The decision announced by the Justice Department comes after an audit this month found that private facilities have more safety and security problems than the government-run prisons.
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Deputy Attorney General Sally Yates directed officials to either decline to renew contracts with private prison contractors or “substantially reduce its scope in a manner consistent with law and the overall decline of the bureau’s inmate population”.
As of December 2015, more than 22,000 federal inmates – or about 12 percent of the total – were in private facilities.
“They simply do not provide the same level of correctional services, programs and resources; they do not save substantially on costs; and as noted in a recent report by the department’s Office of Inspector General, they do not maintain the same level of safety and security”, she said.
Due to the overcrowding of state-run prisons in the 1990s, the US federal government began to rely on private, for-profit prisons to accommodate the overflow, which reached a population peak in 2013.
In her memo Thursday, Yates says the decline in the prison population over the past three years contributes to the decision not to renew private prison contracts.
There are now 13 privately run facilities in the federal Bureau of Prisons system.
The use of private for-profit prisons in the United States and the U.S.’s high incarceration rate have been a source of criticism and controversy. 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. Private prisons could still continue to operate on the state and local level. The decline is partially a result of new, progressive prison policies that reduced sentences for nonviolent drug offenses. “The conclusion is wrong and is not supported by the work done by the [Office of the Inspector General]”.
They are not as safe or as well run as government correctional facilities, the Justice Department concluded after an extensive review process.
The announcement Thursday only impacts the 195,000 inmates in federal prisons. The stock price of GEO Group Inc fell about 28 percent after the memo was made public, while Corrections Corp of America shares sank about 20 percent.
The audit highlighted numerous problems that arise when prisons and profits mix.
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This post has been updated.
