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Reason Foundation

Georgia Public Policy Foundation

Competition Saves Money

Private prisons would help Georgia cut costs

Geoffrey Segal and Kelly McCutchen
October 8, 2004

With Georgia facing a budget shortfall, it will take some creative thinking to balance the budget. The key, of course, is to do so without cutting services or raising taxes. Although Medicaid and education have received most of the attention recently, one idea with which Georgia has prior experience remains as viable today as it did when Georgia first implemented it in 1997.

New research shows that not only do the private prisons themselves save money, but they also put external pressure on the public prison system further constraining the escalation of costs — a win-win for Georgians as legislators under the Gold Dome try to balance the budget.

Georgia is not alone. About three-fifths of the states have private prisons. A host of studies conducted show significant savings in the range of 10-15 percent when the corrections function is privatized. However, two new studies take a slightly different approach to prison privatization and cost savings. These studies sought to identify the effects of competition and privatization on the prison system as a whole as opposed to just one institution.

James Blumstein and Mark Cohen, both professors at Vanderbilt University analyzed whether the use of private prisons by state correctional departments had any impact on the rate of growth in states' public corrections system operating budgets. Anecdotal evidence of this phenomenon already existed from time-series data in Texas and Arizona, but a systematic analysis had never been done.

Using data for 1999-2001, the study found that states utilizing private prisons had considerably more success in keeping public corrections spending under control than states with no private prisons. During the period studied, states with private prisons saw the growth in daily costs of housing prisoners in the public corrections system reduced by 8.9 percent, or about 4.45 percent each year.

One of the most significant findings was that turning over even a small portion of prison populations resulted in big savings. States with less than 5 percent of their prison populations in private facilities experienced a 12.5 percent increase in expenditures versus an 18.9 percent increase in states with no private prisons. However, states with larger percentages under private management had even greater savings, with growth in expenditures at only 5.9 percent during the period studied.

Another study, by the Rio Grande Foundation in New Mexico, compared state per-prisoner budgets across 46 states. This study measured an entire department's spending rather than just a particular prison's spending, accounting for the cost-savings public prisons achieve in response to private competition. Not surprisingly, the results were in line with those of Blumstein and Cohen.

Public safety is the third largest area of expenditure in Georgia's state budget, after education and human services. The majority of the $1.2 billion spent on public safety is spent on prisons. Georgia currently has three private prisons housing 4,550 inmates. Out of a total prison population of more than 54,000, roughly 8 percent of inmates are in private prisons.

Based on the two studies, by partially privatizing Georgia is saving money and is constraining its total prison costs better than states that have not privatized correctional facilities. Additionally, both studies also note that the more a state privatizes, the more money taxpayers save.

The private sector could also help address Georgia's current effort to find less costly alternatives for offenders who pose little risk to the public. Additional parole revocation centers can serve to divert parolees who commit technical violations of parole away from expensive state prison beds and into short-term, treatment-oriented work camps. Transitional centers could be used as a back-end alternative for certain inmates, particularly those convicted of non-parolable crimes with no supervision to follow their release, who will have to be transitioned back into the community.

Finally, Georgia's existing private prisons could be run more efficiently if they were freed from the hundreds of regulations that limit their flexibility to reduce operating costs. Privatization is most efficient when contracts specify clear, measurable objectives without needlessly micromanaging operational decisions. Additional savings are possible if existing private prisons in Georgia are given the flexibility, as they are in many other states, to adopt their own best practices, purchasing practices, staffing patterns and operating procedures.

Georgia has not privatized any correctional facilities since its first venture in 1997. Increasing the number of facilities subject to competition and removing costly bureaucratic regulations would free up millions of dollars in the state budget without reducing services, raising taxes or jeopardizing public safety. Georgia's prison system is under-budgeted and over capacity. This is an opportunity state leaders should not ignore.

Geoffrey Segal is director of privatization and government reform at Reason Foundation and an adjunct scholar with the Georgia Public Policy Foundation.

Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation.



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