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How Do Prisons Make Money?

The Economics of Prison Systems

Prisons are complex institutions that require significant funding to operate. Housing, feeding, and providing healthcare for inmates is expensive. Prisons also employ large numbers of staff, including corrections officers, medical personnel, educators, counselors, and administrators. Where does the money come from to pay for all of this?

There are a few main sources of revenue for prisons:

Government Funding

The primary source of funding for most prisons comes from government budgets. Prisons are usually run by federal, state, or local jurisdictions. The government allocates money to cover prison operating costs as part of its annual budget. According to the Vera Institute of Justice, prisons cost states an average of $33,274 per inmate per year.

Federal Subsidies

The federal government provides some funding to state and local prisons through various grant programs and subsidies. This helps offset costs for things like inmate healthcare and education. However, federal funding accounts for only a small portion of overall prison budgets.

Funding Source% of State Prison Budgets
State General Fund88%
Federal Funds4%

Table data from Vera Institute of Justice

Prison Industries

Many prisons operate “prison industries” – businesses that utilize inmate labor to manufacture products or provide services. Private companies pay prisons for access to this labor. Revenue generated from prison industries helps supplement prison budgets. Some common prison industries include:

  • Call centers
  • Manufacturing furniture, clothing or other goods
  • Recycling
  • Agriculture and farming
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The level of revenue from these industries varies greatly between states. Prison industry programs are controversial, but proponents argue they offset costs while keeping inmates occupied.

Prisoners’ Room and Board

In some jurisdictions, prisons are allowed to charge prisoners daily room and board fees to help cover costs. The fee amount is usually quite minimal – around $3-5 per day. But with thousands of prisoners, this can generate significant supplemental income. Some advocacy groups object to this practice.

Private Prisons

Private for-profit corporations operate many prisons and immigration detention centers in the U.S. These facilities charge governments a per diem rate per prisoner, which serves as their primary revenue. Private prisons are controversial but now hold around 8% of all U.S. prisoners, representing a major revenue stream.

Fines and Fees

Prisons and probation systems have increasingly turned to levying fines and administrative fees on prisoners and their families. These might include fees for room and board, drug tests, ankle monitors, doctor visits, or classes while incarcerated. Most experts oppose the practice.

Key Revenue Streams for Prisons

To summarize, prisons draw income from these main sources:

  • Government budgets (federal, state, local)
  • Federal subsidies and grants
  • Prison industries and labor
  • Daily room and board fees
  • Private prison per diem rates
  • Administrative fines and fees

The mix of these funding sources varies across different states and jurisdictions. But government budgets provide the bulk of financing in most cases.

Do Prisons Profit?

When examining prison financing, an important question arises – do prisons actually make a profit?

The answer is complicated. Government-run prisons generally operate on the budgets provided to them by their jurisdiction. They aim to spend within their allocation, not generate profits.

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However, there are some ways that prisons can bring in revenue above their operating costs:

  • Generating surplus income from prison labor programs
  • Charging prisoners inflated fees for services like phone calls or commissary
  • Cutting corners on inmate services and healthcare

Per person incarceration costs are lower in states that aggressively pursue prison industry income and charge prisoner fees. But there are ethical issues with prisons profiting off inmates.

Meanwhile, the equation is different for private prisons. These facilities operate on a for-profit basis, charging governments a daily rate per prisoner that exceeds their costs. The two largest private prison companies, CoreCivic and GEO Group, collectively earned over $4 billion in revenue in 2019. So while public prisons generally don’t profit, the private prison industry relies on making money from incarceration.

Questions on Prison Economics

How much does it cost to incarcerate someone?

The average cost to incarcerate an inmate in state prison for one year is $33,274, according to 2017 data from the Vera Institute. However, this figure varies widely between states, ranging from $14,780 in Alabama to $69,355 in New York. Federal prisoners cost an average of $36,299 per year. Jail costs are lower, at around $25,000 per inmate per year.

What percentage of prisoners work while incarcerated?

Roughly 63% of the 1.45 million people in state prisons have regular prison jobs, according to The Marshall Project. These jobs provide important services to prisons, from cooking and cleaning to administrative work. Most prisoners work for very low pay – often less than $1 per hour.

Where does money from prison labor programs go?

Revenue generated from prison labor helps supplement prison budgets in facilities with industry programs. In states like Oregon and Washington, some of these earnings go into victim restitution funds. But the vast majority goes to the general operating budgets of correctional systems.

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How much money do prisons make from phone calls and commissary?

Prisons earn commissions on goods sold through prison commissaries. Markups on items like food and hygiene products can be as high as 60%. Meanwhile, a 15 minute call from prison costs up to $25 in some states due to inflated phone rates. These profits either go to prison budgets or private contractors that manage commissaries and phones.

Do private prisons increase incarceration rates?

Multiple studies show that private prisons do not lower correctional costs or reduce recidivism compared to public facilities. But the for-profit model incentivizes keeping more people incarcerated for longer. Private facilities are also disproportionately used for immigrant detention. So the economic motives of private prisons do seem to increase incarceration.

Prison Economics in Summary

The bottom line is that operating prisons requires massive resources derived from government budgets, inmate fees, labor programs and more. Seeking profits from incarceration creates perverse incentives in our justice system and disproportionately impacts marginalized communities.

As policies like cash bail face growing scrutiny, the financial structures supporting incarceration warrant similar examination. More equitable, rehabilitative models grounded in societal well-being over revenue may point a way forward.


In conclusion, prisons rely on a complex web of government funding, subsidies, fees, and prison labor to cover operating costs. While public facilities aim to function within budgets, the trend toward monetizing incarceration raises troubling ethical issues. Private prisons take this further by making profits directly from detaining people.

Ultimately, finances cannot be separated from debates on justice reform. Prisons are resource-intensive institutions intertwined with larger social inequities. Constructing more just systems requires grappling with the economics of incarceration and asking what truly keeps communities safe and healthy. The status quo has produced a justice apparatus dependent on revenue from those it locks up. Reimagining its purpose in non-financial terms is no easy task, but a necessary one.

Prison Inside Team

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Welcome to ‘Prison Inside,’ a blog dedicated to shedding light on the often hidden and misunderstood world within correctional facilities. Through firsthand accounts, personal narratives, and insightful reflections, we delve into the lives of those who find themselves behind bars, offering a unique perspective on the challenges, triumphs, and transformations that unfold within the confines of these walls.

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