Oklahoma Corrections Report Ignores Costs to Make Public Prisons Look Cheaper

Following up on my post last week, here are two more reasons to question the Oklahoma Department of Corrections’ new report suggesting lower per diem costs in public prison beds relative to private prisons.

First, I just received a copy of the so-called “report” (a three-pager with few details, pretty underwhelming) and it appears that my original suspicion was correctââ?¬â?ODOC is selectively leaving significant costs out of their analysis. And they admit it on the very first page of their report! They start by explaining their new “revised” per-diem calculation, which reveals these major red flags:

  • “[T]his model does not consider indirect or adminstrative funding in the facility operating cost calculation.”
  • “Similar arguments can be made for indirect costs.”
  • “The revised model no longer reflects costs paid by other agencies…”

Translationââ?¬â?running prisons actually costs more than what’s in the ODOC budget alone, so it relies on overhead, administrative and other funds from elsewhere in the state budget. The ODOC claims that they are “revising” their per-diem calculations for the purpose of making their numbers more comparable to how a private prison would calculate per-diem rates, when in fact government works very, very differently with costs smeared across various budgets and agencies.

Here’s the kickerââ?¬â?ODOC justifies its revised methodology on trying to get more accurate comparisons in a situation where “each private facility is given a budget and expected to operate within that budget with no ‘outside’ operating monies.” Then ODOC goes on to create a methodology where it removes all of the “outside” operating monies from its own side of the ledger! That’s a 180 degree bait-and-switch.

Policymakers should not be fooled. If this isn’t a blatant attempt to game the numbers to make ODOC look unrealistically competitive, I don’t know what is. The ODOC made this very obvious by including in their new report what the per-diems would have been under their old methodology, and the private sector had lower per-diem rates than public prisons for both minimum and maximum security facilities. Tweak the methodology a little bit, ignore some costs, and viola…under the new methodology the ODOC magically becomes “cheaper.” Hmmmm. Classic government obfuscation.

Second, the state’s Legislative Service Bureau issued a lengthy, detailed performance audit of the ODOC in late 2007 that clearly found lower costs in private prisons (full report here):

Private prison beds currently cost the state $47.14 per bed per day, a rate significantly below the $51.94 cost of the most directly comparable state-run medium-security institutions (Exhibit 1-6).

The relative cost efficiency of the private prisons appears attributable to the fact that DOC institutions tend to be antiquated, poorly designed facilities that require higher staffing levels to compensate for severe security deficiencies inherent in their physical plant. The private prisons, by contrast, are relatively new institutions designed to facilitate the efficient use of staff resources and to enhance security.

To conduct a fair comparison of the state�s cost for private prisons versus state-operated facilities, we compared the expected cost of private operation of the new maximum-security facilities at Davis to the estimated amount DOC would spend to operate comparable facilities. Our analysis shows a per diem cost of $62.34 for private operation of the facility ($58 contract rate + $4.34 in associated indirect costs) versus a $65.36 per diem for government operation, a difference of 4.8 percent.

Private operation, then, appears cheaper for the state up to a contract rate of $61.03 per bed. Above that price, department management is the cheaper option.

Cost however, is only one of the many factors that require evaluation in a thorough assessment of privatization. The ability of the private sector to develop and open new facilities quickly is a critical advantage. On the other hand, relying upon private correctional capacity involves an element of risk, as demonstrated by DOCââ?¬â?¢s recent loss of critical bedspace due to Cornell’s termination of its contract with the state. Even so, our report recommends improved systems for contract control and management, and an approach to procurement that emphasizes competition and diversification, to address this concern.

At a minimum, state policymakers should be seriously scrutinizing ODOC’s new numbers, given that they’re reportedly being used to justify why the private prisons should be asked to bear the brunt of a 5 percent budget cuts, while sparing state-run facilities the same. When a change in methodology produces a flip-flop in outcome, it deserves to be taken with a grain of salt until further vetted.

It seems pretty clear to me that the ODOC has decided that the old methodology wasn’t working out in their favor, so viola…they just changed the methodology and problem solved. Yet another micro-example of a long-standing phenomenon: when the rules of the game aren’t working for the public sector, the public sector tends to just change them.

Ã?” Reason Foundation’s Annual Privatization Report 2009
Ã?” Reason Foundation’s Privatization Research and Commentary

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.