May 23, 2013

MAINE COMPASS: Private prisons offer big savings for Maine corrections budget

Simon Hakim and Erwin Blackstone

Many states have turned to contractor-operated prisons as a way to help ease their budget problems.

Maine policymakers, facing a reported $7 billion gap in unfunded retiree benefits, might want to consider this proven cost-saving measure.

These public-private partnerships have been in existence for more than 30 years and currently make up 7 percent of the corrections market. In a recent report about these prisons, we found that they generate between 12 percent and 60 percent in long-run savings and help relieve overcrowding without sacrificing the quality of the services delivered.

Maine was the only one of 10 states we reviewed that does not use contractor-operated prisons. If it did, we believe the state could save 47.65 percent on corrections when below capacity and 49.38 percent if overcrowding exists.

We chose to compare Maine with the other states that already use private prisons because of the availability of highly specific data about its corrections system. Maine provided full details about its expenses for food, utilities, fuel, office supplies, technology, rent, clothing of inmates and minor repairs.

According to our analysis, Maine spends significantly more than most states on corrections and its potential savings from privatizing corrections are substantial:

• Maine’s short-term and long-term prison costs are about double the costs of most of the other states examined.

• Maine’s personnel services per diem are the highest of the 10 states we reviewed. At $79.25, Maine averages significantly more than second-place California, and nearly double Texas, which had the third highest figure.

• Maine’s underfunded costs are $6.86 per inmate per day, second only in our report to California’s at $15.18.

• Maine had the second-highest health care costs per inmate per day, at $16.67, again second only in our report to California. All other examined states ranged between $6 and $11.

• Maine’s lack of both private and public competition and its small prisons that cannot exploit economies of scale explain the state’s high costs and great potential for savings.

In addition to the savings generated by the private facilities themselves, we also found that competition yields better performance for both private and public facilities. As more contractors compete, both groups work to provide lower cost and higher quality service.

The adoption of “managed competition” could foster even greater efficiency in managing Maine’s existing state prisons.

In this model, made famous by former Indianapolis Mayor Stephen Goldsmith, public workers and private contractors engage in a competitive process to provide public services. By doing so, both groups have an incentive to search for managerial and technological innovations and offer services at competitive pricing.

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

In terms of staff quality, we found that private correctional officers generally are paid comparable wages and receive substantially similar training to their public counterparts. Private contractors typically offer workers matching contributions up to 5 percent of their salaries for their 401k accounts, which is in line with other corporate entities.

Contractor-operated prisons also provide additional benefits to state governments beyond savings. Private companies can more efficiently build, maintain and modernize facilities.

Although not included in the study, private prisons also contribute income and property taxes to states and local communities, while public facilities do not. Additionally, private facilities provide an important alternative for overcrowding, encouraging safer conditions and better inmate treatment.

With many difficult decisions still on the horizon for Maine, it is important to consider all the opportunities 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 look.

Dr. Simon Hakim and Dr. Erwin Blackstone are professors of economics and members of the Center for Competitive Government at the Fox School of Business at Temple University, Philadelphia. Hakim is the Center’s director.

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