Report: No reliable data on private prison savings (AZ)
Published: March 30, 2005
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The contract was awarded to Management and Training Corp., a Utah-based company that said it could help the state save a few bucks by undercutting the cost of incarcerating several hundred inmates in need of substance abuse treatment.
With the Legislature's approval and support from former Gov. Fife Symington, the Marana Community Correctional Treatment Facility opened its doors in 1994.
Eleven years later, the Marana prison holds about 450 inmates and is just one of several privately-run prisons scattered across Arizona, some of which house prisoners from both in and out of state. Arizona even ships some of its convicted criminals to privately-run prisons in Oklahoma and Texas.
Town officials say there's little question that having a private prison in Marana has been a good financial investment for the town, but some analysts are now questioning whether private prisons, billed as a cost-saving measure to the state, are saving Arizona dollars.
Marana Town Council member Ed Honea remembers the Marana prison's approval coming with mixed emotions, though he supported it. He said he was attracted to the idea of a minimum-security prison with a limited intake of prisoners that didn't include violent criminals.
"At the time, the main thing we were looking at was the revenue sharing and providing jobs for people in our community," Honea said. "There was opposition, but it passed.
"A lot of people thought it would degrade the community by having a prison. But if you ask half the people in Marana, they have no idea where that facility is. It's just maintained a low profile and hasn't really been a problem."
The town receives about $245 per prisoner on an annual basis in state revenue sharing because inmates are counted as town residents in U.S. Census reports, said Roy Cuaron, Marana's finance director.
"That's a pretty good chunk of change," Honea said. "Dollars and cents, it's a great deal for us."
According to Management and Training Corp., the prison provides an annual payroll of $3.8 million, gives $1 million each year to local merchants and pays about $200,000 annually in taxes. About half of the prison employees are Marana residents and an additional 15 percent live within 10 miles of the town, the company claims.
The hundreds of hours that inmate crews dedicate to sprucing up the town and helping out with landscaping projects, at a cost of about 50 cents an hour, is another of the many economic advantages.
"They've actually been a pretty good neighbor," Honea said. "We haven't had any major problems. I think there's been one attempted escape, and that was an individual that heard some bad news from his wife, and he didn't hurt anybody. He just climbed over a fence."
Cost saving or cost shifting
While several Arizona lawmakers are aiming high, or low, depending on who's talking, to expand the state's private prison operations this legislative session, some analysts worry that decisions are being made based on misinformation.
A new report released by the Private Corrections Institute, a nonprofit advocacy group that provides information about the pitfalls of correctional privatization, suggests the practice of prison privatization might not be saving the state as much money as existing research indicates.
Kevin Pranis, a criminal justice policy analyst with Justice Strategies, recently re-examined several prison cost studies that are used to justify prison privatization, finding that much of that research suffers from methodological flaws, is badly outdated and, in the case of one researcher who boasted the Marana prison as a success, has been discredited by financial ties to the industry.
"If we want to know whether privatization is delivering cost savings, there's not any information out there to give us that conclusion," Pranis said. "I've found little evidence that privatization was cost-effective."
Research was conducted independently by Justice Strategies through interviews with criminal justice professionals, reviews of literature and media coverage and analysis of prison population data provided by the Arizona Department of Corrections. Pranis, a past Soros Justice Fellow, is the co-author of Arizona Prison Crisis, a 2004 report on sentencing and correctional policy in Arizona released by Families Against Mandatory Minimums.
In a battle of blue vs. red, Republican lawmakers this session have pushed heavily for privatization as a cost-saving measure, despite opposing views from many Democrats.
Democratic Gov. Janet Napolitano has taken a stance against privatization, questioning whether cost savings are occurring, said Napolitano spokeswoman Jeanine L'Ecuyer.
"The governor feels very strongly that it isn't (saving money) and the state is equipped to operate prisons far better than most companies can," she said. "She has done a lot of work on this and does not feel they are cost effective."
House Bill 2709, backed by a host of Republican lawmakers, is on its way to the Senate and could allow the state to consider construction of a private prison in Mexico to house illegal immigrants now incarcerated in Arizona.
Sen. Jack Harper, R-Sun City West, introduced a bill earlier this session that would have asked voters to amend the Arizona Constitution to require any increase in the state's prison population to be housed in privately operated prisons. The strike-everything amendment failed after some debate in the Senate.
Harper and seven other Republican lawmakers did not return several phone messages from the EXPLORER seeking comment. Barrett Marson, director of communications for the House Republicans, spoke on behalf of the House majority.
"It's quite simply a cost issue," Marson said. "Private prisons have shown over and over again that they can do it cheaper than state government, and anywhere we can save money, the state ought to be investigating."
Marson said a private prison in Mexico would save the state millions of dollars, a large portion of which would go directly back into the pockets of state correctional officers.
But even Napolitano, who billed the federal government for $195.6 million last week for the cost of incarcerating hundreds of undocumented immigrants since fiscal year 2003, opposes the bill on the grounds that Mexican leaders aren't showing signs of support.
Winning legislative approval
In his report, Pranis describes an underfunded and dangerously overcrowded Arizona prison system, which has seen its budget double during the past 15 years, placing a burden on state taxpayers.
"The state's simply locking up more prisoners than it can afford to," he said. "Privatization is being presented as a solution to a problem it's not going to really solve."
Bolstered by reports that private prisons have delivered cost savings, supporters of privatization have won legislative approval for thousands of new private beds in Arizona.
That includes a 1,400-bed DUI prison in Kingman; a 1,000-bed prison for sex offenders expected to be sited in Florence; and a proposal to build a 3,200-bed women's private prison that has been withdrawn by the DOC.
Pranis said his main concern is that no rigorous, independent evaluation has been made of Arizona's private prison program, nor have cost-comparison figures reported by the DOC been independently audited.
"It's a little bit of 'the emperor has no clothes,'" Pranis said. "Everyone reports it and no one really goes back to check the numbers."
Supporters of the new report ask Arizona lawmakers not to make any hasty decisions to privatize the state's prison operations until new research has been conducted.
It's alarming that state leaders are making decisions based on misinformation, said Caroline Isaacs, director of the Tucson chapter of the American Friends Service Committee, which commissioned Pranis' report. Isaacs has a history of opposing private prisons in Arizona.
"We are thinking it does point to the likelihood that these private prisons are not saving the state money," Isaacs said. "How about we not hand out any more multimillion-dollar prison contracts until we know that we're getting the deal that they're telling us we are?"
Pranis argues existing studies that seemingly legitimize privatization, even the Department of Corrections' own cost-comparison models, are insufficient because incomparable prison populations are being stacked against each other.
"You're not comparing comparable populations," he said. "From our evaluation of past analysis, it's not even apples to oranges, it's apples and grapefruit."
Pranis said the most obvious flaw is that female inmates, who are not the ones being housed in most private prisons, are more expensive to house than men and are often lumped into cost comparisons.
He said it's clear that public facilities disproportionately bear the burden of higher-risk, higher-need prisoners who are more costly to house, while prisoners incarcerated in private facilities are less likely to be convicted of serious offenses, or to have great medical and mental health needs.
Pranis' report claims that public prisons of comparable levels are seven times more likely than private prisons to house violent offenders, and that public prisoners are more than twice as likely to have great medical needs.
"It's not rocket science that it costs more to run a prison where you have more offenders who have been violent offenders and who have higher needs," he said.
Pranis' report claims private prisons are able to "cherry pick" the least expensive prisoners to house, including those without medical problems or serious offenses. The Marana prison, specifically, has been able to pick the best of the bunch using a laundry list of exclusions, he said.
Prisoners are excluded from the Marana prison for several reasons, including conviction of felonies involving violence or threats of violence, and medical and health needs scores higher than a certain level, which Pranis said ensures "they are certainly getting the cream of the crop."
Medical caps permitting companies to bill the state for extra costs incurred whenever a prisoner's medical bill exceeds $10,000 or $15,000, depending on the contract, are not analyzed in most cost-comparison reports, Pranis said.
According to Department of Correction officials, the cost for medical services that exceeded limits last fiscal year was $538,100, and $137,824 so far this fiscal year. The state of Florida reported a more than $1.8 million cost shift last year because of a similar medical cap, Pranis' report shows.
"There's no doubt that the medical cap has pushed costs onto the public sector," he said. "That's something that the DOC will account for when they come up with their new figures."
Pranis said the purpose of his report is not to take a stance against privatization, but to show that there isn't evidence to make a conclusion of cost savings using current methods. His report calls for a comprehensive, independent analysis taking into account differences in inmate populations.
DOC officials said it's never easy to compare operational costs of one prison to another because of differing missions and varying types of facilities. The department has a cost-comparison son model that identifies direct and indirect costs for all aspects of private prisons and compares those to the costs DOC would incur if it were to build and operate a similar prison.
DOC officials confirmed last week they have contracted an independent consultant to review the department's cost-comparison model to determine if there is a more accurate model or approach that could be used for cost analysis. The results are expected to be completed within the next several weeks, officials said.
"In the meantime, it's probably a bad time to amend the constitution of the state of Arizona to ensure that all future prisons in Arizona have to be private," Pranis said.
DOC officials declined to comment on whether they were second-guessing if cost savings were occurring or what evidence proves any cost savings. They also declined to comment about whether further privatization is a wise venture for the state, referring all comments to the governor's office.
Discrediting past research
In his report, Pranis refutes three sources of information that proponents of privatization often cite: Charles Thomas' 1997 study of Marana, DOC's 2000 public-private comparison report, and a 2001 audit by the state's auditor general.
Marson said that's OK because Republicans don't need any studies to show that savings exist through privatization, "because it's in state law that they have to do it for a cheaper price."
"I don't even know if you have to fall back on studies," he said. "They're out there, but private prisons must do it cheaper than the state. That's the only study that you need."
Focusing on Marana, Thomas collected data on the operating cost of private prisons between 1995 and 1996, reporting that the Marana prison delivered cost savings of between 13.8 and 16.7 percent.
However, Thomas's credibility was called into question when it emerged that he had financial ties to several companies. Not only did he own stock in Corrections Corporation of America and other private prison companies, he also received a $3 million consulting fee from the corporation for his services, Pranis' report shows.
The Florida Commission on Ethics also uncovered evidence that Thomas took a week-long, expense-paid trip to Hawaii to attend a Management and Training Corp. board meeting while in the middle of his research on Marana.
Attempts by the EXPLORER to contact Thomas were unsuccessful.
In his report, Pranis raises questions about state prison officials who've catered to private companies before retiring on state dollars to find a second career in the private industry.
Due to generous contracts approved by former DOC Director Terry Stewart before he left to join the private prison industry, Pranis' report shows, the state's private prison costs appear to have risen rapidly since 2002.
"I think some would consider it a parting gift to the industry by Terry Stewart before he went on to work for the industry," Pranis said.
Pranis claims new per-diem rates, what the state pays per prisoner per day, are 30 percent higher than the contract costs reported by DOC in 2002 and likely to push private prison costs above public costs even before accounting for differences in populations.
"I don't think it's just a question of how much private prisons save now, it's also a question whether they're even saving money at all," he said.
Carl Nink, who spent 25 years with DOC and, as an assistant director, oversaw the process that awarded the Marana prison contract to Management and Training Corp., retired and went on to work for for the corporation a few years ago, currently serving as executive director of the MTCI.
"I believe the taxpayers need to receive the maximum benefit and everyone should be reaching for that higher standard, that bar that's up there, regardless of who's running the institution," Nink said. "The bottom line is competition improves everyone's operations."
Nink cited a specific example of how privatization has improved the state's operations by establishing cost analysis systems that hadn't existed before. Initial efforts to compare private and public facilities showed that the state was inadequately prepared to identify its per inmate costs, he said.
"That was something that we had to install because the way in which we tracked money was not on a per inmate basis," he said.
Nink admits there are many challenges to comparing costs between public and private prisons, but he points to savings from capital costs when a government is challenged to come up with large sums for construction of facilities.
Marson shared a similar attitude with Nink and said competition leads to innovation.
"When the state Department of Corrections has a monopoly, there's no incentive to improve," he said. "With private corporations, there's an incentive for them to do better to lower costs in order to retain more prisoners - more clients, if you will."
On a lesser-discussed issue, Pranis's report claims the use of municipal bonds used to finance construction of new private prisons and refinance existing facilities carries significant risks for both the state and host counties that have assisted with financing.
The report reveals evidence of hidden liabilities for counties and the state regarding popular lease-revenue bonds for new prison construction. In some cases, Arizona could be forced to tion. In some cases, Arizona could be forced to keep contracts with private prison operators even if the beds were no longer needed or the facilities were completely mismanaged, he said.
"It's really unfortunate, because when you make the decision to privatize, it's not an easy decision to reverse," Pranis said. "You're making a long-term commitment."
Incidental problems in private facilities
Privatization has been the subject of controversial debate since the mid-1980s, but the private prison industry has managed to grow, thanks to high rates of incarceration and a larger trend toward privatization on a national level.
Opponents of privatization cite operational difficulties such as riots, escapes and inmate deaths, while proponents argue the same happens in public facilities. L'Ecuyer said the governor's concerns about privatization are best reflected in these constant problems.
Just last week, a fatal prison riot at the Cimarron Correctional Facility in Cushing, Okla., involving as many as 50 or 60 prisoners, resulted in the death of one inmate and injuries to several others. The private medium-security prison is run by Corrections Corporation of America.
In May 2004, more than 500 Arizona prisoners rioted for four hours at the corporation's Diamondback Correctional Facility in Watonga, Okla., pushing down fences, using shower rods as battering rams and smashing windows using boards and rubble found in a recreation yard.
In July 2004, more than 500 Washington and Colorado prisoners rioted for seven-plus hours and set fires that almost burned down portions of a corporation-managed prison in Colorado, causing $380,000 in damages.
In August 2004, five men escaped from a Texas detention center operated by Correctional Services Corporation. As of October 2004 two of the five men who were alleged to have ties to the Mexican Mafia, a violent gang involved in drug trafficking, had not been apprehended, Pranis' report mentions.
Pranis said that because the private sector pays correctional officers less money than public prisons do, it seems inevitable that it's going to get the bottom of the hiring pool, which, combined with a high job turnover, creates a less experienced staff in private prisons.
"The wages are lower than the state pays and our turnover rate is not all that much higher, but our staffing level is regulated by the state," said Lori Lieder, the Marana prison's warden.
Lieder, who is in charge of a prison that operates on an annual budget of about $7 million, said the prison's current per-diem rate is $43.54, which she thinks is saving the state money.
"I think we have operated this facility very well," she said. "We have been pushing for cost-of-living increases and we have not received one for several years and we still maintained our budget."
Rep. Tom Prezelski, D-Tucson, said his biggest problem with the private prison industry is that it creates a system where it's not in the company's interest to rehabilitate.
"They're essentially making money off crime, so how can we trust them to want these prisoners to return to society when an increase in crime rate is good for business?" he said. "I don't think it's healthy."
Prezelski said a private prison has to cut back to make a profit, and if they were held to the same standards as public prisons, they wouldn't make any money. He spoke up against the Mexican prison bill before it got through the House earlier this month.
"Given the problems we have with some private prisons in the United States, why do we think this prison outside of our scrutiny is going to function any better?" he said.
At a Jan. 18 Marana Town Council study session, prison officials discussed expanding operations at the Marana facility in an effort to house more serious offenders, which could be the first step toward doubling the prison to hold as many as 900 inmates. Officials say negotiations regarding the proposal are still being discussed.
But council members don't seem to be leaning in favor of an expansion. Honea asked Lieder several times at the January meeting whether violent criminals would find their way into the Marana prison if he consented to the proposal.
"I asked her several times from the dais if there would be rapists or people who committed a crime with a weapon, and she never would answer my question," Honea said. "I asked it about five times and she would not answer it. I finally gave up. I could never get a straight answer."
On the larger scale, Isaacs said the expansion of privatization is not the answer to the state's overcrowding problem, which, instead, requires sentencing reform.
"We need to take a look at who really needs to be behind bars," she said. "Whenever a new facility goes up, we feel it's a loss to the state of Arizona. We haven't addressed the engine of that growth."
Pranis said lawmakers should think long and hard about any decisions to further privatize the state's corrections operations before they're certain cost savings are occurring.
"My concern with privatization is there's the belief that you can lock people up cheaply," he said. "And you can never lock people up cheaply."