This paper was written by Michael Hansen, with word processing and creation of Tables and Figures by Lynda Davis. Much of the background information was gathered from Punishment for profit: Private prisons/public concerns by Davis Shichor, 1995.
 

Executive Summary

Introduction

Background and Philosophical Debate

Issues of Practice

Definitions
Civil Service Approval
"Joint Employer" Issues
Legal Liability
Pending and Future Litigation

Some Final Thoughts for Michigan
 

Over the past several years, state legislatures across the country have been faced with the competing challenges of providing the necessary funds to support an ever growing prison population, while limiting the impact on other state programs that this new demand on resources has created. In many states, increased spending on corrections has meant that additional money for other more popular programs like schools and roads is not available. According to the National Conference of State Legislatures, corrections spending was the fastest growing component of state budgets in 1995, increasing on average by 13.3%.

In response to these concerns, legislators and other public policy decision makers have been searching for ways to reduce corrections spending including increasing the use of prison alternative programs, revising sentencing laws and sentencing guidelines, and most recently, revisiting the notion of privatizing the operations of state prisons. While the primary motivating factor of increased privatization is generally one of economics, the privatization phenomenon also seems to be the result of a shift in the nation's collective ideology. The current climate across almost all segments of the political spectrum now appears more willing to accept the notion that it is appropriate to reduce the size and scope of governmental responsibility.

While the interest in privatization appears to be growing, the issue is not without controversy. For many, the debate is philosophical: Does the profit motive have an appropriate function in the denial of an individual's freedom and in the administration of punishment? For others, the issue is more economic: If an existing public service can be provided at higher quality for less money by the private sector, then it seems reasonable to allow the private sector to compete for provision of these services. For others, the issue is more pragmatic: concerns over determining liability, promulgating employment process rules, monitoring contracts, determining cost savings, establishing standards of care, and addressing wage and labor concerns, all may make the issue more troublesome than any possible advantage of privatization would justify.

The balance of this paper will review the philosophical, economic, and practical issues involved in the private operation of state prisons. The intent is to provide a comprehensive understanding of both the potential benefits and problems associated with privatizing correctional operations. The last section of the paper offers thoughts and options for the use of the private sector in prison management for Michigan.
 

Introduction

Over the past 10 years, the prison population in Michigan has more than doubled, growing from over 18,000 inmates in 1986 to nearly 40,000 prisoners by the end of 1996. Spending for the Department of Corrections over the same time has grown by more than 200%. Indeed, appropriations for Corrections now require nearly 16% of the State's General Fund revenue, compared with a 7% share 10 years ago. According to the National Council of State Legislatures, Corrections was the fastest growing component of state budgets in 1995, increasing on average 13.3%.

In response to these ever-increasing demands on state resources, legislatures across the country have been in search of ways to reduce prison spending through initiatives such as increasing the use of prison alternative programs like boot camps and electronic tether, revising sentencing laws and sentencing guidelines, and most recently, revisiting the concept of privatizing the operations of state prisons. While the primary motivating factor of increased privatization tends to be one of economics, the privatization phenomenon also seems to be the result of a shift in the nation's collective ideology. The current sociopolitical climate across almost all segments of the political spectrum now appears more willing to accept the notion that it is appropriate to reduce the size and scope of government. In addition, it is becoming more and more recognized that in many areas of traditional government responsibility, such as trash pick-up and road maintenance, the private sector can often perform as well as the public sector at providing these basic services.

In Corrections, the move toward privatization has witnessed increased interest as well. According to Dr. Charles Thomas of the Private Corrections Project at the University of Florida, at the start of 1996, there were 15 private correctional management firms under contract to operate over 63,000 prison beds across the U.S. By October, that number had increased to nearly 81,000 privately operated prison beds. To place this number in context, based on estimated Federal, state, and local jail capacities provided by the Bureau of Justice Statistics, private management of prison beds represents approximately 5.5% of total capacity system-wide. Figure 1 describes the growth in rated capacity of private correctional facilities over the past 10 years.
 

Figure 1 

Michigan may soon be added to the list of states that have private management firms operating correctional facilities. A contract to operate the highly publicized youth prison was released in November 1996 to allow a private vendor to operate and manage this new facility. Michigan's experience with the private operation of correctional facilities to date is nonexistent -- the youth prison will indeed be Michigan's first experiment with prison privatization.

The balance of this paper will attempt to review some of the more critical issues related to privatization including an analysis of the oftentimes conflicting claims of efficiency, programming and services, and cost-savings. The intent is to provide a comprehensive understanding of both the potential benefits and problems associated with privatizing correctional operations. Finally, some thoughts and options for the use of the private sector in prison management for Michigan will be offered.
 

Background and Philosophical Debate

While many people today would probably consider the public sector's involvement in the operation of prisons as one of the most basic and fundamental functions of government, privately operated prisons were actually the norm throughout much of this nation's history. As privately run prisons reached their peak in the late 19th century, allegations of corruption and inmate abuse eventually led to the complete discontinuance of for-profit penal institutions by the middle of this century. The operation of prisons by the private sector became a viable option again during the 1980s when President Reagan sanctioned the first experiment in private prison operations to house illegal aliens in Texas. While the recent interest in privatization appears to be growing, the issue is not without controversy. For many, the debate is philosophical: Does the profit motive have an appropriate function in the denial of an individual's freedom and in the administration of punishment?

The arguments surrounding the privatization of governmental services such as collecting garbage or providing janitorial services, quickly develop into more complicated moral and ethical concerns when the privatization of services includes the administration of punishment for individuals who break the law. It seems clear that imprisonment as a form of punishment, whereby the state deprives its citizens of their liberty, represents an exercise of state power that is fundamentally different than the state's responsibility for collecting garbage or fixing roads. Consequently, when the state incarcerates individuals who violate the law, it does so under its authority of providing legal order, which, at its core, is an inherently public function.

Critics of privatization argue that since the incarceration of individuals is so profoundly connected with the fundamental function of government, government should not abdicate this responsibility by turning over the administration of incarceration to a private entity. Advocates of privatization argue, however, that a distinction must be made between the decision to punish, and the administration of that punishment. It is therefore perfectly acceptable, under this line of reasoning, to recognize as the government's responsibility the decision to punish an individual, and equally acceptable to allow a private entity under governmental supervision to administer the punishment, i.e., operate the prison.

Even if one accepts the distinction between the power to impose punishment and the power to administer it, however, there seems to remain a fundamental moral question of whether a corporation should make money from the punishment of lawbreakers. In other words, does the profit motive have an appropriate function in the incarceration of citizens? Will it lead to disciplinary policies within the prison institution that will serve to maintain full capacity? What is the corporation's incentive to rehabilitate offenders and reduce recidivism? Does the state want to award the power to shoot an escaping inmate to the lowest bidder?
 

Issues of Practice

1. Definitions

Beyond the more philosophical questions raised above are many more pragmatic issues surrounding the policy of allowing the private sector to operate prisons. To start, there are many different meanings and definitions of "privatization" that need to be clarified. In its purest sense, privatization describes a situation in which the state "gets out of the business" of providing a given service. When the State of Michigan sold the Accident Fund, for example, the State got out of the workers' compensation insurance business. A private group now provides these services, and the State makes no appropriation for them. This is different from contracting out for personal services to be performed by the private sector and paid for from a State appropriation. This is generally considered "out sourcing", and is more typical of the practices that occur in many State departments. Although the proposed youth prison has been hailed as an example of privatization, it will actually be more like sourcing out to the private sector the service of incarcerating youthful offenders, as the State will still be paying for this service. In this case, however, a private firm, rather than State employees, will likely provide these services.

In order for any State agency to contract for personal services outside the classified civil service, it must receive Civil Service Commission approval under Article 11, Section 5 of the State Constitution of 1963, which states in part, that the Commission shall "...approve or disapprove disbursements for all personal services...". In addition, the Commission has rules regarding contracting out for services (CSR 4-6) as well as a number of procedures and regulations that must be followed before a contract may be signed. In the event that a contract is signed with a private vendor to provide services previously performed by State employees, procedures contained in applicable collective bargaining agreements and Civil Service rules regarding the "bumping rights" of State employees whose positions are abolished must be strictly followed. Mistakes made by the State in administering the proper bumping chain can be costly as these employees have constitutionally protected rights to grieve the abolishment of their positions.

Concerns also have been raised regarding the issue of a potential "joint employer" problem. Joint employer issues arise in situations in which due to the nature of the task (such as supervision of the mentally ill, or incarcerated felons), the State needs to retain a certain degree of control over the individuals who have been placed in the custody of the State by court order or law. Consequently, the State must retain oversight over issues such as hiring qualifications, training requirements, and staffing levels. As such, there are potential concerns regarding the applicability of certain employee benefits, such as workers' compensation, which in certain situations have been required to be paid by the State for employees of a private corporation.

There appears to be agreement among opponents and proponents of private prisons that the government can neither abandon its constitutional responsibilities in incarcerating inmates, nor avoid liability associated with their performance, even if these duties are delegated to a private contractor. In other words, the State may be able to contract out for services, but it cannot contract away its legal responsibilities: The ultimate legal liability for a privately run prison will remain with the State. This issue is especially clear in the area of prison operations, since the State, because of the unique nature of the contracted service, needs to retain some "hands on" involvement at the facility (in the areas of disciplinary proceedings, prisoner classification, and employee training, for example) which makes the State's participation in the service that much more apparent. Consequently, it can be expected that the State would likely be a party to any litigation that might be filed by inmates from a privately operated prison. In addition, legal research indicates that under Section 1983 of the Federal Civil Rights Act, the State also would be responsible for any civil rights violations against inmates in a private prison.

The private contractor also would likely be subject to any current or future litigation to which the Department of Corrections is, or would be, a party. At this time, for example, there is litigation concerning prisoner property rights that covers all current and future inmates under the jurisdiction of the Department (Cain v DOC). For women offenders who may be incarcerated under private supervision, the Department is currently under a court order involving an equal protection class action (Glover v Johnson). These cases, and others like them, all involve legal issues that must be addressed by both the State and the private contractor before contracts for private management of State prisons proceed.

Conflicting Claims of Privatization

As stated earlier, one of the major motivating factors for contracting out the services of prison operations appears to be the economic benefit that the private sector can provide to a state's taxpayers. Proponents of prison privatization argue that not only can these services be provided more cheaply, but they can be provided at higher quality as well. Clearly, the claim that provision of an existing public service can be provided cheaper and better by a private company is very enticing to state legislators grappling with the annual frustrations of appropriating more and more money for corrections at the expense of not funding more popular programs like schools and roads. The question remains, however, whether these claims of cost savings are in fact true.

Despite the growing popularity and rapid expansion of private prisons across the country, the evidence regarding cost reductions and superior service from the private sector appears to be mixed. Several reports indicate that privately operated facilities are in fact less expensive to operate. Also, however, a handful of studies indicates that private institutions may be more expensive to operate, due in part to the failure to include "hidden costs" of state facilities in the total costs comparison. Finally, some studies that have attempted to look at similar institutions with similar inmate populations in similar geographic locations, have found that if there are any differences in costs, these differences are not very significant. This apparent "mixed bag" of results was confirmed in August 1996 by the United States General Accounting Office (GAO), which released a report comparing the costs and quality of service differences between private and public prisons. The GAO report, which analyzed five studies that had been done around the country, concluded that there was no clear evidence that privately operated facilities were either cheaper or of better quality than their public counterparts.

There are several limitations, however, in performing an effective comparative evaluation of costs and quality between private and public prisons. The first has to do with the infamous "apples and oranges" problem. On one hand, in order to get scientifically sound results, it seems clear that a meaningful comparison must look at the performance between two similar facilities that have similar inmate populations, are located in similar geographic areas, and have similar programming, food service, health care systems, etc., in order to ensure an "apples and apples" comparison. On the other hand, requiring a strict apples and apples comparison might be unfair if the competitive advantages offered by the private sector include the introduction of sophisticated management techniques, the ability to employ a workforce more productively, at a lower wage because of the lack of civil service restrictions or collective bargaining agreements, the ability to purchase supplies more quickly and less expensively, and the ability to design and build facilities more quickly at a lower cost, that are more efficient to operate. It is precisely because the private facility operates more like an "orange" that it is more competitive, and by its nature, not an "apple".

Secondly, in addition to the problems of trying to compare similar operations, there remains the fundamental recognition that calculating the cost of prison operations is a complicated task. To begin, there is the problem of ensuring that all costs, direct and indirect, are accounted for. While the direct operating costs of a facility -- staffing, food, clothing, utilities, etc. -- can be easily captured, it is more difficult to calculate indirect costs -- such as administrative overhead, financing of fixed assets, expenditures by other state agencies for corrections services (management and budget, attorney general, mental health, etc.), major repair and maintenance, and court judgments and settlements. Nevertheless, indirect costs are critical components of total cost when attempting to conduct public versus private cost comparisons.

Furthermore, by employing a private vendor, the State will incur new costs associated with its oversight over the private operation of prisons, including legal services associated with contract preparation, oversight, and enforcement. In addition, the Department of Corrections will likely need to retain staff to monitor and evaluate program performance of the private vendor in order to ensure contract compliance. Finally, there is the problem of differences in budgeting and accounting practices between the private and public sectors, which may make costs comparisons difficult. One needs to recognize and account for all of these factors when making costs comparisons between public and private facilities.

While one could argue that the issues raised above tend to be more technical problems that could be overcome in a public versus private cost evaluation, there are a number of additional concerns regarding cost savings claims over time that may be more significant. While there are currently enough prison management firms to provide meaningful competition in the private sector, there are those who argue that the larger prison management contractors will eventually force out many of the smaller operating companies, essentially shifting correctional services from a public monopoly to a private monopoly. Ironically, if this happens, it will likely occur just as public institutions are completing the structural changes necessary to accommodate and support prison operations by the private sector. During this transition, the function of the state will change from one of operations, to one of oversight, which may produce a net "cost shift" rather than a net "cost saving". Furthermore, once the state system for operating prisons is dismantled, "re-tooling" for state control of prison operations may be a difficult and costly task. Indeed, privatization opponents argue that many private contractors are purposely "low-balling" their initial contracts with government agencies in order to get a contract secured, realizing that it is often difficult and cumbersome for governments to reassume the operations of an entire prison or prison system.

Opponents of prison privatization also have voiced concern regarding the effect on employee wages that the corporation's profit motive may have. If, as the argument goes, lower wages result in reduced standards for critical positions, then important services such as medical treatment and care, and food service delivery may be compromised.

Finally, it has been argued by prison officials in states where private contracting has taken place that the private facilities accept only the best and easiest inmates in their institutions, and return to the state any inmate who causes problems. Once this is allowed to happen, the costs for the private vendor begin to decrease at the same time that state costs increase, as the state prisons are forced to handle more and more difficult prisoners, which generally results in requiring more and more staff. Since roughly 70%-80% of a prison's operating budget is for personnel, if a private facility can operate with 10% fewer staff, and pay the employees 15% less in wages, this could translate into an 18% overall saving in prison operating costs.

All of these issues make the task of providing exact costs comparisons between private and public prisons a difficult and potentially misleading endeavor. Even the most comprehensive studies, which require significant amounts of time and resources, can generally be effectively challenged as to the quality and quantity of the data used in their comparisons. At best, comparative evaluations are generally incomplete and inconclusive. At worst, they can be misleading and inappropriate, and may serve to focus the analysis away from the primary question, which is to determine the appropriateness of private operation of state prisons. In other words, if policy makers become too engrossed in whether the operating cost of a state prison is really $45.56 per day instead of the $46.89 that the private vendor claims, then the larger public policy questions both in favor of and against private prisons, may be overlooked.

In the final analysis, most of the existing data on private and public prison operations suggest that in general, the private sector, at least in the short term, is able to operate prisons at costs at least comparable to state prison costs, and in many cases, at costs less than state prison costs. While there may be considerable debate over the magnitude of the cost savings, there is less debate over the direction. Consequently, it may be more useful for policy makers either to approve or to disapprove a contract for private operation based on factors other than strictly cost savings, but focus also on issues of programming, services, prison management, and prisoner satisfaction.
 

Some Final Thoughts for Michigan

As Michigan begins plans to move toward increased use of private management of its prison system, there are a number of significant policy issues surrounding this decision that must be considered; only a portion of the more salient of these has been addressed above. Notwithstanding these concerns, it seems clear that the greatest benefit from increased private sector involvement will come from new and innovative approaches in prison operations and related facility planning that the private sector might bring to the current system, which could result in increased efficiency, lower cost, and better services for Michigan's prison system. If nothing else, the introduction of private sector competition could serve as a catalyst for rethinking current correctional policies that have for too long been accepted as a given in the absence of any meaningful alternatives. As one author has stated, "One purpose of competition, in addition to cost containment, is to maximize choice."

In this respect, privatization can be a means by which to implement a different concept for operating prisons, but clearly not the only means. Indeed, many of the potential cost saving features offered by private management can come from either contracting directly with the private sector for these services, or instituting changes in existing state policies and procedures. The establishment of private prisons in Michigan, therefore, should not be viewed as a way to replace the entire public correctional system, but instead, as a means to supplement it. This approach is consistent with the approach used in other states where the notion of private contracts for specific services or for specialized facilities has been accepted, while the privatization of an entire prison system has, as yet, not been. For example, the State of Texas has contracted with two different private management firms to operate specialized minimum security prisons that incorporate the notion of a therapeutic community in the operation of four, 500-bed prisons for inmates with substance abuse problems. Early results indicate rather significant improvements in subsequent substance abusing and criminal behavior for inmates who complete the programming. Given that reportedly 80% of Michigan prisoners have substance abuse problems, often being directly related to their criminal activity, it appears as though the opportunity for a similar system offered by the private sector could be very appropriate for this State as well.

If the State of Michigan is willing and able to work around some of the potential obstacles and limitations posed by privatization, such as those outlined in this paper, the opportunity for a productive role in the operation and management of components of the Michigan prison system by the private sector seems clearly available. The question for policy makers will be to determine how large that role should be.