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

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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 under funded 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 addicted offenders 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 that Arizona’s private prisons have generated cost-savings for the state, supporters of privatization have won legislative approval for thousands of new permanent private beds, including a 1,400-bed DUI prison in Kingman; a 1,000-bed prison for sex offenders expected to be sited in Florence; and a proposal to build a 3,200-bed women’s prison that has been withdrawn by the Department of Corrections (DOC). Even without the women’s prison, the number of private beds will have nearly tripled between 2003 and 2005.

Unfortunately, our investigation shows that the research used to justify the expansion of the private prison program is methodologically flawed, outdated and, in one case, discredited by the researcher’s financial ties to the private prison industry. Further, critical issues such as the implications of municipal bond financing of private expansion have never been addressed. Among our findings:

  • No rigorous, independent evaluation has ever been made of Arizona’s private prison program, nor have the cost-comparison figures reported by DOC been independently audited. Further, existing research fails to account for key factors such as population characteristics, facility design and proper allocation of costs.
  • 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 used to generate cost comparisons. Public prisoners were seven times as likely to be serving time for violent offenses, three times as likely to be serving time for serious offenses and twice as likely to have high medical needs than those housed in private facilities.
  • Private prison costs appear to have risen rapidly since 2002 due to generous contracts approved by former DOC Director Terry Stewart. The new rates, which are nine to 35 percent higher than the rates provided in the contracts that were effective in fiscal year 2002, are likely to push private prison costs above public costs even before accounting for differences in population characteristics.
  • 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.

In sum, it is impossible using the available evidence whether privatization has delivered cost-savings or merely shifted costs from the private sector onto the public sector. Based on these findings, we recommend that the state of Arizona exercise great caution when considering further privatization until there is reliable evidence to support cost-savings claims.