Privatization of Prisons

Private Prison, Inc.

Introduction

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. 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. 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.

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 governments on average lower fees. U.S. Corrections Corporation (USCC), a private company headquartered in Louisville charges Kentucky charges a daily fee of $25 per inmate. In their first year of operation in 1986, USCC saved Kentucky an estimated $400,000. A competitor of USCC is Corrections Corporation of America (CCA), based in Nashville, Tennessee, and founded in 1983, is the largest private corrections organization in the country. CCA runs the Bay County Florida county jail. CCA charges Bay County, Florida $29.81 per day 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, CCA saved Bay County over $700,000.

Economic Conditions of Privatizing Prisons Today

Now that one can see there is an opportunity to make money as a company in a way that helps everyone in America, i.e. saving taxpayers money, what are the economic conditions surrounding the prison system? The market structure is unique. Demand for prisons seems to be ever increasing. Nearly every prison in America is overcrowded and will continue to be so if new prisons are not built. We could help lessen this problem or prison shortages by supplying more prison space at a lower cost than federal prisons can. This market is special because demand for prisons is high, while supply of prisons is low. That’s what makes this industry so appealing. We never have to worry about being thrown out the window or not having enough business. Our niche is that we are a substitute good for the federally run prison. As their costs go up, the more government will desire our services. Our laws ensure that we will have inmates. Technology won’t be a problem since most prisons have very basic amenities and haven’t changed dramatically over the past years. Let’s look at how the privatization of prisons will work at the state level first.

Basically, prison privatization means the transfer of prison functions from the government sector to the private sector. 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. To date over half the states, in the United States have passed legislation to allow for this form of prison privatization. In the state penal systems, privatization can take various forms in the case of prisons.

I. Contracting out services:

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.

II. Ownership and operation of prisons at state level

To date, private operation of correction centers has been limited to minimum-security 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 maximum-security adult prisons. One such facility in St. Mary, Kentucky is owned and operated by U.S. Corrections Corporation. USCC has existed since 1986, and is the first private company to own and operate an adult state prison. USCC receives $25.35 per day per inmate for running the Kentucky state prison. CCA is the largest private correction organization in the country. CCA designs, constructs, finances, and manages both secure and non-secure facilities. In Tennessee CCA operates two juvenile centers and a county prison in Hamilton County, and a federal detention facility in Mason, Tennessee. 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, by lobbying by some state officials and groups like the American Civil Liberties Union. Officials of the ACLU argued that turning prisons over to the private sector means the government was shirking its responsibility. The ACLU is particularly concerned with questions of accountability and liability

III. Contracting out prison labor

By putting prisoners to work and paying inmates 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. 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. Private business has become increasingly interested in prison labor during the past decade. Over twenty firms, ranging from small businesses to multinational corporations, provide jobs for inmates. For instance, a major hotel chain Best Western International, Inc, 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/board and $11,000 to victims for restitution.

IV. Construction and lease/purchasing

Many states see private construction as a promising solution to the prison over crowding 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. Normally lease/purchasing for state prisons must be approved by the state legislature.

Privatization of prisons can also occur at the federal level. The federal Bureau of Prisons has proposed contracting with a private firm for a new 500 bed minimum-secure facility for illegal aliens. 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. 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 in the early 1980's. 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. The major private correction centers for federal offenders include:

-•Hidden Valley Ranch, in California, which confines approximately 60 juveniles for the Bureau of Prisons (BOP).

- Behavioral Systems Southwest, also in California, which retains minimum-security illegal aliens for the Immigration and Naturalization Service (INS).

- Corrections Corporation of America in Tennessee, which operates a minimum-security detention center for the INS in Houston, Texas. And a detention facility in nearby Mason, Tennessee

-Wackenhut Services, Inc. of Florida, which has a contract with the INS to construct a minimum-security facility in Colorado for 167 inmates. The company also has contracts with the U.S. Marshals Service, the Bureau of Prisons, and the Department of Labor to operate a job-corps centers for 600 violators.

The basic setback for privatization of prisons is government cooperating. The “old school” mentality of having the government take charge and punish criminals will eventually need to change. The United States Government could save millions of dollars a year if they privatized prisons. We would have to lobby state legislature in order to battle other lobbyists who are against privatization. There have been some people/groups fighting for this legislation to be passed, but never got it accomplished far enough at the federal level. Since the early 1980's, the federal government has considered legislation to stimulate prison privatization. In 1984, in order to encourage contracting out prison labor, Congress revised regulations making interstate markets more accessible. By authorizing twenty states to trade goods across state lines, the Prison Industries Enhancement Program under the Justice Assistance Act of 19848 expanded and diversified the market of products manufactured by prison industries. Under the Act, manufacturers must consult with the appropriate labor unions before a sale can be agreed to. Unions must be assured that employed workers will not lose their jobs due to increased competition in the workforce.

-In 1984, Senator Alfonse D'Amato, the New York Republican, sponsored legislation to provide tax incentives to private businesses that constructed prison facilities on a lease/purchase basis. This legislation died in committee.

-In 1985, the National Institute of Justice (the research branch of the Justice Department) held a three-day conference to evaluate the advantages and disadvantages of prison privatization. NIJ also has commissioned studies on the growth of prison privatization at state and local levels. Also in 1985, the House and Senate Judiciary Committees held hearings on prison privatization.

In 1988, the President's Commission on Privatization recommended that the Immigration and Naturalization Service continue to contract out detention facilities and that the Bureau of Prisons commission a study on the feasibility of contracting out a federal correctional institution or a U.S. penitentiary. The Commission also recommended that the INS and the BOP use lease-purchase agreements for prison construction, and it recommended that the Justice Department continue as an advisor on prison privatization for states and local government.

We firmly believe that the future of prisons in America will one day be in the private sector. The numbers do not add up for government to consistently lost money year after year. Every year the prisons are taking in more criminals than they are releasing. The problem will continue to get worse if they do not change their ways.

Should we be in this business?

Prison privatization raises a number of complex questions. They must be answered by any jurisdiction considering privatization. We as a company must look at these questions inside and out, and convince our opponents that privatization is the way to go.

Question #1. Does Privatization Mean Government Abrogates Its Responsibility?

Should the private sector be responsible for a function traditionally performed by the government sector? Or is it possible for the government to delegate certain areas of responsibility to the private sector while continuing to maintain full authority?

Answer: Experience shows that prison privatization does not mean that the government relinquishes its responsibility. The government still would select the inmates to be placed in private prisons, choose the type of facility to be contracted out, oversee the contractor's disciplinary practices and, most important, evaluate the contractor's performance.

Question #2. Does Profit Conflict with Good Practice?

Can the economic objectives of running a prison be met without conflicting with the operational objectives? Critics of privatization claim that contractors will cut comers at the expense of the prisoner's welfare.

Answer: The contracting process significantly reduces such dangers. Contractors must abide by state laws, regulations, and policies and are held accountable for fulfilling these obligations. If the state is dissatisfied, it can refuse to renew the contract. Some states, such as New Mexico and Tennessee, also include termination clauses within contracts in the event a contractor provides inadequate service. In addition, contractors are watched very closely by the courts, the press, civil-rights groups, and prison-reform groups. Such close scrutiny forces the contractor to maintain adequate standards.

Question #3. Are Current Prison Employees Threatened by Privatization? The public employee unions representing public sector prison workers, such as the American Federation of State, County, and Municipal. Employees (AFSCME), fear that extensive privatization will reduce salary and fringe benefits for prison workers.

Answer: Private contracting poses much less of a threat than the unions claim. In common with most contracting practices at the state and local levels, state employees usually receive first refusal for jobs with the private contractor. And because the correctional system is highly labor-intensive, prison operation requires a large work force. Studies also suggest that wage rates in privately run prisons are the same or are higher than in government-run prisons.

Question #4. Are private prison guards allowed to strike?

Critics argue that while public guards cannot strike, private guards can strike under the protection of the National Labor Relations Act. However, many contracts can contain provisions denying these private employees the right to strike.

Answer: In cases where no such provision exists, private guards nevertheless are likely to be discouraged from striking. Correction agencies can threaten to terminate a contract, which would mean the loss of their jobs. In any event, should a strike occur, authorities could call in the National Guard or state police, as they would to quell a severe disruption in a state-run prison.

Question #5. Will Service Quality and Flexibility be maintained?

Some policy makers maintain that the quality of management in private prisons will tend to be high at first, because of competition and the desire to win contracts. However, they question the private sector's ability to sustain high-quality standards.

Answer: Contracting standards, however, are likely to improve over time as more firms enter the market and competition increases. Periodic bidding creates incentives for firms to improve constantly the quality and cost-efficiency of their performance. Studies on the contracting out of other federal and municipal services show significant cost savings over the long term. Between 1981 and 1984, for example, municipal janitorial services contracting with the Department of Housing and Urban Development showed cost savings of 73 percent. Similarly, municipal overlay construction showed a 96 percent cost saving.

Question #6. Can Public and Private Costs be compared?

Given the difficulties inherent in measuring the true "cost" of a prison inmate, can government really be sure it saves with privatization?

Answer: Comparing costs in the private and public sectors admittedly is not easy. Accounting procedures differ and quality is difficult to compare. Routine monitoring of private contractors may be a hidden cost of privatization, just as taxes paid by the contractor may be a hidden additional benefit. Despite accounting difficulties, the evidence to date shows strong cost advantages of private operation over government operation due to such factors as the absence of civil service regulation, lower private-sector pension and benefits costs, and improved productivity. But to measure these savings accurately, agencies need to review their accounting procedures. Many states and counties are doing this, just as cities have done so to gauge the savings of contracting out municipal services. At the federal level, the President's Commission on Privatization recommends that the Bureau of Prisons and the Immigration and Naturalization Service conduct cost-analysis studies, using standards for measuring annual expenditures that are used by contractors.

Question #7. How Can Liability Concerns be Resolved?

Who is legally responsible for the violation of a prisoner's rights? Who is liable if a private prison employee is injured? If a prisoner escapes and injures a private citizen, is the state or the private operator held accountable?

Answer: Such questions are important in the debate on prison privatization. Yet the matter of liability has not slowed privatization significantly. Critics and proponents of privatization agree that while the contractor has accepted responsibility to operate or manage a prison facility, government still retains overall authority and liability. In fact, the Civil Rights Act specifies that while the private sector may manage "places of confinement," the government is to have ultimate custody over prisoners. A contract, of course, can contain indemnification clauses absolving the agency from certain legal damages. In many cases, the contractor is required to carry large insurance policies for the government agency's protection. Liability issue depends very much on the nature of state tort laws and specific provisions within the contract. According to the report, the American Bar Association, with support from the National Institute of Justice, is completing a model prison contract to deal with liability and other issues.

Question #8. What about the issue of use of force?

Should private security guards carry guns? When is the use of deadly force by a private guard justified? Should guards use force only for self-protection, or under the same conditions as state officials? What about emergency situations, such as a prison escape?

Answer: While these are understandable concerns, most states have resolved the issue by defining in statute the right of private officials to use reasonable force. Most lawmakers believe it is necessary that contractors have the same standards for establishing security as correction agencies, and that inmates view private prison officials as holding the same authority as government officials. Massachusetts, for instance, allows private guards to use deadly force with discretion. However, the state Commissioner of Corrections enforces regulations to ensure security and order. Similarly, New Mexico allows prison contractors to designate "peace officers," who are armed within the prison facility, outside the facility when transporting inmates, and may use deadly force in the event of an escape. Nevertheless, the right to use force, especially deadly force, is seen as a last resort. Private guards normally are unarmed. In some privately operated prisons, such as the Bay County Jail in Florida, most guards are licensed to carry guns but only do so if there is a crisis, such as an attempted escape.

We believe that Private Prisons, Inc. can have a successful business life, once we get in the door. It is the type of industry that is near being a monopoly, with the federal government running the business. Our start up capital will have to be large enough to “grease the wheels” of some state and federal legislatures. We also must have enough money to get started building the prison, hopefully with government helping us out along the way.

CONCLUSION

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.