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The Drain of Public Prison Systems and the Role of Privatization:
A Case Study of State Correctional Systems

(Released February 2010)

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  by David W. Miller  

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Factors Increasing Costs

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A swelling prison population is easy to identify as one of the factors affecting prison costs. More bodies equates to increased budgets to provide basic services (e.g. food, clothing, housing and facility maintenance) as well as requiring more trained staff to monitor the increase in prison populations. Providing basic living condition services accounts for roughly 25% of the budget (One in 100, 2008).

Personnel costs drive budgets up as well. In 2001, "Over three-fourths of the States spent 96% or more of prison funds on current operations such as salaries, wages, benefits, supplies, maintenance, and contractual services" (Stephan, 2004). Because of a high turnover rate, overtime pay is increasing salary costs. Correctional guards made approximately $280 million in overtime pay in 2005, twice as much as 2004. Base pay for prison guards in California averages $57,000 per year. However, because of overtime pay, 2,400 correctional guards received over $100,000, 15% made an additional $25,000 in overtime pay, and one guard made $187,000, "making him the highest-paid correctional officer in California" (Schmidt, 2006). The drain on state budgets mainly occurred because of 4,000 vacancies and regulations that define a minimum requirement ratio between staff and prisoners. In short, vacancies and hiring freezes play a significant role in driving up public prison budgets.

Criminal Justice Expenditure  Chart
Criminal Justice Expenditure

Removing the hiring freeze to reduce overtime pay could save money. For instance, an audit of Michigan's prison system discovered that the state could save millions of dollars per year by implementing policy, including hiring more staff, to better manage overtime (Bebow, 2008). Similar results were found in Illinois, with Erickson providing the following summary: "A new report shows understaffing within the state prison system resulted in nearly $50 million in overtime costs in 2008." Overtime costs doubled in two years, suggesting even higher figures by 2010 unless the issue is addressed. To offset overtime costs, the state planned to hire 220 guards after discerning from an audit that a decision not to hire in 2006 cost money, even when considering the cost of providing health benefits along with wage considerations to new employees (Erickson, 2008).

Personnel wages and waste are cited by private organizations as a factor increasing public costs. Thus, Cheung (2002) writes, "Central to the argument in favor of privatization is the perceived inefficiency of labor costs in the operation of prisons. In using mostly nonunion labor and by controlling wages and fringe benefits, private prison companies maintain that they can efficiently reduce the costs of labor and thereby net substantial savings for the government" (Cheung, 2002).

Union labor makes up about two-thirds of operating costs for public prisons; thus, this is a potential area for savings (Clement, 2002). However, studies show that private prison guards have less experience as correctional officers and due to lower wages have a higher turnover rate and less on-the-job training (Federal Prison Privatization, 2002). Unions offer a level of stability and training requirements not present in private prisons. Still, unions can create negative personnel issues. For instance, in California yearly bonuses of $1,500 were based upon a physical test that few prison guards passed. However, due to union pressure, standards have been lowered to the point that prison guards only need a yearly physical, resulting in almost all receiving this bonus, which in turn has increased personnel costs. Thus, the privatization movement offers potential savings.

Health care costs, which are driving up business budgets in all sectors of the US, are also driving up prison costs. California alone spent nearly $700 million on health care for prisoners in 2007. Government run oversight and lawsuits filed by prisoners for negligence and denial of appropriate health services have driven up the cost of medical services alone in California prisons by 200% since 2000. Indeed, lawsuits filed by inmates due to poor medical services are identified as the primary source of this significant percentage increase. Apart from lawsuits, the growing percentage of inmates infected with the AIDS virus and chronic illnesses associated with aging are the number one and two health issues driving up prison costs. Thus, " the rise in medical outlays largely stems from mushrooming costs associated with special needs populations, including HIV positive prisoners and geriatric inmates" (One in 100, 2008).

The aging of the prison population due to longer sentences is the last factor raising state budgets. Although this age group is easier to manage because they commit less crime while in prison, they are often the target of abuse and victimization by younger prisoners. To address this issue, many prisons implement a special housing unit to decrease victimization of older prisoners, which in turn drives up costs. Based on this and the medical needs, the average cost to the state of housing an older prisoner is 2 to 3 times higher than a younger prisoner (One in 100, 2008). Thus, "Older prisoners compound resource challenges for states because this population is more likely to have health problems." For instance, it cost Ohio 17% more to medically treat older prisoners than to treat the general prison population. Further, due to prisoners often poor backgrounds, resulting in poor eating habits and, often, substance abuse, nearly 50% at age 50 and 82% at 65+ have a chronic health condition, creating further need for emergency medical care and in-house hospitalization. Lastly, 15-25% suffer from Alzheimer's disease by age 65.

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