Thursday, January 12, 2012

Privatizing Ohio's Prisons Doesn't Make Business Sense

By Elaine Hirsch

In an effort to reduce a large budget deficit, Ohio governor John Kasich proposed the sale of five Ohio prisons to private companies in the spring of 2011. However, in September, the state announced that it would only sell the Lake Erie Corrective Institution to Corrections Corporation of America (CCA) for $72.7 million. Rather than being sold, the North Central Correctional facility in Marion would be merged with another nearby facility that is already privately owned, and the North Coast Correctional Treatment Facility in Lorain County would be merged with the Grafton Correctional Institution.  North Coast had been privately owned for ten years.  The state has not made a decision whether or not to privatize the other two facilities.  Governor Kasich and some criminal justice experts initially announced that the Lake Erie sale would save the state $3 million per year. 

Faulty Accounting

Opponents of privatizing Ohio’s prison system claim that the savings estimates are not entirely accurate. According to journalist Bob Paynter in his report Cells for Sale: Understanding Prison Costs and Savings, he indicated that the calculations used by the state indicating a cost savings contained significant errors, omitting data that was significant to the formula and included accounting assumptions that should be considered controversial. After the release of the report, the state admitted that their method for determining the costs savings were imprecise, and when they released the new formulas a few weeks later, it was clear that the state had completely overhauled the savings formula method in an effort to report more accurate savings figures.

Corrections Corporation of America

CCA has ties to Ohio government; Gary Mohr, the Director of the Ohio Department of Rehabilitation and Correction, is a former consultant and managing director for the company.  Mohr was hired to his position shortly before the proposed sale was announced.  The company, which received a 20-year contract, will own and operate the Lake Erie Correctional Institution. CCA purchased the facility for $72.7 million, more than the $50 million the state hoped to generate from the sale. CCA announced that they would run the prison for 8% less than the state, which would amount to $3 million in savings each year.

Opponents claim that selling the Lake Erie facility cost the state an asset valued at over $73 million. Additionally, although the state is claiming that the cost of capital improvements will now fall to CCA, the facility is one of the newest prisons in the state, so capital improvement costs will likely not be significant for at least several years.

Future Adjustments

Although CCA's contract with Ohio lasts twenty years, the corporation will have incentive to raise per diem prices after the contract is resolved due to its favorable bargaining position. If the state were to take over operations after the contract, it would have to incur heavy payroll and equipment costs to reestablish itself in managing the prison system.

With this knowledge, it would be favorable for both CCA and Ohio to renew a contract with CCA upping per diem prices, since they can cite inflation and increasing costs as reasons for doing so. This of course doesn't make sense, since most efficient businesses would strive to cut costs and factor in rates of inflation when conducting long-term business plans.

New figures indicate that privatizing Ohio’s prisons may actually cost taxpayers more than keeping them under state control. The use of questionable accounting methods and figures that are unable to be substantiated indicates that the state’s prediction of $13 million in savings per year may not actually come to fruition. Considering the security problems that have been consistently found in privatized prisons, public concern regarding this privatization venture seems warranted.

Elaine Hirsch is kind of a jack-of-all-interests, from education to technology to public policy, so she is currently working as a writer for various education-related sites and writing about all these things instead. She currently writes for an online MBA resource.

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