Jail Breaks: Economic Development Subsidies Given to Private Prisons

October 2001

Philip Mattera and Mafruza Khan, with Greg LeRoy and Kate Davis

This study examines an overlooked aspect of the billion-dollar private prison industry: the extent to which it has been the recipient of economic development subsidies provided by local, state and federal governments.

These subsidies include tax-advantaged financing, property tax reductions, infrastructure assistance and training grants. We find that such subsidies are quite prevalent: Nearly three-quarters of the large prisons in the United States that were privately built and operated have received at least one form of economic development subsidy.

This was the first study to catalog state and local economic development subsidies given to private prisons.



Key Findings

An analysis of all 60 private prisons with a capacity of 500 or more beds (comprising about 66,000 beds or half the U.S. private-
prison market) that were constructed by prison companies finds that:

  • At least 44, or 73%, of the 60 facilities received a development subsidy from local, state and/or federal government sources.
  • A total of $628 million in tax-free bonds and other government-issued securities were issued to finance the private prisons we studied.
  • 37% of the facilities received low-cost construction financing through tax-free bonds or other government-issued debt securities.
  • 38% received property tax abatements or other tax reductions.
  • 23% received infrastructure subsidies, such as water, sewer or utility hook-ups, access roads, and/or other publicly financed improvements.
  • Subsidies were found in 17 of the 19 states in which the 60 facilities are located.
  • Facilities operated by the two largest private prison companies, Corrections Corporation of America (CCA) and Wackenhut Corrections Corporation, are frequently subsidized. Among the facilities we studied, 78% of CCA’s and 69% of Wackenhut’s prisons were subsidized, suggesting that these companies have been aggressive in seeking development subsidies.
  • An unknown number of the facilities also benefited from state corporate income tax subsidies, such as investment tax credits and/or employment tax credits. Because state corporate income tax records are rarely disclosed, we are precluded from determining the extent and value of such subsidies.
  • The widespread use of lease-backed securities such as lease-revenue bonds and certificates of participation, which do not require public referenda, deprived taxpayers of their right to approve financing for many of the private prisons that exist today.
  • Local governments are not systematically assessing whether the subsidies they have provided to prison companies have had the desired effect. Not a single local official we interviewed could point to a formal economic impact study that had been done of the private prison built in his or her community.
  • Although most of the subsidies came from local and state governments, we also found cases in which the subsidies came from federal sources. About half a dozen of the prisons we studied got infrastructure assistance through grants from the U.S. Department of Commerce, the Department of Housing & Urban Development or the Department of Agriculture. In addition, at least 6 of the prisons qualified for federal job training grants or tax credits.