Embrace Competition to Lower Costs, Improve Performance in Prisons

Private sector can drive efficiency, improve offender rehabilitation and save taxpayer money

Massive debt and deficits at all levels of government are prompting policymakers to seek ways to keep the spiraling costs of correctional systems in check.

Sensible criminal justice reforms including easing drug penalties, using drug courts, expanding treatment programs and sentencing reforms are key changes. Lawmakers are also expanding their use of public-private partnerships to lower prison spending, improve performance and avoid major capital investment in new prisons.

Public-private partnerships are simply government contracts with private firms to provide services ranging from building and operating prisons to delivering inmate services (e.g., health care, food, rehabilitation services) and operational support functions (e.g., maintenance and transportation). Since the private corrections industry emerged in the 1980s, over 30 states – including California, Texas, Florida and Colorado – have embraced public-private partnerships. Today approximately 9 percent of federal and state inmates are held in privately-operated prisons.

One reason is clear: The private sector is saving governments, and thus taxpayers, money. For example, research by the Texas Legislative Budget Board found that, since 2003, the average cost of housing inmates in private prisons has been 3 percent to 15 percent lower than in comparable state-run prisons. A 2002 Reason Foundation study reviewed 28 research studies on private prisons and found they saved up to 23 percent over the costs of comparable government prisons. Also, a 2009 Avondale Partners survey of 30 state corrections departments found states currently using public-private partnerships report an estimated 28% in average daily cost savings through privatization.

Quality is another reason governments are turning to private prisons. A 2002 Harvard Law Review article noted that private prisons match or outperform government prisons on most quality indicators. In practice, private prison operators are typically required to achieve accreditation-third-party seals of approval on quality – as a condition of their government contracts. Many government prisons are not accredited.

Perhaps most important, private prisons are increasingly being used to drive better performance where it counts most – offender rehabilitation. The United Kingdom announced three new prison contracts this year that are estimated to save over $350 million (US) over their lifetime, including the first pilot of a “payment by results” approach. In this contract, 10 percent of the company’s payment will depend on successfully lowering the reconviction rates of released offenders by at least five percentage points.

The better the private prison operator does at keeping offenders from returning to the criminal justice system, the more they earn. Incentives like these hold prisons accountable for results, something severely lacking in government corrections systems.

More money hasn’t yielded better results in government-run facilities. Recidivism rates in California have remained relatively flat since 1990, despite an over 300 percent increase in prison spending. Further, corrections agencies face a fundamental conflict of interest between their dual role as both operator and regulator of the system. In short, the watchmen get to evaluate themselves, and are rarely fired or fined for underperformance.

By contrast, private prisons face multiple layers of accountability. They’re accountable to the performance standards in their contracts and to regular oversight by government compliance monitors. They’re accountable to policymakers, who set rules, budgets and more. They’re accountable to the standards set by independent accreditation agencies. And they’re accountable to shareholders and creditors, who will avoid investing in companies that fail to deliver quality services.

Given decades of experience at helping correctional agencies control costs and safely operate facilities, policymakers should continue to embrace an expanded role for public-private partnerships. With governments facing massive debt and deficits, the private sector can play an important role in driving efficiency, improving offender rehabilitation outcomes, and saving taxpayers money.

Leonard Gilroy is Director of Government Reform at Reason Foundation. This column was originally published on on October 12, 2011.