By Julia Edwards
WASHINGTON (Reuters) - The U.S. Justice Department announced plans on Thursday to phase out its use of privately-operated prisons, calling them less safe and less effective than government-run facilities.
Hammering corrections company share prices, the department said it planned to gradually reduce the use of private prisons by letting contracts expire or by scaling them back to a level consistent with the declining prison population, a move that would reverse a practice begun almost 20 years ago.
The decision, announced by Deputy Attorney General Sally Yates in a memo, followed a report last week by the Justice Department's inspector general that criticized private prisons for failing to maintain the same level of safety and security as facilities run by the Federal Bureau of Prisons.
Yates said private prisons, long seen as a growth industry in a country where the prison population has quadrupled since 1980, had also failed to provide any substantial cost savings.
"Private prisons served an important role during a difficult period, but time has shown that they compare poorly to our own Bureau facilities," she said.
The stock price of GEO Group Inc <GEO.N> fell about 28 percent after the memo was made public, while Corrections Corp of America <CXW.N> shares sank about 20 percent. Neither GEO Group nor Corrections Corp could be reached immediately for comment.
About 40,000 federal inmates were detained in private prisons in 2014, according to the Bureau of Justice Statistics.
The Justice Department does not have jurisdiction over private state prisons, where more than 91,000 inmates were held in 2014, or over immigration detention facilities run separately by the Department of Homeland Security (DHS).
Detention Watch Network, an immigrant advocacy group, called on DHS to follow the Justice Department's lead, noting that immigrant-only prisons are exclusively run by private prison companies. Civil liberties groups have sued private prison companies over their treatment of migrant children.
In a statement, U.S. Immigration and Customs Enforcement (ICE), the branch of DHS that runs detention facilities for migrants, said, "ICE uses these various models to meet the agency’s detention needs while protecting taxpayer resources."
The statement made no mention of a move to close privately run migrant detention facilities.
CRIMINAL JUSTICE REFORM
The move to end private prison contracts builds on President Barack Obama's efforts to reform the U.S. criminal justice system, which he has said incarcerates too many people, particularly minorities.
In 2015, the United States held 25 percent of the world's prisoners even though it only accounts for 5 percent of the world's population, according to the White House.
The Bureau of Prisons began contracting with privately operated institutions in 1997 to alleviate overcrowding and in response to orders from the U.S. Congress.
Yates told The Washington Post in an interview that there are 13 privately run facilities in the Bureau of Prisons system and they will not close overnight.
The Justice Department would not terminate existing contracts, but instead would review those that come up for renewal, she told the paper. She said all the contracts would come up for renewal over the next five years.
The number of prisoners held in privately run facilities at both the state and federal levels has been slowly decreasing since its peak in 2013.
Former Democratic presidential candidate Bernie Sanders applauded the Justice Department's decision. "Due in large part to private prisons, incarceration has been a source of major profits to private corporations," he said in a statement.
Federal institutions accounted for more than half of Corrections Corp of America's revenue in 2015 and 42 percent of Geo Group's revenue in 2014. State prisons accounted for 42 percent of Corrections Corp of America's 2015 revenue.
Height Securities industry analyst Daniel Hanson said both companies would need to update their financial outlooks after the Justice Department news.
In a research note, Hanson also called the department's goal of ending private prison contracting "more aspirational than attainable," however.
"In an austere era of discretionary budgeting, we believe it is unlikely that (the Bureau of Prisons) can afford the increased costs associated with meaningfully reducing contracts," Hanson said.
(Additional reporting by Nick Carey and Sharon Bernstein; Editing by Tom Brown; Editing by Kevin Drawbaugh and Tom Brown)