Locking in Savings with Jail Privatization

Midland County's overcrowded and poorly designed jail is expensive to operate and makes inmate supervision difficult, placing jail employees and the public in danger of breakouts. In June, 1998 an inmate was moments away from seizing a shotgun for the purpose of blasting himself an escape route. Competitive or private alternatives to the county lock-up could alleviate these crowding and public safety problems.

The Midland jail maintains an inmate capacity of 100, but "demand" for jail spaces continually exceeds the supply. On an average day, some 26 excess Midland prisoners are farmed out to jails in nearby Clare, Crawford, Clinton, and Gladwin Counties at an annual cost to Midland County of roughly $250,000 yearly, according to William Smith, jail administrator for the Midland County jail.

Housing Midland inmates in neighboring counties has helped somewhat, in the form of lower costs. It costs $47.50 per inmate, per day in Midland County to house a prisoner, but contracting out costs Midland County $35 in Gladwin, Clinton, and Clare counties, while Crawford County charges a mere $30.

Government jails can and do profit from prisoner populations. In fact, the new 120-bed facility in Clare County is jokingly referred to as the "Midland addition" by its staff. Officials have told Michigan Privatization Report that the jail was built not only to accommodate Clare County's jail needs, but also to increase its cash flow.

Isabella County has done likewise. Jail Administrator Tom Recker has noted that the county's jail expansion was funded by leasing inmate bed space to other counties. It costs Isabella County $22.50 per inmate per day to house prisoners, yet the county charges $30-$40 per day to house out-county inmates. The difference is untaxed profit that is directed to other uses.

However, simply contracting out inmate incarceration to other counties cannot solve all of Midland's jailhouse woes. Neighboring counties cannot take all of Midland's inmates because many are prisoners who have not yet been sentenced: Transporting them between Midland's courthouse and an out-of-county jail would be cost prohibitive and dangerous. Most counties also refuse to take Midland's most violent prisonersunderstandably soand the state may extend to 18 months (from one year) the maximum amount of time county prisoners can stay in the county lock-up before being transferred to state prisons, further crowding Midland's overburdened jail.

Midland County should consider one or a combination of the following four alternatives to reduce over-crowding; improve jail safety; and finance improvements wisely

Option 1: The county could build, own, and operate a new, high-tech facility by using county land and any one of a number of financing alternatives. It may contain anywhere from 200-500 beds and any additional bed space would be used to profitably house another jurisdiction's inmates. The cash flow could be used, as in other counties, as a source of revenue for paying construction and maintenance costs.

Option 2: Midland County could build a large, shared facility that would be used by four or five surrounding counties in partnership. This would allow each county to take advantage of economies of scale in purchasing and management. It would also give them the chance to involve ancillary private vendors early in the project. Food, medical services, and prisoner transportation could all be outsourced to private firms such as Marriott, Correctional Medical Services, and Transcor, respectively.

Option 3: Midland could allow private companies to bid for the right to build a prison on behalf of the county, at which time it would be turned over to the county for day-to-day operation. Private firms GRW and Wackenhut have built and are building jails for a number of counties in New Mexico and Florida counties for just this purpose.

Prison Realty Trust (PRT) is another option. PRT is a for-profit firm that operates like a Real Estate Investment Trust (REIT). REITs allow small investors to invest in real estate much like they may purchase mutual fund shares. Prison Realty Trust specializes in "design and build" lease-back arrangements. The major difference between companies employing a REIT mechanism and companies that do not is access to capital. The ability to get a large line of credit allows for larger projects and financial strength that government officials find comforting because it suggests a long-term stability.

Option 4: Private prison companies such as Wackenhut and Corrections Corporation of America could build, own, and operate a fully privatized county jail. Currently, however, state law prohibits private jail operations, so such a move would require legislative action or a favorable attorney general ruling.

Even private management of Midland County's existing facility may be a boon to savings. Privatization often leads to cost reductions of 15%-20% for the privatized entity. Applying this to Midland suggests the potential for $285,000-$380,000 in annual savings from the jail's total operating budget.

In 1989, state Senator Robert Geake proposed a multi-bill legislative package to allow for privately operated county jails. His efforts languished due to opposition from the union representing Michigan's prison guards. The state legislature should revisit the issue.

Private firms across America have successfully designed, built, and operated all types of jails, prisons, and detention facilities. The largest companies have grown dramatically because of their proven track records. From 1987 to 1997, the number of prisoners serving time under private supervision increased from less than 5,000 to more than 100,000. These for-profit penal institutions enjoy such success only because they deliver a quality product at a competitive price.

Midland County officials must make a decision after studying the jail overcrowding dilemma for the last two years. Other jurisdictions have solved their jail problems by pursuing competitive, creative solutions that enhance public safety and save taxpayer dollars. Midland should follow suit to lock up these benefits for its citizens.