Private Prisons Save Money, Report Says

The Reason Foundation recently released a report examining the fiscal effects of privatization on prison costs in California, suggesting that privatization could save the state hundreds of millions of dollars in prison costs each year.

The study, “Public-Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform,” by Reason Foundation researchers and analysts Leonard C. Gilroy, Adam B. Summers, Anthony Randazzo and Harris Kenny, uses data from the California Department of Corrections and Rehabilitation and the private prison industry to make several cost savings recommendations for the state prison system.

The report contends that despite a recent federal court order to reduce the prison population by 40,000 inmates through early releases, home detention of low-risk prisoners and changes to sentencing and parole guidelines, California would still be operating at 137 percent of prison system capacity and would require a major expansion in that capacity in the long term to humanely house its inmates and provide adequate medical care, requiring a considerable outlay in state expenditures.

To cut costs while adding additional capacity, the report’s authors recommend that California pursue public/private partnerships. Such partnerships “offer a powerful policy option as part of a comprehensive strategy to address California’s corrections crisis,” they write. “Soliciting and implementing PPPs would give policymakers a powerful tool to lower prison operating costs and deliver additional inmate beds to address the severe overcrowding seen today in state prisons.”

According to the report, studies have consistently shown that privately run prisons cost between 5 percent and 15 percent less to operate than state-run facilities while providing comparable levels of security. A 2009 survey of 30 state corrections agencies found that private prisons cost 28 percent less to operate than state-run facilities.

At an average of $162 per day, California spends considerably more per in-state inmate than it spends to house inmates at privately operated facilities outside the state, the cost of which averages about $72 per inmate per day, according to the report. To lower those costs, the report recommends several types of public/private partnership solutions:

1. Partial Outsourcing

By transferring an additional 25,000 low- to medium-security inmates to out-of-state, privately run facilities at a rate of 5,000 inmates per year for five years, the report estimates California could save between $111 million and $120 million in the first year of transfers and between $1.7 billion and $1.8 billion by the end of the fifth year of transfers.

Although industry experts claim there is not enough excess bed capacity in out-of-state, privately operated prisons for an extra 25,000 inmates, the report contends that “increasing the number of transferred prisoners incrementally, however — such as 5,000 per year for five years — would allow time for private corrections management firms to finance, design and build new prison capacity — either through new prisons or expansions of existing facilities out of state — to accommodate the additional inmates.”

The report adds that in order to realize the plan’s savings estimates, the state would also need to streamline its internal processes “so that cost savings are actually realized, not used to cover waste shifted around to other sections of the CDCR’s budget,” including implementing hiring reductions “which could be achieved over time without layoffs by taking advantage of normal attrition rates.”

2. Complete Outsourcing

Based on public/private correctional partnerships in the U.S. and abroad, California could save between 5 percent and 15 percent in operations costs by outsourcing its correctional services to other states, saving an estimated $412 million to $1.24 billion per year, according to the report. Savings could be even higher, the report adds, due to a reduction in personnel costs, as California correctional officers’ salaries and benefits are higher than those of their counterparts in other states.

3. Facilities Design and Construction Outsourcing

By outsourcing the finance, design and construction of correctional facilities, the state could save additional money, according to the study. Firms in the industry estimate they can reduce construction costs by 10 percent to 40 percent, with 30 percent being the most common savings estimate, and independent construction cost savings estimates range between 15 percent and 25 percent.

The report also recommends that California save money by using public/private partnerships to finance and build facilities for mental health and other inmate populations with special needs. Specialized facilities, it argues, allow states to better control costs by housing inmates with similar health care requirements in one facility, with the added benefit that such facilities can be designed specifically for the populations they house.

Public/private partnerships, says the study, can deliver specialized facilities without spending state capital dollars and going into related public debt. Instead, private prison firms build and operate the facilities themselves and are repaid for capital and operating expenditures through a contract with capped rates that set an upper limit on what states will spend on such contracts annually.

Privately provided prison health care services, secure-site facility maintenance and food services were also cited as cost-saving measures the state should pursue.  

Finally, sentencing reform, parole and probation reform, recidivism reduction programs, revamping of the inmate classification system and a performance audit of the state correctional system are recommended to ease overcrowding, lower costs and improve the overall performance of the prison system.