Cascade Policy Institute

This proposal is one of ten winning reports from the 1994 Oregon Better Government Competition. The 1994 and 1996 Competitions were organized by the Portland-based Cascade Policy Institute. Opinions expressed are those of the author(s) and not necessarily those of Cascade staff or advisors, nor should they be construed as an attempt by Cascade Policy Institute to influence any election or legislation.

Private Prisons in Oregon:

A Good Idea

by Darren T. Board

Portland, OR

EXECUTIVE SUMMARY

The management and operations of nine of Oregon's thirteen adult correctional facilities ought to be contracted out. A growing body of literature is demonstrating that private prisons are legally and administratively feasible, constitutionally and philosophically defensible, qualitatively equal or superior to government-run institutions, and economically efficient. By contracting with private prison providers, Oregon could both raise the quality of service provided to inmates and save millions of taxpayer dollars.

Private prisons have a solid base of political support and a broad base of political acceptability. Sixteen states have accepted prison privatization. Currently, there are twenty companies operating 67 minimum and medium security facilities, incarcerating nearly 25,000 adult inmates at an average of $40.00 per manday. The privately run facilities have received higher quality ratings by inmates and employees in several surveys, and the private companies continue to make a profit.

By comparison, the Oregon Department of Corrections incarcerates 4,650 adult medium and minimum security inmates at an average of $50.78 per manday, plus an allocated overhead cost of $6.59 per manday.

Private prisons have some vocal, and sometimes powerful opponents, but each and every single one of the concerns presented by opponents can be successfully managed through contractual agreement, through independent financial audit, through State monitoring, and through accreditation by the American Corrections Association. And if the output of two prison providers is the same, then it only makes sense to utilize the less expensive, more efficient provider.

Reprints of the complete report with appendices and exhibits are available from Cascade Policy Institute.

ABOUT THE AUTHOR

Darren T. Board works for First Interstate Bank of Oregon as a Credit Analyst in the Portland Commercial Banking Division. He recently earned his Master of Management degree in Finance and International Management from Willamette University's Atkinson Graduate School of Management in Salem, Oregon.

INTRODUCTION -- PRIVATE PRISONS WILL BENEFIT OREGON

Since the passage of Ballot Measure 5 in 1990, Oregon has been actively seeking new and more efficient way to provide services. But obviously, not enough has been done. The decision by government to replace lost Ballot Measure 5 dollars with a sales tax was criticized on the streets and at the polls. Clearly, Oregon taxpayers have paid enough. Additionally, if one takes a look at Oregon's 1993 annual report, total revenues increased $1,036.0 million (10.54%) to $10,756 million during the state s fiscal year ending June 30, 1993. In fact, during the four years since fiscal year end 1989, Oregon's revenues have increased almost 43%. Do we really have a budget shortfall in Oregon, or a spending problem?

Just because there is an increase in revenues, that does not negate or defer the efforts the state should make to improve efficiencies of service delivery. One of the best tools available to achieve these efficiencies is private contracting, or what this paper will refer to as "privatization." And one option that ought to be implemented is the privatization of state prison facilities that operate under the Oregon Department of Corrections (ODOC). Rather than the state directly managing the prison facility, the state should contract with a private corporation to act in lieu of the state as the actual provider of the service. The state would in turn pay the company for providing the service. This practice is actually quite common and the results have been favorable for both governments and inmates.

The primary beneficiary is the taxpayer. The operating efficiencies held by private providers allow the contractor to operate, on average, at eighty percent of ODOC s operating cost. The secondary beneficiary is the inmate. The private provider can enhance the living conditions, programs, and support of the inmates and still save taxpayer dollars. The third beneficiary can be the prison employees. Private providers offer flexible and more efficient scheduling, training, benefits, and promotion opportunities while typically maintaining salary levels for staff and security personnel. All this can be accomplished utilizing the resources and efficiencies available in the private sector. And if the output of public and private providers is the same, then it only makes sense to utilize the less expensive, more efficient provider.

Taxpayers realize they benefit from government services when it comes to transportation, education, safety, and the social services provided by local, state, and federal government. But even Thomas Jefferson noted that, all things being equal, the private sector manages services better than government does itself:

Having always observed that public works are always much less advantageously managed than the same are by private hands, I have thought it better for the public to go to the market for whatever it wants which is found there, for there competition brings it down to the minimum value.(1)

Jefferson realized there is a significant cost differential between the public and the private sector--one that favors the private provider. Government should establish a system that provides the highest quality service at the best price.

The amount of government control should not be the issue. The level of government power should not be the issue. When the Oregon government fails even to examine relinquishing the control it has over certain state functions, then government is valuing control more than it values the quality and efficiency of service provided to the public.

In light of recent events in Oregon, a reasonable question to ask of government, in fact, a reasonable challenge to pose to government is: Is it necessary for government to actually provide the service in question? A distinction needs to be made when a government has the obligation to provide for a service and when it must actually provide the service. Charles Logan answers this question as he writes his article on prisons and competition:

It is one thing to believe that only the state has a right to imprison someone. It is another matter entirely to believe that only the state can run a prison in a fair, humane, effective and economical fashion. The first belief is a matter of political philosophy; the second is an empirical proposition.(2)

Perhaps some other entity can successfully provide the service under the administration of the state. Sufficient evidence exists in the marketplace to demonstrate that private prisons provide a similar or better service than their public counterpart. While taking advantage of efficiencies not available in the public sector, the private prison provider can save the state a minimum of 10% while operating at 80% of the cost of the state prison and still make a profit. (See The Financial Answer).

Additionally, current state employees who are hired by the private company will find themselves faced with opportunities for merit-based career advancement and employee stock ownership plans not found in the public sector. If Oregon is ready to address some of the key barriers to privatization, other agencies will have an incentive to achieve the efficiencies of the private sector.

PRIVATIZATION

In a general sense, the privatization process is made up of six steps:

• Decide whether to privatize. The main reason for privatization is to reduce costs while maintaining the quality of service. Comparing the costs of a public agency to the private provider is not easily or scientifically accomplished. However, the final outcome of a cost analysis should be the maximum cost per bed the state would be willing to pay if it were to consider shifting financing, construction, and management to the private sector. There may be other reasons to privatize that need to be investigated and defined. An examination of obstacles confronting the privatization effort will also create an understanding of the many issues surrounding prison privatization in Oregon.

• Establish goals. Explicit goals and objectives and their relative weights are essential for successful privatization. The goals should reflect what the legislators and government officials wish the private provider to obtain and need to become part of the request for proposal.

• Organize the system. Review of the existing system is a basis for any consideration of its alteration. The planners should analyze the strengths and weaknesses of the current system and the roles of the various agencies involved.

• Analyze the legal and liabili!y issues. Oregon Revised Statutes, sentencing guidelines, union contracts, and other state and local ordinances may affect privatization efforts. This information will help determine some barriers to privatization and the type of liabilities governments may later assume.

• Prepare the request for proposal (RFP). The RFP sets performance criteria and general qualification requirements. It needs to be clear, comprehensive, and provide all the necessary information for the contractor to make an informed decision.

• Evaluation and monitoring. The government system that will review and control the private provider should be outlined in the RFP. Continuous monitoring is required to assure quality of service. Government cannot relinquish responsibility and ultimate liability for the individuals in correctional institutions and must maintain close monitoring of the contractor.

While many other approaches could be offered as the steps to privatization, they would be different in definition only. The objective would still be the same, as would the process. The most important step is the decision to privatize. This may be the most controversial step, yet it seems to require the least amount of technical skill to evaluate.

THE DECISION TO PRIVATIZE

While cost savings are an important argument in favor of privatization, other factors must be investigated to support the assertion that services provided and the quality with which they are delivered are measurably equivalent. There are numerous books, articles, and papers written about the viability of privatization in general, and more specifically, the privatization of prisons. The growing body of literature is demonstrating that private prisons are legally and administratively feasible, constitutionally and philosophically defensible, qualitatively equal or superior to government-run institutions, and economically efficient.(3) The evidence is clear that not only is there a big push for privatization, but that privatization meets, and many times exceeds all expectations.

The arguments against the privatization of corrections are based upon the historical evidence of the private prison movement which began around 1750.(4) But it was the atrocities in public prisons in the 1970's that prompted the renewal of prison privatization. In response to overcrowding and the promise of a lower cost per manday, governments began to contract with private prison providers once again. Obviously, there have been gargantuan steps taken in inmate rehabilitation and a dramatic improvement in prisoner rights during the interim period. Despite these improvements, many still oppose incarceration for profit. Deferring to the leading authority on prison privatization in the United States, Dr. Charles H. Logan:

"Private prisons have a solid base of political support and a broad base of political acceptability. However, they also have some very vocal, sometimes powerful opponents. Organized opposition comes from public employee labor unions, who oppose all forms of privatization; from the National Sheriffs' Association, who wish to keep control of jails in the hands of sheriffs; from certain members of the American Civil Liberties Union, who want to see less imprisonment and are afraid that more efficient prisons will mean more of them; from academics, who fear business even more than they fear government; and from a certain subcommittee with the American Bar Association, whose objections relate much more to policy than to law."(5)

In essence, opponents to prison privatization are making their challenges for two purposes. One is preservation of their own interests. The other is protecting the inmate, which challenges only the integrity of the private prison provider. And who is to say that government is beyond corruption and reproach?

In a recent book titled Private Prisons: Cons and Pros, Dr. Logan systematically examined every single argument presented by the critics of private prisons. In no case did he discover any argument against private prisons that does not apply also, with equal force and validity, to prisons run by government employees. Private prisons do face challenges of authority, legitimacy, procedural justice, accountability, liability, cost, security safety, and corruptibility, but only because they are prisons, not because they are private.(6) Typically, the issues of contention fall under six categories, and brief discussions of these look like this.

Political

• Opponents to private corrections speculate that the criminal justice system may use the experience of private prisons to increase its importance in society. Prison-business interest groups may lobby for longer sentences, stronger penalties, stringent parole standards, or they may attempt to redirect social policy so as to gain from higher inmate numbers. This may result in a questionable relationship between a politician who promises to "get tough on crime" and the private prison provider.
• Opponents argue that prison expansion programs resemble supply side economic policies in that as long as there are beds to fill, the criminal justice system can fill them.
• Another concern is that the private sector building and operating of prisons circumvents the voters when bond referenda or tax levies fail. This translates into less democratic control and a less accountable governing body.

Administrative

• Opponents to privatization are concerned that the public would lose access to prisons and prison records due to the closed nature of private industry.
• A second concern is whether the cost effectiveness of prison privatization is a form of union busting and exploitation of labor with lower wages, lower pensions, and fewer employee benefits. There is a resistance from government employee groups as they believe that private operators hire fewer people, decrease employee forces, and reduce training.
• A third concern is whether the private contractor would engage in uncontrolled cost-cutting activities, design shortcuts, a reduction in safety standards, and an increase in corner-cutting methods. The fear is that the private corporation would jeopardize the quality of service delivered to prison inmates and government in an effort to operate at a profit.
• Another administrative issue is whether private prisons would only contract to house only the low-security, problemfree inmates, leaving the higher cost hard-core criminals for government to house.
• Final administrative concerns deal with establishing contingency plans in the unlikely event of a strike, bankruptcy, or an emergency situation.

Legal/Constitutional

• There is a concern that the delegation of incarceration to a private company may be unconstitutional. Crime is clearly the domain of the government in modern society. A criminal becomes a criminal only when he or she is so defined by agents of the state through the enforcement and adjudication process.
• Second, is the realization that the government cannot contract away all of its liability.
• And finally, can the use of restraining and deadly force be legally employed by a private contractor?

Inmate Rights

• Does the state cause a deprivation of a right (secured by constitution or by statute) because prisoners housed in a private correctional facility might lack a legal means of attacking any substandard prison conditions?

Quality

• The overall interests of business and prison are basically different. Therefore, there is a concern that the inmate's quality of life might be sacrificed for profit.
• Is there sufficient evidence to support the claims that private prisons deliver a higher quality product than public prisons?

Costs and Finances

• Are private prisons really more efficient than their public counterpart?

Each of these issues presents a possible obstacle to the privatization of Oregon prisons. But it will be apparent that each topic can be addressed in the resulting contract between the state and the private contractor, and these will no longer be barriers to the privatization process. If the measurable output of the corrections system is indeed equal between the private provider and the ODOC prison, then the cheaper alternative should be awarded the business. ODOC's mission statement is "to reduce the risk of criminal conduct... with a continuum of community supervision, incarceration... to manage offender behavior... using the least restrictive method... consistent with public safety." It is possible for a private provider to accomplish the same goals as ODOC facilities. With this mission in mind, this report plans to address each of the issues to help identify the goals of ODOC, to help redefine an ODOC that includes private providers, and to help identify the obstacles that Oregon needs to overcome before it can legally, ethically, and economically contract out for the private incarceration of prisoners.

THE POLITICAL ANSWER

The length of a prison sentence should not be a function of economics, except in recognizing that it is cheaper to incarcerate a criminal than allow him or her to continue being a criminal. (In support of this, John J. Dilulio Jr. and Anne Morrison Piehl make a conservative conclusion in 1991 that, while it costs on average $25,000 per year to incarcerate the average criminal, the average criminal would have cost society $46,072 in criminal activity had he or she not been imprisoned. The above-average criminal costs society $369,000 each year).(7) Nor will the length of a prison sentence be a function of politics. It would require the mobilization of the general public to seek longer sentences for criminals. Private providers of corrections are no more likely to gain the political power to lengthen prison sentences than day care providers lobbying to restrict birth control and abortion.

Privatization is not meant to replace Oregon's provision of corrections, but to provide an alternative source with additional and improved capacity. Private operators do not have control over the sentence length of prisoners. In almost all cases - whether for furlough, probation, or permanent discharge - decisions are made by the appropriate governmental body. Most jurisdictions handle all "good behavior" decisions. For those that do not, standard procedures are used and closely monitored.

Opponents assume that private operators will be desperate for inmates to fill their cells. Even though the day when there is a shortage of prisoners is a long way off, the private operator has tremendous flexibility to adjust to changes in the prison population. The private provider can cut back on staff and eliminate certain unnecessary services and programs that the state prison may not be able to do because of employee union contracts.

The Oregon courts use a sentencing guideline grid to determine the length of the sentence for felons. This table is reviewed and revised periodically to adjust to new laws or other conditions. Sentencing is a function of many variables, including severity of the crime, and the history of the convicted felon. But it is also a function of the availability of prison space. As Oregon has roughly 6,500 prison beds available, the more serious crimes take precedence over the less serious crimes, and in effect we end up with a revolving door policy where convicted felons are released before they have served their sentence. As a result, as space becomes less available, the courts must change the sentencing guidelines usually causing a reduction in the sentence of a convicted felon. This is an example of the supplyside argument that many opponents to privatization fear, only with the opposite effect.

What should be most disturbing to taxpayers and public service employees is the fact that Oregon taxpayers, at this point, have spent hundreds of thousands of dollars and hours to convict the felon, but because of a lack of space, and an increase in the number of more serious crimes, the felon cannot serve out the full sentence.

THE ADMINISTRATIVE ANSWER

The administrative issue centers on a general mistrust of business. Apparently, governments and individuals in government are not reputed to engage in unethical and unprofessional acts. Government and government officials are no more beyond corruption than the private sector. Governments and government officials are, however, empowered with certain legislative authority with which they can provide services, or take them away.

Private industry, in general, seems more open than public industry. Supporting this is the difficulty in finding the actual costs of incarcerating a criminal. It is much simpler to make sense of the services and related costs of a private provider than those of a public provider. The data is usually easily located, and because of the profit motive, costs and operating efficiencies are easily determined.

Though it is not the goal of a public agency to make a profit, it ought to be Oregon's duty to provide the most effective and most efficient services available, and be able to document this effect.

The private provider must operate under a contract between itself and the state which can require that certain conditions be maintained. Therefore, the state has a vehicle with which it can access any and all records it requires for proper monitoring and maintenance. In nearly all prison contracts awarded to date, the private provider and facility are required to receive accreditation by the American Corrections Association (ACA), which audits the policies and procedures of all prisons, both public and private. ACA accreditation helps insure that cost-cutting measures will not be to the detriment of inmates, and a contract can be used to limit the ability of private employees to strike, or for the company to go bankrupt. Accreditation can be as much a requirement of the contract as it is of the liability insurers of the private providers. Many public and private institutions in the United States have undergone accreditation and subsequent review by the ACA. Oddly enough, none of the facilities in Oregon have requested accreditation.

Opponents warn that contractors will cut costs by reducing key personnel and lowering employees' compensation. But this has not been the case. In fact some private providers have added staff, recognizing the need for, more employees to control the increasing number of inmates and to reduce overtime. While.private firms are not under the same pressures and demands from unionized civil service workers that the government is, private employees' wages as a rule remain competitive with governments. For example, Buckingham Security's employees received higher wages than their previous government workers, as currently do most of Correction Corporation of America's (CCA) employees. (8)

Contractors generally achieve their greatest savings by eliminating unnecessary overtime and reducing inflated benefits, such as sick leave and retirement contributions. The August 14th, 1994 edition of the New York Times reported that CCA saves money two ways. The largest gains come from changing the "unhealthy environment found in so many prisons." The second savings gains come from having non-unionized prisons. CCA pays the prevailing wage in the states where it operates, and the company offers its 2,300 employees a stock option program, but it does not have a pension plan. In Oregon, pension plans add up to over 15% of compensation (23% including Social Ssecurity), as they do in other states where private prisons operate. There are, of course, certain benefits realized when the employees have a financial stake in the success of the company. The goal of privatization is for the private sector to utilize its efficiencies and transfer the savings to taxpayers. If union organizations are disrupted, then it is the unfortunate economic result of becoming efficient and saving taxpayers' dollars.

If private employees' benefits tend to be lower than government's, how is it that there exists a pool of qualified labor from which the private sector can hire? Private managers are able to find experienced and qualified employees because working conditions tend to be much more favorable. Many are attracted to the opportunities for promotion virtually non-existent under government operations, and for more generous pay raises. One company, for example, bases compensation on job performance, typically rewarding deserving staff with an eight percent wage increase.(9)

In response to the threat of strikes, bankruptcy, or emergency situations, much of this can be dealt with on a contract basis. Admittedly, the best way to deal with a situation where the private sector suddenly cannot meet its contractual obligation is not to dismantle the entire public prison infrastructure. This is one of the reasons that certain facilities should remain under public management. But certain contingency plans can be addressed in the RFP and final contract, as well as in the close monitoring of the private provider. As it turns out, all the administrative issues can be addressed in both the RFP and the final contract.

THE LEGAL AND CONSTITUTIONAL ANSWERS (10)

The legal questions that arise from the privatization of corrections are numerous and complex. Any attempt to summarize the dozens of legal arguments surrounding the nuances and subtleties of privatization in a short paper is destined to fail. However a summarization of the basic legal issues is in order. Correctional facilities may not have been privatized in Oregon, but a number of other states have overcome the legal obstacles with a great deal of success. It is from their experience that we are able to make comparisons and draw conclusions.

The legal and constitutional issues are a state matter as defined by the Tenth Amendment. The most basic legal question for us to answer is, "Does the state have the authority to delegate its responsibility to house prisoners to a private party?" Are there any constitutional, federal or state regulations barring or administrative rules prohibiting or even impairing the privatization of correctional facilities in Oregon?

In a December 2, 1992 session of the Oregon House Judiciary Committee, Jack Landau of the Department of justice noted that the legislature may not delegate government powers to private entities and that the courts have held that the legislature cannot set up a system where a private entity can negotiate minimum prices and the governor is required to approve those minimum prices. The legislature cannot give this authority away to a private entity. But Landau does conclude by saying the legislature could set up a process by which one could delegate certain management functions without running afoul of the delegation doctrine. It can be argued that when the state contracts out for the incarceration of a criminal, it may not be delegating government powers. The criminal justice system is in fact putting the individual behind bars under the authority granted to them by the legislature. The private provider is just an extension of ODOC. Contractual agreements will provide for full and complete state access to the facilities and inmates at all times a's specified in a contract. Remember that the state is still providing for the incarceration of the criminal, still exercising its full authority to do so. Contracting to actually perform the service does not remove or undermine that authority.

The Oregon Constitution presents possible barriers to privatization. The unlawful delegation theory raises the question of whether or not contracting out public services to a private entity violates Article 1, section 21, Article III section 1, and Article IV, section I of the Oregon Constitution. In the past, the Oregon Attorney General has held that, "An agency to which certain powers have been delegated by the legislature cannot sub-delegate any of those powers to private persons for private benefit."(11) Certainly, contracting for the operation and management of prisons would benefit "private persons." Should we keep the powers within the agency to the detriment of the state? Is it meant to keep out any form of private contracting? The Oregon Supreme Court ruled that an administrative rule of the Oregon Liquor Control Commission was, "an invalid delegation of governmental authority to private individuals because it fails to provide procedural safeguards to protect against the unaccountable exercise of governmental power delegated to private individuals."(12) Therefore, there is no conflict so long as there is a state authority with supervisory powers in place to ensure that the private provider does not abuse the authority that the state has entrusted to it.

In Corvallis Lodge No. 141 v. OLCC (13) the Oregon Court of Appeals held that an administrative rule of the Oregon Liquor Control Commission was invalid because it, "fails to provide procedural safeguards to protect against the unaccountable exercise of governmental power delegated to the private individuals." If Oregon correctional facilities are to be privatized, then there must be a certain level of procedural safeguards in place to keep the private companies from power abuses.

Article XI, section 9 of the Oregon Constitution states that no city or county can assist private corporations.(14) Although this provision has been used to challenge a government's authority to contract with private entities, it has not been interpreted by the courts to have such limiting powers. For example, contradictory to this section of the Constitution, state lottery dollars have been used for economic development. It is significant to note that private contracting has been viewed to be a mutually beneficial business act whereby both the government body and the private party gain, rather than the private party being assisted by the city or county.

Contracting with private providers of corrections services would have to be in accordance with the Oregon State Constitution, which states that services contracted out must be contracted to the lowest responsible bidder.(15) This means that the state legislature is going to have to model enabling legislation to determine what a responsible bidder will be and what the procedure for bidding and bid review will be. Another important legislative issue that will need to be addressed is that of methodology of review of correctional facilities in order to comply with the state Constitution and ensure an overwatch of private correction facilities on the part of the state.

As mentioned, the current process for privatization is arbitrary and ambiguous. There are no clearly defined criteria for determining which functions and services should be privatized. For example, at present there is no set savings limit at which Oregon privatizes a function. In Maryland, a cost comparison must be conducted. In order to be successful in a privatization attempt, the privatizing party must show a 20% savings for any service in excess of $1,000,000.

The level of savings available in Oregon by privatizing corrections is limited by the prevailing wage law, which requires that employees in the contracted private prisons be compensated at the "prevailing wage," which is roughly equivalent to the public employee wage. This means that should a facility either become private, or should a private facility be built, the compensation costs will be held artificially high. Current private prison providers are able to attract and retain a sufficient number of skilled and experienced employees, even at less than the prevailing wage in some states. The little Davis Bacon Act should be repealed. For many services that the state contracts out, if their can be no wage competition, then (1) smaller companies lose because they cannot benefit from economies of scale; and (2) the state is paying what the artificial market will bear instead of encouraging true price competition, Oregon cannot contract away all of its liability. Which party is liable under private operation? Does "state action" exist? 'And, can liability costs shift from one party to another? Because the courts have yet to rule on exactly what the liability status of private prisons and their employees are, some states have simply required that private prisons carry huge liability insurance policies. The latest work on the issue of liability is that it is perfectly acceptable for a private contractor fulfilling a state function to utilize an immunity defense. Although still not specific to privatized correctional facilities, this is a significant decision.

Private Prisons

In West v. Atkins (16) the U. S. Supreme Court ruled that a doctor acting as an independent contractor providing medical services to inmates in a state hospital was in fact a "state action"as it pertained to 42 U.S.C. section 1983, the most common source for civil actions brought by prisoners to remedy rights violations. In other words, a private party that was not an employee of the state could be named party to the Section 1983 action against the state. Justice Blacknum wrote for a unanimous Court, "respondent's delivery of medical treatment to West was state action fairly attributable to the state. (17) This means that the private contractor acted as a "part" of the state government for legal purposes and that by acting as a functionary of the state, Atkins was entitled to immunity. Thus the assertion that the state would incur further liability, and that private prisons would cause more prisoners to seek action against the prison system is not borne out by facts.

In West, Justice Blackmun makes an important point solidifying the intent of the court, "It is the physicians function within the state system, not the precise terms of his employment, that determine whether his actions can be fairly attributable to the state. Whether a physician is on the state payroll or is paid by contract, the dispositive issue concerns the relationship between the state, the physician, and the prisoner."(18)

It is easy to see where the unanimous Court could change this to read "the corrections official" in place of "the physician." By applying the same standards that have already been applied in West, it is probable that the Courts will view the contracted official's action as "state action." Contracted officials will enjoy at best the same defense as the state. The resulting liability benefit to the state would be that inmates would be suing the private prison providers instead of the state.

In Medina v. O'Neill (19) a prison guard hired by a private firm under contract with the INS shot two inmates, killing one and wounding the other. The decision by the federal district court was that the private entity performed as an agent of the government which provides a constitutionally mandated service. "State action" did exist, and the government, therefore, was liable. Because the government entity retains ultimate authority and responsibility for the contractor, contracting out constitutes "state action."(20)

In 1989, Oregon SB 982 was passed. SB982 asserted that there are occasions when the best interests of the state and the citizenry is in the private contracting of services. In those areas, the state is better off subcontracting to private organizations for goods and services. For example, a state agency office in LaGrande may have a printing job that needs to be done. Instead of sending a printing job from La Grande to the state printing office in Salem to be done, the agency can have a local printer do the same job on contract.

One of the provisions of SB982 is that a private contractor wanting to compete with state must provide a cost comparison. The burden is on the private provider to demonstrate fully the costs and benefits to privatization. It is impossible to achieve 100 percent accuracy in a cost comparison as the costs budgeted to agencies such as ODOC do not fully account for the operations of ODOC. For example, fixed assets such as buildings, are not depreciated due to the public nature of the asset and the fact there is no profit motive. While demonstrating certain cost savings might be a requirement of privatization, it is interesting to note the accountability review does not currently apply to the public provider.

In the case of privatizing ODOC or even a portion of ODOC, it quickly becomes apparent that the private provider is at such a disadvantage that it becomes nearly impossible for them to meet the state's requirements. There are more than a dozen prisons in the system. Some of their expenses are accounted for individually, some under ODOC as a whole, and still other expenses are hidden away in the budgets of other various state agencies with no clear budgetary paper trail linking them that is easy to follow. Therefore it is possible for a corporation that wishes to contract a service to never be able to demonstrate with a any degree of accuracy what exactly the savings and benefits to the state would be. The problem here is that there is no clear cut easy way to define the total costs and benefits due to the states inefficiency in a matter as simple as accounting.

Enabling legislation has been required in several states to allow for the privatization of prisons. Additionally, there may be laws or policies which prohibit the implementation of a private correction facility. For example, Oregon's Bureau of Police Standards and Training may require that all who successfully complete training must work for a municipality or government agency. If this is the case, then the policy would have to be changed to allow private guards to receive proper training.

Another example would be the OPEU contract with the state, whose members work at Oregon State Correctional Institute (OSCI), which requires that the union must be given the opportunity to meet or beat the bid of the private provider. All three unions who represent ODOC employees require that the state bargain the "decision and the impact" of contracting out.

As part of the decision to privatize, it will be necessary for legal counsel to examine the legal and constitutional provisions that would restrict or prohibit privatization. After specific identification of these issues, it will then have to be decided whether changes are necessary at the legislative level, the court level, or at the contract level so that steps can be taken to further implement the privatization process.

THE INMATE RIGHTS ANSWER (21)

Ira P. Robbins, a prominent critic of privatization, has argued that private prisons will be "more interested in doing well than in doing good"(22) and that in doing well the quality of life of the inmates and their access to legal rights will be deprived. Such critics see the creation of profit incentives in corrections as both improper on a symbolic level and counterproductive on an operational level. Not discounting their opinion, opponents to privatization should be aware of two things. Historically, the traditional monopoly enjoyed by government in corrections has not effectively served the interests of the inmates or the public. The thousands of cases that have been brought by prisoner plaintiffs suggest poor conditions in government facilities. Secondly, modern correctional privatization produced neither the wave of litigation opponents imagined nor the deficient delivery of correctional services opponents anticipated. Private prisons "doing well" is equivalent to their ability to do better, which includes creating correctional settings which give fewer occasions to infringe on prisoners' rights that could result in costly litigation.

Dr. Charles W. Thomas, in a paper published in the Business and Professional Ethics Journal, in 1991, argues that "applicable provisions of law grant inmates confined in p~ate correctional facilities greater protections for their constitutional and legal rights." (Emphasis added)(23) Dr. Thomas walks through the history and ramifications of 42 U.S. C. Section 1983 which "provides a federal remedy for any person who suffers a deprivation of rights caused by state officials when those rights have been secured either by the Constitution or by some federal statutes."(24) Thomas goes on to conclude that inmates housed in state-level private correctional facilities enjoy greater access to civil rights protection than do inmates housed in a state facility. For this reason, the private provider must exercise greater caution and care when dealing with inmates.

For example, when prisoners housed in traditional state correctional facilities bring Section 1983 actions in federal courts, judicial interpretations of the Eleventh Amendment prevent them from seeking compensatory or punitive damages from the state agencies that may have been responsible for the deprivations. Private corrections firms, however, enjoy no Eleventh Amendment- immunity from damage suits brought under Section 1983. Even though there is still "state action," only prisoners confined in private facilities are in a position to seek compensatory and, when appropriate, punitive damages.(25)

An objection raised by the American Civil Liberties Union (ACLU) is that when the private prison is contracted out at a fee per prisoner rate, there becomes an interest in keeping prisoners in jail. This practice is already in existence within the public sector. When one jurisdiction pays another to tend a prisoner, it is under the same status as a private prison would be. For example, when the state of Oregon contracts with the Federal Bureau of Prisons to house a prisoner, the Federal Bureau of Prisons sends Oregon a bill for each prisoner that it houses for Oregon. This is exactly what a private prison would do. There is relatively little difference between paying a private contractor to house a prisoner and having the federal government do it.

If the ACLU- were truly worried about the mistreatment of prisoners, then it would be wholesale in favor of privatizing correctional facilities. Under the Eleventh Amendment of the Constitution, parties can sue the state for damages. In a private prison the potential exists for inmates to seek compensatory and, when appropriate, punitive damages against prison officials who fail to comply with laws regarding the rights of prisoners. Private providers have more to lose because public prisons are protected by state immunity.

Finally, the contract requirements which provide for continuous government monitoring and ACA accreditation will further strengthen the market forces that protect the rights of the inmate.

THE QUALITY ANSWER

Because the private prison industry is still in its infancy, evidence that allows comparison of private facilities to public facilities is just beginning to surface. In response to the high profile of the incarceration-for-profit debate, comparisons of quality of service delivery and inmate lifestyles has been an important piece of evidence to measure.

In a 1989 study for The Urban Institute, Harry P. Hatry et al. conducted a quality evaluation of comparable private and public prisons in Kentucky and Massachusetts. They examined a large number of service quality and effectiveness elements including physical condition, escape rates, information on security and control, information relating to the physical and mental health of inmates, adequacy of the inmates' programs (education, counseling, training, recreation), particularly from the eyes of inmates and staff, and indicators of rehabilitation such as recidivism.

Researchers found that the privately operated facilities had at least a small advantage for a substantial majority of these performance indicators. Both staff and inmates gave better ratings to the services and programs of the privately operated facilities, escape rates were lower, there were fewer disturbances by inmates, and in general, staff and inmates felt more comfortable at the privately operated facilities.(26)

In a 1988 study by Samuel J. Brakel, then a researcher for the American Bar Association Foundation, surveyed inmates in the Hamilton County, Tennessee Penal Farm which was operated then by CCA.

"Brakel found that the private prison was more highly rated by inmates on its physical improvements, upkeep, and cleanliness; staff competence and character; work assignments; chaplain and counselor services; requests and grievances; correspondence and telephone; and outside contacts. Other areas, such as safety, security, classification, medical care, food, education, discipline, and legal access, had a balance of negative and positive evaluations. The only two areas that received mostly negative ratings were recreation and release procedures, but release procedures remained under county, not private, control."(27)

A third study by Charles Logan, funded by the National Institute of Justice, the National Institute of Corrections, and the Federal Bureau of Prisons, compared the quality of confinement in three multiple security level women's prisons: (1) a privately operated facility for all of New Mexico's female prisoners, (2) the state-operated prison holding virtually that same population one year before, and (3) a federal prison for women. "Quality of confinement" was defined and measured along eight dimensions: security, safety, order, care (mostly medical), activity (programs), justice, living conditions, and management. The private prison outperformed its state and federal counterparts in all areas except care (where the state scored slightly higher) and justice (where the federal prison matched the private). On most dimensions the state was able to improve the quality of confinement by contracting with CCA, and at the same time the cost per day went from $80.00 under state management to $69.75 under CCA management - a 12.8% savings.(28)

ODOC oversees a variety of prison facilities. Yet the quality of life for the inmates, as well as the quality of services, programs, and security, are unknown for two reasons. One is that this quality has not been adequately measured. Through a mutual agreement, Idaho, Washington, and Oregon participate in performance audits of each other, but is this adequate? It must be remembered that inmates and staff probably do not have sufficient experience to make a valid comparison of these performance criteria, and quality issues have changed over time. Notably, the average operating costs of the facilities in these three states differ so greatly, that it cannot be justifiable to utilize one state as a comparable standard for another state.(29) The second reason is because ODOC has not been

accredited by the ACA. In a contractual agreement between Oregon and a private prison provider, Oregon could require that a private prison be subject to state monitoring and ACA accreditation. This would be a much higher level of scrutiny than for Oregon's public facilities.

THE COST AND FINANCIAL ANSWER

Government agencies, which in many cases are monopolies, mistakenly do not compare themselves with entities which must achieve operating efficiencies. Instead they benchmark against other state governments and other government agencies. In their paper on competitive contracting, Wendell Cox and Jean Love conclude that "The public sector is structured in such a way that the demand for higher spending is self- perpetuating."(30) If Oregon is comparing itself to other inefficient entities, then it has grossly misunderstood the purpose of benchmarking.

In early 1994, U.S. News and World Report calculated the annual cost of crime to the nation at $674 billion. This figure did not include the indirect costs of increased insurance premiums, increased costs of goods to compensate for theft and vandalism, and other costs. The total cost of crime and protecting ourselves from one another was reported by David LeBand and John Sophocleus in 1992 in The Quarterly Journal of Economics. Based on 1985 data, when the GNP of the United States was just over $4 trillion, their study estimated that nearly $1 trillion was spent on "non-exchange, non-charity transfer payments." Americans spent nearly 25% of their GNP to protect themselves from one another, which includes the cost of the crime plus the cost of deterring crime.(31)

Comparing the operating costs of a private prison to the operating costs of the public prison is a very difficult analysis. One study by E. S. Savas concludes that the cost of public service delivery is frequently underestimated by as much as 30%.(32) It is also quite possible for the cost of private contract service delivery to be underestimated due to a failure to properly account for such costs as contract administration and monitoring. Anyone involved with public finance and accounting would agree that government accounting is complex, if not mindboggling. Nevertheless, this author has made the attempt to accurately derive the average cost of keeping an inmate in an Oregon prison for one day. Considerable help was received from the Oregon Department of Correction's budgeting staff.

The goal is to explain in detail how the current State's cost of $50.06 compares to a bid that might be submitted by a private contractor. The challenge is to find the respective costs.

The state's delivery system of corrections services is intertwined with the delivery systems of other state and local agencies, whose costs are not reported as ODOC costs, but as costs to the other agency. One example would be the Public Employee Retirement System. The costs of the 6% of base salary state contribution, the 9.11% state matching contribution, and the 7.65% social security contribution are accounted for in security costs and personnel costs, but the administration cost of the PERS system is accounted for by another agency. Another example is the finance and construction costs of prisons. The state issues bonds to pay for construction, and the debt service charge on those bonds is paid out of the Debt Service Fund, instead of the General Fund. (See Exhibit 1.) One more example is that each congressional session, legislators, policy makers, the Executive Office, administrators, and others must deal with certain prison-related issues. How much of their time is spent on these issues, and what does it cost?

In a similar vein, it is difficult to compare the costs that a private corrections provider would incur to those that the public provider reports. A private company pays income taxes and property taxes, which the state does not. Second, the private company depreciates certain assets to allocate the cost of those assets to a useful number of operating cycles. When the state issues bonds to finance the construction of a facility, the bonds are repaid from tax revenues collected over several years, but the allocation of the cost of the new asset is not expensed over the useful life of that asset.

The industry standard for reporting costs is on the compensated manday basis. All of the operating costs for a facility as appropriated by budget are divided by the number of beds and then divided by 365. The average,cost per manday as reported by ODOC, a public agency, is $50.06. In other words, in Oregon it costs $18,271.90 per year to keep an inmate in prison. For -the operational facilities in Oregon, these costs reportedly range from $28.15 per compensated manday at the South Fork Forest Camp, to $92.89 per compensated manday for the Correctional Treatment Program, a mental health treatment center for violent offenders.

The methodology applied to this model will look at a conversion ratio. There are basically four steps to accomplishing a cost analysis between a private company and a state agency.

• Determine the total cost of the public service.
• Determine the total cost of the private service.
• Determine the costs that the state will avoid by contracting.
• Divide #2 by #3 to get a ratio. Industry practice has suggested that a ratio of at least 110% strongly supports a decision to contract out.

Scenario 1

The first scenario is really a base model to demonstrate what the maximum amount of savings would look like with a minimum 10% savings requirement. This is used to show the true costs of both operating the public prisons and estimate the true costs to the state of contracting with a private prison provider. Scenario 1 assumes that the management and operations of all thirteen facilities will be contracted with private operators.

Implicit in Chart I are several assumptions.

• There are 6,359 inmates in state facilities.
• The reported operating costs of ODOC are accurate. (We know some of the costs to be inaccurate, and for some costs to be excluded, or improperly named, but these anomalies are not expected to have a material impact on the direct facilities cost).
• Indirect costs are allocated by percent of operating budget spent on prisons versus parole and probation.
• Contract administration costs are assumed to be 10% of the fully-allocated in-house cost.

Contract administration costs have been assessed at between zero and 15% of contractor costs. The zero percent argument does carry some weight. Existing staff are assigned contract administration duties in addition to their regular job responsibilities. Given this proposal, the staff at ODOC would now have to monitor private activities instead of public facilities, and no extra costs would be incurred. The city of Cincinnati, Ohio, uses a figure of 4% of contractor costs unless more precise cost data are available.(33) E.S. Savas, a nationally recognized expert on contracting, estimates the cost of contract monitoring, exclusive of other contract administration costs, at between 2% and 7% of contractor CoStS.(34) John Rehfuss, another contracting expert and a former city manager, suggests that the cost of contract monitoring-again exclusive of other contract administration costs-- is probably closer to 5% or 10% of contractor CoStS.(35) Dr. Lawrence Martin suggests that it is most reasonable to calculate contract administration costs at between 10% and 20%, using the lower number for large dollar contracts and the higher end for lower dollar contracts. I used the lower value to demonstrate what a more likely amount of savings would be.

Scenario 1: Contracting out all of Oregon's Prison Operations
Chart 1

Chart I shows two things. One is that $56.65 is a truer average cost per manday at ODOC facilities. When ODOC reports their cost per manday, administration and overhead costs are not included. Additionally, some of the interagency costs are not included in the cost such as pension administration, interest on debt, and depreciation. (The book value of the facilities is approximately $132 million, with $100 million of the facilities and improvements being less than ten years old.) Therefore, the average cost per manday is in all probability somewhat higher. Chart 1 also shows is that to achieve a conversion ratio of at least 110.0%, (or a minimum of 10% savings) the maximum allowable average contract bid price must be $44.02 per compensated manday. At this contract price, the state would save over $11.5 million per year. It should be noted that the average contract price of CCA is $40.79 per compensated manday, which would imply an additional $7.4 million in annual savings.

Scenario 2

Contracting out all the facilities, while providing the greatest savings, is unlikely, and unwise. It is unlikely because the state would not relinquish certain jurisdictions on some of its inmates, and unwise because it does not make sense to replace a public monopoly with a private monopoly. In fact, the state should employ two or even three different private corrections providers while retaining a few state operated facilities to achieve the most benefit from competition--both price competition and program competition.

The first option has the state retaining its operations of four facilities: (1) The Oregon State Penitentiary, because Oregon may not look favorably upon contracting out a maximum security facility; (2) the Correction Treatment Program, because this is an expensive mental health hospital program whose operations are financially and physically tied to the Oregon State Penitentiary; (3) The South Fork Forest Camp because it is a somewhat new and progressive program shared with the State's Forestry Division; and (4) the Oregon Correctional Intake Center, because it is responsible for evaluating and processing new inmates in the prison system to determine where they will spend their time. Using the above conversion ratio model, the results are shown in Chart 2.

Scenario 2: Contracting out all of Oregon's Prison Operations
Chart 2

This model concludes that in order to maintain at least a 10% savings operating the remaining facilities, the average contract price on those facilities could be not higher than $41.13 per manday. At this point the savings to Oregon would be over $7.4 million per year, and if the average contract price were to be $40.79, the additional annual savings would be $0.5 million.

Scenario 3

The second option is based on a different premise than scenario #2: There are some facilities that the state should operate by some executive prerogative, and there are some facilities the state should operate because it appears to have achieved some cost efficiencies running those facilities. In this case again, four facilities: (1) Eastern Oregon Correctional Institution because the state's cost is down to $43.77 per manday (although given the level of security and programs, there may still be room for improvement); (2) the Correction Treatment Program; (3) The South Fork Forest Camp; and (4) the Oregon Correctional Intake Center, for the same reasons as above. Using the above conversion ratio model, the results are shown in Chart 3:

Scenario 2: Contracting out all of Oregon's Prison Operations
Chart 3

This model concludes that in order to maintain at least a 10% savings operating the remaining facilities, the average contract price on those facilities could not be higher than $42.86 per manday. At this point the savings to Oregon would be over $8.0 million per year, and if the average contract price were to be $40.79, the additional annual savings would be $4.8 million.

Oregon has thirteen prison facilities. Below is a table that indicates the maximum bid allowable for a private contractor in order to achieve a 10% savings over the state's fully allocated cost per manday less the continued monitoring and administrative costs that are not eliminated by contracting. The underlying formula is as follows:

Total Avoidable Cost/ = 110%

Contractor Cost + Contract Admin. Costs

Total avoidable costs are those public costs that will not be incurred if a target service is contracted out. (See Chart 4)

Chart 4

*To allow for a minimum 10% savings (110% conversion ratio)

One other important feature of contracting that has not been mentioned up to this point is the increased flexibility that a private contractor will afford for the construction of prisons. In addition to providing lease/purchase agreements, CCA reports savings of 20 percent in construction costs over the government. Examples of public sector construction costs include $58,000 for a maximum security bed, $46,000 for medium, and $26,000 for minimum security facilities. The average construction period is two and one-half years.(36) By comparison, CCA built a minimum security facility for the INS at a cost of $14,000 per bed in five and one-half months. The time constraints of contracts for managing prisons is a strong incentive to contain costs. Competition among private providers encourages security and inmate tracking systems, and more efficient facility design to maximize the use of other resources such as security personnel, staff, and program facilities.

One other important cost savings vehicle is available. Prison industries are on the rebound in the United States, including Oregon. Unigroup is the prison-operated company in Pendleton that manufactures the Prison Blues blue jeans that have become a local and international marketing success. Prison industries provide a structured work environment and job training for inmates. Inmates who do not sit idly in their cells are much less likely to cause disturbances. Sales from prison industry programs help to defer incarceration costs. As Oregon's need for new prisons increases, there is a greater demand for inmates to defer the cost of their incarceration through work programs.

Texas presents a very good model to look at. A prison industries program that utilizes many inmates and achieves substantial savings is a successful prison industries program. In 1993, Texas prison industry programs employed 75 percent of its inmates and generated net savings to the Department of Justice of $6 million. These work programs were employed in both public and private facilities. (37)

It is important to remember that costs are not always the only issue. The purpose is also to guarantee that the quality of services contracted will remain the same or improve with the private provider. If this is the case, and if government overhead is not too high, then the decision to privatize can be based on the lowest cost.

THE OREGON DEPARTMENT OF CORRECTIONS

The Oregon Department of Corrections, formerly a division of the Department of Human Resources, was created by the sixty-fourth Legislative Assembly in June, 1987, and operates under ORS Chapter 423. The mission statement of ODOC is:

"to reduce the risk of criminal conduct, through a partnership with communities; with a continuum of community supervision, incarceration, sanctions and services to manage offender behavior. The fundamental value in the continuum of probation, prison and parole is the principle that the least restrictive method be used to manage offender behavior, consistent with public safety."

The department was established to: (a) supervise the management and administration of the Department of Corrections institutions, parole and probation services, community corrections and other functions related to state programs for corrections; (b) carry out legally mandated sanctions for the punishment of persons committed to its jurisdiction by the courts of this state; (c) exercise custody over those persons committed to its jurisdiction by incarceration until such time as a lawful release authority authorizes their release; (d) provide adequate food, clothing, health and medical care, sanitation and security for persons confined; (e) provide persons who are motivated, capable, and cooperative with opportunities for self-improvement and work; (f) conduct investigations and prepare reports for release authorities; and (g) supervise persons sentenced or placed in the community for the period of time specified and in accordance with conditions of supervision ordered by the release authority.(38)

In all fairness to the people at the Oregon Department of Corrections (ODOC), the system in which they operate is complex and cumbersome, and ODOC has performed very well given this environment. There are several conditions, inherently functions of government, that do not allow Oregon's prison system to achieve certain efficiencies. The legislature has changed authority of ODOC several times over recent decades, and that authority is facing resistance from antiquated and regimented prison management. Laws have been passed to benefit one political jurisdiction over another, and the cost of that favoritism has grown exponentially over the years as a function of Oregon's budgeting process. Employee unions have contracted for employee rights causing the management inflexibility that is prevalent in the public sector. Additionally, the budgeting process does not allow for timely response to the fiscal needs of ODOC, which, for example, has left the agency with a $30 million capital improvement backlog.

The formation of ODOC was the first attempt at consolidating operations of the individual institutions. Prior to 1986, the only correctional institutions in Oregon were in Salem, so there wasn't as much need for administrative oversight. But as other facilities came on line in 1986 and after, it became apparent that the state could benefit from consolidated efforts. While the consolidation makes perfect sense, sources at ODOC report that it hasn't been as successful as they would have hoped. ODOC should benefit from economies of scale, implementation of common inmate tracking systems, increased purchasing power, and perhaps less duplication of tasks. Instead, these efficiencies are lost to politics within the corrections system, politics outside the corrections system, and union requirements. ODOC confides that the two biggest obstacles to becoming a more efficient organization are 1) institutional management-which is very regimented, and one tough dinosaur fighting extinction, and 2) the employee unions--which ODOC concedes are only doing their job.

Regimented institutional management is one key area that would be addressed by privatization. The profit motive in a managed competition will cause staff and entire facilities to respond with private sector private sector flexibility to address any opportunities or issues. Superintendents (or wardens) have always been in charge of the operation of their facilities, and their accountability has been minimal, except where inmate care is concerned. The activities of the police, prosecutors, courts, and corrections represent the substantive side of the criminal justice system. Corrections officials have less discretion than the police or the courts in the handling of their charges. They cannot turn away inmates, and they have little say about the amount of time inmates will spend in the system. (Add to this lack of discretion a general lack of recognition for the tasks delegated to those who manage offenders, and legislators often overlook corrections budgets in favor of more recognizable and visible alternatives such as increased police and enforcement budgets.) In their paper on competitive contracting, Wendell Cox and Jean Love conclude that, "The public sector is structured in such a way that the demand for higher spending is self-perpetuating." (39) Prison managers fully recognize the power they have over their self-sufficient fiefdoms, and to justify the need for improved conditions, they are able to request improved budgets.

When 90% of the General Fund is funded by income taxes, it only makes sense that government services should respond to the condition of the economy. Oregon is fortunate not to have been impacted by the recession to the degree the rest of the United States was impacted over the past four years. If Oregon's industries would have been less profitable, and if unemployment would have been higher, then the income taxes by the state of Oregon would have been significantly lower. But because public employee unions are so strong, Oregon government is offered little or no flexibility to respond to economic conditions. There is a sense that the public is losing its tolerance of the collective bargaining process. Just examine the 1994 Measure 8 fiasco, and one can conclude that any public compensation that exceeds a competitive market rate is a form of welfare.

Because private prisons must operate within a managed, yet competitive environment, management must be flexible, and be continually searching for operating efficiencies. And a nonunionized workforce would provide for a smaller administrative burden on the part of ODOC and the private company while allowing hard working members of that workforce to be justly rewarded.

PRIVATE CORRECTIONS--- AN INDUSTRY PROFILE

The following list contains highlights from the 1993 Private Adult Correctional Facility Census (40):

• Between the end of 1992 and the end of 1993, the number of privately managed jails and prisons under contract rose from 60 to 73, an increase of 22 percent.
• During the same time period the rated capacity of facilities under contract rose from 24,715 to 32,555, an increase of 32 percent.
• Between the close of 1992 and the close of 1993 the rated capacity of private facilities already in operation rose from 19,513 to 24,745, an increase of 27 percent.
• The actual year-end population of private facilities rose from 17,317 in 1992 to 22,277 in 1993, an increase of 29 percent.
• The percentage occupancy for private facilities in operation at December 31, 1993 was 90 percent.

These facilities conduct business in sixteen states and 2 foreign countries (See Chart 5):

In addition to the above states, the Utah State Department of Corrections has recently sent out a request for Proposal (RFP) to the industry to contract for the management and operation of a minimum security facility.

As part of contracting process, these states are willing to provide references on the current 20 providers of private correction services in the United States. These firms are listed in Chart 6.

There is a sufficient amount of experience in this relatively young industry'tq meet the needs of Oregon's Department of Corrections. In addition to the management of entire prison facilities, many of these companies take on the responsibility of training their personnel, financing capital projects for lease-option agreements, and ensuring that they remain in compliance with state and ACA standards.

Chart 5 (203k gif file) - Rated Capacities & Geographic Locations of Private Facilities -

Chart 6

IMPLEMENTATION

Contracting with a private prison provider is one of the last steps to the actual privatization process. Laying the foundation so that the State, ODOC, and the public are ready to accept and work with private prisons is the most critical part of the process. This process is not easy, but it can be accomplished by following some general guidelines.

1. Decide whether to privatize.

2. Establish goals.

3. Organize the system.

4. Analyze and address the legal and liability issues.

5. Prepare the request for proposal (RFP).

6. Evaluation and monitoring.

Hopefully there has been sufficient evidence to encourage the state to begin to implement the privatization of some or all of Oregon's prison facilities. The fundamental question is: Does Oregon have a need to privatize? The biggest need is financial. ODOC's average cost per manday is 25 percent higher than the private sector's average cost per manday, and Oregon is facing budget constraints. Oregon's relationship with several of the employee unions weakens its ability to achieve operating efficiencies, and the regimental nature of current prison management also inhibits ODOC from implementing common systems and common job descriptions. Additionally, the legislative and budgeting processes are too political and cumbersome. These and other points made throughout this plan support the decision to privatize.

There has never been a privatization of prisons within Oregon, so any attempt to privatize will be breaking new ground. Nor has there been a privatization of services on the scale of corrections privatization. However, by examining the privatization processes used in other jurisdictions in the past and coupled with the Oregon legislative and referendum methods of developing policy and law, there is a strong likelihood that such a plan could be implemented with a limited amount of difficulty.

First, a Community Advisory Board or Public/Private Partnership ought to be formed to specifically investigate the shortcomings of this paper. This group can work with ODOC to launch a thorough investigation and make a formal presentation of the required changes in our current system that will allow for privatization and establish the necessary infrastructure to allow for a private provider. A legal opinion will have to be drafted and a feasibility study done to examine the ability and likelihood of writing enabling legislation and writing a model contract. Additionally, provisions in union contracts will have to be examined and addressed as required by those contracts. The feasibility study should examine the issues raised in this paper in addition to any others that might be of concern. However, the goal of this committee should not be to examine the right and wrong of incarceration. That is for the courts and the legislature to decide.

Contracting through the state could be accomplished in one of two ways. The first process is the referendum initiative. The second, and more likely process, involves finding a state legislator willing to sponsor the change through the legislature. A bill is sponsored in the legislature, sent to committee, sent to the house or the senate, then sent to the other legislative body where it is again put through the same process. If it is approved again, it is sent to the governor for signing. The advantage with legislation is that it is cheaper, and a bill can be sponsored that contains the enabling legislation necessary to provide for the privatization process.

Once legally possible to do so, it is time to develop a Request For Proposal (RFP) and a proposal review process. The RFP is the document that a contracting agency uses to launch the process of private sector contracting. There are examples of private prison RFP's available for legislators to examine to understand all the issues that must be addressed in the RFP. Within the structure of the RFP are sections that identify the issuing agency and the legal authority for contracting. It makes certain commitments to potential providers, and places certain limitations on potential providers during the bidding process. The RFP continues by seeking background information and references from the potential provider, it states the terms and conditions under which the contract will be awarded and the type of work that is expected. The RFP process is very important, and contracts have been invalidated because of technical or procedural defects in a request for proposals or the proposal review process.

Bidders respond to the proposal and certain details are worked out, including terms of payment, length of the contract, monitoring and accreditation requirements, and the process by which the contract winner will assume control. This is the beginning of a complex and closely watched relationship between Oregon and private industry that could serve as the model for many privatization efforts to come.

In contracting out for services, the private sector provider must be made aware of certain requirements.

• What level of service is needed? The level of service needed is the complete management of a predetermined number of prison facilities. This number will be determined by careful analysis of the needs of those facilities and the cost savings available through privatization. Typically, these answers are available after bids are received in response to the State's RFP.
• How is performance measured? Performance will be monitored by existing staff at ODOC. Additionally, the resulting contract should specify that ACA accreditation be achieved within 18 months of the date the private provider assumes control of the facility.
• What is needed to provide the service? This depends on the current needs of the state. The director of ODOC can lay down the mood of corrections. A programs person will concentrate more on rehabilitation, in which case both the public and private provider will be required to implement and maintain certain programs. A lock-em-upand-throw-away-the-key person will concentrate on creating more beds and more work programs to keep criminals off the streets while they pay their debt to society.
• Are the needs of the state constant, growing, falling or cyclical? The current number of prison beds in Oregon is 6,359. ODOC projections in 1993 estimated that by July 1, 1996, ODOC could require as many as 7,958 beds to handle the number of anticipated inmates. At Oregon's average cost per manday of $50.06, that equates to over $29 million per year of annual operating needs. On top of this, ODOC has a $30 million backlog in capital improvement needs.

The private provider must be able to assess and meet the needs of the state. It does no good to save the state money, but fail to provide the services for which the state has paid.

Currently, the corrections system in Oregon looks like this:

ODOC

|

|

Oregon's 13 Prisons

The changes recommended in this proposal would cause the structure of Oregon s prison system to look like this:

ODOC -----------------------------

| |

| |-Community AdvisoryBoard

Four Oregon Prisons

|

|

Nine Private Prisons

SUMMARY AND CONCLUSION

There seems to be sufficient evidence that the Oregon government has a spending problem instead of a funding problem. The need to make up for a lost revenue source should have led to a grand and sweeping reinvention of government-the cutting of programs, laying off of employees and the restructuring of many departments. Instead, Oregon Public Broadcasting was privatized, many vacant positions were left unfilled, and there was a "salary freeze" imposed (a misnomer because there are still merit-based pay increases). Public employees need to accept the fact that many of the services they provide may be more expensive than the public feels they are worth. In that case there are two options: Get rid of the service or deliver it more efficiently.

The incarceration of criminals is one service that could be delivered more efficiently by contracting out the management of nine of the thirteen Oregon facilities to two or more private prison management companies. Incentives for private sector management encourage reduced spending in an effort to achieve operating efficiencies. By contracting out for prison management, taxpayers will be rewarded with a lower cost per prisoner manday. Inmates will receive a higher level of services. And prison employees will receive competitive wages while having an opportunity for merit-based career advancement. Privatization rewards efficiencies and scorns waste because it circumvents the monopoly environment that is inherently governmental.

Dr. Charles Logan points out in brief form just ten arguments in favor of contracting for the operation of prisons:

• Contracting makes true costs highly visible, allowing them to be analyzed, compared, and minimized.
• Contracting enables prisons to be financed, sited, and constructed more quickly and cheaply than government prisons; also, private firms are more apt to design for efficient operation.
• Contracting reduces the tendency of a budgetdriven agency to continuously spend and grow.
• Contracting allows greater flexibility, which promotes innovation, experimentation, and other changes in programs, including expansion, contraction, and termination.
• Contracting avoids some restrictions that interfere with efficient personnel management.
• Contracting may decrease the risks for which government remains liable, through higher quality performance and through indemnification and insurance.
• Contracting increases accountability because market mechanisms of control are added to those of the political process.
• Contracting promotes the development and use of objective performance measures.
• Contracting, by creating an alternative, encourages comparative evaluations; this raises standards for the government as well as for private contractors.
• Contracting, in conjunction with governmental monitoring, adds a new layer of independent review of correctional decisions and actions, thus improving due process.

These are only a few of the arguments that can be made in support of contractual operation of prisons. (41)

The issues are not entirely financial. Evidence as recent as the August 14, 1994 New York Times indicate that inmates are less disruptive in private prisons than in public prisons due to the number of programs available. And the surveys noted in this paper indicate that inmates and staff favor the private facility over their public counterpart. While critics claim that privatization is a form of union busting, salaries for security officers have increased in many occasions, and the room for advancement is greater for personnel who demonstrate dedication and hard work, not just to those who have seniority. Additionally, with employee stock plans, personnel take ownership in the company and therefore have an incentive to see that the company succeeds. If an inmate says he will start breaking furniture unless someone talks to him, an owner of the company is going to talk with that person because a broken chair will cost money to replace. The public employee has no personal stake in the value of the chair, and therefore may not be as eager to talk to the inmate.

While the financial advantages of contracting can be significant, one of the greatest values of private prisons is that they provide a comparative yardstick against which to measure performance. How do we know if the government is doing all that is possible to run prisons that are safe, secure, humane, efficient and just? The best test is to see whether private enterprise can do any better. We will never know, however, if we do not at least give private prisons a fair trial.

ENDNOTES

1. Caldwell, L.K. The Administrative Theories of Hamilton and lefferson, University of Chicago Press, chicago, 1944, p. 161.

2. Logan, Charles and McGriff, Bill, Comparing Costs of Public and Private Prisons: A Case Study, National Institute of Justice, Washington D.C., October, 1989.

3. Statement by Charles H. Logan, Ph.D. Visiting Fellow, Federal Bureau of Prisons, Professor of Sociology, University of Connecticut before the House Judiciary Justice, Commonwealth of Pennsylvania on Private Operation of Correctional Facilities, March 14, 1991.

4. In the early 18th century, anindividual or a company would take criminals from the state and contract with a company for their employment for less-than market wages. The individual or company would pay the state for this privilege. These inmates, as well as the state, were at the mercy of the private contractor. The inmates had no rights. The state had no alternative location (or budget) to incarcerate the inmates if the private contractor reneged.

5. ibid.

6. ibid.

7. DiLulio, John J. Jr., and Piehl, Anne Morrison, "Does Prison Pay?", The Brookings Review Fall, 1991.

8. Ramirez, Anthonay, "Privatizing America's Prisons, Slowly," The New York Times, August 14, 1994, Section 3, Page 1.

9. ibid.

10. With considerable help from Steve Arntt, joint Degree Student at Willamette University's School of Law and Atkinson Graduate School of management. ' I

11. 42 Op. Atty. Gen. 192 (1981).

12. Atty. Gen. Op. No. 8183 (January, 1987).

13. 67 Or. App. 15 (1984).

14. Thunderbird Motel v. City of Portland 40 Or. app. 697 (1979).

15. Or. Con. Art. IX sec. 8.

16. 56 U.S.L.W. at 4664.

17.56 U.S.L.W. at 4665.

18. 56 U.S.L.W. at 4668.

19. 586 F. Supp. 1082 (S.D. Texas, 1984).

20. Logan, Charles H. Private Prisons: Cons and Pros, Oxford University Press, New York, 1990.

21. With considerable help from Steve Arntt, joint Degree Student at Willamette University's School of Law and Atkinson Graduate School of Management.

22. Robbins, Ira The Legal Dimensions of Private Incarceratio.n (1988).

23. Thomas, Charles W. Prisoners' Rights and Correctional Privatization: A Legal and Ethical

Analysis. Business and Professional Ethics Journal Volume 10, Spring, 1991.

24. ibid.

25. Thomas, Charles W. and Logan, Charles H. "The Development, Present Status, and Future Potential of Correctional Privatization in America," Privatizing Correctional Institutions, Transaction Publishers, New Brunswick, 1993, p. 225.

26. Hatry, P. J. et al. "Comparison of Privately and Publicly Operated Corrections Facilities, inKentucky and Massachusetts," The Urban Institute, Washington, D.C. August, 1989.

27. ibid. p. 227.

28. ibid. p. 228.

29. In June of 1992, the American Correction Association reported that Oregon's cost per manday

was $47.42; Washington's was $71.75; and Idaho's was $35.20.

30. Cox, Wendell and Love, jean, Competitive Contracting: Taking Control of Government Spending, Cascade Policy Institute, Portland, Oregon, 1991.

31. LeBand, David N., and Sophocleus, John P., "An Estimate of Resource Expenditures on

Transfer Activity in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College and Massichusetts Institute of Technology, August, 1992.

32. Savas, E. S. , Privatization - The Key to Better Government, Catham, NJ, Catham House Publishers, 1987, p. 259.

33. Privatization Study Handbook, in Martin, p. 6.

34. E. S. Savas, in Martin, p. 6

35. John A. Rehfuss, in Martin p. 6.

36. Brakel, S. in Bowman, Hakim, and Seidenstat, Privatizing Correctional Institutions Transaction

Publishers, New Brunswick, 1993, p. 5.

37. Hurt, Senator Robert, Curbing the Cost of Incarceration in California," California state Senate, April, 1994.

38. Oregon Bluebook 1988, p. 35

39. Cox, Wendell and Love, Jean, Competitive Contracting: Taking- Control of Government Spending, Cascade Policy Institute, Portland, Oregon,1991.

40. Thomas, Dr. Charles W., Private Adult Correctional Facility Census, Sixth Edition, Center for Studies in Criminology and Law, University of Florida, December 31, 1993.

41. Logan, (4).