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Hidden Costs Boost Corporate Profits -- But Increase Taxpayers' Costs

Those studies are just a few of the analyses available that prove that private prisons do not save taxpayers money. However, the Florida analysis is the only one that incorporated considerations for the hidden costs of prison privatization. When these costs are included, prison privatization is, by far, more costly to taxpayers. For instance, escapes from poorly secured facilities require a jurisdiction's enforcement officials to conduct expensive searches, at taxpayers' expense. Similarly, when prisoners riot or cause damage to a private facility due to substandard conditions, the jurisdiction must assist in restoring control to the private firm. Here are examples of some of the private business practices that foster these hidden costs:

Private firms routinely understaff facilities.

Lawmakers in North Carolina recently discovered that the U.S. Corrections Corporation would have 68 correctional officers supervising 528 inmates instead of the 141 officers that the state would use for the same number of inmates.6 In another example, in speaking before a Tennessee legislative panel in October 1997, Russel Boraas, who oversees private prisons for the Virginia Department of Corrections, noted that some private prisons in Texas have made up for the low reimbursement rates they receive from the state "by leaving positions vacant a little longer than they should."7

Private firms boost profits by paying inferior wages and replacing guaranteed pensions earned at state-run prisons with cheaper, riskier stock-ownership plans.

A recent study of the CCA-run South Central Correctional Center in Clifton, Tennessee, showed that CCA paid about $1.8 million less in salaries and benefits than the state did at comparable prisons.8

The lower wages and benefits that private firms offer lead to less-qualified staff and lower employee retention rates.

An October 1997 Wall Street analysis of CCA's projected profit margin noted that the firm's earnings per share were lower than expected because of costs associated with its "high employee turnover at new facilities."9 In addition, the state legislature in Tennessee recently heard testimony that turnover at its CCA-run South Central facility "is more than twice the level at state prisons."10

Privatization erodes living standards in the local community.

Privatization depresses worker living standards by replacing stable, middle-class jobs with insecure, lower-compensated ones (private prison guards are overwhelmingly non-union). Income is redistributed from unionized correctional officers, who spend money in the local community, to shareholders and corporate officers outside of the community. In 1996, average annual earnings for unionized correctional officers was $33,332. This compares to only $23,972 for non-union correctional officers — one third less.11 Private corporations also bypass local businesses and distributors, eroding the local economy.

These business practices weaken security and job performance in private prisons, leaving citizens vulnerable and increasing bottom-line costs to taxpayers. The following examples provide further evidence:

Security guard charged with aiding escape of two inmates.

In March 1998, a Wackenhut security guard purposely left a door open at the Broward County Work Release Center in Florida so that two inmates could walk to freedom. Investigators learned of the plot after the two were arrested and confessed the details of their escape. The guard was arrested and charged with two counts of aiding and abetting an escape.12

Colorado ends contract for juvenile prison.

Physical abuse and sex between staffers and their young prisoners convinced the state to revoke the license of a privately run prison. A state investigation of the High Plains Youth Center began in February 1998, when a 13-year-old from Utah committed suicide at the prison in Bush, 75 miles northeast of Denver. The probe uncovered gross mismanagement by Rebound Corporation, the private firm that operated the prison. Barbara McDonnell, head of the Department of Human Services, stated that the "staff was unqualified and insufficient for the number of inmates.13

Escapes and riot prove costly in Basile, La., private prison. In September 1997, five Idaho inmates, including two murderers and a rapist, escaped from a detention center operated by Louisiana Correctional Services Inc. Two months earlier, 100 Idaho inmates rioted there, causing $35,000 in damage. The escapes and riot prompted an Idaho Department of Corrections audit which revealed substandard conditions, inadequate staff training, and extensive use of pepper spray by the guards. The audit also reported that the warden of the facility was only on duty two days a week. Louisiana officials responded afterwards that the prison should be housing only nonviolent offenders and in October sent 100 prisoners back to Idaho.14

Sex offenders escape from illegal alien processing facility in Texas.

In 1996, two Oregon sex offenders escaped from a CCA-run processing center intended only for illegal immigrants. Until local police were notified that the rapists were on the loose, neither state nor local officials had any inkling that anyone other than illegal immigrants was being held there. CCA imported the rapists to keep beds full and improve its profit margin. The incident became more troubling after authorities learned that convicts escaping from private facilities could not be prosecuted under state law for the offense of prison escape. Since that escape, according to the Houston Chronicle, "there has been a rash of escapes, riots and other prisoner uprisings, rape and even murder in privately run jails and detention centers across Texas."15

Prisoner abuse in privately operated facility in Brazoria County, Texas.

The Brazoria County jail, operated by Capital Correctional Resources Inc. (CCRI), became the target of national outrage in 1997 because of a widely publicized videotape showing guards shocking prisoners with stun guns, making them crawl on their bellies, and allowing dogs to bite them. CCRI reported that the videotape was used as a training device. The release of the videotape came one year after the private operators repeatedly refused to provide information to outside investigators looking into reports of abuse at the facility. As a result of the videotape release, the FBI, Texas Department of Public Safety, and United Nations 149th Subcommission on Human Rights have all launched investigations.16

Inmate abuse by poorly trained and paid guards at privately operated facility in Elizabeth, N.J.

In 1995, an Immigration and Naturalization Service (INS) detention center for illegal aliens in Elizabeth, N.J., under contract with Esmor Correctional Services (since renamed Correctional Services Corporation) endured a riot involving 300 prisoners. Twenty illegal immigrants were injured in the melee when the detainees, shouting accusations of mistreatment, took over a building, demolished its interior, and held two guards hostage for five hours before police broke through their barricades. The INS conducted an investigation and concluded that officials of Esmor failed to exercise control over guards, who were improperly trained or had not been fully investigated before being hired. The INS report stated that "poorly trained and abusive guards preyed on immigrants," while their lack of training was evident when the riot began as guards adopted an "every person for himself mentality." As a result of the episode, the INS ended its contract with the private company.

In March 1998, a jury sentenced three of the private prison guards for abuse in the vicious beating of the immigrants; eight other guards are still to be tried. The detainees were forced to walk while saying, "America is number one," as guards punched and kicked them, authorities said. Other abuses included grabbing and pulling an inmate by his penis with pliers, and dragging inmates by their beards and pushing their heads into toilets.17

At the time of the riots, Esmor prison guards were paid only $8.00 an hour, or $16,640 a year; well below the norm for correctional officers. Entry-level correctional officers in New Jersey earned $31,805 per year in 1995,18 almost double the earnings of the private guards at the Elizabeth, N.J., INS center. Although it paid low wages to guards, it paid handsome compensation to its top executives. The CEO and president earned $238,000 and $197,000, respectively.19

Additional Methods of Passing Hidden Costs to Taxpayers

Another way that private firms conceal the true cost of privatization is by constructing contracts with cost ceilings and limits on the type of inmates they will house (i.e., skimming). For instance, in Florida, the government picks up medical costs over $7,500 per inmate at its privately operated facilities.20 Similarly, a recent news story revealed that Tennessee inmates infected with HIV or AIDS were being routinely transferred from CCA-run facilities to state facilities. "We're saving stockholders' money, but not saving taxpayers' money," said State Rep. John Windle (D).21

Prison privatization creates perverse incentives that will actually cost taxpayers more in the long run. Private firms have no incentive to seek less expensive alternatives to incarceration. In fact, private firms continuously lobby jurisdictions for greater prison construction and incarceration. The growing trend toward private prison construction and financing will only increase this growth incentive, pushing up corrections operating budgets in future years.

6 Joseph Neff, "Lawmakers Want To Let A Private-Prison Company Double The Capacity Of The Facilities It Is Building," News and Observer Publishing Company, February 6, 1998.

7 "Prisons For Profit," The Nation, January 5, 1998, p.14.

8 "CCA Makes Money By Cutting Personnel Costs," Associated Press, March 23, 1998.

9 "Genesis Lowers `98 EPS Estimate On Corrections Corp. of America," PR Newswire, October 24, 1998.

10 "Prisons For Profit," The Nation, January 5, 1998, p.15.

11 Barry T. Hirsch and David A. Macpherson, Union Membership And Earnings Data Book: Compilations From The Current Population Survey, 1997 Edition, Bureau of National Affairs, 1997.

12 Sallie James, "Security Guard Charged With Aiding Escape of Two Inmates," Sun-Sentinel, April 2, 1998.

13 "Colorado Prison Loses License Over Reports Claims of Abuse, Sex With Inmates Prompted Decision," Charleston Daily Mail, April 21, 1998.

14 "Audit Finds Concerns At Prison, Review of Private Facility Follows Escape of Inmates," The Spokesman Review, October 15, 1997.

15 Kathy Walt, "State Rules For Private Prisons Prompt Misgivings," Houston Chronicle, August 24, 1997.

16 John Moritz, "Investigation May Tighten Jail Scrutiny," Star-Telegram Writer, September 7, 1997; Kathy Walt, "State's Rules For Private Prisons Prompt Misgivings," Houston Chronicle, August 24, 1997; Steve Olafson, "Last Missouri Prisoners Gone," Houston Chronicle, August 21, 1997.

17 N.J. Guards Convicted In Jail Beatings," Associated Press, March 7, 1998.

18 Criminal Justice Institute, Inc., The Corrections Yearbook 1995, p. 80.

19 John M. Goshko, "INS Blames Riot On Mismanagement By Contractor At New Jersey," Washington Post, July 22, 1995; Ashley Dunn, "U.S. Inquiry Finds Detention Center Poorly Run," New York Times, July 22, 1995; John Sullivan and Mathew Purdy, "2 Who Started Correction Empire Found That Shrewdness Led to Profits," New York Times, July 23, 1995.

20 Margaret Talev, "Bill Curbs Private Prison Companies," Tampa Tribune, March 13, 1998.

21 Charles Henderson, "Prison Inmates With HIV/AIDS Not Going To CCA Prison," AIDS Weekly Plus, March 31, 1997.

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