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The American Federation of Teachers characterizes the corrections sector as problematic territory for retirement funds.
One of the nation's largest teachers unions is warning that public pension fund investments in companies tied to the prison industry could pose special risks and should be reevaluated.
The American Federation of Teachers, which represents 1.7 million members in more than 3,000 local affiliates nationwide, issued a report on the topic on Tuesday. Two major prison companies countered that the union is playing politics.
“This is, first and foremost, a humanitarian and civil rights issue,” Randi Weingarten, president of the American Federation of Teachers, said in a statement. “It is also a financial issue."
Public pension systems in the U.S. pay out retirement benefits to a variety of state and local government retirees, including teachers.
Fund managers use the money that workers and their employers pay into the funds over the years to make investments in assets like stock, bonds and real estate. Returns from these investments help to grow the fund and cover the future cost of benefits.
In its report, the federation of teachers says it identifies state pension funds that together hold over $75 million in private prison stock. That amount is a fraction of the total assets held by state and local pensions. Those holdings for defined benefit plans only totaled $4.3 trillion at the close of 2017, according to the Investment Company Institute.
Even so, the AFT says prison operators, and other firms that provide related services, make billions of dollars each year as a disproportionate number of black and Latino people are incarcerated.
The sector faces risks from litigation, regulation and bad press when abuses occur, the group's report goes on to say. The union says that, in particular, a criminal justice bill reworking federal sentencing guidelines, which President Trump signed into law in December, stands to add political, legal and financial pressure to the industry.
"All these factors—humanitarian, fiscal, legal, regulatory and political—create significantly riskier investments," Weingarten said.
"We are working closely with the AFT Trustee Council to safeguard workers’ retirement security to ensure our members and retirees reduce their exposure to the risk these firms traffic in," she added.
The federation of teachers points to pension funds that have taken steps in recent years to curtail investments in the prison industry—including the New York City Employees' Retirement System, the Philadelphia Board of Pensions and Retirements and the Chicago Teachers' Pension Fund.
One company that the group's report singles out is CoreCivic Inc., which it says is the nation's largest prison firm, overseeing about 78,000 beds at different types of facilities in 19 states.
A spokesperson for the company said that it was not contacted by the AFT prior to the report being issued and that it does not provide services now that it didn't provide under the Obama administration.
"This report would appear to be driven by political motivations rather than a genuine desire to be in open dialogue about this very challenging issue for our country," Amanda S. Gilchrist, the company's director of public affairs said by email.
"While we fully respect the AFT's right to voice its opinion on this matter, we also believe that facts rather than political posturing should inform the discussion," she added.
CoreCivic in November reported that its net income for the nine months ending on Sept. 30 last year was $117.9 million, down from $136.7 million for the same period the prior year.
The AFT report says that the company, along with another publicly traded firm, The GEO Group, accounts for nearly 85 percent of the private prison market in the U.S.
In an email, The GEO Group also suggested the timing of the report was "driven by political motivations rather than fact-based analysis."
“These divestment efforts are misguided and based on a deliberate mischaracterization of our role as a long-standing service provider to the government, and ignore the fact that our company plays absolutely no role in passing, setting, or advocating for or against criminal justice or immigration laws and policies," the company added.
Net income through the third quarter of last year, attributable to The GEO Group, Inc., was $111.6 million, up from $109.8 million in 2017.
Among the pension funds the report lists as having the most shares of CoreCivic and GEO Group stock as of mid-January are: the California Public Employees’ Retirement System, the New York State Teachers’ Retirement System, and the Ohio Public Employees Retirement System.
Looking beyond CoreCivic and The GEO Group, the federation of teachers also zeros in on a number of private equity firms that own companies involved in the prison and criminal justice sector, providing services like health care, food concessions and phones in prisons, as well as bail bonds and electronic monitoring.
Route Fifty reached out to four of the seven private equity firms on an "asset manager watch list" the AFT included in its report. Two did not respond and one declined to comment.
But a spokesperson for BlueMountain Capital Management defended the company's investment in Corizon Health, which provides health care services to prisoners.
"It provided an opportunity to reposition an underperforming business to improve patient care, increase existing standards of care, and enhance business performance," they said in an email.
The spokesperson added that health care providers in the corrections system face the same "market forces and trends" that exist in the broader health care industry, such as rising costs, aging patients with more complex needs, and treating people with mental illnesses.
Since BlueMountain became involved with Corizon, the health care company has seen additional capital, leadership and management changes, and its debt slashed, the spokesperson also noted.
The AFT report offers recommendations for pension fund trustees seeking to reconsider their funds' exposure to the prison sector—one is to prohibit investments in firms that "privatize public sector jobs."
It's within the scope of a trustee’s responsibility, the report adds, "to consider the legitimate risks associated with investments in the private prison industry, and to consider whether to divest entirely."
This story has been updated with comment from BlueMountain Capital Management.
Bill Lucia is a Senior Reporter for Route Fifty and is based in Washington, D.C.