Guest Column

Privately run prisons offer value to Ohio

7/21/2013

For nearly 14 years, Ohio’s corrections system has included two privately operated prisons, the Lake Erie Correctional Institution and the North Coast Correctional Treatment Facility. Both have been the source of considerable debate.

That conversation has centered on whether the prisons save enough money and perform well enough in other respects to justify their use. The discussion continues to reveal deep ideological divisions about the role of privatization. But the debate should be rooted in data and facts.

We examined government corrections data from 10 states, including Ohio. Public-private prison partnerships have been in effect for more than 30 years, and make up about 7 percent of the corrections market.

We found that these private facilities generate long-run savings of 12 to 58 percent, without sacrificing the quality of services delivered. The long-run savings for Ohio are 20 to 27 percent.

We also found that competition yields better performance by both private and public facilities. As more contractors compete, both groups work to provide lower-cost, higher-quality service.

The adoption of managed competition could foster even greater efficiency in managing state prisons. In this model, public workers and private contractors compete to provide public services. Both groups have an incentive to search for innovations and offer services at competitive prices.

This practice could be useful for the corrections sector. Several of the states we studied have seemingly arbitrarily savings requirements of 5 to 10 percent for contractor-operated prisons. Ohio is one of these states, with mandated savings of 5 percent.

Bidding by contractors often just approaches the legal requirement. It could be more effective to let open competition determine the price, and perhaps lead to even greater savings for taxpayers.

Critics of contractor-operated prisons argue that they generate savings at the expense of quality. Our research found no evidence of this. The private facilities generally met industry standards set by the independent American Correctional Association; in several cases, they offered more rehabilitation programs than their public counterparts.

In Ohio, public and private correctional officers attend the same training academy. The privately run prisons’ contracts require equal performance.

There are many reasons for the long-term savings generated by contractor-operated prisons. The state does not have to pay to modernize facilities and to finance the costs of building and maintaining them. Private companies can do these things more efficiently.

There is also the issue of unfunded retiree benefits, which in Ohio represents a gap of $87 billion. Private contractors typically offer workers matching contributions of as much as 5 percent of their salaries for their 401(k) retirement accounts, which is in line with other corporate entities.

Private companies bring leverage and flexibility in purchasing to their operations, creating additional opportunities for savings. Contractors also benefit from flexibility in their hiring: Private correctional officers are often paid less in rural communities to reflect the lower cost of living. States typically cannot differentiate wages to the same extent, and often overpay in rural areas or underpay in metropolitan areas.

Contractor-operated prisons provide benefits to state governments beyond savings. Although we did not include them in the study’s savings figures, private prisons contribute taxes to states and local communities, while public facilities do not. These revenues can reduce taxes or pay for other public services.

Private facilities provide an important relief valve for overcrowding, which promotes safer conditions and better inmate treatment. This is particularly important in Ohio’s prison system, which operated at 128 percent of capacity last year.

State leaders need to consider every opportunity for more-efficient delivery of high-quality public services. Contractor-operated prisons — and the introduction of the managed competition model for corrections — are proven solutions that deserve a second look.

Simon Hakim and Erwin Blackstone are professors of economics and members of the Center for Competitive Government at the Fox School of Business at Temple University in Philadelphia. Their study received funding from the private corrections industry.