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CORRESP
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April 15, 2005

Mr. Rufus Decker

Accounting Branch Chief

Mail Stop 0510

U.S. Securities and Exchange Commission

450 5th Street, N.W.

Washington, D.C. 20549

RE:   SEC Comment Letter dated March 25, 2005
Related to Cornell Companies, Inc.

Form 10-K for the fiscal year ended December 31, 2004

File No. 1-14472

Dear Mr. Decker:

This letter responds to the comments Cornell
Companies, Inc. (the “Company”) received from the Accounting Branch of the
U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) by
letter dated March 25, 2005.

Where requested, the Company addressed the
comments by providing the disclosures or revisions that will be included in the
Company’s future filings.  In other
instances we have provided the supplemental information you have requested.

We hope this letter is responsive to your
comments and requests for information.
The Company’s goal is to resolve these outstanding comments in a manner
that is acceptable to the SEC Staff.  We
have reviewed and discussed this letter with our Audit Committee, and they
concur with our conclusions in this letter.

Our responses utilize the same captions
contained in the March 25, 2005 letter, and are numbered to correspond to
the numbers assigned in your letter.  For
your convenience, our responses are prefaced by the Commission’s corresponding
comment in bold text:

Comments applicable to your
overall filing

1.              Where a comment
below requests additional disclosures or other revisions to be made, please
show us in your supplemental response what the revisions will look like. These
revisions should be included in your future filings.

Response
of Cornell Companies, Inc.

When a SEC comment has requested additional
disclosures or other revisions to be made, we have shown in our supplemental
responses what the revisions will look like. These revisions will be
incorporated in our future filings, beginning with our first quarter filing Form 10-Q
for the three months ended March 31, 2005, as applicable.

Item 7 – Management’s Discussion
and Analysis

Contractual Obligations and
Commercial Commitments, page 50

2.     Please revise your table of contractual obligations to include the
payments you are obligated to make under your interest rate swap
agreement.  Because the table is aimed at
increasing transparency of cash flow, we believe these payments should be
included in the table.

Response
of Cornell Companies, Inc.

The existing interest rate swap agreement,
under which Cornell Companies, Inc. receives a fixed interest rate and
pays a floating interest rate, is currently in a net receivable position to
Cornell as of December 31, 2004. Included in the current table of
contractual obligations for each period presented (as a reduction of the long
term debt-principal and interest obligations) is the estimated receipt under
the interest rate swap, based on the effective hedge rate as of December 31,
2004. Currently, the disclosure contains the statement as to the effective rate
utilized on the interest rate swap arrangement.

To enhance the transparency of this
disclosure, we will separately present the long-term debt-principal and
long-term debt-interest obligation amounts and clarify the interest rate swap
impact as follows:

The Company has an interest rate swap
agreement under which the Company receives a fixed interest rate and pays a
floating interest rate. The future cash payments on Cornell Companies, Inc.
long-term debt-interest as noted assume an effective interest rate of 8.37% on
the related interest rate swap contract.

Please see the attached revision to the table
of contractual obligations (Attachment “A”)

Item 8 – Financial Statements and
Supplementary Data

Balance sheets, page 67

3.               Since you have treasury stock, the number of shares issued is not equal
to the number of shares outstanding. Please revise the common stock description
on the face of your balance sheet accordingly.

Response
of Cornell Companies, Inc.

The common stock description on the face of
the balance sheet will be presented as follows:

Common stock, $.001 par value, 30,000,000
shares authorized, 14,845,107 and 14,578,505 shares issued and 13,297,524 and
13,040,922 outstanding, respectively

Statements of Operations and
Comprehensive Income (Loss), page 68

4.              Please disclose for
all periods presented the amounts of the reclassification adjustments and the
income tax provisions for each classification of other comprehensive income.
See paragraphs 20 and 25 of SFAS 130.

Response
of Cornell Companies, Inc.

With respect to the periods presented, Cornell Companies, Inc.
does not have any reclassification adjustments necessary for items displayed as
part of net income (loss) for a period that also had been displayed as part of
other comprehensive income in that period or earlier periods in the
consolidated statements of operations and comprehensive income (loss). For
example, as noted in our significant accounting policies, we had no gross
unrealized holding gains (losses) or gross realized gains (losses) from our
investment securities for the year ended December 31, 2004. Furthermore,
we do not have other typical items such as foreign currency which require the
reclassification adjustments.

Accordingly, we will disclose the change net
of tax on our statement of operations and comprehensive income (loss) as
follows:

Unrealized
gain (loss) on derivative instruments, net of tax

provision (benefit) of $123, ($151) and $747, respectively

During the course of the preparation of our
response to this inquiry, it was noted by the Company that the previous
disclosures as contained in the Form 10-K’s for the years ended 2002
and 2003 with respect the change in other comprehensive income were incorrect.
The amounts reflected in other comprehensive income for these periods were not
net of tax, but rather were reported gross. As a result, a reclassification
entry between the balance sheet accounts “Accumulated other comprehensive
income” and “Deferred tax liabilities” as noted below would be necessary.

Accordingly, an analysis was undertaken to
determine whether this matter requires restatement of the previous consolidated
balance sheets for 2002-2004. Our analysis gives consideration to both
quantitative and qualitative factors pursuant to SEC staff accounting bulleting
No. 99 (“SAB 99”).

In accordance with SAB
99, we have performed the following quantitative analysis for the years ended December 31:

  2002

  2003

  2004

  Deferred tax
  liabilities, as reported

  $

  4,954

  $

  7,006

  $

  8,088

  Total
  liabilities, as reported

  281,331

  282,868

  346,319

  Total
  stockholders’ equity, as reported

  159,952

  166,235

  161,312

  Comprehensive
  income (loss), as reported

  8,258

  3,602

  (7,269

  )

  Accumulated
  other comprehensive income, as reported

  1,896

  1,528

  1,692

  Deferred tax
  liabilities, as adjusted

  5,718

  7,619

  8,701

  Total
  liabilities, as adjusted

  282,095

  283,481

  346,932

  Total
  stockholders’ equity, as adjusted

  159,188

  165,622

  160,699

  Comprehensive
  income (loss), as adjusted

  7,494

  3,753

  (7,269

  )

  Accumulated
  other comprehensive income, as adjusted

  1,132

  915

  1,079

  Impact on
  Operating income/Net income/EPS

  None

  None

  None

  Impact on
  working capital

  None

  None

  None

  Impact on
  Operating cash flow

  None

  None

  None

  % change in
  total liabilities

  0.27

  %

  0.22

  %

  0.18

  %

  % change in
  total equity

  0.48

  %

  0.37

  %

  0.38

  %

  % change in
  comprehensive income (loss)

  9.25

  %

  4.19

  %

  None

  % change in
  accumulated other comprehensive income

  40.29

  %

  40.13

  %

  36.24

  %

Additional analysis for the quarterly periods
in 2003 and 2004 are included as “Attachment B”.

We believe, in light of the facts and
circumstances (i.e. the “total mix” of information presented in our
consolidated financial statements), that the adjustments between deferred tax
liabilities and other comprehensive income in the financial statements noted
above would not change or influence the judgment of a reasonable person. We
believe the users of our consolidated financial statements, including
investors, analysts and our own management, evaluate our financial position on
the basis of our total liabilities and total stockholders’ equity and total
comprehensive income (loss), and thus, the immateriality of the changes would
not change or influence the judgment of a reasonable person.

The misstatement does not mask a change in
earnings or other trends, or change income into a loss.

In addition, the adjustments noted above
would not have any impact on current assets, working capital, total assets, net
income, earnings per share (basic or diluted) or cash flows from operations.
They do not concern a particular segment or portion of the Company’s business
that has been identified as playing a significant role our operations or
profitability. Furthermore, the adjustment does not involve concealment of an
unlawful transaction.

Moreover, the adjustments do not affect the
Company’s compliance with regulatory requirements, and had no impact on any
form of management compensation. In addition, such adjustments would have no
material impact on our existing debt covenants, which focus on our
leverage ratios, fixed charge coverage ratios, asset coverage ratios and
consolidated net worth (as defined in the respective debt agreements).

We have not yet concluded, based on the
quantitative and qualitative analysis above, that our previous reporting is not
considered a material error requiring a “restatement” of our consolidated
balance sheets for the periods indicated. It is currently our intent to record
the cumulative adjustment of $613,000 in the first quarter of 2005, and to
include appropriate disclosure in our filing for this treatment.  We have included preliminary estimated data
as of the three months ended March 31, 2005, reflecting the impact of this
adjustment.

We are in discussion with Locke Liddell &
Sapp, our external SEC counsel, as well with our audit committee and our
independent registered public accounting firm, PricewaterhouseCoopers, LLP,
regarding this matter.

Statements of Stockholders’
Equity, page 69

5.              Please include a
column that reconciles the changes between periods in the number of shares held
as treasury stock.

Response
of Cornell Companies, Inc.

The consolidated statement of stockholders’
equity will include a column that reconciles the changes between periods in the
number of shares held as treasury as displayed in Attachment “C”.

Note 2 – Significant Accounting
Policies

6.              As noted on page 7
under the Marketing and Business Development heading, you incur costs in the
Request for Proposal process.  Please
disclose in a footnote your accounting policy for costs, including any
circumstances when these amounts are not expensed as incurred.  For any amounts deferred, please also
disclose the amounts as of each balance sheet date.

Response
of Cornell Companies, Inc.

The following disclosure will be added to
address the accounting policy for costs associated with the request for
proposal process. As indicated in the policy, these amounts are not deferred,
and as such, there are not any amounts to disclose for the dates of the balance
sheets presented.

Proposal Costs

We incur various expenses in conjunction with
our participation in the proposal process with government agencies for their
procurement of our services. These costs include such items as payroll/employee
benefits, research, consulting, legal and reproduction costs and are expensed
in the periods incurred.

7.               Please disclose the types of amounts included in the operating expense
line item and the types of amounts included in the general and administrative
expenses line item.

Response
of Cornell Companies, Inc.

The following disclosures will be added to
the statement of significant accounting policies:

Operating and General and Administrative
Expenses

We incur various expenses within the normal
course of our business.  Included in
operating expenses are direct expense items such as personnel/employee
benefits, resident/inmate care expenses and building/utility costs
pertaining to the operation of our facilities and
programs. Included in general and administrative expenses are expense items
such as personnel/employee benefits, professional services, and
building/utility costs pertaining to our corporate activities.

Investment Securities, page 72

8.              Please disclose the
stated contractual maturities of your investment securities. See paragraph 20
of SFAS 115.

Response
of Cornell Companies, Inc.

The following disclosure will be added to
description of investment securities as presented in the significant accounting
policies:

Contractual maturities of the underlying
investment securities held at December 31, 2004, are as follows (in
thousands):

  Due within 1 year

  $

  —

  Due after
  1 year through 5 years

  —

  Due after
  5 years through 10 years

  —

  Due after
  10 years

  51,740

  Total
  investment securities

  $

  51,740

Deferred Costs, page 75

9.              Please disclose with
quantification the types of costs you are deferring as of each balance sheet
date in addition to the debt issuance costs already discussed.  Please also enhance your disclosure to
clarify what a project actively under development is and what probable of
successful completion means.  Please also
disclose whether these amounts include projects that you do not yet have signed
agreements to cover the reimbursement of the costs being incurred.  Please supplementally
tell us your basis for deferring each of these amounts and the accounting
literature you are relying upon.  If any
of the amounts deferred relate to contracts that you did not yet have signed
agreements for as of that balance sheet date, please ensure that you tell us
the amounts involved and provide additional explanation.

Response
of Cornell Companies, Inc.

The primary component of deferred costs at December 31,
2004 and 2003 pertained to the deferred debt issuance costs as disclosed. There
were not any deferred costs associated with projects under development at
either balance sheet date, therefore this disclosure should have been excluded
from this description, and accordingly will be from future filings unless such
costs are incurred (at which point the disclosure will include the enhancements
requested). The other component of deferred costs pertained to costs incurred
in conjunction with a pending acquisition. These costs, which include items
such as legal fees, totaled approximately $0.4 million at December 31,
2004 (there were no such costs at December 31, 2003). The revised
disclosure will read as follows:

Deferred Costs

Costs incurred related to obtaining debt
financing are capitalized and amortized over the term of the related
indebtedness. At December 31, 2004 and 2003, we had net deferred debt
issuance costs of approximately $11.0 million and $6.6 million, respectively.

The other components of this line item do not
relate to any other deferred costs. The items are as follows (in millions):

  Description

  2004

  2003

  FMV derivatives (disclosed at Notes 9,
  12)

  $

  5.2

  $

  2.2

  Long-term
  accounts receivable

  4.7

  1.9

  Split dollar
  life insurance

  1.1

  0.8

  Other

  0.6

  0.6

  Total

  $

  11.6

  $

  5.5

The amounts of these other components have
not been separately disclosed as they were not in excess of the 5% threshold
pursuant to Rule 5-02 (17) of Regulation S-X.

Self-Insurance Reserves, page 76

10.  Please
disclose the areas that you are self-insured for and the extent of your
self-insurance in each area.  Please
disclose whether or not you