Ohio Gov. John Kasich, who pushed through legislation privatizing the state’s economic development functions, now wants to do the same for its correctional system.  The Governor has sparked a controversy by proposing the sale of six state-owned prisons (including one juvenile detention facility) to private corrections corporations, which would then operate the facilities under contract to the state.  The controversy set off by Kasich’s proposal was escalated when the House passed a budget bill that exempts the future prison owner-operators from paying state business taxes.

State Representative Matt Lundy has called the Governor’s proposal “insane,” stating that the plan is a “yard sale that would be the deal of the century.”  Rep. Lundy states that the proposal is a “profitization” masked as privatization.  The one-time proceeds to be gained from the sale of the properties – an estimated $200 million – will not solve Ohio’s long-term structural revenue problems, and the sale would not guarantee lowered costs in the future.

The practice of contracting out prison operations has its own troubled history.  Ethical issues notwithstanding (and these are numerous – see www.grassrootsleadership.org for more information), the fiscal benefits of contracting private sector companies to operate prisons have also been called into question.  A study by the Arizona Department of Corrections recently featured in the New York Times found that prisons operated by contractors cost taxpayers more per inmate than state-run prisons.  Policy Matters Ohio’s analysis of two existing prisons that are operated by contractors found little to no savings to the state.  Further, accountability and oversight problems are common with private contractors in the industry.  This is sometimes a result of the fact that private contractors reduce their operating expenses (and maximize profits) by trimming labor costs, whether by understaffing or cutting wages and benefits.  More job and wage losses can hardly be called beneficial to the state.

Given that the state stands to earn limited short term financial benefit by privatizing the prisons and can’t demonstrate savings from contracting out operations, the plan to exempt prison owners from major state and some local taxes is completely illogical.  This proposal is based on the notion expressed by House Finance Chairman Ron Amstutz that since the state doesn’t levy taxes on its own services, it shouldn’t tax businesses contracted to perform the same functions.  This is almost too nonsensical to bother rebutting.  According to this wacky logic, taxing the profits that a company makes from privatization would be unfair to those companies unfortunate enough to have to “compete” in the same market as the state government.  The Ohio House seems to have forgotten that it’s the government that creates this “market” in the first place.  Economically, this proposal amounts to little more than a massive subsidy to major private prison corporations – a subject about which Good Jobs First has written.  See our 2001 report Jail Breaks for more information about subsidies awarded to private prisons.

The proposal is being considered by the Senate this week.  Hopefully, the Senate’s collective memory is not as short as that of the House.  It might do state officials good to recall the scandalous history of the prison owned and operated by Corrections Corporation of America (CCA) in Youngstown in the late 1990s.  That facility was so thoroughly mismanaged that the state prison oversight committee called the company’s performance “ultimate failure in the primary mission and public promise of any prison.”  More information about CCA’s troubling past can be found in Corrections Corporation of America:  A Critical Look at its First Twenty Years, a joint publication of Good Jobs First’s Corporate Research Project and Grassroots Leadership.

With little short term income, no long term cost savings, and no new tax revenues to show for its proposal to sell and privatize the state’s prisons, Gov. Kasich’s plan should be called out for what it is:  a corporate giveaway.