Apples-to-fish: public and private prison cost comparisons.

• Author: Friedmann, Alex
• Position: Introduction through III. Cost-Shifting Factors C. Medical Cost-Shifting, p. 503-531

Introduction I. Background A. Studies with Favorable Findings B. Equivocal and Adverse Research Results II. Difficulties in Public-Private Comparisons III. Cost-Shifting Factors A. Prisoner Population Differences B. Security Level Limitations C. Medical Cost-Shifting 1. HIV, HCV, and Other Specified Medical Conditions 2. Caps on Medical Costs 3. Prisoner Eligibility Criteria 4. Combining Medical Cost-Shifting Factors D. Transportation Costs E. Prisoner Labor Costs F. Administrative Overhead G. Law Enforcement and Criminal Prosecutions H. Bed Guarantees I. Long-Term Costs 1. Per Diem Increases 2. Deferred Maintenance 3. Recidivism Rates 4. Bond Financing J. Fraud and Corruption IV. Quality of Service Comparisons A. Violence Levels B. Staff Turnover C. ACA Accreditation D. Recidivism Rates Redux V. Opportunity Costs Conclusion INTRODUCTION

It sounds like such a simple question: do private prisons save money? The answer, however, is dependent on a number of factors--including how "saving money" is defined.

Consider that in 2013, the nation's largest for-profit prison company, Corrections Corporation of America (CCA), made $300.8 million in net profit on gross revenue of $1.69 billion. (1) Thus, the company achieved $300.8 million in savings over operational expenses at its prisons, jails, and other detention facilities. But how much of that $300.8 million went to taxpayers or reverted to state treasuries or county coffers?

None. Those "savings" went to CCA in the form of corporate profit.

Over the past three decades there have been dozens of reports and studies on and analyses of cost comparisons between public and privately-operated prisons--by academics, government agencies, and independent organizations--all attempting to answer the elusive question of whether private prisons save money. (2) This is not one of those attempts.

Instead, rather than trying to determine if prison privatization results in savings due to the shifting of costs from public agencies, this Article takes an opposite approach by identifying costs that are shifted from privately-operated facilities to the public sector. An examination of such cost-shifting factors is essential when evaluating cost comparisons, to better understand how private prisons externalize expenses while internalizing profits.

In short, public agencies want to save money while private prison companies have an inherent need to make money--and the latter necessarily comes at the expense of the former. (3)

Part I of this Article examines previous public-private prison cost comparison studies, while Part II discusses various factors that make such comparisons difficult. Part III provides an exhaustive look at cost shifting factors, whereby costs are shifted from private prisons to public contracting agencies, and Part IV examines quality of service comparisons--including levels of violence and staff turnover at private prisons, accreditation by the American Correctional Association, and recidivism rates. Part V addresses opportunity costs associated with privately-operated prisons, while the Conclusion proposes an alternative approach when considering whether prison privatization results in cost savings.

1. BACKGROUND

   There is no dearth of research on whether privately-operated correctional facilities are more cost effective or provide equivalent quality of service in comparison to public prisons; numerous studies have reached equally numerous and disparate conclusions. (4) As noted by Alexander Volokh, an Associate Professor at Emory Law School, "somewhat surprisingly, for all the ink spilled on private prisons over the last thirty years, we have precious little good information on what are surely the most important questions: when it comes to cost or quality, are private prisons better or worse than public prisons?" (5) Or, as candidly stated by CCA vice president Steve Owen in reference to whether private prisons save money: "[t]here is a mixed bag of research out there.... It's not as black and white and cut and dried as we would like." (6)

   1. Studies with Favorable Findings

      That mixed bag includes studies that have identified cost savings and other benefits resulting from prison privatization, such as research conducted in the 1990s by Professor Charles W. Thomas at the University of Florida; a 2008 study by researchers at Vanderbilt University; various reports by the Reason Foundation; and most recently a study by two Temple University economics professors, published in July 2014. What do they have in common? All received funding from the private prison industry.

      Professor Thomas served as director of the Private Corrections Project at the University of Florida, which studied the private prison industry and produced research and statistical data concerning prison privatization. (7) He also owned stock in the private prison firms he was researching, served on the board of Prison Realty Trust, a CCA spinoff, and received $3 million in payments from CCA/Prison Realty. (8) Thomas retired after these conflicts became known; he was later fined $20,000 by the Florida Commission on Ethics, which stated his "contractual relationships with private corrections companies, or companies related to the private corrections industry ... conflicted with his duty to objectively evaluate the corrections industry through his research with the University of Florida." (9) Regardless, proponents of prison privatization still occasionally cite his work. (10)

      The 2008 Vanderbilt study, which found competitive benefits through a shared system of public and privately-operated prisons, was partly funded by CCA and the Association for Private Correctional and Treatment Organizations (APCTO), an industry trade group. (11) The Reason Foundation, which strongly favors privatization, has received funding from private prison companies since at least the 1990s. (12) For example, a 2009 Reason Foundation donor list included the GEO Group--the nation's second-largest for-profit prison firm--as a Platinum Level supporter, while CCA was listed as a Gold Level supporter. (13) And the report by Temple University professors Simon Hakim and Erwin A. Blackstone, which found substantial cost savings through prison privatization, received funding from the nation's three largest private prison companies: CCA, the GEO Group, and Management & Training Corp. (MTC). (14) That funding was not disclosed in their initial working paper, but it was mentioned when the study was subsequently published by The Independent Institute. (15)

      Of course, the mere fact that these studies received funding from the private prison industry does not mean their findings are faulty. Such studies do, however, stand in contrast to another body of research--not funded by for-profit prison companies--that has reached contrary conclusions.

   2. Equivocal and Adverse Research Results

      As early as 1996 a report by the then-U.S. General Accounting Office (GAO) reviewed five studies on prison privatization, and concluded that cost savings were inconclusive: "regarding operational costs, because the studies reported little difference and/or mixed results in comparing private and public facilities, we could not conclude whether privatization saved money." (16)

      A 2003 review of public and private prison cost comparisons published in The Prison Journal concurred, finding that "neither side of the correctional privatization debate should, at this time, be able to legitimately claim that the weight of the empirical evidence is on their side." (17) More recently, a meta-analysis by the University of Utah's Criminal Justice Center, published in 2009, found that, "[c]ost savings from privatizing prisons are not guaranteed and appear minimal." (18) The researchers, who examined a dozen studies, concluded that "prison privatization provides neither a clear advantage nor disadvantage compared with publicly managed prisons. Neither cost savings nor improvements in quality of confinement are guaranteed through privatization." (19) Similarly, an August (2010) review by Professor Gerald G. Gaes at Florida State University concluded that "[d]irect comparisons of cost and quality neither favor the public nor the private sector." (20)

      Yet, a 2010 report by Arizona's Office of the Auditor General, based on data from the Department of Corrections, noted that privately-operated prisons were actually more expensive than their public counterparts. (21) The report stated:

      [A]ccording to the Department's Fiscal Year 2009 Operating Per Capita Cost Report, the State paid private prisons a higher per inmate rate than it spent on equivalent services at state-operated facilities in fiscal year 2009. After adjusting state and private rates to make them more comparable, the Department's study found that rates paid to private facilities were higher for both minimum- and medium-custody beds--the two categories of beds for which the Department contracts. (22) Specifically, after adjusting "for healthcare costs, depreciation costs, and costs for functions provided only by the State," the Auditor's Office reported that the fiscal year (FY) 2009 per diem cost for minimum-security prisoners at state facilities was $46.81, compared with $47.14 at private prisons, while the per diem cost for medium-security prisoners at state facilities was $48.13, compared with $55.89 at private prisons. (23)

      Somewhat similar results were reported by the Arizona Department of Corrections (ADC) in an April 2011 report that found the FY 2010 adjusted daily per capita cost for minimum-security prisoners at state prisons was $46.59, just slightly higher than the $46.56 cost at in-state privately-operated facilities. (24) The adjusted per capita cost for medium-security prisoners was $48.42 at state prisons--significantly lower than the $53.02 cost at in-state private prisons. (25)

      In Georgia, cost allocations by the state Department of Corrections found, based on FY 2012 data, that the average...