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“Black men comprise about 13 percent of the male population, but about 35 percent of those incarcerated. One in three black men born today can expect to be incarcerated in his lifetime, compared to one in six Latino men and one in 17 white men. Black women are similarly impacted: one in 18 black women born in 2001 is likely to be incarcerated sometime in her life, compared to one in 111 white women.”

These statistics, found on the first page of a report by the Vera Institute of Justice, quantify the effects of the current rate of mass incarceration for Black and Brown Americans. In the report, titled An Unjust Burden: The Disparate Treatment of Black Americans in the Criminal Justice System, authors Elizabeth Hinton, Le Shae Henderson, and Cindy Reed analyze a variety of research in order to provide a holistic and succinct overview of institutional racism. Stemming from a foundation of historically discriminatory practices and policies, the discourse surrounding criminal matters—from courtrooms to news reports—is rooted in the unconscious or conscious belief that Black people are more prone to criminal behavior.

The coauthors note that a combination of “disparity in the enforcement of seemingly race-neutral laws,” along with “bias by decision makers at all stages of the justice process” account for the disproportionate criminalization of Black people, further exacerbated by their greater likelihood of living in “concentrated poverty.”

Hinton, Henderson, and Reed start at the beginning, showing how the abolition of slavery led to a certain insidious ingenuity for Southern lawmakers, who devised “unique forms of policing, sentencing and confinement” in order to “capitalize on a loophole in the 13^th Amendment that states citizens cannot be enslaved unless convicted of a crime.” The resulting Black Codes, Vagrancy Laws, and Convict Leasing ensured that law enforcement would aggressively target newly freed Black people. The Northern States were much more subtle about it, resorting to the “disparate enforcement of various laws against ‘suspicious characters,’ disorderly conduct, keeping and visiting disorderly houses, drunkenness, and violations of city ordinances” which created “new forms of everyday surveillance and punishment in the lives of black people in the Northeast, Midwest, and West.”

Following the implementation of these policies, when data was collected for arrests and incarceration rates in the United States, the prevalence of black offenders was used as evidence of their inherent criminal proclivities, a narrative perpetuated over the ensuing decades and found at the heart of current stereotypes and implicit bias.

Hinton, Henderson, and Reed note that modern data analysis of crime patterns also contribute to inaccurate perceptions:

Statistics linking black people and crime have historically overstated the problem of crime in black communities and produced a skewed depiction of American crime as a whole…For instance, in trying to understand where and when certain crimes occur, researchers from the National Commission on Law Enforcement and Administration of Justice spoke only with law enforcement agencies and officers stationed in low-income black communities. This skewed the data—which intentionally ignored the disproportionate police presence in these neighborhoods as well as delinquency among middle class, white, young men—yet was used to craft strategies for the War on Crime, such as increased patrol and surveillance in low-income communities of color. 

The War on Crime was one of several political justice strategies implemented in the 20^th century that eschewed the explicitly discriminatory language of past laws in favor of seemingly neutral phrasing and selective enforcement that produced different outcomes according to race. The report lists Drug laws, Habitual offender and three strikes laws, Hot Spots Policing, the Zero Tolerance policy, and the “Broken Windows” model as the main culprits of modern attempts to disproportionately criminalize Black people.

Another important feature of the report is its undertaking of the concept of “black on black crime,” a term that has been weaponized by the media to stoke portrayals of rampant violence within the black community, and even as a way to discredit protests against police brutality. The authors indicate that intraracial violence among Black people is in fact no greater than intraracial violence among other groups and, furthermore, that most violence occurs between people of the same race, according to the Bureau of Justice Statistics. However, crime is measured in a way that focuses primarily on low-income communities of color, which contributes to the myth of the prevalence of “black on black crime.” The FBI’s Uniform Crime Report, “considered the official measure of the national crime rate” is one that “has always emphasized street crime to the exclusion of organized and white-collar crime.”

Based on these stereotypes, practices, and perceptions of Black criminality, it is then no surprise that key actors within the justice system have been found to display significant implicit bias in dealing with Black defenders. The Vera Institute researchers warn that “such biases impact individual stages of the process, like policing, and also accumulate over multiple stages, through case processing, prosecution, and disposition.”

Police prejudice is the precursor to justice involvement for Black and Brown people, as they are free to stop, search, and arrest at their discretion. According to the report, “the best available evidence suggests that police bias toward black Americans, coupled with strategic decisions to deploy certain law enforcement practices—like hot spots policing— more heavily in black communities, increases the likelihood of encounters with police and negative outcomes like stops, searches, use of force, and arrest.” Then, once a case moves to the courtroom, bias from prosecutors, judges, and jurors “can lead to harsher outcomes for black people.” For the same crime, Black men receive sentences an average of 19.1 percent longer than those of their white male counterparts. Similarly, a Black or Latino youth are more likely to have the prosecutor request that they be tried as adults.

In summary, An Unjust Burden effectively aggregates existing data and research to call attention to the “subtle” and “ingrained” disparities within law enforcement that have persisted with minimal interference. A thorough analysis of the history and reasoning behind sociopolitical beliefs about the criminal tendencies of Black people, it reveals a criminal justice system that has played a major role in perpetuating racial inequities. The report concludes with the frightening and powerful assertion that “current approaches to criminal justice are extending levels of discrimination that are typically associated in the popular consciousness with a pre-civil rights era, but still exist today.”

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Whether you call it impact, place-based, mission-aligned, values-driven investment, or something similar, the movement toward investing for “more than financial” return has gained significant traction over the past decade. The recent pandemic-induced economic downturn has only increased momentum in this direction, as it heightened awareness of the indispensable role of “Main Street” businesses within local economies. As a result, we’re seeing significant interest among a whole new group of aspiring impact investors looking to contribute patient, thoughtful capital to revitalize their communities. Unfortunately, for many would-be investors in this group, their ability to act on their motivations is extremely limited.

The term impact investing was coined nearly 15 years ago, and its practice has remained largely in the realm of foundations and high net worth individuals. This is due in part to the fact that these institutional and individual investors have not only a mission-driven motivation but also significant financial means to invest according to their personal or organizational values.

What is less well-known, however, is that institutional investors and wealthy individuals also have enjoyed an almost exclusive right to invest for impact due to US securities regulations enacted more than 80 years ago. Many investments are only available to people who are “accredited” investors in securities legalese; to be accredited requires having an annual income of over $200,000 (over $300,000 if a couple) and/or wealth (not including the value of a family home) in excess of $1 million.

The confluence of the desire of people of more modest means to invest for impact—combined with the critical need among local businesses for community investment—offers a watershed opportunity for the federal government to take meaningful steps toward creating more democratic access to capital.

The Challenge

Access to capital for Main Street entrepreneurs and business owners has long been a challenge. While they may not physically reside on a city’s main street, these small businesses—defined as 20 or fewer employees—comprise 89.1 percent of the 6.1 million employer firms in 2018 and employ one in six private sector workers nationally. Main Street businesses are further distinguished as companies that put down roots in a community, create jobs for their owners and residents, and circulate money throughout the local economy through the purchase of goods and services from neighboring businesses.

These were the companies hit hardest when the world shut down and business-as-usual was suspended throughout much of 2020. Many did not have a financial safety net due to chronic (often systemic) barriers to capital, which traditionally meant relying on credit cards, personal savings, or the slow reinvestment of profits to grow. Many now continue to struggle or are failing outright despite attempts by the federal government to support them through the crisis. The documented failure of banks to equitably distribute Paycheck Protection Program (PPP) loans last year is an acute reminder of long-standing pre-pandemic lending practices that marginalize small businesses owned by women and people of color.

It doesn’t have to be this way, however. A silver lining of the COVID-19 crisis is the increased interest among a growing number of Americans to support local businesses.  Survey data shows that in 2020 millions of Americans engaged in quasi-donation activity, such as buying gift cards at businesses that were temporarily closed, to keep local businesses alive. Now many would like to invest in them as well. Indeed, the two impulses of donations and investment occurred simultaneously. As early as March 25, 2020, I began fielding calls from community organizers and concerned citizens around the country who’d heard that many Americans would be receiving coronavirus relief checks and who initiated our conversation with something along these lines: “I’m doing fine. My job is secure. I don’t need this money. How can I put it to work to help businesses in my community that are struggling to survive?”

A Limited Menu of Options

Citizens and organizations in communities nationwide can rally together to rebuild their local economies from the grassroots up. One way to do this is by setting up a Community Investment Fund (CIF) that welcomes investment from any citizen—regardless of wealth status—to provide patient capital to help local businesses get back on their feet and even help new ones get started.

Last year, the National Coalition for Community Capital (NC3), in collaboration with Solidago Foundation, published Community Investment Funds: A How-To Guide for Building Local Wealth, Equity, and Justice, a handbook co-authored by authors from NC3, the Initiative for Local Capital, and Cutting Edge Institute. As NPQ covered, the report lifts up examples of the few existing ways that communities can aggregate small investments to support local businesses.

A key phrase in that last sentence is “the few existing ways” because they are indeed few, if communities wish to secure investments from residents who are among the 90 percent of Americans^⁠ who do not qualify as accredited investors. This restriction stems from the Investment Company Act of 1940 (also known as the 1940 Act) that was enacted by Congress to regulate the organization and activities of investment companies such as mutual funds, investment clubs, venture capital funds, and real estate investment trusts (REITs), to name a few. Community development financial institutions (CDFIs) are also governed under the 1940 Act and while they have a long and important track record of filling the funding gap for many small businesses, the vast majority exclude unaccredited investors from participation, again due largely to the restrictions of the 1940 Act.

One of the few options for unaccredited investors (or in SEC-speak, retail investors) is to invest in local businesses through Regulation Crowdfunding campaigns. Regulation Crowdfunding, or Regulation CF, was enacted in May 2016 under Title III of the JOBS Act and gives retail investors the ability to make direct investments into businesses via registered crowdfunding portals. Regulation CF was an important step in the right direction. And Investibule, an aggregator website that allows you to search for deals listed on over 30 crowdfunding platforms filtered by location, deal structure, theme (e.g. POC/women-owned, co-ops, eco), and category (e.g. energy, farms, real estate), makes it easier to find local deals.

But sourcing local deals still requires considerable effort, and even once investors find suitable deals in their communities, due diligence typically falls on the shoulders of individual investors—many of whom lack the skill, time, or desire to take on this important task. It is so much easier for individuals to rely on investment advisory professionals to do this legwork. Unfortunately, while there is a nascent and slowly growing cadre of wealth management advisors willing to provide this service, most do so with a wary eye on compliance and limit the service only to their accredited clientele, leaving investors of more modest means once again on their own.

Another option would be to pool investments together with other like-minded investors into a “community scale mutual fund,” complete with professional management to source and evaluate deals and with the added benefit of diversifying risk. Most small investors, when they invest in the stock market, are not investing in individual stocks. Rather, they invest in index or mutual funds, in which investment risk is spread across a wide range of stocks and bonds. Is it possible for small local investors to use similar means to diversify? The answer is yes…but, right now, the law creates so many barriers as to make it financially infeasible for most communities to try to stand up a fund of this kind.

In essence, Regulation CF created the ability for anyone to engage in local impact investing, but the Investment Company Act of 1940 prevents skilled and licensed professional managers from assisting people of modest means to create diversified, well-researched portfolios. It’s time for a 21^st century makeover of the 1940 Act to complement Regulation CF. Regulation CF enables everyone to invest in local small businesses that support their neighbors. It is time to ensure that they can do so with greater safety.

Making Local Impact Investment Safe for Investors of Modest Means

To better understand what changes are needed, let’s consider what can and cannot be done under the 1940 Act as it currently exists. As mentioned above, there are existing funds, albeit a limited number of them, that are organized under exemptions of the extant 1940 Act. These are not technically mutual funds, but they do diversify investment across a broad range of companies. The most common form is the Charitable Loan Fund, which is exempt from the 1940 Act purely by virtue of the fund itself being a charitable organization.

A Charitable Loan Fund (CLF) provides a reasonably straightforward regulatory path for community members to invest their capital into the local economy through a diversified, professionally managed fund that can include any type of investor. A great example is the Boston Impact Initiative, created in 2013 to “close the racial wealth gap by changing the rules about how capital flows through communities of color^⁠.” To date it has invested nearly $6 million in over 20 BIPOC and women-owned businesses in eastern Massachusetts.  However, a limitation of CLFs is that they are restricted to making outgoing investments that are explicitly aligned with their stated charitable purpose, even when logic (and the desire for deeper community impact) might dictate greater flexibility.

Another key limitation of a CLF is that it must be structured as a loan fund. As such, it can only receive investment into the fund as debt and must pay a stated interest rate back to investors. Because of this, many CLFs choose to make their investment placements predominantly in the form of loans, even though equity deals are legally permissible, to help ensure there are sufficient regular returns to make the requisite loan repayments to investors. This too can hamstring fund managers who see a need in their communities for more risk capital (i.e., equity or quasi-equity). For example, many startups generate little cash in the early years to pay back loans, even though they can generate far more income in later years after they develop; these businesses, however, may never get support from the fund in the first place because of the fund’s loan repayment requirements.

Another commonly used exemption for community investment funds under the 1940 Act is a REIT. The 1940 Act [Section 3(c)(5)] exempts a fund that is primarily in the business of acquiring mortgages and real estate. The exemption allows investment into the REIT regardless of accredited status and could be used for multiple real estate-specific purposes, such as the following:

• An affordable housing fund could finance housing in the “missing middle” between low-income housing and high-end “market rate” housing. This could be particularly important in hot markets like much of California.
• An agricultural land fund could acquire and hold land for farming and related uses, keeping the land from being converted into tract homes and thereby preserving rural character. An agricultural land trust, which uses charitable money to acquire preservation easements and reduce land costs, could accompany the fund. Land held by the trust could be leased to farmers at affordable rates, while local investors also can earn a decent return.

A real estate fund is a powerful fund structure and works well for communities where real estate investment is warranted. The Iroquois Valley Farmland REIT is an example of this type of fund. In operation since 2008, it is open to all investors nationally.

For communities that see a need beyond real estate and debt financing, however, the opportunities are limited. A few simple revisions to the 1940 Act would create exemptions that allow community-scale funds to: 1) accept investment from retail investors; 2) give fund managers flexibility to structure investments according to the needs of businesses within their community and without charitable purpose restrictions; and 3) share profits for wealth-building opportunities among all investors.

A detailed policy proposal to this effect was submitted to the US Securities and Exchange Commission by NC3’s Community Investment Fund Task Force in spring 2021. The proposal was met with significant interest from staff within the Commission and now awaits the appointment of a full-time director to the Division of Investment Management to take the next steps toward implementation.

In the meantime, communities are laying the groundwork for creating a fund as soon as the policy revisions are enacted. For example, in 2019, a North St. Louis group that is now known as Elevate/Elevar Capital began researching the necessary steps to create a community investment fund to provide financing to cohort members of the Elevate/Elevar Accelerator, comprised of Black and Latinx entrepreneurs. As it bumped up against the 1940 Act restrictions on retail investor participation, Elevate/Elevar decided to take an interim step to create the Elevate/Elevar Capital Fund with investment from accredited and philanthropic investors first, to establish a track record for the fund while gaining valuable operating experience. If/when the proposed SEC changes go into effect, Elevate/Elevar stands ready to accept retail investors into the fund.

In many ways, the Elevate/Elevar Capital Fund model is a strong step forward that many communities could take today to launch a fund with more risk-tolerant wealthy investors while preparing to open the fund to all when SEC rules permit. A fully inclusive community investment fund will open important opportunities for Americans to invest in their communities through pooled investment vehicles that, if done well, could reverse the seemingly inexorable trend toward increasing wealth inequality. By so doing, impact investment from the grassroots could boost local businesses and help millions of Americans who currently lack savings build durable community wealth.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

While this may surprise those who follow philanthropy’s every move, Congress only rarely passes laws that directly regulate philanthropy. The last truly foundational law regarding philanthropy was passed in 1969. That was the law that mandated a five-percent minimum payout from private foundations, among other provisions (such as prohibitions against self-dealing).

Of course, a lot has changed in philanthropy since 1969!

Consider, for example, the donor-advised fund or DAF. The first DAF may date back to 1931, but the significance of DAFs has increased markedly in the past half-century, with the number of assets held in DAF accounts nearly quadrupling in value (even after adjusting for inflation) since 2007.

To date, congressional action has been conspicuous in its absence, but amid growing, and frequently heated, discussions about philanthropic reform, it appears that something real may be happening, most notably the introduction in Congress of the Accelerate Charitable Efforts (ACE) Act, by Senator Chuck Grassley (R-Iowa) and Angus King (I-Maine) in June of this year.

This legislation did not come out of nowhere. Last year, a coalition emerged, led by Boston College’s Ray Madoff, a frequent critic of DAFs, and John Arnold of Arnold Ventures, whose principles are reflected in the bill. Other prominent members of the coalition include the Ford Foundation, the Hewlett Foundation, Wallace Global Fund, and the Kellogg Foundation.  Many organizations within the nonprofit sector are backing this legislation, including the organization I lead, the California Association of Nonprofits (CalNonprofits), and our partner state association in Minnesota, the Minnesota Council of Nonprofits.

It should be acknowledged, too, that the rise of prominent philanthropic critics like Anand Giridharadas and Edgar Villanueva—as well as activist efforts such as #HalfMyDAF and the Crisis Charitable Commitment—have also played a role in getting legislation introduced in Congress. Equally critical has been the growing demand for philanthropic accountability that has been one of the many demands stemming from the popular uprising against anti-Black racism and the growing movement against economic inequality.

While the pressures for philanthropic reform in society have been growing for some time now, the legislation reform effort is modest in scope. Nonetheless, if it became law, ACE would be the most significant philanthropic legislation to pass Congress in a half century. If passed, ACE would establish limits on how long funds can stay in DAFs, provide some transparency on foundation-to-DAF transfers, and encourage higher levels of giving by private foundations. The text of the legislation is available here.

Dissecting the ACE Bill: Rules for the DAF Road

One key provision of the ACE Act is that it would require that funds move out of donor-advised funds (DAFs) within a specified period. As it stands now, donors can deduct 100 percent of their DAF contributions immediately but are under no obligation to transfer any of those funds at any time to an active nonprofit.

While many donors do disburse their DAF contributions to nonprofits promptly, a sizable minority do not. While donor-advised fund sponsors often point to aggregated payout rates of 20 percent or above, it is also true that about a third of DAF accounts pay out nothing in any given year. Fidelity Charitable reports that 76 percent of donations to DAFs get disbursed to nonprofits within five years and 89 percent within 10 years. But since DAF accounts as of year-end 2020 total nearly $160 billion, that means over $17 billion sits in tax-favored (and therefor publicly subsidized) DAF accounts for a decade without a dime reaching an operating nonprofit.

The ACE bill instead sets some limits on how long funds can sit untouched. Specifically, if a donor wants to claim the full charitable tax deduction up front, the DAF money must be spent within 15 years. This is not exactly onerous.

Accounts that are under $1 million that are housed at community foundations are exempt from this provision. Also exempt are DAF accounts established before the legislation was passed.

And, if you want a DAF to last longer than 15 years, that is allowable under ACE too. The legislation creates a 50-year DAF option, the only catch being that if you elect the 50-year option, then you can’t claim the charitable deduction up front. Instead, you get to claim the charitable tax deduction when the contribution is made. This could be useful for donors who want to donate stock (stock within the DAF would still be exempt from capital gains tax) and use their DAF less as a charitable checking account and more like a quasi-foundation.

Updating Rules for Private Foundations

While the heart of the ACE bill concerns DAFs, there are new rules for foundations too. In part, this is because, under current rules, a foundation that gives money to a DAF can count that donation toward its five-percent minimum, even if the DAF does not immediately disburse funds to a nonprofit.

Among the foundation-related provisions are the following:

• Ensure that a five-percent payout truly means five percent: Currently, private foundations are required to spend out a minimum of five percent of assets each year. Grants count toward this requirement, but so too do most of staff salaries and other foundation expenses. The ACE bill would exclude payments to non-trustee and non-staff family members as counting towards this requirement. Also excluded would be the transfer of private foundation funds into a DAF without directions for distribution, an increasingly common practice.
• Incentivize Private Foundations to Give More: Under ACE, if a foundation spends out seven percent or more of assets, it is exempt from the 1.39-percent excise tax it typically pays on interest income.
• Establish Rules for Non-Cash Donations to Foundations and DAFs: The bill defines rules for converting publicly (including cryptocurrency) and non-publicly traded asset donations into cash and states when the donation can be taken as a deduction.

Why Does ACE Matter

Why does this legislation matter? First, the stakes are high. Currently, private foundations hold more than $1 trillion in assets, and there are now nearly $160 billion in assets housed by donor-advised funds. And despite increased COVID giving, private foundations and DAFs had more money at the end of 2020 than they did before the pandemic started.

Second, as NPQ readers know, wealth inequality is at record levels. And while most foundations serve valid charitable purposes, some donors have been able to employ philanthropy not only to hoard tax-advantaged wealth, but to weaponize foundations to protect tax and legal advantages for the wealthiest.

Who Opposes ACE

In many areas, nonprofits and grantmaking foundations share goals and values. Grantmakers in, say, the environment or disabilities, find the nonprofits working in those areas, and nonprofits seek out grantmakers interested in their work.

But sometimes foundations and nonprofits find themselves institutionally on different sides of a public policy issue. While some foundations, noted above, have backed ACE, the Council on Foundations—the leading trade association for foundations in the field—has opposed the reform measure.

ACE isn’t perfect, but, at Cal Nonprofits, we believe it is necessary. It is embarrassing, frankly, that a 1969 law is still the main framework of a philanthropic field that has evolved considerably in the half century since that legislation passed. We believe ACE will free up resources currently being held in philanthropic institutions and will help bring much-needed additional resources to nonprofits and the communities we serve.

Aligning Public Cost and Benefit

Philanthropic reform is not, however, just about need, or just about getting more money to nonprofits. It’s also about fairness. Fundamentally, at Cal Nonprofits we believe that there needs to be more alignment between when the public pays for a tax break and when it receives the benefit from that tax expenditure.

Right now, when donors place money or other assets into DAFs or private foundations, they receive an immediate tax deduction. In fact, the state of California alone forgoes more than $340 million each year in state income tax revenue from just the portion of charitable deductions that go to DAFs.

Meanwhile, the “public benefit” can come surprisingly slowly. Private foundations are required to spend out only five percent of assets each year, and even so they can count many of their administrative expenses towards that very low goal. And there is no time requirement at all for donor-advised funds. Why allow the money to stay there unused in perpetuity? It is amazing one must argue for the need for some guardrails for what is now a $160 billion industry. Seriously, what industry of this size is unregulated?

Yes, many foundations exceed current payout minimums and well over half of donors distribute their DAFs to charitable nonprofits within reasonable time frames. But even though most automobile drivers are responsible, no one would suggest that this means we can get rid of speed limits, driving rules, driving tests, blood alcohol limits, and enforcement.

The ACE bill is meant to set guardrails and “rules for the road” for philanthropy. It is not perfect. But it has been crafted thoughtfully and helps to bring the public cost and the public benefits of foundations and DAFs into better alignment. And it can also help accelerate the movement of already-donated funds towards active, operating nonprofits.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Amy Costello: Welcome to Tiny Spark, a podcast of the Nonprofit Quarterly. We focus on what is required to build a more just society—in matters of race, health, the environment, and the economy. I’m Amy Costello.

And today, we‘re looking at a point where the economy and justice collide with real and serious consequences.  We’re talking about the private prison industry, and it’s only growing in this country.

Loren Collingwood: Oh, it’s humongous. Millions, billions, lots of government subsidies and government funding going towards the private detention and prison industry in the United States, and it’s been like this for a long time.

Costello: Loren Collingwood is an author and associate professor of political science at the University of New Mexico. He’s previously written about sanctuary cities and campaign politics. His next book is about the ties between immigration politics, private prisons, and private detention centers. Collingwood is concerned about the profit motive that underpins certain law enforcement tactics, border policies, and incarceration itself.

Collingwood: Prisons, policing, these are industries that exist now, and we have wrapped people’s economic well-being into if you’re a police officer, how many people did you stop today? If you want a raise, you need to increase the number of people that you pull over. And you need to increase the number of people that we put into immigrant detention, so that our shareholders make more money at the end of the year, right? A lot of it just comes down to basic economics.

Costello: Yes, there are deep and direct ties between shareholders and the for-profit companies that run immigrant detention centers and prisons across the nation. Indeed, well over 70 percent of immigrant detainees are held in privately run facilities. According to USAspending.gov, the federal government has awarded close to a billion dollars to the GEO Group, one of the world’s largest private prison companies. That kind of cash is enough to make GEO’s shareholders cheer.

Collingwood: One of the reasons I got interested in this was in 2016, when Trump got elected, a friend of mine turned said, “Hey, the prison company stocks just rose.” And I was kind of shocked by that. And so, I started looking at prison company stock data. I think we were looking at Corrections Corporation of America, CCA—and the GEO Group. Those are two of the larger prison companies in the United States, and they have facilities abroad as well. And your listeners may not know this or that maybe they do, but these two companies are traded on the stock market. It’s quite amazing, right? You could go and buy their stock today if you wanted to. If you look a couple of days after election day 2016, prison, these two prison company stocks rose dramatically. So, we started studying that and then we studied the midterm election and kind of reverse pattern happened where Democrats effectively quote “won that election” and then, stock prices dropped a bit. And that’s part of our way of looking at the partisan aspects to a lot of this industry and then how real-world politics and immigration comes into all of it, at the same time people are profiting off of it.

Costello: Looking back, Collingwood says that government spending and contracting to the prison industry actually increased during the Clinton administration. But he says 9/11 was the major catalyst for its growth. He says the terrorist attacks caused law enforcement and lawmakers to turn their collective gaze south, toward America’s vast and porous borders, and they had very fat checkbooks in hand.

Collingwood: A lot of spending went to the border to try to beef up security and border security and hiring more ICE agents and better equipment. And, in my view, it kind of steamrolled a bit out of control, because you then start bringing in kind of an economic component to all of this in a way that starts to build a capitalist infrastructure, just in that area alone because so much money is coming in through government coffers. Previous to that, there was still money in this area. It just wasn’t the amount of billions of dollars that went into protection and border security just wasn’t there to the same level.

Costello: Right. And so, it’s not only billions of dollars flowing out of government coffers, it’s going into, in the case of the private prison industry, it’s going into the hands of for-profit corporations. And so, talk to me about this shift from government prisons to private ones. Why did that happen specifically?

Collingwood: The argument that I think the prison companies tend to make, it’s, they’re more nimble, more flexible. A lot of the additional reason for the prison growth and you know, specifically was the war on drugs. That led to major mass incarceration in the 1980s and 1990s under both Democratic and Republican administrations. There’s a whole politics there, of course. So, you have that on the one hand and then you have 9-11 and some other immigration bills, on the other hand, really driving the need to basically incarcerate people. And part of the issue with private prisons is that they can make an agreement with a state or federal government and say, you know, if your levels drop or something like that, then we’re on the hook, you’re not on the hook. And so, there’s a certain amount of nimbleness and flexibility. The other thing that, there’s some research by this by someone at LSU—Louisiana State—what they find is, in a prison context, you might have a situation where someone gets beat up, they get stabbed, a guard violates someone’s civil human rights. And so, there is a lawsuit. And so, a lot of the negotiations between the state governments and different government entities and the prison companies, basically like the prison companies said they would deal with that, and so that the state governments and other governments wouldn’t get sued as much. A lot of this is around like prisoners suing states and stuff like that, and this kind of took the burden off the state. If you kind of step back a little bit and think about it more generally, the United States government, it’s run via contractors. There’s so much money that goes from government hands into private entities, from road construction to airlines, everything really when you think about it, to war. You know, all the government contractors that work over in Iraq and other places, right? Occasionally, you hear in the news, some government contractor was killed or what have you, Halliburton, and stuff like that. So, there’s a long history of the US government producing contracts for different entities, private companies.

Costello: Right. And I want to talk about how this private prison industry organizes itself in Washington and the political influence that it wields. How would you describe the ways in which the private prison industry exerts power in Washington and over lawmakers in particular?

Collingwood: In general, it’s like what you might see normally, they basically give out money to campaigns and stuff like that, right? And to legislators who need to run for reelection, that’s the kind of classic way that interest groups, if you conceive the prison industry as an interest group, is going to do that, right. And so, our research looks at when they’re going to give that, is there kind of a quid pro quo arrangement? That’s very hard to prove, of course. But in general, from at least the kind of networks that we’ve seen is they basically will hire certain lobbying firms or lobbyists specifically, you can find that information. Most of it’s publicly available. And what we tend to look at is bills that are either co-sponsored or are voted on a roll call vote in congress, specifically on punitive immigration policy. And so, we see that, you know, they’re lobbying on a lot of these bills. That’s obviously in the interests of these companies, the more people that are in their prisons, the more money they make. I don’t think that’s disputable. So, that’s the kind of general arrangement and that’s not particularly different than anybody else. But what we have seen is legislators that have one of these facilities in their districts are disproportionately likely to co-sponsor legislation like this. So, that’s our first finding that we observed.

Costello: I’m sorry, just say that again, please. I think that’s important. What did you just say?

Collingwood: Yeah, we find that if you have a prison facility, a detention center, private prison detention center in your district, you’re more likely to sponsor, co-sponsor this type of legislation, above and beyond your partisan inclination. That last bit is really important because in general, in the United States, Democrats are more pro-immigration and Republicans are more anti-immigration. And so, it would make sense in general that Republicans are going to sponsor more of this punitive immigration legislation, and Democrats would oppose that.

Costello: And I want to talk to you about the partisan breakdown in a moment. But before we do that, I want to go back to the legislation that you’re talking about. What kind of legislation is it?

Collingwood: Right. So, for example, I’m going to use the term alien here, not because I necessarily support using that term, but because it’s part of the quote of the, of the legislation. So, from 114th congress’s HR House of Representatives 2-8-4-8 and so the kind of summary, the bill title is: To Amend the Immigration and Nationality Act, To Penalize Aliens Who Overstay Their Visas and For Other Purposes. So, let’s just say there, if you go and read that bill, penalize means to make their life more difficult, increase the chances that they get caught up in the kind of immigration control scheme, right? Should we super crack down on it, or should we be more liberal with it, right? Here’s another example: To Amend the Immigration and Nationality Act to Provide for Extensions of Detention of Certain Aliens Ordered Removed and For Other Purposes. That’s saying like, oh, let’s let these people stay in our facilities longer.

Costello: Right, right.

Collingwood: You know, and this is our job as social scientists is to look at this and kind of interpret and say, if this is passed in the big scheme of things, would a company like a private detention company, would they be more likely to increase their bottom line financially if all of this is, you know, enacted? And we say yes, if all of these are passed, it’s likely that prison companies would make more money.

Costello: So, all that legislation that you just listed would ultimately benefit the private prison industry, as well as, I’m sure, a handful of other industries related to this immigration debate. What do you find in your research about the kind of legislation you just listed and the role of the private prison industry in this legislation, and the lawmakers who are either coauthoring, sponsoring, or supporting this legislation? Just help me understand the narrative, the connections between the legislation, the private prison industry, and lawmakers.

Collingwood: It seems that the prison companies give money to certain candidates or certain elected officials, and it seems like they’re more likely to give money when they’re sponsoring certain types of legislation. You often see legislators acting a little bit differently than what you might think that they would given their partisan inclinations. And so, the classic example in Texas is Henry Cuellar, who’s a Democratic representative along the border, as you probably know, and there are several facilities in his region, and they provide jobs for people. And so, he also gets a lot of money donated to his campaigns from some of these different private prison companies. You might say, for example, if Mr. Cuellar didn’t have detention centers in his district, he might actually not support this legislation, right? There is this kind of economic pressure it seems on legislators who represent some of these districts to push on this a little bit harder than they might otherwise.

Costello: What do we know about how much the private prison industry is supporting Republican lawmakers versus Democratic ones? What do we know about the partisan breakdown of lawmakers supporting the kind of legislation that you just talked about?

Collingwood: It’s a great question. Partisan polarization has really grown a lot in the United States, but it used to be, probably before 2010 or so, private prison companies were donating, you know, more to Republicans than Democrats, but they were still donating towards the industry as a whole, was still donating towards both, and in fact, if you look at opensecrets.org, I think is where we get a lot of our data that keeps track of donations to candidates and elected officials, by industry and by organization, and by year, you will see that Jerry Brown, who is the governor of California, was receiving the most amount of donations of any candidate, I think if my memory serves. And…

Costello: The most donations from the private prison industry?

Collingwood: Yeah.

Costello: OK.

Collingwood: That’s right. Of all the people receiving money from the private prison industry, he was getting the most. I think that’s right. And when you back out, it makes a lot of sense because the California state government at the time had, you know, several private prison companies there and several immigrant detention centers, and they still are even though they’re banned, they still exist. It’s a strange kind of legal, inter-governmental agreement situation why that happens. But then Trump got in. And that led to this massive partisan split on donating behavior. And Trump said, “OK, hey, you know, I support private prisons.” And then the Democrats basically started saying, actually we don’t. And so, since then, Republicans get a lot more money donated to them by this industry than Democrats.

Costello: Loren Collingwood, another finding that you have kind of uncovered in your research is around the issue of co-sponsorship for legislation. First of all, describe to me what is co-sponsorship and why is it significant with respect to the research that you’ve been doing?

Collingwood: So, say if I’m a member of congress, I’m going to introduce a bill that I want passed. The first strategy that normally members of congress will do is they try to basically get other members of congress to sign on to their bill and say, OK, I support this. And it’s called co-sponsorship. And other legislators will do this because, number one, they can credit claim that if the bill goes through, they had a role in it. It can signal to key industries that they support their interests, but then sort of run of the mill voters don’t normally know what co-sponsorship probably is, and so they may not pay much of a penalty. Legislators are interested in reelection, and one way to get reelected is to build up your campaign funds. If you don’t have a lot of campaign funds, you might be seen as vulnerable and someone might run against you, right? And then you lose your job. So, one way to increase and maintain campaign funds is to signal to different interests, special interests or in this case, private prison company, that you sponsor legislation or co-sponsor legislation that, if enacted, would be good for that organization or that interest group.

Costello: OK. And what do you find with respect to bill co-sponsorship? Why is it significant with respect to your research around the private prison industry?

Collingwood: In general, Republicans are more likely to co-sponsor this punitive legislation that, if enacted, is probably going to increase the bottom line of the different private prison companies. But when Democrats do do this, and there are some Democrats that do do this, prison companies then disproportionately give them money for their vote, and so they’re potentially taking a bit of a political risk. And so, the payoff has to be a bit higher. So that’s basically what we find, and it makes sense when you think about it, like most of the Republicans are just generally going to co-sponsor this because they’re just hawkish on immigration generally, right? Democrats tend to be more liberal on immigration, at least these days, and the ones that are not are taking a bit of a risk from a kind of a broader political standpoint and so, they should receive more rewards. So, that’s….

Costello: And when you say, the Democrats who co-sponsor bills that are favorable ultimately to the private prison industry, that are favorable to stronger immigration regulation, and punitive measures toward immigrants that they get more actual dollars than their Republican co-sponsors of the same legislation.

Collingwood: That’s right, that’s right.

Costello: When you say they’re getting more, what exactly do you mean by that?

Collingwood: You know, like hundreds, thousands of dollars more in donations they’re getting to their campaigns.

Costello: …than the Republican lawmaker who co-sponsored the same legislation?

Collingwood: Exactly, exactly.

Costello: So, as we look ahead, you’ve painted a picture of the deep ties between the private prison industry and lawmakers who sponsor legislation that is very harmful to immigrants in this country. What do you see as better ways forward?

Collingwood: Well, I mean, your kind of generic response is take money out of politics, but, you know, that’s not really going to happen. I think the better way forward is to treat immigrants like people, you know. I come from an immigrant family and people don’t know that because I’m white really, right? I don’t have an accent or anything and, it’s just instilling a better value system, and not so much viewing people as threatening or others or having less value. We really need to take the economics out of all of this. And in the way I’ve come to view a lot of this is, people view this as economic opportunities, and saying, no, we as a society are going to stop making money off of these types of industries—and the awareness that if more people are educated about this and they know that they can potentially support candidates and policies that oppose those kinds of things. As a political scientist, I study a lot of really awful things. Because it unveils kind of hidden things that I think people need to know. And you walk out of there and sometimes you feel like your face got smashed in with a brick, you know, and there’s nothing you can do. But, if I wasn’t doing this, someone else wouldn’t be. And so that’s why I like what I do is because no one else does this kind of stuff. Like, I’m an academic, I have the freedom to be able to do stuff that might matter some time. So, I guess we just all have to kind of move forward and try to do our best in this way.

Costello: I’m hearing sadness in your voice.

Collingwood: Yeah. No, for sure. It’s been a, like most of my job is just like looking at data, doing statistics, coming up with good research designs. But the stuff I research is so, like, the way that humans treat other humans just to make money is just incredible to me that that exists, and we’re all kind of culpable, you know, and I struggle with that on my own a lot. But I guess it’s important for your listeners and other people to know that, like the people like me who are doing this work, like we really care about people and want a better world. And that’s why we do this. But we have to like, deal with it all the time, and it’s hard, you know, and I could just imagine families that are ripped apart. Some of my old students from UC Riverside and watching the hate that people have towards other people, just because they’re different, it’s, you kind of bottle it up most of the time. But then occasionally, you know, when you get into it, it kind of comes out and it’s, you know, I’m not supposed to be like that, but occasionally it comes out, because a lot of stuff I work on, it’s just, it just seems, it just seems so awful, you know, but I feel like I’d rather do that than some flowery generic thing about democracy and public attitudes about democracy or something like that.

Costello: Well, I can really relate, Loren, as somebody who’s devoted her career to many, many awful subjects.

Collingwood: Yeah.

Costello: You know, I, I understand why you do it. And I think I do it for the same reasons. And I also understand how incredibly painful it is to do the work. So, I’m grateful for your scholarship and for your tenacity in sticking with this really important subject matter and for illuminating issues that we need to all know more about and also care much more about and ideally act on. So, I want to thank you so much for this conversation and for sharing this part of yourself with me. I think we all need more humanity and honesty and emotion infusing our work. There’s no harm, no harm in that. So, Loren Collingwood, author and associate professor with the department of political science at the University of New Mexico. Thank you so much for speaking with me today.

Collingwood: Thank you so much.

This article is a transcript of the Tiny Spark podcast.

ADDITIONAL RESOURCES:

Rachael Whitt, “Immigration policies and how private prisons are shaping them,” University of New Mexico, September 19, 2021.

Jess Franzblau, “Phase Out Of Private Prisons Must Extend To Immigration Detention System,” National Immigrant Justice Center, January 28, 2021.

Loren Collingwood, Benjamin Gonzales-O’Brien, “A History of Sanctuary Cities in the United States,” Teen Vogue, November 27, 2019.

Clyde Haberman, “For Private Prisons, Detaining Immigrants Is Big Business,” New York Times, October 1, 2018.

Madison Pauly, “Thanks to Trump’s Family Separations, Democrats Are in the Hot Seat for Taking Private Prison Cash,” Mother Jones, July 30, 2018.

Loren Collingwood’s website

On Twitter: @lorenc2

This article originally appeared in the Nonprofit Quarterly. See the original article here.

There are frameworks that have been put in place like the five Cs of credit, without input or without thinking about this complicated trust land status. So, what that is, is basically there’s several land statuses on reservations, including tribal trust land, which is held in trust by the federal government for individual tribes, and then there are individual trust lands. So, as an individual citizen of a tribe, I can hold trust land on within the reservation boundaries.

And so, if I’m seeking home ownership, they make it very difficult for me to leverage the land that I’m standing on, the five acres that I’m standing on, as collateral for financial institutions. At this point in my 10-year career in financial world, I just feel like the conversation has stopped happening. People have refused to innovate within the space. There are 56 million acres of trust land in the United States. And it’s frustrating to me that we’ve put so many regulations on financial institutions that they are unable to think around this problem.

It’s literally like, your brain is a malleable instrument, right? Even language. There’s a certain window of opportunity for you to learn language. I feel like in the financial institutions—you know, at the age of seven, technically, if you’re a feral child and you’ve never been exposed to language, there’s a window that closes and you’re unable to learn language after the age of seven—I sort of feel like that’s what’s happened with our financial institutions. As we’ve been colonized and we’ve rebuilt ourselves into these nations, the window of opportunity has closed for us to co-create financial products with financial institutions for trust land. And I think that was done on purpose, truthfully.

I think there are a lot of solutions in this space. And it looks like the government coming in and helping out with that; financial institutions and corporations helping us co-create products; and us sitting in these seats, with the perception: “We know our communities. We know how to do this. We’ve got these great tools here. We know how to reach our populations. We just need the capital to come our way and we can get you what you need.”

It’s kind of like nobody likes the person that says the fake problem exists. Instead, you know, white institutions have sought narratives which confirm their anxieties exist, which is risk. They’ve confirmed that there’s risk within our markets, because we don’t fit their framework of the five Cs. And it’s just a constant narrative that’s repeated over and over. And we’re standing up as leaders within our spaces, saying there’s a different way to look at our world and our markets, and there’s lots of opportunity here. You’re just missing out on it.

This article originally appeared in the Nonprofit Quarterly. See the original article here.