Arizona Lawmakers Considering Major Prison Privatization Initiative in Budget Plan

As the Arizona Daily Sun reports, Arizona lawmakers are considering a budget proposal that would involve a major—and potentially groundbreaking—prison privatization initiative that sounds to my ears like a long-term lease of three state prisons in return a $100+ million upfront payment. Based on the article, it sounds like bidders would likely compete to both maximize the upfront payment to the state while minimizing annual operating costs for the state:

Republican legislative leaders are crafting a plan to farm out operation of three state prisons to private companies as a method of balancing the budget.

Rep. John Kavanagh, R-Fountain Hills, said he believes companies would pay the state at least $100 million in up-front cash for the right to operate the prisons. That would help lawmakers deal with an anticipated $3.3 billion deficit this coming year. And Kavanagh, who chairs the House Appropriations Committee, said the annual savings to the state for operating these three facilities could be $40 million.

At this point, lawmakers are looking at the state prison in Yuma which now houses about 2,300 inmates, the Perryville facility which has more than 4,000 beds, and the Eyeman unit of the state prison complex in Florence which at last count had close to 5,000 inmates. […]

The idea of privately run prisons is not new. The state already contracts with private companies to house some inmates. But those deals involve facilities that private companies build on their own, with the state paying a specific daily charge for each inmate housed there. This would involve turning over already built — and paid-for — state facilities to private companies to operate, with the price the state pays based on bids received.

At last count, about 4,300 of the state’s more than 40,000 inmates were housed in private prisons in Arizona. Another nearly 4,900 are housed in private prisons in other states.

I have always found it puzzling that Arizona:

  • has a robust private prison industry, with a number of private prisons holding federal prisoners (private prisons are the largest employer in Pinal County, for example);
  • contracts with private prison firms to house Arizona inmates in other states, but;
  • doesn’t actually house Arizona inmates in Arizona private prisons.

Hence, this proposal seems overdue to me. In fact, it seems like a no-brainer:

  • You’ve already got a mature private prison industry on the ground in Arizona (read: you’d have robust competition), so this business is old hat. If the state trusts private prison companies to house its prisoners in other states, then there’s no reason it shouldn’t trust them to operate prisons within Arizona.
  • You’ve got infrastructure investors looking for all sorts of new and creative opportunities to team with experienced operators to invest in traditional and social infrastructure like prisons and schools. In fact, having just spoken at infrastructure investment conferences over the past few weeks held by Dow Jones and City & Financial, I can say that I kept hearing that same theme over and over. Investors are not just interested in toll road deals, to be sure.
  • You’ve got a state with a massive budget deficit to close, so every dollar saved counts.

Expect those ideologically opposed to privatization to start throwing out a barrage of myths and fears. Here’s one:

The proposal is likely to get a fight from Democrats — and not just on philosophical grounds. Senate Minority Leader Jorge Garcia, D-Tucson, called the savings “funny money.” He cited studies done by an outside consultant for the state Department of Corrections which show that, when all elements are considered, it actually costs taxpayers less to have the state operate prisons than it would to have them run by private companies.

Senate President Bob Burns, R-Peoria, said he put little stock in that report, saying it was prepared during the administration of Democrat Janet Napolitano who never was a supporter of private prisons.

From what I’ve seen in my short time so far in Arizona, I suspect that Sen. Burns is probably on target regarding the politics of the situation. More importantly, on the merits, recent research from Vanderbilt University Law School directly contradicts the findings of the referenced state report:

The researchers found that states could save up to $15 million from their yearly department of corrections budgets for the management of public prisons if they introduced the use of privately managed prisons. Those savings stemmed from a reduced rate of growth in the state’s per diem expenditures on publicly held prisoners of around 3 percent per year. Any direct savings from the use of private prisons constituted additional savings.

Blumstein said that from 1999 to 2004, the overall average cost of housing a prisoner in a public facility grew by almost 5 percent in states without a private prison population. States that had some prisoners in privately run prisons had their average cost go up less than 2 percent. States with less than 10 percent of prisoners under private management experienced an average growth rate of almost 2 percent in the per diem cost of housing publicly managed prisoners. For states in which 10 percent to 20 percent of prisoners were under private management; the average growth in the rate of per diem costs for housing publicly managed prisoners was 1.36 percent; and the comparable statistic for states with 20 percent or more private prisoners was 0.36 percent.

Private prisons have a long and successful track record in Arizona, so it is indeed encouraging to see policymakers crafting innovative budget proposals that build on existing, demonstrated strengths. In fact, if Arizona manages to pull off a groundbreaking deal, we may see other states take notice and follow suit.

Reason’s Privatization Research and Commentary