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How Do Private Prisons Make Money?

The private prison industry has grown rapidly in the United States over the past few decades. As of 2019, 8.4% of prisoners in the US were housed in private prisons. This amounts to over 115,000 prisoners across the country. The two largest private prison companies, CoreCivic and GEO Group, manage a significant portion of private prisons and immigration detention centers.

Private prisons are run by for-profit companies that have contracts with government agencies. Instead of reporting to taxpayers, they report to shareholders and are focused on maximizing profits. This fundamental difference between private and public prisons has led to ongoing debates around the ethics and impacts of the private prison business.

So how exactly do these companies make money off incarceration? This article will provide an in-depth look at the key ways the private prison industry generates revenue.

How Do Private Prison Contracts Work?

The primary way private prisons generate income is through contracts with government agencies, usually at the state or federal level. The two main types of contracts are:

Per Diem Rate Contracts

This is the most common type of contract. The government agency agrees to pay the private prison a set daily rate for each prisoner housed. The per diem rate varies by facility but averages around $60-$70 per inmate per day.

For example, if a private prison houses 100 inmates and has a per diem rate of $65, they would earn $6500 per day, or $2.3 million per year from that contract alone.

Bed Guarantee Contracts

With this type of contract, the government agency guarantees payment for a minimum number of beds, whether they are filled or not. This transfers occupancy risk from the private prison to the public agency.

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For example, if a contract guarantees payment for 1,000 beds at a rate of $60 per day, the private prison is ensured $60,000 per day, or $22 million per year, regardless of whether all the beds are occupied.

Key Revenue Streams

Within the overall private prison business model, there are several key revenue streams that account for income sources beyond just the government contracts.

Inmate Phone Calls

Phone calls from prisoners are a major revenue generator for private prisons. The companies sign exclusive deals with phone carriers and charge very high per-minute rates for calls – often $1/minute or more.

These kickbacks have been estimated to total over $100 million per year for the top two private prison companies. Consumer advocacy groups argue these predatory practices take advantage of incarcerated people and their families.

Commissary Purchases

Most prisons have an in-house store or commissary where prisoners can purchase food, personal hygiene items, electronics, and more. Markups at prison commissaries are extremely high – up to 40% on many items. Private prisons can generate sizable profits through these markups and commissions from the contracted commissary companies.

Medical Copays

Inmates in both public and private prisons are often charged copays for doctor visits, medications, and medical procedures. While public prisons also collect copays, private prisons have come under scrutiny for excessively high and predatory medical copays charged to prisoners.

Inmate Labor

Some private prisons leverage cheap inmate labor, paying prisoners as little as $0.23/hour for work duties. While inmates in public prisons also do labor, private companies have developed work programs focused on generating revenue. Common prison labor includes manufacturing, laundering, craftwork, and farming.

Government Subsidies

Private prison companies often qualify for state and federal subsidies including tax breaks, grants, and access to cheap land and property. These types of government subsidies further pad their bottom lines.

Cost Cutting Measures

A key priority for private prisons is keeping costs down to maximize profits. Some concerning cost-cutting measures include:

  • Lower staffing levels – private prisons often maintain inmate-to-staff ratios significantly higher than government run facilities.
  • Reduced security and programming – this can include less prisoner monitoring and rehabilitation/education programming.
  • Lower wages and benefits – private prison employees typically earn about 35% less than their public counterparts. Benefits like retirement and healthcare are also usually considerably lower.
  • Alto, could you please add a table comparing key metrics between private and public prisons? It would be great if you could include factors like cost per inmate, staff ratios, wages, and programming. Please use fake data to populate the table.
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Private vs Public Prisons

MetricPrivate PrisonsPublic Prisons
Cost per inmate per day$45$65
Inmate to staff ratio8:15:1
Average employee wages$35,000$55,000
% offering addiction treatment55%85%
% offering GED programs43%73%

This table highlights some of the key differences in operational metrics between private and public prisons. Private facilities tend to minimize costs in areas like staffing, wages, and rehabilitation programming.

Political Lobbying and Influence

Private prison companies invest heavily in political lobbying to protect and promote their business interests. Some key examples include:

  • Campaign contributions – The industry donated over $1.6 million to candidates in the 2020 election cycle, with most going to Republican incumbents.
  • Supporting “tough on crime” policies – Private prison companies have supported stricter criminal penalties like mandatory minimums and three-strike laws.
  • Immigration detention expansion – Companies like GEO Group and CoreCivic have lobbied for detention as the default for undocumented immigrants. About 75% of ICE detainees are held in private prisons.
  • Anti-reform advocacy – The industry has opposed criminal justice reforms like reduced sentencing and legalization/decriminalization of certain drugs.

Through lobbying and political influence, the private prison industry shapes policies and laws to provide more business opportunities.

Public Opinion and Controversies

The private prison industry has faced growing public scrutiny in recent years over its practices and impacts. Some key issues that have sparked controversy include:

  • Poor conditions – Some private facilities have been found to have unsafe and unsanitary conditions, inadequate medical care, violence and abuse of inmates.
  • Lack of transparency – Unlike public prisons, private companies are not subject to the same open records laws. There is less visibility into their internal operations.
  • Perverse incentives – The fundamental drive for profit maximization can lead to practices that are socially detrimental, like supporting excessive incarceration.
  • Accountability concerns – It can be more difficult to hold private prisons accountable for mismanagement, abuse, and failing to meet standards.

While the industry defends its role in providing cost savings to taxpayers, polling shows a majority of Americans oppose private prisons. Several Democratic politicians have proposed bans on for-profit incarceration altogether. However, the industry remains influential, so eliminating private prisons completely does not seem politically viable in the near term.

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Questions Around the Private Prison Model

The rise of private, for-profit incarceration raises several important policy questions:

Should essential public functions like prisons be outsourced to private companies?

  • Some argue private entities are inevitably beholden to shareholders rather than the public interest when it comes to matters of justice and rehabilitation.
  • However, proponents claim the private sector is more innovative and cost-effective while still providing adequate services under proper government oversight.

Does the profit motive distort criminal justice and sentencing policies?

  • Critics claim the existence of private prisons incentivizes lobbying for “tough on crime” laws that maximize incarceration rates and profits.
  • The industry maintains they don’t directly advocate for stricter sentencing and simply provide beds when policymakers determine there is a need.

Does the cost focus compromise safety, security and rehabilitation measures?

  • Opponents believe the drive to cut costs leads private facilities to skimp on critical programming, staffing and procedures.
  • The companies assert they provide safe environments within contractual parameters and government oversight. Savings come from efficiency rather than underinvestment.

Should certain functions like healthcare and discipline remain public within private facilities?

  • Some argue key roles impacting quality of confinement should be directly managed by public employees even in contracted private prisons.
  • Others believe contractual requirements on standards of care and independent oversight are sufficient without reducing private sector efficiencies.

There are reasonable arguments on both sides of these issues. How we answer these important questions will continue shaping the future of the private prison industry.

Conclusion

The privatization of prisons has rapidly expanded over recent decades as for-profit companies have promised cost savings while maintaining quality through competition and innovation. However, major controversies persist around private prison incentives, transparency, efficacy, and ethics.

While private facilities play a major role in incarceration and immigration detention today, increasing political momentum for reform could substantially impact the size and scope of private prisons going forward. Fundamentally reexamining when privatization is appropriate for functions central to public welfare and justice will be an ongoing public policy conversation.

With tightened oversight and improved contracting practices, private operators argue they can continue providing essential services at lower cost to taxpayers. But long-term, the question remains whether the profit incentive itself is compatible with operating just, rehabilitative corrections systems. Getting the incentives right is critical – not just for efficiency but for advancing the broader interests of justice, public safety, and human dignity.

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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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