They should watch PZN not because they should consider buying the stock — that would be a clear conflict of interest — but because the company is hurting. And bad. A little over a week ago, Doctor Crants, a prison privatization pioneer, was fired as its CEO. The company has been on a slide ever since it merged with CCA nearly two years ago to form a real estate investment trust, or REIT. When the merger came off in January of 1999, PZN shares were trading at around 23. As of Friday’s market close, it was at 2 ⁵/16.

Since 1983, when Crants founded CCA, the company has become a powerful force in state and local corrections. It operates 39 prisons and detention centers, and has another 11 under development (not to mention facilities in Puerto Rico, Australia and the U.K.). In some states, such as Oklahoma, CCA’s presence is enormous. CCA runs four prisons in Oklahoma, holding 4,800 inmates, a number that accounts for a full 15 percent of the state’s entire prison population.

At every step of CCA’s rapid growth, controversy has followed. Opponents decried the company for making a buck off of human incarceration and argued that it and other companies were building a “prison-industrial complex.” Public employees’ unions, which feel threatened by the privatization movement, have made a point of exposing every incident at CCA prisons — riots, escapes or prison guard abuse — and holding each one up as proof that private prisons don’t work.

The company’s current problems, however, have less to do with its ability or inability to run prisons than they do the whims of the marketplace. It seems CCA formed a REIT right before the REIT market went bust. The company is carrying lots of debt, a fact that was made worse by the Federal Reserve’s recent interest rate hikes. In fact, despite all the unions’ charges, CCA is generally quite capable at running prisons. The bad incidents that get lots of media attention are generally isolated examples. And besides, riots, escapes and prison guard abuse happen in publicly run prisons too.

Nobody expects Prison Realty Trust to go under. The company is undergoing serious restructuring now, and its health should improve. But there’s a lesson here for state and local governments: Private prisons are exactly that — private. They could go under. That’s not in itself a reason to not contract out a prison or two, if it makes good sense for all the right reasons. But don’t get carried away. If you’re in Oklahoma, and 15 percent of your prison system just went bankrupt, you’d be in huge trouble. You’d have 4,800 convicts and no place to put them.

Christopher Swope is a Governing staff writer.

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