The privatization debate continues; Tennessee's experience highlights scope of controversy over private prisons.

Over the last two decades, Tennessee's correctional system has more than doubled in size and has evolved from a loosely structured department with 11 prisons under federal court order to a system of 20 ACA-accredited prisons no longer under court order. During these past 20 years, the issue of prison privatization has been prominent in the state's debate over the direction of Tennessee corrections. The dominance of privatization in the prison debate should come as no surprise to those familiar with private corrections, since Nashville, Tenn., is the headquarters of the largest and oldest private prison corporation in the country - Corrections Corporation of America (CCA).

The Emergence of Privatization

CCA made its first proposal to manage Tennessee's prison system in 1985, during the administration of Republican Gov. Lamar Alexander. The proposal came on the heels of a summer of prison riots and a federal court order which placed a population cap on the state's prison system.

Alexander called the Legislature into a special session on corrections in the fall of 1985. Shortly thereafter, Tennessee was forced to appropriate more than $200 million to renovate old prisons and construct new ones to satisfy the federal court and meet the terms of a consent decree.

Because of the Legislature's lack of confidence in the management of the correctional system, the General Assembly also created the Select Oversight Committee on Corrections (SOCC), a 10-member joint Senate and House committee charged with reviewing corrections plans, both capital and operational, to help ensure that the state delivers a correctional system that is effective and efficient.

In the midst of the special session, CCA unveiled its unprecedented plan to solve Tennessee's prison management problems. The plan offered the state $100 million in cash for management rights and $250 million in up-front capital expenditures in exchange for CCA being paid a first-year management fee equal to Tennessee's adult correctional budget for the 1986-87 fiscal year (approximately $170 million). In his letter to the governor and the Legislature, CCA Founder and then-CEO Tom Beasley promised, "We will lock them up better, quicker and for less than you can."

Although Gov. Alexander's administration supported CCA's plan, and CCA lobbied for the legislation, the end result was passage of a law titled the Private Prison Contracting Act of 1986, which limited the opportunity to privatize to a single, 180-bed state prison already under construction by the state. The Department of Correction (DOC) had issued a request for proposal for operation of that facility, but because of the stringent requirements of the law and the peculiarities of the prison site and design, no company had submitted a bid.

In 1985, much of the debate in Tennessee related to the issue of the police power of the state being granted to private corporations; whether it was proper to allow someone other than the government to deprive citizens of liberty; and whether it was right to allow a private corporation to profit from the incarceration of citizens.

Weighing the Options

By 1990, such concerns were no longer evident among the government's leaders. Under the administration of Gov. Ned McWherter, a Democrat who served as Speaker of the House during the Alexander administration, there was another attempt to pass legislation to privatize an adult prison. In 1991, the General Assembly accepted McWherter's recommendation to create the opportunity to compare private management to public management of an adult prison in Tennessee. The issue had shifted from a more philosophical one to one of cost savings as more and more state and local governments around the country had begun experimenting with privatized prisons.

The administration and the Legislature were eager to learn if there were significant advantages in operations or cost savings in privatizing state prisons. A new law directed a comparison of the state's combined cost of operations and contract monitoring with the private sector, but required that the contract cost be no greater than the state's combined operational and monitoring costs.

The time was right to conduct a comparison between private and public prisons, as the state was completing the construction of three prototypical 1,000-bed medium security prisons. The law required SOCC and the Legislature's Fiscal Review Committee, a budget review committee, to evaluate and compare the quality of services and the cost differences between the one prototypical privately managed prison and two comparable prototypical state-managed prisons.

SOCC conducted the comparison of performance and quality of services and the Fiscal Review Committee compared the cost of operations. Both committees chose to include executives from the private contractor and leaders from the state on teams to help develop a fair approach for making the comparisons. This provided the resources necessary to carry out the comparisons and also reduced potential claims of the studies being biased.

The Oversight Committee's report, Comparative Evaluation of Privately Managed CCA Prisons and State-Managed Prototypical Prisons, was available in February 1995, and included comparisons of the following:

* inmate demographics (age, race, classification, medical status, education level);

* an operational audit comparable to the state's annual inspection process;

* security and safety index (disciplinary reports, use of force, assaults, deaths, injuries, escapes);

* program and activity index (inmate assignments, levels of idleness); and

* ACA accreditation scores.

All three prisons scored exceptionally high on ACA accreditation scores and on the audits which actually were enhanced versions of ACA's approach to accreditation. The overall comparison of all measurements resulted in the conclusion that "all three facilities were operated at essentially the same level of performance."

The Fiscal Review Committee's report, Cost Comparison of Correctional Centers, completed in January 1995, reported a 1 percent difference in the operational costs of the privately managed prison and the average of the costs for the two state prisons between July 1, 1993, and June 30, 1994. The private vendor's per diem cost was $35.38; the state's costs were $35.47 for the Northeast Regional Prison in Johnson County, Tennessee, and $36.03 for the Northwest Regional Prison in Lake County, Tenn., for an average of $35.76. The private vendor prison was 38 cents a day cheaper per inmate after all of the agreed-upon adjustments had been made as approved by the private vendor and the state at the beginning of the comparison.

The management contract was for three years and a two-year extension of the contract could occur only if the studies found that the contractor was providing the same quality of services at a lower cost or superior services at the same cost. The prison contract was renewed because the requirements of the law had been met and the contractor was providing "at least the same quality of services as the state at a lower cost," according to the Tennessee Code.

Legislative Intervention

With clear evidence showing little difference in operations and cost, the momentum for expanding privatization waned for several years. However, in 1997, legislative leaders in Tennessee were approached by CCA's new CEO, R. Crants, with a proposal that Crants claimed had the potential to save Tennessee up to $100 million annually. The proposal was to give a private company the opportunity to bid on operating all of Tennessee's prisons. As a result of these discussions, the lieutenant governor and Senate minority leader, as well as the chairman of the House Finance, Ways and Means Committee, decided to sponsor a bill which would permit privatization of all Tennessee prisons. The proposed bill had the support of the State Labor Council based on an agreement between CCA and the AFL-CIO to allow unionization of all facilities if CCA were to win the contract.

Needless to say, the announcement of CCA's plan was quite controversial. Because of the controversy and serious technical questions, the sponsors of the legislation requested SOCC advise them about whether CCA's proposal was feasible, whether passage of the bill could result in significant savings for the state, and whether the state could, at the same time, protect current state employees' jobs, salaries, rights and benefits, as well as ensure the state's constitutional and governance obligations.

Oversight Committee staff identified all known private prison contractors in the United States and invited them to Tennessee. The committee learned that there were at least 20 private prison contractors in the country but that two had more than 88 percent of the market share. In addition, only the two largest companies, CCA and Wackenhut, had the resources to manage the entire prison system.

For more than a year, the committee held public hearings and heard testimony from the state's attorney general, comptroller, personnel department, consolidated retirement system director, state employees, out-of-state experts, privatization industry executives and others. The Tennessee State Employees Association (TSEA) launched an effort to defeat any attempt to expand privatization. To rebut CCA's contentions, TSEA used the comparison evaluations prepared by SOCC and the Fiscal Review Committee in 1990. TSEA's position was that any inefficiency in the DOC was caused by policies of the department and not because of the efforts (or lack thereof) of state employees.

As a part of the Oversight Committee's evaluation of CCA's proposal, all private prison contractors were asked to give two different estimates of savings: 1) based on projected operating costs of existing Tennessee prisons, and 2) based on the option to redesign the entire system. Of the 20 companies providing correctional services, five companies, including the three with the largest market share in the United States, responded. The majority of respondents estimated potential savings between 10 and 15 percent of recurring costs (approximately $25 million in Tennessee) for operation of the existing system. The estimate rose to 30 percent. if total redesign were permitted.

The Tennessee DOC responded to the survey and also estimated that the state could save 30 percent if it were allowed to rebuild and operate all of its prisons as efficiently as its newest 1,300-bed prototypes.

Committee Releases Report

Based on the information gathered through the survey and testimony heard by the committee during a series of public hearings, a committee report came to the following conclusions and recommendations:

* Expanding prison privatization appears to offer the state several opportunities to reduce costs and improve services, while protecting state employees, but only if expanded authority (increasing the state's authority to contract for prison management) occurs as a part of a plan which assures competition and effective management and implementation to protect the state's and employees' best interests.

* The inevitable competition among private prison operators and the DOC has generated several new ideas and identified potential opportunities for the state.

* Most important, if expanded privatization is authorized, it is essential that the state establish a governance structure, different from the current one (control by the Doc) to manage its correctional services delivery system, including those services which are retained by the state and those which are contracted.

* It is not in the best interest of the state to privatize the entire system. The department should specify a portion of the prison system, perhaps 30 to 40 percent, that should never be privatized. The retained facilities should be representative of all levels of classification and correctional services. (This approach assures competition and provides for resumption of responsibilities in case of default or emergencies.)

During a November 1997 SOCC meeting, the sponsors of the privatization bill told the committee that they agreed in principle with the consultant's report and that they would return to the committee at a later date with a revised bill based on the report's recommendations.

Controversy Brews

In January 1998, Gov. Don Sundquist announced his support for the expansion of privatization, including his plan to reorganize the delivery of correctional services, by creating a new Department of Criminal Justice to coordinate and administer public and private management of correctional facilities. In March, the sponsors of the bill presented their amended version, which included the governor's proposals and certain recommendations made in the SOCC consultant's report. The Oversight Committee reviewed the bill and issued a bill analysis that identified those portions which complied with SOCC recommendations and those which did not. The committee found that the language of the bill did not support many of the most important recommendations. Examples include the following:

* The governor's emphasis was on privatizing, not on fair competition between the public and private sectors;

* The new governance structure lacked authority, accountability and continuity;

* The corrections commissioner was given sole authority over major state policy decisions, such as how many prisons to privatize and which prisons to privatize; and

* Independent contract administration and monitoring (by an outside agency or body) were not included.

The committee did conclude that the language of the bill, which attempted to guarantee protection for state employees, was strong; however, state employees remained opposed to the bill.

Conclusion

The sponsors of the bill chose not to make additional amendments which would comply with the Oversight Committee's recommendations. But as they attempted to move their bill through the legislative process, the lack of support became clear. In spite of the backing of the governor, powerful legislative leaders and the AFL-CIO, the sponsors could not muster the necessary votes to get the bill out of critical Senate and House committees. In April, Lt. Gov. John Wilder, the Senate sponsor, announced that he was withdrawing the bill for this year, but that he felt the issue would resurface in 1999.

The Tennessee privatization experience has been one of changing goals and experiences. In the past two years, Tennessee has learned that some savings can occur by using the private sector and that the competition between state employees and private vendors will provide a laboratory for new ideas. However, many still claim that the case has not been made that the private sector can operate existing facilities significantly better than the government. Therefore, who will make the ultimate decision about whether a facility is privatized or whether a new prison is built by the state or by a private vendor becomes the central policy issue and finally the most important political decision policy-makers will face. Until the executive and legislative branches of government can resolve their differences in this area, Tennessee will not experience an expansion of privatization in corrections.

Sen. Jim Kyle is an attorney in private practice in Memphis, Tenn. He has represented the 28th senatorial district in Memphis since 1983. An original member of the Select Oversight Committee on Corrections, he has served as chairman for the past eight years. Sen. Kyle currently is completing a term of office on ACA's Board of Governors.