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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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This section introduces research that evaluates costs of privately versus publicly operated prisons. A significant amount of research shows a cost-savings benefit of privately run prisons, but opponents question the findings due to flawed research methodology. The next section presents in-depth detail from research that addresses some of the methodological concerns (highlighted in this section) and continues to explore the cost-savings benefit of privately operated prisons further.

Several studies show a cost-savings benefit for privatively operated prisons (Chaiken & Mennemyer, 1987; Hanke, 1987; Montague, 2001; Morris, 2007; Segal & Moore, 2002). Indeed, some privately run prisons report a 20-30% cost-savings (GEO Group). Even without showing a direct cost-savings, other researchers argue that the very existence of private prisons saves money. For instance, Segal and Moore (2003) show that the growth of prison privatization indirectly lowers costs of running all prisons by creating competition between public and private prisons. Lastly, the CCA (2003) reports that private prisons, unlike state run prisons, pay sales and property taxes, both of which act as resources for increased revenue for the state rather than draining state budgets. Based upon the above research, Zito (2003) argues that private prisons lower costs more significantly than the sole existence of publicly operated prisons.

prison cell
Cell in Alcatrez, archetypal public prison
However, other studies question the validity and legitimacy of these studies and either show no significant cost differences or find that private prisons actually end up costing more (Lundahl, 2009; National Institute of Corrections, 1985; Perrone & Pratt, 2003; Pratt & Maahs, 1999; Sechrest & Shichor, 1996; Urban Institute, 1989). Some of these studies question the findings due to faulty data collection or statistical methods, while others question the validity, claiming that they are either funded or conducted by privately operated corporations. Abt Associates and BOP conducted separate studies between 1999 and 2004 that emphasize the first point. Both facilities housed inmates of similar sociodemographic characteristics in low to medium security prisons in the state of California. Both studies discovered cost-savings for privatized prisons, but offered statistically different results. For instance, analyzing daily costs, Abt concluded that public sites cost 14.8% more than private prisons, while BOP found only a 2.2% difference. The studies differed in the way they weighed and treated prison populations and the factors included in the overhead costs. Thus, opponents argued that neither finding was conclusive since different methodological approaches lead to statistically significant different results. Still, both showed a cost savings for privately operated prisons. In regard to the second point mentioned above, Perrone & Pratt (2003) emphasize that all studies which show a cost savings for privately operated prisons have been conducted by private prisons, or by lobbyists with an economic interest in privately operated prisons.

Lastly, other studies argue that it is impossible to conduct a comparison between private and public entities because each operates under separate organizational styles, prison size, location, types of inmates, and programs provided, making comparisons across similar variables next to non-existent (Turcotte, 1997). Because of these comparable differences, Useem (1996) concludes, "it is impossible to say with any degree of certainty if the privatization of corrections produces any substantial cost savings." A report conducted by Price (2005) also finds comparisons difficult to make. In one analysis, 27 Bureau funded prisons were compared with privately owned prisons. The study concluded that comparisons are problematic because of incomplete data and differences in the variables collected. Private prisons are often not willing to finance the collection of certain data that the Bureau is mandated by legislation to collect for their own publicly operated prisons. As such, the Bureau does not collect the same data on private prisons. The study encourages similar policy to be enforced to ensure that both public and private organizations are collecting this data using the same methods. Gaes (2008) concludes in his own study, "Cost comparisons are deceivingly complex, and great care needs to be taken when comparing costs of privately and publicly operated prisons." Gaes identifies the following areas as the bare minimum needed to make comparisons: case management and referral services for treatment issues, prison safety, medical care use and cost per patient, and security/personnel income and training issues/costs.

Other researchers warn against the idea of making comparisons solely on cost reduction principles, reporting that private prison saving results may stem from cost cutting techniques that hurt prison quality (Casarez, 1994-1995; and Freeman, 2003). Some of these cost-reduction techniques include hiring less qualified personnel with lesser salaries, reducing or eliminating training programs, and maintaining a high turnover rate that leaves positions open. These strategies place a strain on guard-prisoner dynamics, which in turn impact the culture of the prison.

The next section delves into research to arrive at a conclusion on the cost-benefits of private versus public prisons. The studies presented address comparison flaws by comparing across similar variables between public and private prisons.

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