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COST COMPARISONS BETWEEN STATE AND PRIVATE
CORRECTIONAL FACILITIES:
APPLES TO APPLES?

A report prepared for the
Correctional Standards and Oversight Committee
by Susan Byorth Fox, Legislative Research Analyst
February 1998

Background and History

This report is an extension of recent requests for information regarding the "total" cost per day ofincarcerating a person in Montana Department of Corrections (DOC) institutions or programs. With the advent of contracting for the housing of adult male state inmates in private prisons, bothin and out of state, legislators desired a figure that represented the entire cost of incarcerating aninmate in Montana State Prison. A response to this question was prepared by the LegislativeAuditor's Office1 with input from staff of the Legislative Fiscal Division, the DOC, and theLegislative Services Division. A final memo2 was then prepared by the DOC on cost-per-daymethodology that included a description of the methodology used and spreadsheets for fiscalyears 1997 and 1998 and a proposal that this information be made available to the LegislativeBranch each September preceding a legislative session for verification by the Legislative Auditand Fiscal Divisions staff. After approval, the costs would be used for budgeting purposes duringthe session.

As reported in the Legislative Audit Division response, the average cost for incarcerating aninmate for 1 day has been traditionally calculated by dividing general fund costs relating to careand custody of inmates by the number of inmate days in a certain time period. The figure has been calculated generally for an entire institution, not necessarily making distinctions among thevarious security levels, housing assignments, classification, and programming for an inmate, and ithas excluded certain costs such as external medical expenses, state special revenue expenditures,training in prison industries programs, certain management and administrative services, federalspecial revenue funds, expenditures for Montana State Prison industries and ranch operations,debt service, and long-range building program funds. The DOC memo includes inmates incategories by location, such as Montana State Prison, Montana Women's Prison, Pine Hills andRiverside Youth Correctional Facilities, contract beds, county jails, prerelease and transitioncenters, boot camp, and probation and parole situations, and includes costs in categories ofoperating costs, outside medical costs, general administration, industries training, and debtservice, when applicable.

This document is intended to provide information about the factors that must be consideredbefore any cost-per-day figures generated by the DOC or the Legislative Branch are used forpurposes of comparison to other correctional facilities, either in or out of state.

Privatization: History and Pros and Cons

Privatization in the area of corrections is not new. Traditionally, medical care, mental healthservices, other treatment and programs, community-based programs, food services, security,transportation, staff training, and maintenance have been contracted to the private sector, both forprofit and not for profit. Most of the privatization in the past was contracting for specificprofessional services or construction. The most recent development in privatization is turningover the operation of an entire facility to private hands and, in Montana's case, contracting forinmate beds in private facilities. Much of juvenile corrections is privatized in communityprograms since deinstitutionalization in the 1970s, although Florida's Okeechobee JuvenileTraining Facility was contracted in 1982 to a nonprofit arm of a major U.S. drug manufacturer,the Eckerd Foundation (U.S. NIJ, 1985, p. 7). The U.S. Immigration and Naturalization Servicewas the first federal agency to enter successfully into a contract for private facilities in 1984 (U.S.NIJ, 1985), and the U.S. Marshals Service and the Federal Bureau of Prisons also currentlycontract. The first local-level contract was awarded in 1984 in Tennessee, and the first privatestate prison was opened in Kentucky in 1986 (Ring, 1987). From 1986 to 1995, the 10-yeargrowth in rated capacity of private secure adult correctional facilities rose from 2,620 to 63,595,or 2,400%, although that number only reflected slightly more than 2% of all prisoners in theUnited States being housed in private facilities (Thomas, 1996).

The benefits of privatization are often stated in economic terms: private companies are moreefficient and effective, are less expensive and have more flexibility with fewer limitations, and areof higher quality. Some of the drawbacks of privatization can also be stated in economic terms:the profit motive is an incentive to decrease quality and services in order to maximize profits, andprivate companies face additional costs in tax liability and insurance that governments can limit.Some drawbacks are less tangible: the state loses control and therefore quality, the operation ofprivate companies may be more volatile because of market forces causing bankruptcy andclosures, private companies are less accountable and are less flexible because any extra servicesrequire additional payments or negotiation, and privatization may cause interruptions ingovernment employment and loss of experience. The research is not conclusive either way, forthe very reasons attributable to the variables that Montana is researching. Any of thesedistinctions can vary between the private sector and public sector, depending on who isadministering and who is measuring. The distinctions can also vary across time because ofscrutiny or neglect, and competition may be an impetus for change. At this point in history, theprivate corrections track record is shorter than that of public corrections. Although quality israised as an issue with private corrections, the public sector has faced quality and accountabilityissues that has resulted in court intervention and has been required to improve conditions ofconfinement.

Some issues cut to the core of legal, moral, and symbolic differences of opinion and philosophythat may not have been fully addressed before privatization was initiated. Corrections is the"business" of the administration of justice that involves punishment and the loss of liberty. Somebelieve that corrections should be an exclusive state responsibility that is not delegable because itis administered on behalf of the public. Some believe that it is an inappropriate area to leave tomarket forces and to be driven by a profit motive. The fact that by 1995, at least 22 states wereinvolved in some level of privatization (Thomas, 1996) would indicate that many policymakers donot find it inappropriate and are relying on privatization to assist governments in solving crises. Regardless of opinion, the state will retain ultimate responsibility because the authority forincarceration lies with the state.

Statement of the Problem

In order for various documents that present cost-per-day information to be used in the mostuseful manner that is conducive to comparisons of like sums, a request was made for informationthat discusses the variables that must be considered in using the various cost-per-day figures. These figures are likely to be used for budgeting purposes and for potential comparison to privateprison costs and other states' costs. To that end, this document will report the factors thatdistinguish state costs from private prison costs and the resulting problems or considerations in acost-per-day comparison.

Because of the inherent differences between the public and private sectors and among for-profitcorporations, not-for-profit corporations, and governments, it is inevitable that the systemsthemselves will account for a great deal of variation in accounting and budgeting because theywere set up for different purposes under different rules and regulations. Those differences may beable to be changed or handled administratively to facilitate future comparisons, but they must bedefined and acknowledged.

Factors That Affect Comparability

Tables 1 and 2 outline the factors that will affect comparability among various correctionalfacilities. Table 1 was adapted from a table prepared by the Florida Legislature Office of ProgramPolicy Analysis and Government Accountability (1997). Table 2 is my construct. The reason thetwo types of factors, correctional versus business, are separated is that privatization in generalshares many factors with correctional privatization, and this report has been requested becausegovernment services are being looked at as another category of business. That being the premise,Table 1 represents the unique factors in the business of corrections, and Table 2 represents thegeneral factors that business faces in this or any other state.

Each table contains factors, correctional or business, that may affect costs, a brief statement whythat factor is important, and examples specific to Montana that may illustrate the factor'simportance. Some factors, such as size of facility or right of refusal, could have been placed ineither table. Some factors may be easily controlled; others are elusive and yet to be defined. Indealing with private companies or other states, they may also be unable or unwilling to provideany information or information in a similar format or formulated with the same assumptions. Verification of any calculations will be a consideration. In dealing with the private sector, adistinction between "price" and "cost" must be developed. What a state pays for servicesrendered is a price that may or may not reflect the true cost. Any limitations should beacknowledged whenever costs are being discussed and the temptation arises to make directcomparisons.

COST COMPARISON FACTORS BETWEEN STATE AND PRIVATE PRISONS
TABLE 1

CORRECTIONALFACTOR WHY IS IT IMPORTANT? EXAMPLES
Size of facility: overcrowdingconditions Larger facility may provide economy of scale because fixed costs are divided among a higher number of inmates.

The facilities should be similar in size for goodcomparison.

Size of initial facility built (infrastructure) will affectability to expand.

The extent of overcrowding and any litigation orsettlement agreements will affect operations. 

MSP emergency capacity is 1,330. SW MT Detention Facility is planned for maximum capacity of 500 inmates. A private prison is planned for maximum capacity of 500 inmates. Regional correctional facilities plan for maximum capacity of 144 to 152 state inmates. MWP emergency capacity is 70 beds. Pine Hills Juvenile Correctional Facility emergency capacity is 85 beds. Riverside Juvenile Correctional Facility maximum capacity is 16 beds. The only straight comparisons that can be made are the private prison and the SW MT Detention Facility.

The DOC entered into settlement agreements based on litigation of conditions thatresulted in the prison riot. Those conditions must be addressed and may affectcosts. Many states have been under U.S. Department of Justice consent decreesthat outline similar limitations on conditions of confinement. 

Programs: education, substanceabuse, sex offender,rehabilitation, and industries  Programs designed to serve portions of population willrequire specially trained staff, which may increaseoperating expenses. State prisons may have better orless expensive access to other state agency programs.  MSP and MWP provide programs for all types and custody levels of inmates. Regional correctional facilities will have limited programs for specific custodylevels. Eventually, regional correctional facilities or private prisons couldspecialize in a type of inmate and program that would affect costs, either up ordown, and may limit comparability of program costs except with prisons withsimilar inmates and programs. 

Inmate type: 
   
Psychological and medical status  Absence or presence of this type of inmate and theseverity of needs will affect staffing and security,medication, and equipment.  Geriatrics, mental health requirements, or the presence of sex offenders increasescosts in care and treatment necessary and may also affect custody and security. Ifregional correctional facilities or private prisons don't have to or won't accept theseinmates or provide these services, costs will be less than for those who do. 
Custody level  Higher inmate custody levels require closersupervision, which increases construction and custodycosts and may affect cost of necessary services.   Death row, life sentences, and maximum custody are most expensive and mostlikely to stay state functions. They often require single cells, more security instaffing, and greater equipment needs. In addition, services that require morestaffing at these levels, such as food or medical care, may be required for thoseinmates. 
Age of inmates  Youthful offenders are more costly to house because of smaller numbers, the need for closer supervision, and more programs in a youth facility.

Youthful offenders transferred to adult court and adultinstitutions or those institutionalized at a younger agebecause of "three strikes" or life sentences may requireprogramming for an extended period of time.

An aging population will increase medical needs. 

Juveniles are afforded certain protections that are not necessary for adults. Services may be cost-prohibitive in-house and subject to market conditions either in state or out of state.

If older inmates are distributed randomly, there won't be a comparability problem,but if they remain in the state prison exclusively or if one facility specializes, costswill be greater. 

Gender of inmates  Female offenders cost more because of smallernumbers, different and greater medical needs, anddifferent programming. Equal protection requirementsmay result in higher costs to provide similar programsto a smaller population.  MWP or any regional correctional facilities or private prisons that accept womenexclusively will cost more and not be comparable to adult male facilities or facilitieswith mixed populations. 
Use of force, discipline, andrelease decisions  These factors may be difficult issues that affect stateliability and inmates' rights. Contracts can require thesame policies as the state, but they are inherently stateresponsibilities.  Disciplinary actions can affect length of stay and parole eligibility or prison recordsaffecting parole decisions. All of these factors affect occupancy levels, which, if notcontrolled by the state, present an opportunity for a conflict of interest and violationof inmates' rights. 

TABLE 2

BUSINESS FACTOR WHY IS IT IMPORTANT? EXAMPLES
Geographical location 

The distance from population centers for availability ofinfrastructure, personnel, goods, and services will affectcost.

If comparing costs among states, geographical regionscan vary in costs, such as cost of living.

The extent to which a prison already has its own infrastructure (MSP) versus being sited within an area with infrastructure available (MWP, regional correctional facilities) versus building a new prison complete with infrastructure (private facilities) will affect costs and comparability.

Availability of other services, such as use of MSP laundry and cook/chill (MSP,SW MT Detention Facility, private prison?) versus providing your own (MWP,private prison), will affect cost.

Costs for transportation of inmates and supplies may also differ. 

Records, meetings, and onsitepresence  Availability of information for comparison purposes,not only for budgeting and accounting but foraccountability and performance. Although not an issueat present, any requirement for onsite presence createsunique issues that must be considered, such as costallocation, authority, etc.  State records are open for extraction of information. Private records may beconsidered proprietary and unavailable for extraction of data, comparison, or audit. Montana has open meeting laws by which private corporations and other states arenot governed.  
Process similarity  May add or reduce costs to either party. The fewer restrictions and more flexibility that a party has, the less its costs will be. If processes aren't similar, costs may need to be adjusted.

Once private facilities are in place, state processes maychange in response to private practices.

Competition may affect bidding and salaries for bothprivate and governmental facilities. 

Are there similar processes for contracting and procurement and for developingrequests for proposals? Is the basis for contracts on straight per diem costs, and dothey include startup costs, construction costs, preferences, or guarantees? What arethe requirements for personnel, i.e., state employee benefit packages and the rightsof employees to organize, collectively bargain, and strike? 
Taxes  Private companies are subject to taxation that state orlocal governments are not.  Taxes are a cost of doing business that will be passed on to the consumer. Privatecompanies pay property taxes, governments do not. Private for-profit companiespay income and other business taxes, private, not-for-profit corporations andgovernments do not. All entities pay payroll and other employment-related taxes. 
Type of construction  Amount of construction costs and how they areincorporated into cost-per-day will affect comparability.  New, addition to existing infrastructure, renovation, lease/purchase. 
Level of risk  Level of risk taken will affect cost. A Wackenhutpublication (Jones, 1997) lists potential risks andcorresponding costs in construction, acceptance,occupancy, capital, and appropriation risks.  Market factors, such as government interest rates versus private interest rates, affectcosts that are passed on to the consumer (the state and, eventually, the taxpayer). Alease/purchase agreement with a private company will affect financing costs andcosts-per-day over time. 
Historical limitations  Historical limitations affect construction costs, currentmaintenance and operation costs, the ability to plan andexpand in the future, and affordability of expansion.  MSP is bound to its facilities in Deer Lodge, which will influence its abilities toexpand and also its maintenance and operation costs. Upgrades require retrofitting. Regional correctional facilities, detention centers, and private prisons are able tocorrect past flaws in new designs, which may mitigate costs for the near future. Regional correctional facilities and private prisons may have to either build usingexisting infrastructure (water, sewer) or provide their own, and the level to whichthe latter is true will add to costs. 
Right of refusal  This is a contractual issue that will affect who is theprovider of last resort (the state) who will always haveto provide incarceration in any contingency.  MSP and MWP cannot refuse inmates without taking responsibility for arrangingand paying for incarceration in other facilities. Contracts will affect the extent towhich regional correctional facilities or private prisons have this right, but bydesign, they may be precluded from accepting certain types of inmates. 
Insurance, liability, andstandards  The extent to which these factors differ will affectcomparability.   ACA accreditation is costly and required of private prisons but not of state prisons. State liability is limited in dollar amount by statute. The state will always have theultimate responsibility. The state must be able to immediately respond in the eventthat a private facility closes or breaks its contract. 
Supply and demand  Who has the upper hand in the supply of inmates orsupply of space will affect price and negotiability.   Conditions could force the state to pay higher contract costs, or if the supply ofinmates were ever to be limited, private prisons could go out of business, but thestate never will. 
Percentage of occupancy atwhich facility is operating  This can be somewhat controlled through contracts forregional correctional facilities and private prisons, butthe closer to 90%-95% that a facility can operate, themore efficient and less costly it can be. Also, regardlessof capacity, there will be fixed costs based on thefacility needs. Undercapacity or overcapacity willaffect costs for all types, although at least one publicfacility must stay open.  Also, how capacity is defined and measured: design, emergency, rated, maximum,operational. 
Statutory authority  Varying statutory authority may allow differentpractices that assist or hinder doing business andrelated costs, i.e., siting and accreditation.  Private prisons come under Title 53, chapter 30, part 6. Regional correctionalfacilities come under Title 53, chapter 30, part 5. State prisons are under Title 53,chapter 30, part 1. Youthful offenders are governed under Title 41, chapter 5. Multijurisdictional detention centers are governed under Title 7, chapter 32, part22. 
Administrative costs  The method of apportionment of costs to variousprograms, institutions, and custody levels will affectcost comparisons.   Private and regional facilities will have internal administrative costs that must beapportioned similarly for comparability, and the state will have costs inadministering contracts with other facilities; the allocation of those costs must bedetermined. 

Definitions:
ACA: American Correctional Association.
DOC: Department of Corrections.
  Emergency capacity: The total number of inmates in a facility that evokesemergency powers when that number is reached or exceeded for 30consecutive days (DOC draft definition). Emergency capacity maybe less than maximum capacity.
  Maximum capacity: The total number of inmates that a facility can house,including special management beds, holding cells, disciplinary beds,etc. (DOC draft definition).
MSP: Montana State Prison, male state prison at Deer Lodge.
MWP: Montana Women's Prison, female state prison at Billings.
  SW MT Detention Facility: Southwest Montana Multijurisdictional DetentionFacility, proposed Anaconda/ Deer Lodge County and Butte/SilverBow County local governmental joint venture.
Private prisons: Owned and operated by private, for-profit corporation.
  Regional correctional facilities: Owned and operated by county governments.

Considerations that warrant further discussion are size and allocation of costs. One of the recommendations in the previously cited report was that the Florida "Legislature should consider authorizing the construction and operation of public and private prisons that are similar in size, location, types of inmates, and programs offered" (Florida OPPAGA, 1997, p. 7). Montana's correctional system is not anywhere near the scale of operation that this recommendation would suggest, although those considering future correctional goals and growth could keep this in mind for the long term. Instead, the method by which programs are planned and accounted for will have to fulfill a similar goal. Montana State Prison is often said to be three prisons next to each other; however, the allocation of costs has never been treated as such. It is merely a microcosm of the debate because the problems of allocating shared costs within a single facility, i.e, administration, infrastructure, maintenance, certain programs, and services, inform us about trying to allocate shared costs throughout an entire system.

Controls

Many of the variables that are identified can be dictated by various means, e.g., legislation,administrative rules and policies, or contract, and by the extent to which these are enforced. Ifnecessary, legislation could define the parameters by which contracts are designed, could defineroles, and could limit or direct the number and type of private facilities3 with which the DOC isauthorized to contract. Statutes also cover contractor selection, approval methods, and contractterms and grant rulemaking authority.

In dealing with contracted services, the contract is key. First would be the source of authority tocontract, whether or not it is expressed (23 states) or prohibited statutorily (1 state) or interpretedto be allowed (8 states) (Thomas, 1996). Monitoring, disciplinary decisions, insurance,termination, and service disruption are other areas that can be covered by contract (Ring, 1987),as well as the process by which to contract and accounting or budget reporting. If the DOC cancreate a scheme by which the costs of custody, specific program expenses, administration, etc.,can be accounted for, then it could be required of the private entity in contract, which wouldgreatly enable and enhance the validity of future cost comparisons. One of the most importantareas is contract compliance--how to measure it and how to enforce it.

Cost-Comparison Studies

There have been several studies that have attempted to compare costs or quality and to answerthe same questions that the Oversight Committee has been asking or to find out what is happeningin privatization and contracting in corrections. A general description of a sampling of thesestudies follows that could lend guidance to future cost comparisons and how to accomplish them.

Florida Legislature Office of Program Policy Analysis and Government Accountability(OPPAGA)

In a March 1997 information brief, the Florida Legislature OPPAGA was asked to evaluatenumerous questions posed by the Florida Senate Criminal Justice Committee on cost savings ofprivate prisons, how to facilitate accurate and meaningful evaluations of operating costs, and toenumerate other factors related to costs. Its conclusions were that although it is possible toevaluate whether private prisons save money, there are significant differences that hindercomparisons between Florida's private and public prisons. Opposite conclusions were reachedabout private prisons and cost savings because the Florida Department of Corrections and theCorrectional Privatization Commission did not agree on which prisons to compare and how toadjust for differences. A recommendation was to establish public and private prisons that arecomparable in size, location, and types of inmates and programs through construction, operation,or modification, a luxury that Montana most likely cannot indulge because of its size. However,there was also a recommendation that an independent third party be relied upon to identifycomparable public prisons and to develop methodologies for comparing costs. For Montana'spurposes, if a typology of prisons is developed and specified accounting and budgeting practicesand methodology are defined and agreed to in advance and are controlled through contractrequirements, it may become easier to compare costs.

National Institute of Corrections (NIC)

In December 1995, NIC surveyed federal, state, and territorial departments of corrections(departments) on correctional facility privatization and costs of contracting for correctionalservices. Twenty-eight jurisdictions either had privately operated prisons that were in use or wereplanning or considering privately operated prisons. Only 4 jurisdictions had rejected privateoperation of prisons, and 17 had not formally considered it.

This study provides interesting information on how construction and financing impact costs.Information on construction and financing could be obtained from just 7 of the 12 departmentsthat had privately operated facilities. Of the seven states that reported per diem cost information,the costs ranged from $23.49 per day for a private facility and $33.02 for all public facilities inLouisiana to $38.90 in Puerto Rico for a private facility and $90.19 in New Mexico for a privatefacility that housed 294 women. Public facilities in New Mexico cited $76.89 as the per diem cost. In five of the seven jurisdictions, the facilities have been or will be constructed or financed by thecontractor, which will affect costs. Public dollars and construction have been or are expected tobe used by two departments. Private contractors constructed or renovated the privately managedfacilities in Oklahoma, Texas, and Mississippi and will build the planned Nevada facility. InTexas, construction was financed by state bond funds, and ownership will revert to the state after20 years. In Louisiana, the state constructed the facilities that were to become privately managed. The Texas department approved the design and specifications for its privately operated facilities,whereas Mississippi had no involvement in design control or review.

In the NIC study, more than one department noted the following concerns over privatization:enforcement of department policy, costs and the basis for cost comparison (emphasis added),general quality issues, legal liability, use of force, and accreditation. The survey identified that theagencies' greatest need is for information about what is taking place in other jurisdictions. Thisstudy illustrates the type of difficulties in making cost comparisons and can be useful in guidingany future interstate comparisons with Montana.

U.S. General Accounting Office (GAO)

The GAO performed an evaluation study, reported in August 1996, of five studies comparingoperational costs, quality of service, or both, for private and public prisons. The five studies hadbeen completed since 1991. Texas, California, and Tennessee sponsored comparative studies intheir states. The National Institute of Justice, the Federal Bureau of Prisons, and the NIC fundeda comparative study that focused mainly on facilities in New Mexico. The study from Washingtonstate studied facilities in Tennessee, Louisiana, and Washington state. Variation was found interms of geographical location and type of inmates and in the methodologies and measurementsemployed by the researchers.

The California, Tennessee, and Washington studies
 made comparisons of costs between reasonably matched private and publicfacilities that were operating within each state that was studied. Of the fourprivate/public comparisons reported in these three studies, two showed nosignificant differences in operational costs, one showed a 7-percent difference infavor of the private facility, and the other reported the private facility to be morecostly than one public facility but less costly than another public facility. (U.S.GAO, 1996, p. 3)

The Texas study reported a 14% to 15% savings from privatization, but the GAO found thecomparison problematic because it was based on hypothetical, not existing, public facilities. TheGAO could not conclude that privatization will not save money, but it concluded that the studiesdid not offer substantial evidence that savings had occurred.

The GAO also concluded that the studies offered little generalizable guidance about what toexpect regarding comparative operational costs and quality of service and that the variety ofdifferences in other states and regions could result in an experience far different from the statesthat were studied. This information is relevant to Montana when a comparison is desired withother states, as in the case of contracting of bed space, because it may influence the rates beingpaid and make comparing Montana's costs, either public or private, difficult. The examples giventhat may affect comparison are cost of living, a state's correctional philosophy, and the age ormaturity of the private system, all of which can affect measures of costs and quality.

The GAO study provided some background on generally accepted evaluation criterion and statedthat "any comparative study of private and public prisons should be based upon the selection andanalysis of similar facilities" (p. 4), i.e., design and capacity, security level, and types of inmates. Even if similar prisons are compared, there still may be direct and indirect difficulties arising outof different budgeting and accounting practices, such as the appropriate allocation of corporateheadquarters overhead and government agency overhead.

The methodological lessons learned from this evaluation study may shed light on how to conductcomparisons in the future: (1) the importance of focusing on both costs and quality of service; (2) comparing institutions (both public and private) that are actually in operation; and (3) usingmultiple measures of quality (p. #4).

The study that the GAO reported as having the most sound and detailed comparison ofoperational costs, the Tennessee study, had these characteristics: the study compared three mixed-population institutions, both public and private; all three facilities were located in Tennessee andhad relatively comparable inmate populations in terms of numbers and demographics, except race;and both direct and indirect costs were considered in the analysis, and representatives from bothpublic and private facilities agreed on the cost components and relative adjustments prior to datacollection. The analysis reported little difference in average inmate costs among the threefacilities--$35.39 for the private facility and $34.90 and $35.45, respectively, for the two publicfacilities (p. 8).

The Washington state study made interstate comparisons in Tennessee (same facilities as theTennessee study) and Louisiana and also found little difference in the operational costs of publicand private facilities. However, in this study, the Tennessee private facilities' average daily cost at$33.61 was lower by about 7% than comparable costs for the two public facilities, $35.82 and$35.28. Louisiana's two private facilities average inmate costs per day were $23.75 and $23.34,respectively, and the comparable cost for the public facility was $23.55 per inmate. This study didmake an adjustment in order to equalize prison inmate numbers to reach equivalent levels ofcapacity.

The Texas study found substantially lower operational costs (14% to 15%) for existing privateprerelease institutions compared to hypothetical public facilities. The GAO found the use ofhypothetical facilities to be problematic because actual practice may differ from the hypotheticalassumptions made. The California study compared three for-profit community correctionalfacilities in California, one operated by a private firm and two by local governments. The privatefacilities' average annual cost per inmate was higher than comparable cost for one of thegovernment-run facilities, but lower than the other government-run facility. The type of offender(drug offenders) in the lower cost government-run facility may have affected overall costs, and theauthors of the study advised additional caution because of inconsistencies in underlying orsupporting costs figures obtained from different sources around the state.

Other factors that the GAO reports that could affect interstate comparisons of prison costsinclude: (1) the extent of prison overcrowding; (2) the history of court interventions; (3) thestatus of American Correctional Association accreditation of facilities; (4) the rate of incarceration(as an indicator of the punitiveness of the corrections system); and (5) the rights of correctionalemployees to organize and bargain collectively. In the Washington state study, the cost of livingfor Tennessee's operation was adjusted upward by 20% to account for regional cost-of-livingdifferences between the two states. All five states were affected by various court rulings since1977 on conditions of confinement. The degree of punitiveness may affect operating andprogramming approaches and expectations of services, and incarceration rates, the measure used,tend to be higher in the west and the south. The percentage of correctional employeesrepresented by unions, whether employees can bargain collectively, and whether they have theright to strike can affect whether a state allows privatization, and it will also affect costs andquality of service (p. 36).

Criticism of the GAO report came from Dr. Charles W. Thomas, director of the Center forStudies in Criminology and Law at the University of Florida, and Charles Logan, professor ofSociology at the University of Connecticut. Dr. Thomas leads the Private Corrections Project andperforms an annual Private Adult Correctional Facility Census. He is concerned with the GAO'soperating premise that facilities must be exactly alike before an accurate analysis can beconducted. He believes that an analysis of identical facilities would disregard the innovation andefficiency in private facility design. Also, Thomas contends that American CorrectionalAssociation accreditation was not given sufficient consideration and that other studies, including arecent Arkansas study that found cost reduction under a private facility, were omitted (Anderson,1996).

Dr. Thomas states that he and Mr. Logan are convinced that private prisons serve the publicbetter, citing examples of studies in which conclusions ranged from 5.4% to 20% savings meritedto private facilities, but the article states that "the precise magnitude of cost savings is difficult todetermine" because of how government accounting systems work (Thomas, 1995). Dr. Thomasconsistently states that private companies can operate facilities at costs 10% to 15% less than thegovernment (Fields, 1996), although specific research findings are not provided and otherresearch has not substantiated those claims. Critics have expressed concerns that Dr. Thomas andMr. Logan are aligned with private prison corporations (Anderson, 1996).

Conclusions

The temptation to use cost-per-day figures for comparison's sake will be great and will mostlikely occur. In order for any cost comparisons to provide useful, valid information, there must bemethods by which to facilitate comparisons of like costs.

The first option is to identify a typology of correctional facilities that could provide guidance forcomparison--for example, adult facilities versus juvenile facilities; small facilities of at least 40beds but fewer than 100 beds, such as Montana Women's Prison; facilities of 100 beds to 200beds, such as regional correctional facilities; facilities of 200 beds to 500 beds; and larger facilitieswith more than 500 beds. Montana State Prison could be treated as two or three 500-bedcompounds, which would enable comparison to 500-bed private facilities, such as the onesenvisioned by House Bill No. 83 and by MERDI4. These examples are merely illustrative, butanalysis could be performed to determine similar economies of scale, and natural categories maydevelop.

The example of treating Montana State Prison as three different compounds would require thealtering of budgeting and accounting practices. With the Montana's Project to Reengineer theRevenue and Information Management Environment project, more commonly known as MTPRRIME, and the changes that will be happening in the near future, it may be a perfectopportunity for the DOC to restructure its budgeting and accounting system to allow for easierdetermination of costs. If structured more similarly to the private sector, it could require certainreporting from the private facilities in their contracts and have a greater amount of informationavailable for comparison's sake.

The effort that has occurred to date in developing a single methodology that both the Executiveand Legislative Branches use for comparison will be of great assistance for future budgetingpurposes. However, there may need to be additional work accomplished to determine if any costadjustments need to be made when comparing costs to the regional correctional facilities, forexample, or to the in-state, privately run facilities and then to the out-of-state contract facilities. A typology of facilities is the first step, but actual quantitative adjustments may need to be made,such as the Washington state study adjustment for cost of living between states. The type ofconstruction necessary for different regional climates and building requirements is anotherexample. An element that is often touted as an advantage of the new private prisons is that theycan engineer and design a more efficient facility that uses more electronic security and requiresless staff. A more detailed breakdown of certain costs may be necessary, such as breaking downoperating costs into categories of care and custody, security, and program or treatment costs tohelp distinguish where the major costs lie and to distinguish where cost savings are actuallyrealized.

Many of the studies indicated that cost savings may change as competition affects performance inboth private and public sectors; therefore, a continual process of regular analyses and evaluationshould be a part of the methodology. Because Montana is on a biennial appropriation cycle,perhaps with each budget report prior to the legislative session, a new analysis should be done byfiscal year.

Some of the other factors identified in Tables 1 and 2 may require additional consideration. Anexample would be to analyze taxing practices and how they should be handled in apportioningcosts. Florida passed legislation stating that costs resulting from an entity's private rather thanpublic status must be included in costs savings comparisons and determinations (FloridaOPPAGA, 1997, p. 6).

Even if an accepted methodology is developed that includes a typology of correctional facilitiesand quantitative adjustment factors, the cost comparisons will never be straight across
"McIntosh apples to McIntosh apples", but the comparisons may be more valid and useful. Thisdocument merely identifies some of the pitfalls and complexities of trying to compare any type ofapple to another in a relatively new area, so there are bound to be additional factors that will arisein the future as private facilities have more experience, especially in Montana, as the DOC gainsadditional experience in contracting with the private sector, and as the private and public sectorsrespond to the competition. Numbers tell stories and can be used to make specific points withoutnecessarily telling the whole story.

REFERENCES CITED AND
AVAILABLE IN THE LEGISLATIVE SERVICES DIVISION LIBRARY

  Anderson, Teresa. "Private Prisons Rebuff Attack," Security Management, vol. 40, no. 11 (November 1996), p.13.

  Council of State Governments. Private Practices: A Review of Privatization in State Government(Full publication in March 1998).

  Fields, Gary. "Privatized Prisons Pose Problems Not a Panacea, States Discover, DespiteSavings," USA Today (November 11, 1996).

  Florida Legislature Office of Program Policy Analysis and Government Accountability(OPPAGA). Information Brief Comparing Costs of Public and Private Prisons, Tallahassee, FL, The Florida Legislature (1997).

  Hackett, Judith C. (Sardo), et al. Issues in Contracting for the Private Operation of Prisons andJails, Lexington, KY, Council of State Governments (1986).

  Jones, Charles R. and J. Riley Johnson. State of Montana: Overview of Prison Privatization,Wackenhut Corporation (February 12, 1997).

  McDonald, Douglas C., editor. Private Prisons and the Public Interest, New Brunswick,Rutgers University Press (1990).

  Ring, Charles R. Contracting for the Operation of Private Prisons, College Park, MD, TheAmerican Correctional Association (1987).

  Shichor, David. Punishment for Profit, Thousand Oaks, CA, Sage Publications (1995).

  Shichor, David and Dale K. Sechrest. "Delegating Prison Operations to Public or PrivateEntities," Corrections Today (October 1996), p.112.

  Thomas, Charles W. "Private Prisons Serve the Public Better," Human Events, vol. 51, no. 50(December 29, 1995), p.8.

  Thomas, Charles W. Private Adult Correctional Facility Census: Ninth Edition, Gainesville, FL,University of Florida (1996).

  U. S. Department of Justice, National Institute of Corrections. Private Sector Involvement inPrison Services and Operations, Washington, D.C., U.S. Department of Justice (1984).

  U. S. Department of Justice, National Institute of Corrections. Privatization and Contracting inCorrections: Results of an NIC Survey, Longmont, CO, U.S. Department of Justice, NICInformation Center (1996).

  U. S. Department of Justice, National Institute of Justice. The Privatization of Corrections, Washington, D.C., U.S. Department of Justice (1985).

  U.S. General Accounting Office. Private and Public Prisons: Studies Comparing OperationalCosts and/or Quality of Service, Washington, D.C., United States General AccountingOffice (1996).

  Williams, Joe. “Cost Per Day Methodology,” Montana Department of Corrections memo (December 11, 1997).

  Wingard, Mike. "Montana State Prison Inmate Per Diem Rates,” Montana Legislative AuditDivision Legislative Request #98L-13 (October 3, 1997).

l55 8044sfma.

Footnote: 1 1 "Montana State Prison Inmate Per Diem Rates", October 3, 1997, Legislative Request #98L-13, Mike Wingard, Performance Audit Manager, Legislative Audit Division.Footnote: 2 2 DOC memo, dated December 11, 1997. Cost Per Day Methodology, Joe Williams, Chief, Fiscal Bureau.Footnote: 3 3 House Bill No. 83 (Chapter 511, L. 1997) is Montana's first example of such.Footnote: 4 4 MERDI stands for Montana Energy Resource Development, Inc., Butte, Montana.

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