by Emilee Klein
In 2017, only two Members of Congress invested in iShares Core S&P Small-Cap ETF(IJR), an exchange-traded fund (ETF) with a combined 15.33 million shares of prison companies GEO Group and Core Civic; three years later, nine members of the House and seven in the Senate own shares of IJR.
Why it matters: Congresspersons who would never take campaign endorsements from private prison companies nonetheless own stock in these companies indirectly through pooled investment funds such as the iShares Core S&P Small-Cap ETF. Because such ownership is indirect, legislators may fail to screen stocks in the ETFs in which they invest, even as they filter out campaign donations from such controversial or politically unaligned companies with extreme scrutiny.
Proof in the Prison: For instance, in 2017 Senator Ron Wyden from Oregon proposed a bill that would end tax cuts from incarceration companies, yet even in 2020 Wyden owns between $15,000 and $50,000 worth of IJR. There is a disconnect between Wyden’s position and investment. Since GEO Group and CoreCivic stocks together make up 0.17% of IJR, the disconnect is less likely to reflect a financial conflict of interest, than an unawareness of the relationship between IJR and private prisons.
Key numbers: There are 31.1 M shares of GEO Group stock (GEO) on the ETF market across 77 ETFs, and CoreCivic (CXW) has about 22 M shares among 65 ETFs. IJR holds the largest number of shares of GEO and CXW at 7.36M shares and 7.95M shares respectively. GEO Group makes up 0.08% of IJR, while CoreCivic makes up 0.09%.
How does it end up in politician’s investments? IJR invests in a passive index of 600 companies with small market capitalization, which includes companies with roughly $300 million to $2 billion. Sometimes, smaller-capitalization ETFs outperform ETFs with higher market capitalization. If someone wants to invest in all the small companies on the market, IJR streamlines the investment process compared to buying a diversified portfolio of small capitalization stocks. This, plus IJR’s position as a BlackRock’s Core ETF, is why the iShares Core S&P Small-Cap ETF is in investors’ portfolios.
Controversy Behind Private Prisons: Controversy surrounds for-profit prison companies due to well-documented unlivable health conditions and abuse. USA Today found prison staff withholding treatment and medication of diabetics, cancer survivors and mental health patients. The ACLU reported that Winn Correctional Center, a prison owned by private company LaSalle Correction, left most of their medical equipment out in the hallway unused and had black mold in their cells. According to a Detention Watch Network report, Adelanto ICE Processing Center, run by CoreCivic, keeps expired food to serve detainees. Tear gas, pepper spray, physical force and verbal abuse, like calling immigrants “rats,” have been documented and reported by the nonprofits and journalists linked above.
Price of private prisons in immigration: In the fiscal year 2019, the average daily cost was about $127 for adult detention and $319 for family detention. The average time an immigrant spends in a detention center ranged from 30-40 days, so taxpayers paid an average of $3,810 to $5,080 per immigrant and $9,570 to $12,760 per immigrant family in 2019, despite Alternative to Detention programs being only 5% of the cost.
Democrats against Private Prisons: Due to these controversies and the price of detention, many politicians, especially Democrats, condemn the use of for-profit prisons. While these companies gave out about $3.1 million of campaign donations in the 2020 election, Republicans and conservative groups received most of the money. Therefore, it is odd to find for-profit prison stocks hiding in the portfolios of Democrats, most likely without their knowledge despite information on pooled investment fund holdings being public knowledge.
main image licensed: Adobe Stock