Corrections Privatization

 

Reduced Operational Costs

Representatives of private-sector firms assert that they can save taxpayers money by providing correctional services traditionally supplied by government at less cost. As already noted, private entrepreneurs can build facilities faster and cheaper than the government. However, the next claim is that they are also able to operate facilities more efficiently than the government. This can be achieved by reducing the costs of labor associated with operational costs. Labor costs are controlled by reducing one or more of the following personnel cost factors: (1) number of staff, (2) wages, or (3) fringe benefits. The private sector alleges that these costs can be contained or that, for the same dollar, it can provide more or at least better services (Travis et al., 1985: 13).

This point of containing labor costs is the crux of the privatization movement. Prisons are extremely labor intensive, with approximately 65 to 70 percent of the costs of operating a prison going to staff salaries, fringe benefits, and overtime. Controlling these costs is more difficult to achieve with unionized government workers. Private firms typically use nonunion labor, allowing for the lowest benefit packages. Overall, private firms claim that they can save 10 to 20 percent in prison operations due largely to efficient handling of labor costs.

Another, less powerful argument in favor of private contracting is that the private sector has greater flexibility in the procurement process. It is argued that private-sector contractors are not bound by the cumbersome and rigid government procurement system. Consequently, private vendors can purchase goods and services quicker; maintain lower food, supplies, and equipment inventories; and negotiate better prices for these goods (Ammon et al., 1992: 10).

It is not uncontested that a private institution would be more cost effective. The incentive to contain costs is directly related to the type of contract structured (Travis, Latessa, and Vito, 1985: 14).

A public utilities or "pentagon" model reimbursement where a contractor receives costs plus a profit percentage would not necessarily provide an incentive to contain costs of service. On the other hand, a client charge may result in cost-overruns or even bankruptcy should the initial estimate prove wrong.

One expense not normally included in the financial calculation of private firms is the cost to the government for monitoring contract performance. Constant monitoring of all aspects of internal performance is essential to a good contractual relationship, which may become expensive over time. If continual federal or state monitoring of private institutions is required for accountability purposes, the costs of monitoring ultimately raise the price of privatized services. The potential costs of increased prison litigation is also rarely discussed by private prison advocates.

As a policy matter, opponents to privatization also claim it is inappropriate to operate prisons based on a profit motive. In many instances, private prison operators are paid according to the number of inmates housed. Arguably, it is in the operator's financial interests to encourage lengthier sentences for inmates to keep bed spaces filled. If the private vendor enters into a contract based on a per-client charge, the profit margin and even the continued operation of the private facility depend upon total population size. Firms driven by the profit motive could adversely influence prison population size by lobbying for longer sentences and stricter sentencing guidelines. Similarly, as private firms are in business to make a profit, high returns on their investments are important. Critics of prison privatization argue that firms will cut corners, from construction materials to hiring inexperienced personnel, forsaking security and quality of service in the process of making a profit.