Corplan Corrections

America has been getting tougher on lawbreakers. This is something that the public long has been demanding. The problem it creates, however, is a shortage of prison capacity to hold the increased numbers of convicted criminals. This has led to: prison overcrowding, sometimes prompting court actions against penal systems; rapidly rising operational outlays; and taxpayer resistance to the cost of new prisons.

A partial answer to the problems of prison overcrowding and high costs may be the "privatization" of prisons. By using the private sector to build or manage prisons, many states believe that they can reduce costs. So far, most state correction agencies have used the private sector only to manage minimum-secure or non-secure "community" correction centers, such as juvenile institutions and halfway houses. Currently over half the states have passed legislation to allow for this form of prison privatization. Nine states may be going beyond this; they have passed laws enabling private companies to operate adult "confinement" state prisons.¹ Other states, including Indiana, Kentucky, and Minnesota, considering similar legislation.

Costs and overcrowding problems are the driving force behind the privatization phenomenon. As a national average, it costs roughly $20,000 per year to keep an inmate in prison. There are approximately 650,000 inmates in state and local prisons, double the number five years ago. This costs taxpayers an estimated $18 billion each year. More than two thirds of the states are facing serious overcrowding problems, and many are operating at least 50 percent over capacity. Some 41 states, including California, Connecticut, Massachusetts, and Texas are under court order to relieve the overcrowding.² If they do not do so, many convicts who have not served full sentences will have to be released.

Cost comparisons between private and government operation of prisons show frequent cost savings under private management. While the national average cost to hold a prisoner in a government run prison is $40 per inmate a day, many privately run prisons charge the government significantly lower fees. U.S. Corrections Corporation, which operates the Marion Adjustment Center in St. Mary, Kentucky, charges Kentucky a daily fee of $25 per inmate. In 1986, this private firm saved Kentucky an estimated $400,000. Similarly, Corrections Corporation of America (CCA) charged Bay County in Florida $29.81 per them per inmate to operate the Bay County Jail. Before privatization of the facility, the daily cost was $38 per inmate. In 1985, CCA's first year to operate the jail, the corporation saved the county approximately $700,000.³

Yet while prison privatization solves some problems, it raises serious issues. Among them:

1) Is the public ready to accept the private sector providing a service traditionally performed by the government?

2) Can the government maintain adequate supervision through careful monitoring and evaluation?

4) In the case of complaints by inmates or prison employees, is the government or the private contractor liable?

States and localities considering prison privatization thus need to review all aspects of the concept as they examine the privatization option. There is a wealth of experience and expertise upon which they can draw. This information suggests that privatization can solve an important part of the prison problem.

Prison privatization means the transfer of prison functions from the government sector to the private sector. This can
take various forms in the case of prisons. Among them:

This is the most common form of prison privatization. Currently, 39 states hire private firms to provide such services as medical and mental health treatment, drug treatment, education, staff training, and vocational training and counseling.⁴

To date, private operation of correction centers has been limited to "nonsecure" and minimumsecurity facilities, such as halfway houses, juvenile homes, detention centers, and holding prisons for illegal aliens. Some 28 states allow private firms to operate such facilities. Several states are interested in extending private operation to secure or "confinement" adult prisons. One such facility already in operation is a minimumsecurity prison in St. Mary, Kentucky, now owned and operated by U.S. Corrections Corporation, a private company headquartered in Louisville. The firm has existed since 1986, and is the first private company to own and operate an adult state prison. U.S. Corrections Corporation receives $25.35 per them per inmate for running the Kentucky state prison. A recent survey by the National Institute of Corrections predicts that, by 1990, about a dozen secure prisons will be operated by private management.

By putting prisoners to work and paying them competitive wages, many private companies are reducing prison costs for the government by withholding earnings for taxes, room and board, family support, and victim's compensation. Such employment also gives prisoners the skills and work experience that will prepare them for the job market when they are released.

Private business has become increasingly interested in prison labor during the past decade. Prompted by state and federal measures lifting restrictions to private sector use of prison labor, some eleven states contract out the work of an estimated 1,000 convicts. Over twenty firms, ranging from small businesses to multinational corporations, provide jobs for inmates. For instance, Best Western International, Inc, a major hotel chain, employs over thirty Arizona prison workers to operate the hotel's telephone reservation system. Since the Best Western program began in 1981, inmates have paid $182,000 in taxes, contributed over $187,000 to the state for room and board, and paid at least $112,000 in family support. Similarly, Trans World Airlines, Inc. hires young offenders from the Ventura Center Training School in California to handle over the phone flight reservations. The inmates have paid a total of $13,000 in taxes, $15,000 for room and board, and $11,000 to victims for restitution.

In most cases, the state correctional system provides the working facility for the private firm. The firm manages and trains the inmates and releases their earnings to the care of the state. The wage rates, in most instances, are negotiated between the state agency and the private firm.

Many states see private construction as a promising solution to the prison overcrowding crisis. States normally finance construction by cash appropriations (a "pay-as-you-go" approach) or by issuing general obligation bonds. The former puts the whole financial burden of construction on the state's annual budget. Bonds create problems by requiring voter approval and are restricted by debt limitations. An alternative is private financing through lease contracts or lease purchasing agreements. It does not place the cost on the annual budget and does not require voter approval. Under a lease/purchase agreement, a private firm agrees to build a prison if the state signs a long term lease for the prison. Early payments of rent by the State help the private firm fund the construction. When the government completes the payment obligations, the debt and finance charges, it takes title to the facility, The private firm benefits from tax advantages and cash flow from the lease payments. The state government often benefits from quicker construction because voter approval is not required and debt limit constraints do not apply. Lease/purchasing for state prisons must be approved by the state legislature. Legislation permitting construction by lease/purchase agreements has passed in 14 states.⁶

To date, most prison privatization has been by states and local governments, with the federal government doing relatively little beyond using private firms to house illegal aliens and sponsor pilot programs. The greatest strides in state prison privatization have been in operating "secondary housing facilities" (detention centers for illegal aliens, juvenile offenders, and mental patients) and in contracting out services for prisons. A number of states are exploring whether private firms can operate "primary" security correctional facilities for adults. Colorado, Florida, Maine, Massachusetts, Montana, New Mexico, Tennessee, Texas, and Utah already have passed enabling legislation to privatize the operation of prisons. States considering legislation are Indiana, Kentucky, and Minnesota.Corrections Corporation of America (CCA), based in Nashville, Tennessee, and founded in 1983, is the largest private corrections organization in the country. A spinoff of Hospital Corporation of America, CCA designs, constructs, finances, and manages both secure and non-secure facilities. In addition to operating two juvenile centers and a county prison in Hamilton County, Tennessee, CCA also contracts with Florida, New Mexico, and Texas.In 1985, CCA proposed to operate the entire Tennessee state correctional system for 99 years. Governor Lamar Alexander supported the idea. It was blocked, however, bylobbying by some state officials and groups like the American Civil Liberties Union. Nevertheless, CCA continues to be the nation's leading innovator of private prison operations and is expanding its marketing activities in Iowa, New York, North Carolina, South Carolina, and Texas.Also located in Tennessee is Pricor Corporation, a competitor of CCA. Pricor operates a juvenile detention center in Johnson City, Tennessee, a 144bed prison in Alabama, and a county jail in Maine.⁷

Compared with state and local activity, prison privatization at the federal level is moving very slowly. Yet it was the federal government that triggered the recent spate of prison privatization when it began to contract out for the imprisonment of illegal aliens. At that time, the federal government also made. inmate labor available to private firms, primarily to test the feasibility of private prison work programs. Currently, the main areas of federal prison privatization include holding illegal aliens awaiting deportation, operating halfway houses, providing medical, food, and educational services, and managing minimum-security facilities. In addition, the Bureau has considered contracting for facilities to house "special needs" prisoners, such as juveniles, women, protective custody cases, and for prisoners needing medical services. However, the Bureau of Prisons has been hesitant to contract out the more "mainstream" prisoners such as those imprisoned in the Federal Correctional Institutions and the U.S. Penitentiary System.

Privatization is a practical and innovative solution to the problems of overcrowding and high costs facing the U.S. prison system. Many states are recognizing this, contracting out services, contracting out inmates' labor to private firms, and seeking private financing for prison construction. An increasing number of states are contracting out the entire operation of prison facilities. The federal government has been less active, limiting itself to contracting out facilities holding illegal aliens and juvenile offenders.Many jurisdictions are unsure of prison privatization, fearing a loss in service, problems with liability, and threats to the jobs of prison personnel. As more and more jurisdictions experiment successfully with privatization, however, their experience should demonstrate privatization's value.Dana JoelResearch Assistant

Endnotes

¹ Colorado, Florida, Maine, Massachusetts, Montana, New Mexico, Texas, and Utah. Report by the President's Commission on Privatization, March 1988, Chapter 8, p. 21.

² Ibid.

³ National Criminal Justice Association Private Sector Involvement in Financing and Managing Correctional Facilities, April 1987, pp. 10 and 17.

⁴ Report of the Massachusetts Legislative Research Council, prisons for Profit, July 31, 1986.

⁵ Judy S. Grant and Diane Carol Bast, A Heartland Policy Study, The Heartland Institute, No. 15, May 4,1987.

⁶ Joan Mullen, "Corrections and the Private Sector," Research in Brief, National Institute of Justice, Department of Justice, March 1985.

⁷ Philip E. Fixler Jr., "Private Sector Rehabilitates Prisons," Fiscal Watchdog, No. 128, June 1987.

⁸ P.L. 98473, Sec. 819.