How Do Private Prisons Make Money

Private prisons, also known as for-profit correctional facilities, generate revenue through various means within the criminal justice system. Their profit model revolves around contracts with government entities, primarily at the state and federal levels. The following are key ways in which private prisons make money:

1. Contractual Agreements: Private prisons enter into contracts with government agencies to house and manage incarcerated individuals. These contracts typically involve a per diem rate, where the government pays the private prison company a fixed amount per inmate per day. The per diem rate covers the costs of housing, food, medical care, and other operational expenses.
2. Occupancy Quotas or Minimum Bed Guarantees: Some private prison contracts include occupancy quotas or minimum bed guarantees, requiring the government to maintain a certain number of inmates in the facility. This ensures a steady flow of revenue for the private prison company, even if the actual inmate population is lower than expected. Critics argue that occupancy quotas create an incentive to increase incarceration rates and can undermine efforts to reduce prison populations.
3. Additional Services: Private prisons often offer additional services beyond basic inmate housing. These services can include healthcare, transportation, vocational training, and rehabilitation programs. By providing these services, private prison companies can generate additional revenue streams.
4. Inmate Phone Calls and Commissary: Private prisons often have contracts with third-party service providers that offer phone and commissary services to incarcerated individuals. Inmates and their families typically pay high fees for phone calls and purchases from the commissary. The private prison company receives a portion of these fees as revenue.

It is worth noting that the financial incentives of private prisons have raised concerns among critics who argue that profit motives can compromise the quality of care and rehabilitation provided to inmates. Critics also raise questions about the potential influence of private prison companies on policy decisions and lobbying efforts related to criminal justice reform.

According to a report by the Bureau of Justice Statistics, in 2019, private prisons held approximately 8% of the total U.S. prison population. The revenue generated by private prisons varies widely depending on factors such as the size of the facility, the contractual terms, and the inmate population.

Building prisons on spec brings in big bucks

The practice of building prisons on speculation, commonly referred to as “spec” construction, involves private prison companies constructing correctional facilities without a guaranteed contract from a government entity. Instead, they anticipate securing a contract once the facility is completed. This approach can bring significant financial rewards if successful.

By taking the risk of building a prison without a confirmed contract, private prison companies aim to position themselves to secure contracts in regions where there is a perceived need for additional correctional capacity. If a contract is secured, the private prison company can benefit from a steady stream of revenue through the contractual arrangements discussed earlier.

However, building prisons on spec also carries financial risks. If the private prison company fails to secure a contract or if the anticipated inmate population does not materialize, they may face significant financial losses. This risk has led to instances where privately built prisons remain vacant or underutilized, posing financial challenges for the private prison company.

One prominent example of spec construction is the North Fork Correctional Facility in Oklahoma. The facility was built by the Corrections Corporation of America (now known as CoreCivic) in 1998 without a guaranteed contract. However, they were successful in securing a contract from the state of Oklahoma, and the facility has been in operation since then.

Operating revenues for private prisons vary widely from state to state

Operating revenues for private prisons can indeed vary significantly from state to state. Several factors contribute to this variation:

1. Contractual Rates: The per diem rates or the fees paid by the government to private prisons can differ from state to state. These rates are typically negotiated between the private prison company and the government agency overseeing the contract. Factors such as the cost of living, labor expenses, and regional market dynamics can influence the negotiated rates.
2. Inmate Population and Utilization Rates: The size and composition of the inmate population can impact the revenue generated by private prisons. States with higher incarceration rates or larger prison populations may provide more revenue opportunities for private prison companies. Additionally, the utilization rates of private prisons, particularly if they have occupancy quotas or minimum bed guarantees, affect the revenue stream.
3. Contract Length and Terms: The duration and terms of the contracts between private prison companies and government agencies can influence operating revenues. Longer-term contracts with favorable terms provide more financial stability for private prisons, while shorter contracts or contracts with lower rates may impact revenue generation.
4. State Policies and Practices: Variations in state-level policies, such as sentencing laws, diversion programs, and efforts to reduce incarceration rates, can impact the demand for private prison services. States with different approaches to criminal justice may have different levels of reliance on private prisons, affecting the revenue generated by private prison companies.

A comprehensive study published by the University of Wisconsin-Madison analyzed the financial data of private prison companies operating in different states. The study found that operating revenues varied significantly, with some states contributing a higher share of the total revenues for private prison companies.

Private prisons make money through contractual agreements with government entities, including per diem rates and additional service fees. Building prisons on spec presents opportunities for significant profits, but also carries financial risks. The operating revenues for private prisons can vary widely from state to state due to factors such as contractual rates, inmate populations, contract terms, and state-level policies.

Private prisons make money from prison labor

One of the controversial aspects of private prisons is their utilization of prison labor as a means to generate revenue. Inmates within private prisons are often required to work in various industries or perform tasks for private companies. These work assignments can range from manufacturing and agriculture to call centers and customer service.

Private prison companies argue that prison labor provides inmates with vocational training and helps them develop work skills that can facilitate their reintegration into society upon release. Proponents also highlight the potential cost savings for taxpayers, as the labor is often paid at lower rates than regular wages.

However, critics raise concerns about the ethical implications of profiting from prison labor. They argue that it can exploit incarcerated individuals, as they may receive significantly lower wages compared to those in the outside workforce. Additionally, critics contend that the use of prison labor can perpetuate a cycle of mass incarceration, as it creates financial incentives for private prisons to maintain high inmate populations.

It is worth noting that the use of prison labor is not exclusive to private prisons, as some publicly operated correctional facilities also employ inmates for work assignments. However, private prisons have faced particular scrutiny due to the profit-driven nature of their operations.

The Federal Prison Industries (UNICOR) is an example of a program that utilizes prison labor in federal correctional facilities. UNICOR operates as a government-owned corporation that employs inmates in manufacturing and service-oriented industries. The wages paid to inmates working for UNICOR are significantly lower than prevailing wages in the private sector.

The practice of utilizing prison labor for profit has prompted debates and calls for reform. Some argue that inmates should receive fair wages and better working conditions, while others advocate for eliminating the use of prison labor altogether.

Frequently Asked Questions About Private Prisons

1. Are private prisons more cost-effective than public prisons?

The cost-effectiveness of private prisons compared to public prisons is a topic of debate. Some studies suggest that private prisons can achieve cost savings due to their potential for operational efficiency and flexibility. However, other research has indicated that the cost savings may not be substantial or may come at the expense of reduced quality or safety standards. Factors such as contractual terms, inmate population, and regional variations can influence the cost-effectiveness of private prisons in different contexts.

2. Do private prisons have worse conditions than public prisons?

The conditions in private prisons have been a subject of concern and scrutiny. Critics argue that the profit-driven nature of private prisons can lead to cost-cutting measures that compromise the quality of care, staffing levels, and rehabilitation programs. However, it is important to note that conditions can vary across both private and public prisons, and there are examples of well-operated private prisons that meet or exceed standards for safety and rehabilitation.

3. Do private prisons contribute to higher incarceration rates?

The relationship between private prisons and incarceration rates is complex and debated. Some critics argue that the profit motive of private prisons creates an incentive to lobby for policies that lead to increased incarceration rates. However, it is essential to consider various factors that contribute to high incarceration rates, including sentencing laws, societal issues, and government policies. The influence of private prisons on incarceration rates is one aspect of a broader criminal justice system.

4. How common are private prisons?

The prevalence of private prisons varies across countries and jurisdictions. In the United States, private prisons play a notable role in the correctional system. According to the Bureau of Justice Statistics, as of 2019, approximately 8% of the total U.S. prison population was held in private prisons. However, the proportion of private prisons can vary significantly from state to state, with some states having a more significant reliance on private prison facilities.

5. Are there alternatives to private prisons?

There are various alternatives to private prisons that have been explored and implemented. These include community-based corrections, restorative justice programs, diversion programs, and investments in rehabilitation and reentry initiatives. The effectiveness of these alternatives depends on factors such as community support, adequate funding, and collaboration between justice system stakeholders. Critics argue that focusing on alternatives to incarceration can lead to reduced reliance on private prisons and promote more sustainable and rehabilitative approaches to criminal justice.