Cost-Saving or Cost-Shifting: The Fiscal Impact of Prison Privatization in Arizona

Arizona policymakers responded to claims that significant cost-saving have been achieved through privatization by nearly tripling the number of state-contracted beds. But Justice Strategies' analysis finds that these claims are based on flawed, outdated research that failed to address critical factors including population differences and the cost of financing.

Justice Strategies analysis finds cost-saving claims based on flawed, outdated research.

Arizona's corrections budget has doubled over the last fifteen years, placing a tremendous burden on taxpayers and on the families of state university students. Despite the growth in corrections spending, however, the state prison system remains underfunded and dangerously overcrowded.

Arizona's corrections crisis has led many to call for an overhaul of the state's sentencing system, which packs state prisons with non-violent substance abusers who make up half of all prisoners. Others argue that privatization is the answer to the state's prison woes because private companies can operate prisons at lower cost and finance new prisons the state cannot afford.

Bolstered by reports of cost-savings, supporters of privatization won legislative approval for thousands of new permanent private beds, including a 1,400-bed DUI prison in Kingman and a 1,000-bed prison for people convicted of sex offenses. As a result, state-contracted private prison beds nearly tripled between 2003 and 2005.

But the research used to justify the expansion of the private prison program is methodologically flawed, outdated and, in one case, discredited by the researcher's financial ties to the private prison industry. And critical issues such as the implications of municipal bond financing of private expansion have never been addressed.

Justice Strategies found that no rigorous, independent evaluation had been made of Arizona's private prison program, nor had the cost-comparison figures reported by DOC been independently audited. Existing research failed to account for key factors such as population characteristics, facility design and proper allocation of costs.

Our analysis also determined that prisoners housed in private facilities were far less likely to be convicted of serious or violent offenses, or to have high medical and mental health needs, than prisoners housed in public facilities. Public prisoners were seven times as likely to be serving time for violent offenses, three times more likely to be serving time for serious offenses and two times more likely to have high medical needs than those housed in private facilities.

We also found that private prison costs have risen rapidly since 2002 due to generous contracts approved by former DOC Director Terry Stewart. The new rates range from nine to 35 percent above the old rates and appear to have pushed the cost of private prison beds well above comparable public costs. Finally, the use of municipal bonds to finance construction of new private prisons and re-finance existing facilities carries significant risks for both the state and host counties that have assisted with financing.

The report was authored by Justice Strategies analyst Kevin Pranis and commissioned by the American Friends Service Committee - Tucson and the Arizona Leadership Institute.

Public and private prisoners by offense type: August 31, 2003 Public and private prisoners by medical/mental health need: August 31, 2003