Dungeons for Dollars

Bay County Jail Warden Denny Durbin knows a bargain when he sees one. So when he ran across a local farmer looking to unload a truckful of fresh watermelons for a dollar each, he bought 100 for his jail. When another local vendor offered a shipment of irregular satin sheets at rock-bottom prices, he snapped them up also.

To say the Bay County Jail in Panama City is run like a business is an understatement. It is a business. Durbin is employed by Nashville, Tennessee-based Corrections Corporation of America, a private, for-profit company that specializes in corrections management.

Holding down costs is one of Durbin's top priorities. In exchange for a prenegotiated daily housing fee per inmate - currently about $33 each for the nearly 300 inmates - CCA indemnifies the Bay County government and handles all aspects of jail operations, including food service, medical care and staffing.

Bay is one of several Florida counties now contracting with the private sector for corrections management. At the state level, both the Florida Department of Corrections and the newly created Florida Correctional Privatization Commission - a separate public agency created by the Legislature in 1993 to facilitate prison privatization - have hired private companies to run state prisons.

In fact, since 1985, when Bay County became the first in the nation to hand over its entire corrections operation to the private sector, Florida has quietly developed into a national proving ground for the burgeoning industry referred to as "dungeons for dollars."

Why Florida? In part, it reflects a lack of public employee union strength, but mostly it is a matter of simple arithmetic. With more prisoners than all but three states, Florida has an acute need to control skyrocketing corrections costs. Florida has been on a nearly continuous, decade-long prison-building binge that ratcheted the corrections budget up to $1.5 billion, more than triple what the state spent in 1986.

Back in 1987, just over 28,000 inmates populated Florida's prison system. Less than a decade later, that figure stands at 64,000 and growing. Corrections costs are likely to continue to be a budget-buster, propelled by an unprecedented juvenile crime wave that criminologists predict will begin cresting within the decade. In addition to Bay County, Hernando and Citrus counties have responded to similar local level fiscal pressures by turning jail operations over to private management. Polk County is in the process of finalizing an agreement with CCA and at least two other counties are close to signing deals.

But the real momentum for privatization is occurring at the state level. The state corrections department contracted out a 760-bed facility that opened just over a year ago in the Panhandle town of Gretna. The Correctional Privatization Commission has already signed contracts with three different companies for construction and management of six new prison facilities across the state. When you add in the privatized county jails, Florida places second only to Texas in the proliferation of privately managed facilities.

Not coincidentally, three prison management companies are headquartered here, including two of the industry's fastest-growing, publicly traded firms: Palm Beach Gardens-based Wackenhut Corrections Corporation, the industry's second-largest, and the considerably smaller Correctional Services Corporation, which recently relocated its corporate headquarters from New York to Sarasota. Privately held, Ft. Walton Beach-based RECOR is a lesser player in the market, with only one contracted adult facility in west Texas. Between the three, Florida-based firms control more than a quarter of the U.S. market for prison beds currently under contract. For firms like CCA and Wackenhut, there is no question that crime does indeed pay - and well (see sidebar). But among governmental agencies, there is still a little uneasiness about the private prison business.

Beyond the promise of more efficient management, the larger firms offer an option that is hard for cash-strapped state and local governments to resist: design, building and financing arrangements.

In Bay County, in addition to managing the main Bay County Jail, CCA also designed, built and manages a 400-bed county jail annex down the road in Panama City. In Polk County, where a court-ordered prison cap and the defeat of two sales tax referendums left local officials scratching their heads about how to pay for a new facility, CCA will build and manage a new jail at no cost to taxpayers. The county will simply pay a per diem rate for each inmate it sends to the new facility. "There's no question in my mind that they can build and design it quicker and cheaper," says Assistant County Manager for Special Projects Randy Oliver, who handled negotiations.

From across the globe

The Bay County experience has proven pivotal both for the private corrections industry in general and for CCA in particular. When the company took control of the main jail in late 1985, the prison privatization movement was still in its infancy. But once it became clear that the transition from public to private management was both feasible and practical, Bay County evolved into something of a wayside shrine for policymakers exploring the privatization option. It continues to attract observers not only from neighboring jurisdictions, but from across the globe. Off the top of his head, Public Safety Director David Miller can recall entertaining curious visitors from Argentina, Australia, Canada, England and France. Before the Nashville, Tennessee-based company took the reins of the Bay County Jail, operations were in shambles. The physical plant itself was relatively new, yet it was falling apart. The state Department of Corrections cited the facility for nearly 75 violations and rated it as one of the state's worst.

Within three years, CCA managed to obtain accreditation for the jail from the American Correctional Association. By 1990, according to David Miller, the county could document a savings of $500,000. A few years later, the company's practice of renting excess bed space to the Justice Department for federal prisoners netted the county an additional $1.2 million. Those numbers are enough to make any politician sit up and take notice.

With 52 facilities and 35,000 beds in 14 states and overseas - nearly half the global market - CCA is the industry leader. Its revenues doubled to more than $200 million in the last two years.

Wackenhut, CCA's closest competitor, has more than 27 facilities under contract across the country, three in Australia and one in England.

Correctional Services Corporation (formerly known as Esmor) is experienced mainly in juvenile and non-secure, community facilities. Recently awarded two contracts for juvenile facilities in Polk City and Pahokee by the privatization commission, the company posted a $1 million net loss last year. Still, revenues have nearly tripled since 1992.

Since approximately 2.5% of all federal, state and local prisoners are currently held in private facilities, says Charles Thomas, who monitors industry developments as director of the University of Florida's Private Corrections Project, there is plenty of room for market growth. According to the latest edition of his semi-annual Private Adult Correctional Facility Census, the industry bible, Thomas reports "virtually unbridled investor enthusiasm" for most publicly traded management firms. "This enthusiasm," he concludes, "drove share valuations to levels that even the most ardent advocates of correctional privatization would have never anticipated at the beginning of the year."

A few miles away from the Bay County Jail, CCA runs another model facility, this one under contract to the Florida Correctional Privatization Commission. If not for the rolls of razor ribbon that ring the perimeter, the neatly landscaped, red stucco building could pass for a suburban office complex. Inside is the state's most ambitious experiment to date with privatization.

CCA's Bay Correctional Facility is one of the first state prisons designed, built and managed under the auspices of the commission. From the bathroom fixtures to the quiet classrooms, the 200,000-square-foot prison has little in common with the standard issue DOC campus complex. Opened in August 1995, the 750-bed, medium-security prototype facility is designed for maximum personnel and maintenance efficiencies.

Docile, healthy prisoners

The showers and residential pods have unobstructed views. Guards can monitor two cell blocks at the same time from a central post. Both design innovations translate into less staffing. "I spent 14 years in the government end of it," says prison security chief Fred Lawson. "It didn't take me long to figure out how they can do it with less money and just as efficiently. We try to build a physical plant that uses a minimum amount of staff - and I don't mean under staff."

As incongruous as it sounds, keeping the inmates busy, happy and well-fed is another way to hold down costs. With extensive daily work or class schedules to follow, says Lawson, inmates have less time to get into trouble. That's why CCA offers addiction treatment programs, computer training and vocational education classes. Free time can be spent in a spacious and well-equipped gym.

Docile and healthy prisoners are expected to pay off in other ways as well: They are easier to manage, less violent and less litigation-prone. In other words, they aren't so quick to file suit over trivial matters like soggy pancakes and cold showers. "Staff is directed to solve inmate problems," says R. Tom Jones, the state's in-house contract compliance monitor at Bay Correctional. "It's not in their best interests for inmates to be filing an exorbitant number of lawsuits and grievances."

But the real way private firms like CCA turn a buck is through purchasing flexibility and staffing efficiencies like a tightly controlled overtime policy and a streamlined administrative structure. "My supervisory staff is about a third of what the state would use," says Lawson. "Your corrections officers are about the same no matter where you're at. But we're going to win the ball game on supervisory staff every time."

Just how much savings governments can expect to realize from prison privatization is a matter of some contention. Estimates range widely - up to about 15% according to some studies. By Florida law, the prison privatization commission must first ascertain if it can guarantee a savings of at least 7% over what it would cost the state before inking a deal. The Department of Corrections, by contrast, is only required to determine "substantial savings." Texas uses a figure of 10%. So far, private companies there have met that standard.

But critics question those figures. Despite a growing body of research, it is nearly impossible to come to a definitive answer on the question of cost savings.

Wall Street darling

Most likely, there are moderate cost savings. Not nearly as much as proponents claim, but certainly enough to justify contracting out services. Clearly, the private sector has an edge in purchasing flexibility. Even greater savings can be achieved through reduced personnel costs, since salary rates are set by the individual companies and they are not required to pay into the state retirement system. They are free to design their own benefits packages, like the employee stock ownership plan CCA offers in place of pensions. At the Bay County Jail, the fruits of stock in the Wall Street darling have enabled several well-heeled guards to take early retirements.

The effort to keep a lid on staffing and benefits generates widespread criticism from public employee unions and other opponents of privatization who claim private companies understaff prisons, under compensate their employees and over promise savings. And county sheriffs and the state Department of Corrections continue to insist they are competitive with the private sector. "I think we can do it cheaper then they are doing it," says Colonel Ken Barber of the Polk County Sheriff's Office. "The problem is the capital investment up front."

While financing arrangements are certainly part of the allure of going private, even Polk County's seemingly advantageous deal underscores one of the risks in taking prisons out of the public realm. If CCA decided its new county institution was better served by exclusively housing the more lucrative federal prisoners, Polk County would be stuck with hundreds of its own local offenders and no place to put them. Since the federal government typically pays a higher rate per prisoner when it contracts out, that is a possible, if unlikely, scenario.

Polk County Sheriff Lawrence W. Crow, Jr., describes the risk in terms an officeholder can understand. "If CCA said, ?We're going to take everyone from Krome Detention center in Miami and bring them to Polk County,' how do you think voters are going to react?"

Hypothetical situations are not all that is worrisome about the drive to privatize. The private prison industry itself continues to shift and consolidate. In recent years, private facilities have discovered that they are not immune to the violent disturbances that erupt periodically in public prisons. And not everyone has an agreeable, Bay County-like experience with private contractors.

So far, the prison privatization commission is pleased with the progress of its first contracted facilities. As for the Florida Department of Corrections, its only foray into privatization to date is a U.S. Corrections Corporation facility in Gadsden County, which has been a less than satisfactory experience. Without the presence of an on-site compliance monitor - a provision that is required when the prison privatization commission signs a contract - troubling questions have been raised about the firm's performance. "Looked at from a general vantage point and having gone through the facility once," says the University of Florida's Charles Thomas, "the most troubling aspect of Gadsden is that it at least creates the appearance of corners being cut for profitability reasons."

Ammunition to critics

A 1991 dispute between Monroe County and Wackenhut focused on similar concerns. Soon after taking control of operations in February 1990, Wackenhut and the county found themselves at odds over the level of staffing required at a Key West facility. Wackenhut agreed to increase its staff, but took its case to the county commission in search of $750,000 in additional funding to pay for it. After the request was denied, Wackenhut served notice of intent to terminate the contract. The sheriff's office had to take back the jail.

At the time, it was a setback both to Wackenhut and to other counties considering the privatization option. In the years since then, Wackenhut recovered to win more than a dozen contracts at home and overseas. County officials who have negotiated recently with Wackenhut say it is no longer a major issue. Still, it provides ammunition to privatization critics. "The Monroe County experience is a glaring example of how things can go amiss when you go about this in a hasty fashion," says Tom Berlinger, director of operational services for the Florida Sheriffs Association.

Eleven years into a 20-year contract, satisfied Bay County officials are planning to renegotiate for another two decades. "The downside?" says David Miller. "I literally get asked that once per week from people around the world. If there is one, I can't find it or they are hiding it real well."

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