Reason Foundation

APR 2011: Corrections and Public Safety

Posted on May 2, 2012, 5:35pm | Harris Kenny

The rollout of Reason Foundation's Annual Privatization Report 2011 (APR 2011) concluded this week with the Corrections and Public Safety section, which provides an overview of the latest news and trends in public-private partnerships in corrections and public safety. Highlights include:

• According to the most recent data compiled by the Bureau of Justice Statistics, the total U.S. prison population declined for the first time in nearly four decades. The decrease is attributed largely to a decline in new prison admissions relative to prison releases in state prisons.
• Approximately 8 percent of the total prison population is currently housed in privately owned and/or operated facilities, while the remaining 92 percent continue to be housed in government-run facilities.
• In the 2011 case Brown v. Plata, the U.S. Supreme Court ruled California’s correctional system is providing unconstitutional mental and medical care to inmates. At the time, California held about 156,000 inmates in a system designed for less than 80,000 inmates – nearly twice the design capacity. In response, the court ordered the state reduce its system-wide prison population at or below an average of 137.5 percent of prison design capacity.
• A new form of public-private partnership is emerging in the United Kingdom and Florida that could dramatically reduce recidivism and transform corrections, whereby contractors would be compensated for achieving specific performance goals in reducing recidivism and improving rehabilitation. Florida is exploring this model for an 18-county region and would apply dozens of performance measures to quantify outcomes.
• In September 2011, the Ohio Department of Rehabilitation and Correction, under the guidance of Gov. John Kasich, announced the results of a large-scale procurement that will see the state raise $72 million from the sale of one state prison to a private operator—the first sale of its kind in the nation—and two others turned over to private management, for an estimated $13 million in annualized cost savings.
• Lawmakers in Texas, Florida, Arizona, North Carolina, Pennsylvania and elsewhere are pursuing meaningfully expanding the role the private sector plays in inmate healthcare delivery.

» Annual Privatization Report 2011: Corrections and Public Safety [pdf, 1.4 MB]

» Complete Annual Privatization Report 2011 homepage

The Year 2011 in State Government Privatization and Public-Private Partnerships

Posted on April 24, 2012, 3:53pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2011 begins today with the release of the State Government Privatization section, which I co-authored with Reason's Lisa Snell. This section of APR 2011 provides an overview of the latest on privatization and public-private partnerships in state government. Topics include:

• In New Jersey, the Christie administration continued to expand its portfolio of privatization initiatives in 2011, which included highway maintenance, manual toll collection, state-run horse racing facilities, vehicle fleet operation, the NJ Network TV station and more.
• Two ratings agencies upgraded Louisiana's credit rating in 2011, citing the state's strong fiscal management, strong employment levels and sustainable levels of public debt. Privatization remained a central feature of the Jindal administration's fiscal management in 2011, with progress on some of its major healthcare privatization initiatives in Medicaid delivery, public employee health care and behavioral health services.
• New Ohio Gov. John Kasich has already taken significant steps to advance privatization as a key component of his governing agenda, including privatizing the state's economic development agency, selling a state prison to a private operator, and hiring advisors to analyze the potential privatization of the Ohio Turnpike and Ohio Lottery.
• In late 2011, Washington State became the first state since the end of Prohibition in 1932 to fully privatize the sale and distribution of liquor, and several other states, including Pennsylvania and Virginia, considered similar moves. Today, 33 states have completely private wholesale and retail trade in liquor, while 17 states still retain a state-run wholesale and/or retail liquor monopoly.
• Puerto Rico continued to emerge as a leader in attracting private investment in public infrastructure, with public-private partnerships undertaken or underway in 2011 that include a modernization of 100 K-12 schools, a $1.5 billion toll road lease and an ongoing procurement for a long-term lease of San Juan's international airport.
• In 2011, both Texas and Connecticut enacted broad-ranging laws to authorize private sector financing for infrastructure assets.
• As state park systems continued to face significant fiscal pressures in 2011, policymakers in states like Arizona, Utah and California took steps to expand the use of private for-profit and nonprofit operators to take over state parks threatened with closure.
• Illinois' groundbreaking lottery privatization program got underway in 2011, an initiative designed to generate an additional $1 billion in revenues to the state over the next five years. Policymakers in California, New Jersey, and Ohio are considering similar moves.
• After years of implementation challenges that prompted a dramatic overhaul, Indiana's privatized welfare eligibility modernization program significantly improved its performance in 2011, prompting federal officials to authorize its expansion throughout the state and award the state $1.6 million in recognition of its progress at reducing its error rates for food stamp processing.
• Other topics include public-private partnerships in higher education, an update on state child welfare privatization systems and more.

» Annual Privatization Report 2011: State Government
» Complete Annual Privatization Report 2011 homepage

Gov. Cuomo Ushers Through $132.6 billion NY State Budget

Posted on April 2, 2012, 2:35pm | Harris Kenny

Last week New York Governor Andrew Cuomo, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver announced the early passage of the state’s fiscal year 2013 budget. The Legislature approved the $132.6 billion budget on Friday March 30. According to an article by Thomas Kaplan in The New York Times:

The voting on Friday marked the first time the Legislature had approved a state spending plan with more than 24 hours to spare since 1983 – when Mr. Cuomo’s father, former Gov. Mario M. Cuomo, passed his first budget.

Four major stories jump out of this budget deal.

1. Fiscal Responsibility: Lawmakers closed a multi-billion dollar deficit ($2 billion, or 3.5% of the state budget, according to the Center on Budget and Policy Priorities) without raising taxes or imposing fees. State spending growth held to 2% for the second year in a row, while net spending (state and local) was reduced for the second year in a row thanks in part to tax caps on local governments. State spending will total roughly $88.8 billion in FY 2013. Most impressively, out year deficits have been reduced by a cumulative $72 billion since Gov. Cuomo took office.
2. Government Reform: Lawmakers are empowering the Office of General Services (OGS) to serve as a clearinghouse for state agencies, thereby transforming procurement by facilitating bulk purchase common goods and services through centralized contracts. Officials will leverage the state’s purchasing power to save $100 million in FY 2013 and a projected $755 million over five years. They’re also eliminating 25 state boards and commissions that are no longer active or whose missions have been completed or become redundant, such as the Department of State’s Barbers Board. (See the full list of eliminated boards and commissions available online here, for more on the new OGS initiatives see here).
3. Transportation Infrastructure: Lawmakers are enhancing their focus on transportation infrastructure. The budget establishes the New York Works Task Force to coordinate capital plans across state government and funds the New York Works program with $232 million in state capital funds and $917 in federal funds for $1.2 billion in new spending. This is in addition to $1.6 billion already allocated this year to core transportation capital investment. And most importantly, these funds are in addition to the advancement of the Tappan Zee Bridge replacement project. (For more on the Tappan Zee Bridge replacement project, see my colleague Baruch Feigenbaum’s latest Out of Control Policy Blog post here.)
4. Criminal Justice: The Budget serves as the launching point for Gov. Cuomo’s Close to Home Initiative, which seeks to reform the state’s juvenile justice facility system. Specifically it allows New York City officials to take responsibility for the case of lower risk youth who come from the City. This applies to youth in non-secure and limited security facilities. The aim of the program is to reduce crime and improve outcomes for youth and the communities in which they live by providing targeted educational, mental health, substance abuse and other service needs without compromising public safety. The program is expected to save $4.5 million in FY 2013 and $27 million in FY 2014, in part by reducing the state’s juvenile justice system capacity by 140 beds in FY 2013 and 180 beds in FY 2014. (For more on the Close to Home Initiative see a write-up by the New York State Juvenile Justice Advisory Group here.)

Overall there are some major accomplishments in this budget. Kudos to state policymakers for finding common ground and balancing innovation with fiscal responsibility along the way. Once considered in the dysfucntional company of states like California and Illinois, New York appears to be taking serious strides in the right direction.

Corrections Still Impacting FL Budget Debate

Posted on March 5, 2012, 11:13pm | Harris Kenny

The Bradenton Herald reports:

Racing against the clock, legislators labored Sunday to settle spending differences and agree on a $70 billion budget with five days left in the session. They made progress, but today will be another marathon day as lawmakers left some of the most contentious issues to the final hours…

Following questions by Democrats, lawmakers removed budget language that would have allowed the Department of Corrections to move money between budget categories “for outsourcing efforts.”

In the most divisive vote of the 2012 session, the Senate voted 21-19 to reject a proposed privatization of all prisons in 18 South Florida counties. Some anti-privatization lawmakers and lobbyists were on high alert for a possible last-minute maneuver to keep privatization alive, but it didn’t happen.

Republicans said they were not giving the prison system authority to expand privatization, and when Senate Democratic Leader Nan Rich of Weston asked why the language was needed, Republicans quickly eliminate it.

“The budget is really pretty thin on cash,” said Senate Budget Chairman JD Alexander, R-Lake Wales. “I don’t think anybody’s quite satisfied, but I think we’re making good progress on a budget that will work for Florida.”

While the 18-county effort has garnered all the headlines, the state Department of Corrections is currently engaged in a less publicized reform effort to partner with the private sector to improve healthcare delivery within the state’s 100,000-inmate system. As I explained last week in a reason.org commentary entitled, “Florida Correctional Healthcare Reform in Jeopardy”:

The appeal of the legislature’s correctional healthcare reform effort is simple: private companies that compete to provide medical and mental health services to inmates can save the state money, provide high quality care, and give policymakers more accurate understanding of what it costs to run the state’s correctional system. In other words, competition disrupts an otherwise stagnant bureaucracy to find better ways to do things.

However like the aforementioned 18-county program, this innovative approach to correctional healthcare service delivery is facing legal challenges after the Florida Nurses Association filed a lawsuit in Leon County Circuit Court hoping to stop reform. The critics are ultimately on the wrong side of this issue. As I explain in the piece:

Government officials around the world are partnering with the private sector because it works. By abandoning the single-provider government service model, and embracing competition, policymakers have witnessed improvements in both cost savings and quality of service. Indiana, for example, has saved tens of millions of dollars in correctional healthcare costs through privatization, and corrections officials there have used privatization to lower food service costs by nearly one third.

The piece concludes:

Improving Florida’s correctional system is a daunting challenge and no one action can accomplish this goal. However, policymakers have already taken the first step by encouraging a culture of reform. Allowing private companies to partner in providing correctional healthcare is a common sense solution that’s as symbolically significant as it is substantive. The state Department of Corrections is exploring sensible new ways of doing the public’s work, something that should be encouraged, not stifled.

Read the full commentary available online here. For more of Reason’s work on corrections in Florida see here, here and here.

Prison Privatization Failure in Florida Shows Clout of Union

Posted on February 19, 2012, 11:51am | Samuel Staley

The failure of a signature privatization effort for Florida Gov. Rick Scott earlier this week was a telling sign of the continued clout of unions in the policy marking process. Gov. Scott and his supporters in the legislature tried to keep the debate about sound management. In fact, Scott's proposal even said no privatization would occur unless the state could save a minimum of 7 percent.

Unfortunately, an opposition that included all Democrats and nine Republicans successfully carried the day by arguing, in effect, government is really a big jobs program. As the Miami Herald reported (Feb 24, 2012):

"Senators debated privatization for nearly three hours, and opponents’ floor speeches often showed more passion. Rather than talk about numbers, they talked about people, such as the treatment of correctional officers, whose starting salary is $34,000 a year and who have not received an across-the-board pay raise for the past six years.

“What’s wrong with state employees?” said Sen. Dennis Jones, R-Seminole. “We should be taking care of them, rather than kicking them under the bus.”

"Prison guards displaced by privatization could have “bumped” less experienced officers from their jobs upstate. But, Jones said, with the current housing crisis, many are trapped in their homes and couldn’t sell them if they wanted."

While some argued that the savings were "unproven," the reality is that savings can never be "proven" unless the services are actually put out for bid in the first place. Nothing required the state to privatize even the savings weren't there in the proposals.

For more, see the Reason Foundation policy study by Len Gilroy and Adrian Moore Corrections 2.0, Len's recent review on corrections privatizations for our annual Privatization Report, and my recent podcast with Capitol Vanguard. 

PA Lawmakers Should Encourage Prison Health Competition, Not Ban It

Posted on January 20, 2012, 1:03pm | Harris Kenny

States across the U.S. continue to face budget woes. The latest budget estimates from the Center on Budget and Policy Priorities show 29 states are projected to have, or have addressed, budget deficits totaling $44 billion in FY 2013. However as my colleague Anthony Randazzo and I explained last month, long-range U.S. Census Bureau data suggests state and local governments have a spending problem – not a revenue problem. 

Pennsylvania fits all too comfortably within this narrative as its lawmakers are currently grappling with a $500 million budget deficit for FY 2013. My colleague Leonard Gilroy and I explain in our latest commentary entitled Lawmakers Should Encourage Prison Health Competition, Not Ban It:

(T)he last thing fiscally responsible policymakers should be doing is protecting sacred cows in government. Unfortunately, those trying to advance legislation to protect the jobs of Commonwealth prison nurses are attempting just that.

The legislation in question is House Bill 1985, which would prevent state funds appropriated to the Department of Corrections from being used to privatizing prison nursing services. There’s one glaring problem though: the state already partners with a range of private sector correctional healthcare professionals, including: physicians, mid-level providers, and nurses in some facilities. 

The bill is a reactionary attempt to stifle a request for proposals (RFP) issued by the Department of Corrections seeking two bids for comparative purposes, as we explain in the piece:

(O)ne that would maintain the current scope of outsourced services, and another that would expand the scope to include additional nursing positions. In essence, the corrections department is testing the market to see whether they should stay on their current path or if they can deliver more value to taxpayers by including more nurses.

Ultimately, the Pennsylvania Department of Corrections is doing their due diligence in considering every way to deliver high quality healthcare to inmates at an affordable cost to taxpayers. At a time of ongoing budget woes one would think they’d receive praise, not prying, from state lawmakers. For more, read the full piece available online here.

Uncertainty Looms As California Corrections “Realignment” Plan Begins Saturday

Posted on September 26, 2011, 12:44pm | Harris Kenny

Tracey Kaplan of the San Jose Mercury News reports:

To trim its bulging prison population and cut costs, California is about to gamble on a strategy no other state has tried – unload the responsibility for punishing and rehabilitating thousands of nonviolent felons from the state prison system to local communities.

The state's new massive "realignment" plan – which begins Saturday – amounts to a dramatic retreat from California's costly, tough-on-crime, lock-'em-up approach. No matter how slowly the new strategy unfolds, it will ultimately put more low-level offenders on the streets sooner than they would be under the current rules, either because they are enrolled in rehabilitation programs outside the jail walls, or are serving shorter periods in jail or on post-release supervision.

"It's the biggest change in the criminal justice system in 35 years," since the state switched to imposing fixed-term sentences on most crimes, said Judge Phil Pennypacker, who presides over the criminal division of Santa Clara County Superior Court.

For those unfamiliar, this abrupt policy change is coming on the heels of the Supreme Court’s recent Brown v. Plata decision, which found California’s in-state publicly operated prisons are providing unconstitutional medical and mental health care to inmates. Notably, California’s thousands of inmates incarcerated in privately operated prisons were not included in this ruling. (For more on Brown v. Plata, see my previous post here.)

Many of the concerns over realignment first arose when enabling legislation, specifically California Assembly Bill 11-109, was signed in April. AB 109 allows for a felony offender to be punished “by imprisonment in a county jail for more than one year.” (For more on AB 109 see my previous post here). Kaplan continues:

With the startup of realignment just days away, judges, sheriffs, lawyers and probation chiefs throughout California have been frantically meeting to figure out the complex rules. Before long, nearly everyone in county jail will be eligible to get out after serving half their sentence if they behave; currently, jail inmates have to serve two-thirds. Parolees who comply with the conditions of their release also can earn their freedom sooner – in six months, rather than a year.

And sheriffs in some of the 32 counties with court-imposed caps on jail populations or overcrowded jails are likely to release more inmates early.

Though that's not a problem for most Bay Area counties, the lack of jail beds is particularly acute in parts of the Central Valley and Southern California, especially Los Angeles County, which collectively released more than 68,000 sentenced inmates in 2009 before they were due to be freed.

Next she highlights fears that early inmate release programs may lead to an increase in property crimes, reversing California’s recent plunge in crime rate down to 1960’s levels. At the same time, advocates for realignment argue a new approach may lead to lower recidivism as communities provide alternatives to incarceration. While the outcome is difficult to predict, funding remains uncertain too. Kaplan writes:

Counties were given state funds totaling $400 million this fiscal year to spend on whatever mix of incarceration, supervision and programs they choose. State finance analysts say realignment will save about $53 million in prison costs this fiscal year, $125 million next year and $338 million the year after, even as the counties' allocation rises to about $1 billion in 2013-14.

But even if counties had the capacity or the staff to supervise more inmates, the state is not giving them enough money to simply lock them up. Incarceration is an expensive option; in the Bay Area, jail costs about $77 a day, compared with up to $49 for electronic monitoring. Drug treatment costs a little more than jail – $88 a day for a 90-day residential program – but if it works, it saves taxpayers money in the long run.

Many counties complain the funding falls far short of covering the cost of alternative programs – and they worry the state could cut it even more as the budget crisis worsens. The governor's first attempt to get a constitutional amendment on the ballot guaranteeing future funding failed, but he vowed last week to get such an amendment on the November 2012 ballot – even if he has to launch an initiative campaign himself.

Finally, she concludes with revealing data from a recent Los Angeles Times and University of Southern California poll that found:

• ”80 percent of voters support realignment, though it’s unclear whether they will agree to tax themselves to fund it or to designate a portion of the state’s general fund to cover the cost.
• Nearly 70 percent even approve the early release of some low-level nonviolent offenders.
• In a major shift, voters are fed up with prison spending… [Which] produces the second-highest recidivism rate in the country: 67.5 percent.”

The full article is a must-read and is available online here.

In a recent reason.org commentary entitled “Brown v. Plata Ruling Highlights Need for Reform (Not Tax Increases)” Adam Summers and I outline three recommendations for California policymakers:

1. Pursue criminal sentencing reform.
2. Make recidivism reduction a priority.
3. Expand use of privately operated facilities.

The full reason.org commentary is available online here. For more, read Reason Foundation’s 2010 study entitled Public Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform.

Public Employees Spurn Concessions in Connecticut

Posted on July 5, 2011, 3:59pm | Harris Kenny

According to the latest budget analysis by the Center for Budget and Policy Priorities, Connecticut faces a $2.9 billion budget deficit in FY 2012 and a $2.7 billion budget deficit in FY 2013. In order to balance the budget, Gov. Malloy emphasized a two-pronged approach of tax increases and negotiated concessions for public spending cuts.

In February the governor introduced an unprecedented slate of tax increases through which the Hartford Courant reports, “Taxes would increase on virtually all taxable items.” (For more on this proposal see my previous post here.) Lawmakers complied in passing $2.6 billion in tax increases that Bloomberg describes as “the biggest increase in state history.” However, the second prong of his approach failed to materialize. Rank-and-file union members rejected a range of wage and benefit concessions negotiated with labor leaders leaving Gov. Malloy with a $1.6 billion budget deficit to balance.

Last week lawmakers granted the governor authority to cut spending in all three branches of state government by as much as 10 percent over the next three months. If last week is any indicator, it’s going to be a contentious three months. An estimated 5,500 state workers face layoffs with layoff notices being sent shortly after rank-and-file union members rejected the concessions, while another 1,000 unfilled positions will be eliminated.

Gov. Malloy is pursuing expanding the use of privatization in addition to layoffs. He’s requested legislative changes to the State Contracting Standards Board, specifically suspending legal restrictions and procedures inhibiting privatization. He told newspaper editorial writers and editors in a conference call last Wednesday:

I'm asking for additional ability to privatize services. There are a whole bunch of people in the world who think they are the only people who know how to operate a plow. I got news for you; other people know how to operate a plow.

According to the Hartford Courant:

(This) was an apparent reference to Department of Transportation snowplow operators, who are part of one of the state employee unions that voted in recent weeks to reject the concessions agreement that would have provided a four-year no-layoff guarantee in exchange for changes in employee health care and pension benefits.

The governor faces a daunting task and is moving forward with several reform efforts. First, he fulfilled a promise made in his state of the state address to divest Bradley International Airport into an independent entity. This is a proven and welcome reform that will save the state money, improve airport operations and reduce taxpayer liability. The newly established Connecticut Airport Authority now has day-to-day control of the airport. Second, he is moving forward with closing the Bergin Correctional Institution in Mansfield-Storrs, Connecticut. After ending public operation of this facility, Gov. Malloy should consider leasing or outright selling the facility to a private operator interested in using it.

For ideas on how to cut spending and streamline government, Connecticut policymakers should consult Privatizing “Yellow Pages” Government, a thorough study released this spring identifying dozens of opportunities for privatization in neighboring Pennsylvania. The study is a collaboration between Reason Foundation and Commonwealth Foundation and is available online here.

ICYMI: Brown v. Plata Ruling Highlights Need for Reform (Not Tax Increases)

Posted on June 3, 2011, 3:31pm | Harris Kenny

In case you missed it, yesterday my colleague Adam Summers and I co-authored a Reason.org commentary (available online here) explaining that in light of the Supreme Court’s recent Brown v. Plata ruling, a multi-faceted approach is necessary to finally reform California’s correctional system. The Court ruled that California must reduce overcrowding at its prisons in order to improve conditions currently so poor as to be unconstitutional.

Notes from the Brown v. Plata ruling reveal just how bad conditions are in California’s prisons, for example:

• In one state-run prison, 200 inmates are living in a gymnasium sometimes monitored by only two or three guards;
• In another, 54 inmates share one toilet;
• Suicidal inmates have been held for prolonged periods in telephone booth sized cages without toilets; and
• In one case, an inmate was held in a cage (similar to the one described above) for 24 hours, standing in a pool of his own urine, unresponsive and nearly catatonic.

To bring California’s correctional system closer to adequate—and constitutional—conditions, the state should adopt the following reforms:

• Pursue criminal sentencing reform;
• Make recidivism reduction a priority; and
• Expand use of privately operated facilities.

As we conclude in the piece, kicking the can down the road is no longer an option, and officials in Sacramento can’t simply tax their way out of this crisis. Read the full commentary (available online here). For more, see Reason Foundation’s latest corrections research: Public-Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform and Corrections 2.0.

New Hampshire Exploring Prison Privatization

Posted on May 20, 2011, 5:27pm | Harris Kenny

Earlier today I had the privilege of being a guest on The Exchange with Laura Knoy, an hour-long daily call-in show focused on news and public affairs hosted by New Hampshire Public Radio. Todays show covers the use of privately operated prisons across the U.S. and around the world. It also includes discussion of whether New Hampshire should move forward with proposed plans to send inmates to privately operated prisons. Full-length audio of the episode is available online here.

Note: At one point in the interview I say, “In a majority of privately operated prisons there are state employees overseeing operations within that prison 24/7.” To clarify, I mean that privately operated prisons remain under careful watch by states through state employees in the facility, closed circuit television recordings and/or through meticulous documentation of daily operation.

The conversation spans many aspects of America’s correctional system and includes discussion of how public-private partnerships are being used to effectively deliver correctional services both in the U.S. and around the world. There is special focus on how a new “Corrections 2.0” approach is being explored in the United Kingdom and Florida. Under this next-level approach, the financial incentives of the private sector align with government’s goals of maintaining public safety, reducing recidivism, improving rehabilitation and lowering costs. (For more on the Corrections 2.0 approach, see this study by my colleagues Leonard Gilroy and Adrian Moore.)

During the show we were only able to scratch the surface on the issues facing New Hampshire in providing correctional services. According to the Council of State Governments Justice Center, over the past ten years New Hampshire’s prison population has increased 31%, while lawmakers have doubled spending on corrections. Meanwhile the Department of Corrections is expected to be the only state agency whose funding will increase over the next biennium.

What have New Hampshire taxpayers gotten for their money? The Council of State Governments Justice Center recently published a revealing study, some highlights of their findings include:

• The number of women admitted to prison has increased dramatically, while women’s recidivism rates are also on the rise.
• The number of parolees who fail on supervision and are revoked has increased 50% since 2000.
• Recidivism rates are highest amongst 17-19 year olds, with 60% returning back to prison after release.
• The state has inadequate integrated mental health and substance abuse services, creating significant challenges for police officers and emergency first responders. 

Last year New Hampshire lawmakers passed Senate Bill 500 into law, which makes it so nonviolent criminals will be released after serving 120 percent of their minimum prison sentences. All prisoners will be paroled at least nine months before their minimum prison sentences, and all parole violators would face 90 days back in jail in a special program designed to re-engage them in their parole plans. The legislature’s intention with SB 500 is to address the failure of the prison system to adequately prepare inmates for re-entry into society, however states cannot exclusively legislate recidivism reduction. A Corrections 2.0 approach that embraces partnering with the private sector to individually meet the needs of inmates should also be used.

More recently State Senator John Morse, Chairman of the Senate Finance Committee, has publicly sought to cut costs for the Department of Corrections. The Nashua Telegraph reports he proposed relocating 600 inmates to private facilities in order to realize around $11 million in savings over the next biennium. Sen. Morse also asked lawmakers to study the state’s entire corrections system saying, “The reality is, the department (of corrections) can’t continue to grow and grow and grow in costs.” It’s worth noting these cuts serve to reduce the Department of Corrections’ budget increase, and the agency is still expected to be the only one in the state to receive a funding increase (2% over the next biennium.)

New Hampshire is not alone in facing these difficult policy questions. In fact, Granite State policymakers need look no further than Vermont for better understanding of how to work with the private sector to find cost-savings. Vermont has the third highest percentage (30%) of inmates kept in privately operated prisons of any state. Vermont is effectively partnering with the private sector to deliver more cost-effective correctional services without sacrificing quality, why isn’t New Hampshire?

Full-length audio of the aforementioned interview is available online here. For more on public-private partnerships in corrections, see Reason Foundation's Corrections Policy Research Archive.

CA Gov. Brown Signs Inmate Transfer Bill AB 109

Posted on April 6, 2011, 12:40pm | Harris Kenny

On Monday California Governor Jerry Brown signed AB 109 into law, which amends the state’s options for imprisonment of offenders that commit felonies. The Los Angeles Times reports that this bill will impact tens of thousands of felons convicted of nonviolent crimes. Specifically, AB 109:

Would provide that a felony is a crime that is punishable with death, by imprisonment in the state prison, or notwithstanding any other provision of law, by imprisonment in a county jail for more than one year. The bill would generally provide that felonies are punishable by imprisonment in a county jail for 16 months, or 2 or 3 years. The bill provides exceptions to imprisonment in a county jail for a variety of felonies, including serious felonies and violent felonies, as defined, felonies requiring registration as a sex offender, and when the defendant has a prior conviction for a serious or violent felony, or a felony subjecting the defendant to registration as a sex offender, among other exceptions [emphasis added].

The bill’s opponents, including many Republican legislators, argue that this bill will undermine the justice system. Los Angeles County District Attorney Steve Cooley told the Los Angeles Times, “County jails are also crowded, and were never designed to offer the same rehabilitation programs as state prisons. Public safety requires appropriate incarceration and deterrence... and both of those will suffer under this proposal.”

Conversely, supporters believe this bill will provide a number of benefits, as Gov. Brown said in a press release, “Cycling these offenders through state prisons wastes money, aggravates crowded conditions, thwarts rehabilitation and impedes local law enforcement.” California Department of Corrections and Rehabilitation Secretary Matt Cate supports the measure, telling the Los Angeles Times:

(California’s state prisons) took in 47,000 inmates last year who were parole violators sentenced to 90 days or less… it makes no sense to go through the elaborate intake process, which takes an average of three months, for inmates who are going to spend only a few months behind bars. (California’s state prison) system is the most expensive in the free world… You can’t do worse [emphasis added].

Arguably the most pressing benefit of AB109 would be relieving California’s chronically crowded state prisons. As recently as 2009 the Golden State’s state prison system was at 178% of design capacity, far in excess of the national average of 110% among states. Of course, this benefit would be undermined if the overcrowding were simply transferred to County prisons, so the details of how this will be implemented remain unseen. Further, Associated Press reports AB 109 hinges on scarce funds to offset increased local government costs that may not be available in FY 2012.

Last year Reason Foundation published Public-Private Partnerships for Corrections in California, a study that provides a number of policy tools to reduce the state prison system’s overcrowding crisis and improve efficiency. Many of the policy tools included in the study are being implemented today (measures like AB109 were not included in the study). For a comprehensive update of California’s prison system, see Reason Foundation’s Annual Privatization Report 2010: Corrections.

New at Reason: Annual Privatization Report 2010

Posted on February 10, 2011, 3:32pm | Leonard Gilroy

I'm pleased to announce that today marks the launch of Reason Foundation's Annual Privatization Report 2010 (reason.org/apr2010). Now in its 24th year of publication, the Annual Privatization Report is the world's longest running and most comprehensive report on privatization news, developments and trends.

Readers will notice that we've made a significant change with APR 2010, publishing it as a series of reports arranged by topic, rather than one consolidated report as in previous years. We expect that this will make it easier to use as a resource and find the information you're looking for. The individual sections of APR 2010—which will be released over the next two weeks—include:

• Air Transportation
• Surface Transportation
• Federal Privatization
• State Privatization
• Local Privatization
• Education
• Telecommunications
• Corrections
• Water

We started the rollout today with the APR 2010 Air Transportation section. It provides a comprehensive overview of the latest news on domestic and international airport privatization, the privatization of airport security - including passenger and baggage screening and the federal Registered Traveler program, and domestic and international trends in air traffic control reform. 

» Annual Privatization Report 2010: Air Transportation [pdf, 800kB]

» Complete Annual Privatization Report 2010

Corrections PPPs Delivering Cost Savings in Florida

Posted on February 4, 2011, 1:05pm | Leonard Gilroy

In this post, I'd like to address a question recently posed by a reader regarding Reason Foundation's January policy brief proposing a continuum of care in corrections through public-private partnerships (PPPs). We used Florida as a case study in the paper, estimating that shifting to a continuum of care PPP model in two Florida Department of Corrections (FDOC) regions could potentially save the state between 7-10% in operating costs. However, because most state correctional systems do not typically break down their own fully allocated costs at the individual facility level, we relied on average per diems (by facility type) reported by FDOC to estimate the total facility operating costs in each region, multiplying the number of beds in each facility by the average per diem for that type of facility (e.g., prison, work camp, private prison, etc.) across the whole district.

The reader noted that the per diem we used for "correctional institutions" (e.g., prisons)—$42.31 per inmate per day-was lower than the per diem we used for "private prisons" ($45.53), prompting the question, "doesn't that show that private prisons cost more than public prisons?"

The answer is no, for two reasons. First, the average per diems reported by FDOC are indeed that—averages. They were useful for preparing a broad estimate of costs by facility at a regionwide scale in the absence of internal state accounting that breaks down facility-level costs in that manner, but as averages, they inherently smooth out a significant degree of variation in costs at the facility level. Hence, they're not meant to (or designed to) provide an apples-to-apples comparison of like-versus-like facilities in the public and private sector. That's the sort of question that demands a more rigorous full-cost accounting analysis at the individual facility level, which was not the purpose of the FDOC average per diems. Simplifying, the former attempts an apples-to-apples analysis, while the FDOC averages were essentially averaged bundles of apples and oranges mixed. In fact, when averaged out, the higher per diem figure for privately-operated institutions makes some intuitive sense, as private prison population in Florida includes a higher proportion of higher cost female beds—FDOC estimates average per diems of over $60 per inmate per day in female institutions, for example—and private institutions are often required to offer more intensive education and substance abuse programming than found in state-run facilities.

Second, the average per diems for state-operated facilities do not account for indirect administrative costs, which the Florida DOC estimates to be $3.54 daily per inmate. On the other hand, state-operated facilities include specialty institutions that house chronically-ill offenders and death row inmates. All these differences—which play out at the facility level—have to be accounted for when comparing privately-operated prison per diem costs with state-operated prison per diem costs. Average per diem costs are useful in approximating broad costs among many facilities, but they're neither designed nor intended to serve as a basis for evaluating the comparative costs between public and private facilities.

For that, what's needed are facility-level cost comparisons prepared on an apples-to-apples basis, and a large-scale correctional PPP procurement in Florida in 2010 offers a powerful example of the cost savings achievable through PPPs. For context, under Florida law the privatization of prison operations cannot be approved without a minimum cost savings threshold of 7%, which has been consistently met by private prison operators since the 1990s and has been validated and verified by the state in advance of the private corrections contracts in place in Florida today.

In 2010, the Florida Department of Management Services (FDMS) entered into an "invitation to negotiate" process to award contracts for the private management and operation of four state prisons—the 985-bed Bay Correctional Facility, the 1,520-bed Gadsden Correctional Facility, the 1884-bed Graceville Correctional Facility, and the 985-bed Moore Haven Correctional Facility. During the procurement process, FDMS assembled a team of in-house and corrections department experts to conduct a cost comparison that established a benchmark per diem for each facility based on what it would cost the state to operate them.

For private bids to be considered compliant, they had to beat the benchmark state per diems at each facility by at least 7%. As shown in the table below, the winning bids at each facility came in at cost savings levels ranging between 14-27%. Taken together, these private facilities will therefore be operated at an annual cost savings of $19.8 million, or more than $59.5 million over the three-year term of the contracts.

2010 Florida Correctional Procurement Cost-Comparison Summary

Source: Florida Department of Management Services, Memorandum by Negotiation Team (ITN# 09/10-017) to DMS Secretary Linda South ("Recommendation of Award"), April 13, 2010, available here.

Real-world evidence like this supports our suggestion that the private sector could deliver the cost savings estimated in our paper for Florida. Our estimated annual cost savings range of 7% to 10% is based on Florida and other states' past experiences with prison privatization and may be a conservative assumption, given the notably higher cost savings in the real world comparison discussed above. Results like that in the recent past help make a compelling case for the expanded use of correctional PPPs in Florida, given the magnitude of the state's ongoing fiscal challenges.

For more details on Florida's 2010 procurement and cost comparison analysis, see here. And for more on Reason's work on privatization and corrections, see here.

Flawed AZ Study Skews Dialogue on Corrections Privatization

Posted on November 4, 2010, 7:20pm | Harris Kenny

Earlier this year the Arizona Department of Corrections (ADC) released a provocative, but flawed study claiming that per capita prisoner costs in Arizona's private prisons are higher than state-run prisons. However, there were a number of methodological problems with this widely-cited study that led to inaccurate public-private cost comparisons.

Unfortunately, the Arizona's Auditor General relied on the flawed ADC study in its recent performance audit of the department. The audit admittedly "did not assess the (ADC's) method for adjusting the per capita rates for comparing state-operated and private prison costs."

But that hasn't stopped the media from reporting it. Just yesterday, the Auditor General's review was cited by Arizona CBS affiliate KPHO in a report entitled, "Audit: Private Prisons Cost Slightly More." A spokesperson for Gov. Jan Brewer responded to the KPHO story saying the governor has commissioned another prison cost-comparison study.

The governor's office should be commended for taking a closer look at this data, because it seems to have skewed the dialogue on privatization of correctional facilities in that state. Earlier today I posted a commentary on Reason.org detailing the mistakes made in the ADC's original study -- that commentary is available here.

Cutting Prison Costs in California

Posted on April 9, 2010, 12:27pm | Leonard Gilroy

Jon Coupal, president of the Howard Jarvis Taxpayers Association, and I have a column in the Orange County Register and LA Daily News on how much prison costs contribute to the California budget deficit and how private prisons can be part of the solution:

The Legislative Analyst's Office found that correctional officers account for one in seven state employees and eat up a disproportionately large 40 percent of state personnel spending. The overcrowded state prisons house 167,000 inmates in a system designed for 84,000. As a result, federal judges have ordered California to release 40,000 inmates. And a federal receiver has taken over control of California's prison health care services due to a class action lawsuit and the poor quality of medical care in the system.

California is spending more than $8 billion on corrections this year, more than 10 percent of the massive state budget. State taxpayers spend about $133 per inmate - every day. Texas, which has the second largest inmate population after California, spends less than one-third of that amount - about $42.50 per inmate per day. One reason Texas spends so much less than California on prisons is its extensive use of public-private partnerships. Since 1989, Texas' annual data shows its cost savings from private prisons have averaged 15 percent a year. During that time, there was not a single year in which government-run prisons matched or were below the private prison costs.

A new Reason Foundation-Howard Jarvis Taxpayers Foundation study finds that modest expansion of California's current use of public-private partnerships in corrections would save taxpayers nearly $2 billion over the next five years. Additionally, more aggressive use of private prisons and contracting out some operations of existing prison facilities would save another $400million to $1.2 billion each year.

Former NM Gov. Gary Johnson on Competitive Contracting in Corrections

Posted on February 20, 2010, 2:06pm | Leonard Gilroy

In case you missed it, our recent Reason.tv interview with former New Mexico Gov. Gary Johnson is well worth watching. In addition to discussing his latest endeavor, the Our America Initiative, and a range of economic, social and foreign policy issues, he reflects back on his two-terms as Governor and the experience of downsizing government in real life.

When asked specifically about his use of competitive contracting in corrections (at the 15:04 mark), he was very clear on the results:

"…in New Mexico we had over 600 prisoners housed out of state, we were under a federal court order—federal consent decree—regarding our prisons and how they should be run. I ended up—as a result of a legislature that was not wanting to address this issue—ended up privatizing over half of the state's prisons. Comparing apples to apples, the private side produced the same goods and services for two-thirds the price. To me that was good government. And that's what happened."

There's a powerful lesson here for states like California that are facing massive challenges with their correctional systems and budgets.

Watch the whole video for more thoughts from a government executive who managed to leave office while also leaving to his successor—and taxpayers—a smaller government than the one he himself had inherited. Seems like most Americans wish their own elected officials would be doing the same right now.

Louisiana Privatizing Correctional Pharmacy Services

Posted on February 8, 2010, 12:04pm | Leonard Gilroy

Per the Daily Advertiser, Louisiana is privatizing pharmacy services in its state prisons to cut the costs of providing inmate medications in half:

Louisiana prisons are hiring an outside drug company to provide medication to inmates, rather than the two dozen pharmacists currently on staff.

The Civil Service Commission agreed Wednesday to let the state Department of Corrections privatize pharmacy services at all state-run adult prisons, as a way to save money.

Department Undersecretary Thomas Bickham says the move will cut the costs of providing medications to prisoners annually from $2.5 million to $1.2 million.

This is one of the recommendations of the Commission on Streamlining Government, discussed here.

Puerto Rico, King County (WA) Extend Offender Monitoring Contracts

Posted on January 5, 2010, 8:12pm | Leonard Gilroy

Late last year, both Puerto Rico and King County, Washington (home of Seattle) decided to extend their long-running outsourcing contracts for offender monitoring services. Under the agreements, BI Incorporated will provide a variety of electronic monitoring services and technology, including monitoring systems (integrating ankle bracelets, receivers placed in offenders' homes, and a host monitoring computer), an online offender database (for scheduling and other data) and 24/7 national monitoring center support.

At a time when budget cuts and prison capacity constraints are prompting public officials to explore ways to do more with less in corrections, privatized offender monitoring and community-based corrections services offer a real solution. They offer a way to save tax dollars while providing alternatives to detention and viable approaches to "right-sizing" the corrections system (e.g., lower-risk offenders in community-based care; higher-risk inmates in prison beds). For example, in 2004 the Illinois Department of Corrections contracted out the operation of eight re-entry centers for high-risk parolees and electonic monitoring services for nearly 3,000 offenders. Since the privatization, the three-year average recidivism rate in Illinois has dropped to 51.8%, having spiked to 54.6% prior to the privatization. Hundreds of other state and local governments have embraced the outsourcing of community corrections services to achieve similar results, a trend that's likely to continue.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Corrections Research and Commentary

Privatization News Roundup, Dec. 21, 2009

Posted on December 21, 2009, 2:34pm | Leonard Gilroy

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

• "Congress seeks insourcing through cataloging contracts," Washington Technology
• "Number of Homeland Security contractors raises eyebrows ," Government Executive
• "8 stories to keep watching in 2010," Washington Technology
• "Privatization Blocked at Military Installations Across US," Hudson Valley Press

STATE & LOCAL:

• "Firm wins lease to manage Seagirt terminal at city port," Baltimore Sun
• "Authority orders appraisal of airport's parking lots," Pittsburgh Post Gazette
• "Higher Ed Leaders Mull Privatization," KUNC
• "Airline flights from Gwinnett? Firm makes a pitch," Atlanta Journal-Constitution
• "Mixed reaction to privatizing Briscoe," Atlanta Journal-Constitution
• "Cayuga County to privatize home health care," NewsChannel 9 WSYR
• "Officials drum up support for privatizing Camden jail," Philadelphia Inquirer
• "Multnomah County jail system could trim $16 million with better management, special panel recommends," The Oregonian
• "Officials discuss plans for private prison in Prescott Valley," Prescott Daily Courier
• "RSWA will review bids to privatize trash and recycling operations," Charlottesville Tomorrow
• "Changes to permit process have been positive," Marietta Times
• "Child support payments may be handled by private company," New Bern Sun Journal
• "Clark County commissioners ponder privatizing UMC," Las Vegas Review-Journal
• "County Behavioral Health Services — a public-private partnership," The Union of Grass Valley
• "Ann Arbor school district to explore privatizing transportation, custodians," AnnArbor.com

INTERNATIONAL:

• "Iran plans to privatize Imam Khomeini port," Tehran Times
• "ADB loans 630 million dollars for Vietnam privatization," Earthtimes.com
• "Lebanese ministers united behind privatization plans," Daily Star
• "Privatization comes to Ontario," Gerson Lehrman Group
• "Bridge the best of Canada's P3s," The Chronicle Herald
• "Electric Power Industry of Serbia to be privatized in phases, PM says," Balkans.com Business News
• "Government plans extensive national projects," Lusaka Times
• "Bulgaria Merges 2 Privatization-Related Agencies," Sofia News Agency
• "Woori Privatization Mulled via M & A," Korea Times
• "Vietnam Invites Malaysians To Invest In Infrastructure Projects," Bernama

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Laissez Les Bon Reforms Roulez

Posted on December 16, 2009, 6:47pm | Leonard Gilroy

My new column tells Virginia policymakers that it's time to serious about reducing the size and scope of government and that they should look to Louisiana's aggressive government reform efforts as a model. Here's an excerpt:

As the state taking perhaps the most aggressive approach to solving its own fiscal crisis, Louisiana offers a reform model Virginia officials should consider replicating. [...]

In the spring they created a Commission on Streamlining Government that presented the governor and legislature 238 recommendations this week to save over $1 billion through privatization, streamlining, consolidation, and elimination of government activities. Recommendations include a number of large-scale government overhauls, including adopting a statewide spending limit, shifting all of the state's retirement funds to 401-k style defined contribution plans for all new hires, and revamping state education finance to promote a student-based budgeting approach where education dollars directly follow children into the classroom. Similarly, policymakers created a parallel commission to review the state's postsecondary education system to find potential savings, cuts and service improvements.

Louisiana policymakers are also embracing privatization. The Streamlining Commission recommended over a dozen privatization initiatives estimated to save the state at least $88 million, including recommendations to create a statewide competitive sourcing program, privatize state inpatient psychiatric services and outsource the administration of state employee group medical benefits, correctional food and pharmaceutical services, road maintenance and most highway design engineering.

The state has also recently issued requests for proposals from private bidders for the potential privatization of state risk management functions (claims management and loss prevention), the maintenance of dozens of state buildings and a variety of IT support services. In addition, the state has already adjusted its rental car contract to facilitate more downsizing in its vehicle fleet, and it is undertaking an inventory and analysis of all state-owned buildings and lands to find underused property to return to private commerce.

This is just a start—read the whole thing for more on Louisiana's budget and spending reform initiatives, and see my testimony on privatization to the Streamlining Commission here.

I'll be writing separate posts in the coming days on the new Streamlining Commission report, as well as some of the privatization initiatives that are starting to advance in Louisiana.

» Reason Foundation's Government Reform Research and Commentary
» Reason Foundation's Privatization Research and Commentary
» Reason Foundation's Annual Privatization Report 2009

Privatization News Roundup, Dec. 11, 2009

Posted on December 11, 2009, 4:40pm | Leonard Gilroy

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

• "20 must-follow contracts," Washington Technology
• "Industry's wish list for procurement reform," Washington Technology
• "OPM extends direct hire authority for acquisition jobs," Government Executive
• "VA plans wide-ranging IT services contract," Washington Technology
• "NASA awards $355 million IT contract for Marshall Space Flight Center," NextGov.com
• "Questions On Public-Private Prisons For Immigrants," National Public Radio
• "Privatized lodging partner making improvements," Fort Leavenworth Lamp

STATE & LOCAL:

• "Puerto Rico seeks to privatize airport, pay debts," Forbes
• "Virginia Port group says privatization offers need improvement," Daily Press
• "Push to privatize is on the table," Lawrence Journal World
• "Plan for roads includes tolls, private operators," San Antonio Express
• "Texas At It Again With Tollway P3," Bond Buyer
• "NY-NJ Port Authority may only privatize new project," Reuters
• "King files liquor privatization bill," Yakima Herald-Republic
• "Companies still key to welfare fix," Fort Wayne Journal Gazette
• "Feds to states: Don't privatize food stamps," Longview News Journal
• "MI GOP candidate: Privatize most school services," Chicago Tribune
• "Firm hired to secure deal on garage leases," Pittsburgh Post Gazette
• "Privatization of custodial services irks County Board," Milwaukee Journal Sentinel
• "Bids for golf operations coming," Omaha World-Herald
• "Dunwoody turns one year old," Atlanta Journal Constitution
• "Road commission moves to privatize vehicle shop," Port Huron Times Herald
• "Public workers, private patrols in New Hartford," Utica Observer Dispatch
• "City hopes to use public/private partnerships to build new roads," Bowling Green Daily News
• "Lakewood to save tax dollars by privatizing EMS," Asbury Park Press
• "Mayor breaks tie to approve privatizing grass cutting services," Natchez Democrat

INTERNATIONAL:

• "UK Government To Propose Navy Supplies Privatization," NASDAQ
• "Queensland Rail welcomes privatization decision," CXO Australia
• "Japan Blocks Postal Service Privatization," Wall Street Journal
• "Russia's Putin approves 2010–2012 privatization plan," Prime-Tass
• "Russia to Privatize Transport Assets," The Journal of Commerce
• "Russia takes interest in privatization of Azerbaijani telecom operators," APA Economics
• "Government working on public prisons handover to private sector," National Business Review
• "Bangladesh to allow privatization of state-owned enterprises," Xinhua
• "Kenya Plans to Lease Or Sell 26 State Companies by 2012," Bloomberg
• "Incheon International Airport To Seek IPO Around 2nd Half 2010," NASDAQ
• "India in new privatization drive," Lanka Business Online
• "Iran privatizes $63bn of state assets," Press TV
• "Georgia to put up over 100 large facilities for privatization by late 2009," Trend News Agency
• "Second Wave of Privatization in Georgia," Georgian Business Week
• "Local hospital pharmacies facing privatization," Calgary Sun
• "'Chronic absenteeism' behind parking ticket outsourcing push," Windsor Star

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, Nov. 24, 2009

Posted on November 24, 2009, 1:58pm | Leonard Gilroy

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

• "The Upside of Outsourcing," Defense News
• "Work stops again on TSA infrastructure contract," Washington Technology
• "Rule would require contractors to vet employees for conflicts of interest," Government Executive
• "Army drops plan to privatize West Point public works employees," Mid-Hudson News Network

STATE & LOCAL:

• "Dallas area may be first to see state's new plan to fund toll roads," Dallas Morning News
• "Governor submits plan to cut prison population," Los Angeles Times
• "Alaskan prisoners to be housed in new Hudson facility," Denver Post
• "DC-based Carlyle Group to run Connecticut rest stops," Washington Post
• "IBM outsourcing deal with state still worth it, consultants say," Dallas Morning News
• "City suspects state wants to privatize Bryce," Tuscaloosa News
• "Lawmakers discuss tax caps, welfare privatization," Evansville Courier & Press
• "Privatize liquor sales in North Carolina," N.C. State University Technician Online
• "Port of Baltimore taps Ports America Chesapeake for $106M project at Seagirt Marine Terminal," Baltimore Business Journal
• "Virginia Port Authority lays out plans to operate APM Terminals' Portsmouth cargo terminal," Daily Press
• "City Building Agency May Farm Out Tests," New York Times
• "Amarillo's ambulance decision: City-run or private?," Amarillo Globe-News
• "Southampton Town working out terms for animal shelter privatization," 27east.com
• "City should privatize dredging of lake," Herald & Review
• "Carbondale City Council to consider privatizing the city's water service," KFVS12.com
• "Transit board votes to privatize its 325 bus workers," North County Times

INTERNATIONAL:

• "Turkey May Have 'One of Best Years' for Asset Sales," Bloomberg.com
• "Russia Plans to Raise $3.5 Billion in 2010 State Asset Sales," Bloomberg.com
• "State Lists 14 Stakes for Privatization," The Moscow Times
• "Russia to contract out Sheremtyevo airport," Forbes.com
• "High Court prohibits privately run prison," Jerusalem Post
• "Berlusconi Survives Confidence Vote Over Water Privatization," Bloomberg.com
• "Treasury postpones Leumi privatization," Globes.com

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, Nov. 13, 2009

Posted on November 13, 2009, 8:12am | Leonard Gilroy

Some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

• "White House push to reduce contractors is at odds with expanding role of agencies," Government Executive
• "Former Defense acquisition chief warns against 'global war on contractors'," Government Executive
• "Federal procurement nominee outlines agenda," Washington Technology
• "Balfour Beatty bases new division here," Nashville Post

STATE & LOCAL:

• "State's risk agency looks at privatization," The Advocate
• "Group divided on worker's comp privatization," The Associated Press
• "Governor to submit plan to reduce prison crowding," Los Angeles Times
• "Closing time for Virginia's ABC stores," Washington Post
• "Conservative group calls for privatization of Iowa prisons," Iowa Independent
• "Commission to submit fiscal-fix measures to Colorado Legislature," Denver Business Journal
• "Public/private partnership deserves a second look," Belleville Times
• "DOT: Atlanta Toll Lanes Top Priority for Privately Funded Program," Georgia Public Broadcasting
• "Charlotte urban loop to be built with private funds," WRAL.com
• "Team ends its bid to build, operate RTD line to airport," Denver Post
• "Town officials tour prison, evaluate impact on town," Wickenburg Sun
• "Possible State Prison Brings Hope to Jenkins County," Georgia Public Broadcasting
• "ECU exploring partnerships for housing," Greenville Daily Reflector
• "Bay City starts preliminary talks with company to take over water and sewer operations," Bay City Times
• "County supervisors vote against privatization of Planning Department," Green Bay Press Gazette

INTERNATIONAL:

• "The Coming Privatization Boom," MotleyFool.com
• "Canadian pensions pounce on Aus toll road firm," Financial Standard
• "Sweden Selects Bids From Local Groups in Pharmacy Privatization," Bloomberg.com
• "Public-private partnership system in British Columbia keeps evolving," Journal of Commerce
• "Saint John courthouse won't have private partner," CBCNews
• "Lessons from India's port privatization," Livemint.com
• "China Plans to Build, Manage Toll Road in Ugandan Capital," Bloomberg.com
• "Parliament approves Privatisation of SLPA," Awoko
• "Lebanese economic shake-up to focus on privatization," Daily Star
• "Syria Pursuing partnership with private sector," Global Arab Network
• "Peru port workers start strike over privatization," Reuters

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Arizona Prison Privatization Proposal Doesn't Jive with Market

Posted on November 9, 2009, 12:55pm | Leonard Gilroy

Though it generated a lot of headlines in places like The New York Times, Arizona's ballyhooed proposal to turn over some or most of its prisons to private operators is revealing itself to be all smoke but no fire. According to the Arizona Daily Star:

Arizona's plan to turn over its prisons to private companies in exchange for a $100 million upfront payment is having trouble getting off the drawing board, with the plan behind schedule and prison operators showing little interest.

The privatization effort is required under a law enacted last summer as lawmakers struggled to close a huge budget shortfall. It directs the state to award a contract to one or more private companies to run an unspecified number of prisons for $100 million.

It emerged as Republican lawmakers cast about for alternatives to Republican Gov. Jan Brewer's proposal to increase the sales tax to avoid deep cuts.

The prison-concession provision doesn't specify which or how many of the state's 10 prison complexes would be included, what would happen to current state employees or the length of a contract. State officials were supposed to provide an initial batch of information to potential bidders on Oct. 1, but missed the deadline.

Corrections Corp. of America, the nation's largest private prison company, "is not focused on that," said Louise Grant, a CCA vice president, adding "it's very questionable whether or not we would participate."

It's easy to see why it's not attracting interest—it was a hastily developed proposal that failed to jive with the reality of the market. Here's why.

After several iterations through the spring and summer, the FY2010 budget signed into law in September included provisions requiring the Arizona Department of Administration to issue a request for proposals for a concession agreement allowing private vendors to operate any Arizona state prison complex or combination thereof (aside from the state prison in Yuma). But on top of that, the state also wants to get a $100 million upfront payment, which is the source of the problem.

Despite using the term "concession"—which typically implies a transfer of most risks and responsibilities associated with facility ownership, except for the title itself—what policymakers crafted here is nothing of the sort. It's just a glorified operations contract without the facility ownership component that would be such a value driver, as it's on the facility end that private prison operators can really drive down costs that could potentially be capitalized in the form of a large upfront payment.

So Arizona policymakers dropped the ball by crafting a proposal that few, if any, companies are interested in bidding on. If I'm a private prison company and I can get contracts in a variety of states, why would I bother bidding on a less-than-attractive proposal to operate facilities I don't and won't own, all while making a $100 million loan to the state (taking a huge chunk of my capital reserves) on top of it!? I'll go out on a limb and say, "not gonna happen."

The kicker with all of this is that the language in House Bill 2010 authorizing the prison(s) concession is immediately preceeded by the also-reknowned statutory language authorizing the sale-leaseback of dozens of state buildings, including several Capitol complex buildings and...you guessed it...state prisons!

So apparently policymakers are OK with selling a prison facility to an investor for 20 years, but not "selling" them to private prison companies as part of a concession to generate upfront revenue and drive cost savings over time. As much as I hate to say it, I don't think any of this was purposeful, but rather sloppy drafting amid tremendous budget pressures.

Lest I leave the impression that Arizona policymakers have utterly mangled their attempts to rejuvenate prison privatization, I would like to point out that there are two other lesser known prison privatization components of the budget that I believe may have some legs. The first is a requirement that the Arizona Department of Corrections issue a request for proposals and contract for 5,000 new private prison beds at new or existing in-state private prisons. The state certainly needs new prison capacity, and a "greenfield" project like this should not generate significant opposition from the state correctional officers union since no existing jobs are at stake. The second initiative requires the ADOC to issue a request for information, followed by a request for proposals, for the privatization of all correctional health services (including medical and dental services) that are provided in a state owned prison (facility not specified).

Still though, it's unfortunate to see policymakers generally fumble the ball on prison privatization when the budget crisis demands quick action to cut costs. Privatization is a powerful way to do that, as I argued in a recent appearance on Arizona PBS's Horizon show.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, Nov. 5, 2009

Posted on November 5, 2009, 4:45pm | Leonard Gilroy

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

• "VA will turn to a contractor to reduce backlog of GI educational benefits," NextGov.com
• "Senators express concern about administration's contracting guidance," Government Executive
• "OMB's new procurement guidance inadequate, lawmakers say," Federal Times
• "OMB pushes more fixed-price contracts," Federal Times

STATE & LOCAL:

• "Panel offers cost cuts," The Advocate
• "Public vs. private: Should NC give up booze control?," WRAL.com
• "State-run setup's benefit doubted," The Patriot-News
• "FSSA chief outlines plan to create 'hybrid' welfare system," The Herald-Times
• "Plan to privatize prison deserves consideration," Denver Post
• "Missouri Department of Corrections calls prison population boom no problem," Columbia Missourian
• "Privatization fears persist for public Macclenny hospital," Florida Times-Union
• "Eliminate, privatize some state services," Sioux City Journal
• "Walker makes direct budget pitch," Milwaukee Journal Sentinel
• "Novato Sanitary referendum gets green light," Contra Costa Times
• "Brown County to look at privatizing planning," Green Bay Press Gazette
• "Somerville Mayor Curtatone reconvenes Financial Advisory Committee," Somerville Journal
• "Cape May County Youth Shelter employees, parents oppose privatization plan," Press of Atlantic City
• "Central Dauphin moving forward with bus outsourcing plan," The Patriot-News
• "Staffing drives airport's quest to privatize," Daily Inter Lake

INTERNATIONAL:

• "Brazil In Talks On Rio's Galeao Airport Concession," Wall Street Journal
• "State mulls disposals, partnerships to release value from property portfolio (South Africa)," Creamer Media's Engineering News
• "KDB takes one step closer to privatization," Korea Herald
• "KDB plans for mergers ahead of privatization," JoongAng Daily
• "Poland's privatization plan shall help to close budget gap," Poland.com
• "Czech Airlines Privatization Off For Now," Aviation Week
• "Serbia to Privatize a Number of State Enterprises in 2010," PropertyXpress.com
• "Syria launches its first electricity privatization tender," Daily Star
• "AZN 75 million invested in Azerbaijani privatized enterprises for Jan-Sept," Azerbaijan Business Center
• "MP offers to start using private prisons in Kyrgyzstan," 24 Press Club

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary