Do Private Prisons Make Financial Sense for States?

Most states use contract prisons for some of their corrections needs, often in the hope of saving money, but is contracting out really all that worthwhile for states? The current debate about prisons and the private sector has often generated more heat than light. Fortunately, a new study from the Independent Institute answers the question by offering a new and improved method for calculating the fiscal benefits of breaking free of the public-prison monopoly.

Authored by two leading experts on public-private partnerships, economists Simon Hakim and Erwin A. Blackstone, Prison Break: A New Approach to Public Cost and Safety finds that using contract prisons often results in cost savings two or three times as large as the 5 to 10 percent minimum that some states require. In some cases, the long-run savings is much higher, such as in California (savings of 58.61% at one prison), Oklahoma (up to 36.77%), and Texas (up to 44.95%).

“Our study found that contracting out inmates to private prisons saved state governments money while maintaining performance at least at the same quality as public prisons,” Hakim and Blackstone write. “Indeed, public-private competition and cooperation could even be extended to further these fiscally responsible goals.”

Although thirty states used contract prisons in 2010, Hakim and Blackstone found it helpful to focus on ten: Arizona, California, Florida, Kentucky, Maine, Mississippi, Ohio, Oklahoma, Tennessee, and Texas. Employing state and federal cost data, as well as interviews with corrections officials, they compare the short-run and long-run avoidable costs of contract prisons with the costs of public prisons. In doing so, they raise the bar for studies on the economics of prisons. Interestingly, they note that states that contract for correctional services tend to employ a variety of alternatives to incarceration, such as sentencing reform, community-based corrections and reentry programs, and that private operators often partner with government agencies to provide such services.

Prison Break: A New Approach to Cost and Safety, by Simon Hakim and Erwin A. Blackstone (Independent Policy Report, 6/30/14)

Press Release: States Reap Huge Savings When They Contract with Private Prisons, New Study Says (7/2/14)

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[This post first appeared in the July 1, 2014, issue of The Lighthouse. To subscribe to this weekly email newsletter and other bulletins from the Independent Institute, enter your email address here.]

Carl Close is Research Fellow and Senior Editor for The Independent Institute and Assistant Editor of The Independent Review and editor of The Lighthouse, The Independent Institute’s weekly e-mail newsletter.
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