News: CJ Exclusives

State Sours on Private Prisons

Two failed contracts lead many leaders to abandon privatization

The biennial state budget signed June 30 by Gov. Mike Easley provided for the construction of three prisons in North Carolina. In addition, the General Assembly authorized the state to purchase what once was its only two significant private prisons from Correctional Properties Trust, the company that owns them.

The legislature has not allocated a dollar amount, but the budget provisions signaled that the state plans to get out of privatization and that it will operate prisons itself for the foreseeable future. Privatization has worked for hundreds of other governments at the local, state, and federal level, but North Carolina’s first experience soured state officials on the idea.

NC’s short privatization history

In 1995 the legislature edged toward prison privatization, allowing for the construction of two prisons at opposite ends of the state, in Avery and Pamlico counties. Then-Correction Secretary Franklin Freeman was less than enthusiastic about the idea. In an interview with The News & Observer of Raleigh he said he believed that the state is responsible for the incarceration of criminals and should remain accountable for it. He advocated for a slow, limited approach to privatization.

North Carolina awarded operations contracts for the two in-state prisons in July 1996 to U.S. Corrections Corp. In April 1998, before construction of the prisons was complete, USCC was acquired by Corrections Corporation of America, the nation’s largest outsourced corrections management company. CCA assumed the contracts with the state, which provided for a 10-year renewable facility lease and five-year renewable operations agreement.

CCA opened the prisons, the Mountain View Correctional Facility in Spruce Pine and the Pamlico Correctional Facility in Bayboro, in late 1998 to house more than 500 medium-security prisoners each.

Both projects represented the state’s first serious attempt to enlist private companies to manage its incarcerated criminals in state. It had previously contracted with private companies to house inmates out of state on a limited basis.

The experiment was short-lived: The Department of Correction assumed operating control of the prisons in October 2000. The original agreement had called for CCA to run the prisons until 2003.

CCA and the Correction Department ended the operating contract early because the prisons immediately encountered problems. Both prisons, according to a 1999 Correction internal audit, were found to be understaffed and the workers poorly trained. The review of Mountain View determined that funds and merchandise were missing, and that its first business manager destroyed 95 percent of its records before being fired. Neither of the prisons was able to fulfill contractual obligations that required the employment of 100 inmates on site by private companies. Correction officials also concluded that poor management and record keeping plagued both prisons.

Steve Owen, director of marketing and communications for CCA, said the original contract that USCC negotiated with the state was difficult for his company to fulfill. He said CCA originally bid against USCC for the rights to run the prisons, and that the financially strapped and smaller USCC wanted the contract badly.

“It was not [a contract] in which we would have bid and agreed to,” Owen said.

Correction officials also questioned the financial stability of CCA at the time, which completely overturned its management and board of directors in 2000. As a result, no one from CCA could speak knowledgeably to Carolina Journal about the company’s problems with the original contract.

Studies of privatized prisons

Comparative studies of public and private prisons are easy to find, and scholars supporting each side of the issue are equally plentiful. Reports by conservative or business organizations usually support privatization, and those sponsored by liberal groups or government agencies question the idea. One truth is that nearly all the comparisons are flawed.

“Few studies are rigorous,” said Alexander Volokh, a policy analyst for the Reason Public Policy Institute, in a report for the Harvard Law Review in 2002. “Even reasonably good studies leave much to be desired…most studies do not analyze both cost and quality and thus are of limited value in assessing private prisons.”

Nevertheless, reports that favor out-sourcing prison services show why North Carolina, which emphasized savings, had a negative experience. Cost savings were the most emphasized reason for privatization in early studies, with good reason. As the trend grew in the 1980s and 1990s governments hoped the move would give some relief to budgets, and provide less-expensive solutions to crowded prison populations.

But a report released early this year by the Los Angeles-based Reason Public Policy Institute suggests that a cost saving, while usually a side benefit, isn’t always the best reason to privatize prisons.

“Quality, flexibility, innovation, and competitive pressure on the entire correctional system may be as important as cost savings in justifying privatizing,” wrote Geoffrey Segal in a January 2003 study for Reason called “Weighing the Watchmen: Evaluating the Costs and Benefits of Outsourcing Correctional Services.”

“But they are harder characteristics to measure and even harder to hang an argument on in a political debate,” he said.

Segal said critics emphasize that privatization doesn’t clearly provide cost savings in every case.

“Their assumption is that a mathematical process can determine policy choices,” Segal wrote. “If that were true, a computer could decide whether or not to privatize, and we would not need elected officials.”
Privatization advocates say the mere introduction of competition into the correctional system will improve conditions.

“Competition…affects the behavior of individuals throughout the system,” Segal wrote. “Workers and managers throughout the system respond to privatization by improving cost efficiencies and the quality of their work.”

Companies that bid for contracts with governments want to provide their customers with good service at the most efficient cost possible. Businesses that don’t fulfill their contracts struggle, as did USCC in North Carolina, and are supplanted by more competent companies.

Still, both business- and government-run prisons can suffer if excessive regulations or other policies hinder their success. In a study for the Confederation of British Industry, author Gary Sturgess wrote that true competition, with flexibility to be able to solve problems, gives incentives to managers to effect reform.

“Al Gore wrote that the problem with modern government is that we have ‘good people trapped in bad systems,’” Sturgess said. “Contracting and contestability transform those systems, setting good managers and staff free to deliver better results.”

In the Reason study Segal examined data from other public vs. private “quality” comparison studies conducted since 1989. His analysis revealed that in 16 of 18 of those studies, “private prisons outperformed or were equal in quality to their government counterparts.”

Segal also looked at rankings by the American Corrections Association, which offers guidelines for quality of operation, management, and maintenance. He found that 44 percent of contractor-operated prisons were accredited by ACA, compared to 10 percent approval for government-run prisons.

And for the lawmakers’ most important consideration — costs — Segal found that of the 18 studies he evaluated, 12 estimated that private prisons saved 10 percent or more in costs over government-run prisons. The other six studies determined that private prisons saved between zero and 10 percent. None of the studies found private prisons to end in a net loss.

The largest amount of savings (up to 28 percent) were found in a 1994 Australian study, while a 1995 Tennessee study found that private prisons at least broke even with government-run prisons. But the Tennessee study also determined that privately run facilities provided better performance.

Studies that say privatization does not provide cost savings and better service come mostly from liberal groups such as employee unions and “equal justice” organizations. They contend that most pro-privatization studies don’t compare like facilities in size and security level, and that they don’t consider all the costs of incarceration.

Charles H. Logan, a professor of sociology at the University of Connecticut who has conducted several studies of prison privatization, wrote in Private Prisons: Cons and Pros that expenditures often missed in studies include: the special costs of managing and monitoring contracts; the costs of services to displaced government workers; the profit incentives for private prisons to hold inmates longer than necessary; and potential costs to government because of increased liability exposure.

The American Friends Service Committee, a Quaker organization that “carries out…social justice, and peace programs throughout the world,” reported in a February briefing paper that states often “cherry pick” prisoners by sending the least problematic prisoners to private facilities. AFSC said the practice “gives the illusion that the private prisons are operating more cheaply.”

The group also says that other hidden costs include tax breaks, economic incentives, and other government subsidies given to correctional corporations. AFSC said an October 2001 study by Good Jobs First, which studies government subsidies, found that 73 percent of the 60 private prisons received some sort of development incentives.

A successful case study

Texas has the largest state prison population in the country and the second-highest incarceration rate among the states. (Louisiana ranks first) Texas has a reputation for toughness on crime, and has become the largest state user of private prisons to house its convicted criminals.

“I think [private prison companies] can perform a good service,” said John Gilbert, director of the private facilities division for the Texas Department of Criminal Justice. “It just depends on what the state’s needs are.”

About 10 percent, or 15,000 of Texas’ 150,000 prison beds are privately managed. Gilbert said the department as a whole doesn’t take a stand on the issue, but he believes the state has “a pretty good mix.”

Texas has learned a lot about what leads to success in private prisons and their relationships with governments. Some expectations North Carolina had in its privatization contract with CCA were for services or requirements that Gilbert says Texas avoids.

For example, North Carolina’s Mountain View prison lacked a psychiatrist and other medical staff as required in the contract. Gilbert said Texas doesn’t send “special needs” inmates to its private prisons, which keep only a staff nurse and an outside contract with a doctor. He said the state’s university medical system administers much of the prison health care.

“We feel like our health care system is much more comprehensive than what [the private companies] can offer,” Gilbert said.

Also, both of North Carolina’s contracts with CCA called for an outside company to employ 100 prisoners at prevailing wages at each facility, a requirement that was never fulfilled. Gilbert said Texas has only one private prison with a similar job program, which is partially federally funded. Instead inmates work in institutional jobs and receive vocational training. “Generally, we don’t contract with private companies to come in,” he said.

Designing the contract, and subsequent monitoring, are most crucial to the success of private prisons, Gilbert said. “Here in Texas we’ve not been overbearing with contracts,” Gilbert said, “but we’ve been pretty specific with what we want.”

Owen agreed that vague wording and poorly defined contracts lead to poor results.

“That is probably the source of most if not all problems that arise,” he said.

Gilbert acknowledged that some differences between private and public prisons, such as precise costs and certain aspects of performance, are difficult to ascertain. But he said the Texas legislature will likely authorize a new study of private prisons this year, because like most states, it is suffering from a budget shortfall and wants to find more cost savings.

“I think you’re going to see a lot of services in our state for privatization,” Gilbert said.

North Carolina’s de-privatization

Officials from the North Carolina Department of Correction, and its Division of Prisons, failed to respond to several requests by CJ for interviews for this story.

But from previous news stories and documents provided by the department, there seems to be no appetite for trying prison privatization again. Even conservative lawmakers, often more receptive to the idea, are skeptical that prison privatization saves money or provides better services.

“Even though it looks as if when you run through the numbers you save money,” said state Sen. Stan Bingham, a Denton Republican and appropriations subcommittee member on justice and public safety, “I’m very skeptical.

“The experience [the state has] had, and after studying it, they’d have to show me (it works) instead of just telling me.”

Republican State Rep. Joe Kiser of Lincoln County, a former sheriff and Bingham’s counterpart in the House, agreed that North Carolina’s first experience with prison privatization was a disappointment. He believes the state gave the idea a legitimate try. “I think we did,” he said.

Owen said the state and CCA agreed to return operating control to the Department of Correction in October 2000. He said his company tried to fulfill the terms of the contract it took over from USCC, but wasn’t able to do so.

“We hoped to make some changes,” he said, “but the state, rightfully so, had some expectations.”

Chesser is associate editor at Carolina Journal.