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Private vs. public: the prison debate

Can private prisons save tax dollars? The evidence is inconclusive.

January 1, 2002


Douglas Clement Senior Writer

Article Highlights

  • Private prisons up nationally, not in district

  • Benefits, drawbacks attached to private prisons

  • Cost efficiency facts inconclusive

Private vs. public: the prison debate

One of the most controversial aspects of prison growth during the last two decades has been the increased role of private prison companies—firms that build and/or operate prisons. As needs for prison beds have grown, for-profit corporations like Corrections Corporation of America (CCA), Wackenhut Corrections Corp. and Cornell Companies Inc. have aggressively sought to fill the demand. Indeed, some critics charge that they've helped create that demand by lobbying at state and national levels for tough criminal sentencing laws. Nationally, private companies house about 5 percent of the nation's local, state and federal inmates.

Private prison firms have been less active in the Ninth District than elsewhere, largely because our incarceration rates are lower than other markets but also because of state government resistance. The Upper Peninsula of Michigan, North Dakota and South Dakota have no private prisons, though officials are considering one in North Dakota's Pembina County. Montana and Minnesota each have one private prison. Wisconsin has none, but the Stanley prison was built privately and later sold to the state. Moreover, Wisconsin contracts with four private prisons in Oklahoma, Tennessee and Minnesota to house over 4,000 inmates, about a fifth of its total prisoner population.

Though privatization is not a major trend in the Ninth District, it has beckoned to local policymakers over the years because private firms proffer one key advantage: lower cost. When Minnesota decided to build a state prison in Rush City, for example, Cornell claimed it could run it for $10 to $15 below initial state government estimates of nearly $70 per prisoner per day. CCA offered a similar bid. Wackenhut declared it could trim costs even further. After a lengthy debate, legislators rejected the offers, both from disbelief about the bids and distaste about handing over to a for-profit entity what has commonly been a public function.

But the question remained: Could states save money by sending their prisoners to private prisons?

Cutting costs or quality?

Prison corporations say their costs are lower because their facilities are managed more efficiently than state-run facilities. A more significant cost-savings, though, likely comes from their use of nonunion labor. Since labor costs account for about two-thirds of prison operating costs, lower wages can result in significant savings.

But critics of private prisons—including labor unions—argue that such cost-cutting results in lower-quality staff, with significant consequences. Poorly trained guards and higher turnover increase the risk of escapes, inmate violence and prisoner mistreatment, say critics. The cost of poor quality is then shifted onto the public sector, as county or state police deal with escapees, court systems cope with prison lawsuits and public hospitals treat injured inmates. Deadly incidents at private prisons in Youngstown, Ohio, and elsewhere have given credence to the arguments.

At this point, the facts with regard to cost efficiencies are inconclusive. The U.S. General Accounting Office reviewed the issue in 1991 and 1996 and twice concluded that there was not enough evidence to show whether private prisons were more or less expensive than public prisons. A 1998 national review of prison privatization by Abt Associates similarly found that there was no clear proof one way or the other. Other studies reach similar conclusions.

What is clear is that states and local communities considering private prison proposals shouldn't offer major concessions or subsidies. Economic multipliers seem to be limited and correctional cost savings haven't been proven.

Douglas Clement
Senior Writer

Douglas Clement was a managing editor at the Minneapolis Fed, where he wrote about research conducted by economists and other scholars associated with the Minneapolis Fed and interviewed prominent economists.