s problem wasn’t simply that his money was in short supply. His campaign team was short on talent too.

With only weeks remaining before the November election, Sundquist overhauled his campaign staff, bringing in a troika who could get the campaign in gear. Beasley, Simpkins, and Ingram came on board and took charge. They revamped Sundquist’s message; they redid his media; they started playing hardball. Within weeks, Sundquist was in the victory column by a startlingly huge margin. Within weeks, too, Ingram was also on the governor’s payroll, offering political advice, and Simpkins was on her way to becoming the governor’s chief deputy.

In that political revolution of 1994, Congress went Republican. Corrections Corporation of America stock, which Wall Street analysts soon saw as a collateral beneficiary of the change in political climate, began to soar. In early 1994, CCA’s stock was trading at 15. By the end of 1995, it was at 46.

My private Alcatraz

Seen one way, the company’s proposal to operate state-owned prisons looked like a brilliant stroke of entrepreneurial genius. Seen another way, it didn’t seem so original; it was like introducing Pepsi after Coca-Cola had started selling nicely. Privatization was flourishing elsewhere; it can be argued that CCA just picked out a niche and went for it.

Beginning in the ’70s, entrepreneurs had begun finding parts of government that they could take over on a for-profit basis. Market analysts often single out the waste-hauling business as the first big slice of government that went private. Today, corporations like Waste Management and Browning Ferris dominate the field. Both companies claim that they can do the job more cheaply; many say they also do it better.

Today, companies are bidding to operate fire and ambulance services, particularly in rural areas. Some entrepreneurs have even talked about buying public roads and bridges. And CCA is not the only company making money off corrections. Wackenhut, based in Omaha, Neb., does the same thing.

Most market analysts seem to agree that private corrections firms do the job more cheaply, even if officials at the Tennessee State Employees Association, among others, do question the numbers furnished by the private prison companies. In terms of performance, the private companies seem to do quite well, although they have had problems coordinating with local authorities in some situations. After all, when there is a prison escape, is it CCA’s job to track down the inmates? Or does that responsibility fall to the local police?

By and large, CCA’s big advantage in getting prison business is that, just as nobody likes to be in the trash business, nobody really likes being in the prison business either. Both businesses are dirty, the clientele is usually unhappy, and people complain a lot about the service. If you’re in the government’s shoes, you’d just as soon let somebody else handle these sorts of problems.

Its immeasurable political influence notwithstanding, CCA offers a service that state officials would be wise to consider. But it’s tough to swallow CCA’s money-saving argument when those political connections are out there, ready to rear their heads. The prison-operation industry receives massive subsidies from government. And making political friends is high priority for some industry excutives and their associates. When these industry insiders help elect a friend to the governor’s office, the situation can begin to look, well, fishy.

Oddly, the push to sell the entire state Corrections Department to a private prison operator comes just as the state Legislature is opposing a push to introduce some privatization in state education. As in past years, each of a group of bills that would allow the operation of “charter schools” is meeting an untimely death.

Charter schools are schools that get state funding but operate outside the local school system. Suppose, for example, that a group of parents and teachers in Nashville were to decide to start their own school. They might locate an abandoned public school building in which to operate. Then they might strike an arrangement with Vanderbilt University and the Cumberland Science Museum to operate and staff the school.

After being approved by the state, this charter school could be granted the per-pupil funds the state normally allots to all other schools in a local school district. But the local district would have no role in managing this new school. In the end, proponents say, the charter school would increase pressure on Metro schools, encouraging them to perform better. On the other hand, if the charter school did poorly, it would show that public schools were doing a good job.

Countless municipalities around the country are experimenting with charter schools, sometimes with great success. But the idea is getting clobbered here because of opposition from the Tennessee Education Association. Teachers who are on the public payroll don’t like the concept. They see it as a threat to their employment.

Suppose for a moment, however, that the chief proponent of charter schools was Tom Beasley. Suppose Crants was the company’s top financial guy, and Tom Ingram was creating a public-relations campaign to add some shine to the idea. Not for a moment would a betting man predict that the idea would be thrown out, or that it would be so badly watered down that it became meaningless.

In Tennessee, the debate over privatization has little to do with the merits of transferring government functions to private industry. Instead, it has everything to do with how elected officials react to the pressures exerted on them. When the pressure comes from people who helped those officials get elected, the debate no longer has anything to do with the merits of the deal.

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