by

Representative Richard Quinn,
South Carolina House of Representatives
Corrections Budget Committee Chairman

November 25, 1997

I have spent nearly a decade serving my constituents in the South Carolina House of Representatives and this experience has provided numerous opportunities to learn and to be involved. I believe the most eye opening and sobering events of my public life have come as a result of being Chairman of the Budget Committee responsible for the state's prison system. This position has afforded me the opportunity to see first hand the scope of the problem confronting professionals at all levels of the corrections profession.

Before taking the position as Chair of the Budget Committee for Corrections, I'm afraid I was like most of the general public when it came to corrections issues - "out of sight- out of mind". However, when confronted with the facts of our prison population situation in South Carolina, I knew responsible people had to take a hard look at realistic solutions quickly or a bad situation would quickly get out of control. Nationally, the prison population has grown over 242% in the last fifteen years. South Carolina has been confronted with this problem just like other states. This has placed a tremendous strain on our corrections infrastructure, both the facilities and the people working in the system. On average, the South Carolina system is operating with 14% more inmates than the system is currently rated to handle. I understand from my colleagues in other state legislatures that most states are running similar if not higher capacity overages. I concluded that there were two answers - reduce the number of people going into the system or increase the corrections system capacity. As an elected official, I could not in good conscience take the chance of putting the people of this state at risk by passing laws that would put criminals on the street, so I decided to begin looking for responsible, cost effective and secure ways to increase corrections capacity and reduce our state's corrections housing problems without depriving other equally important state spending priorities. My staff and I began researching the field of corrections building and soon discovered that this is an area in which a lot has been written. However, we were in need of concise and to the point information that would help us as we discussed these issues with people who were not as well versed in the corrections situation as we might be. We finally found such a useful resource document in the "White Paper - Prison Construction and Operation Issues" written by Mr. R. Phil Roof, Mr. Larry A. Fields and Mr. Parker Evatt. When I first read this material, I was impressed with the breadth of its content and its practical, straightforward approach to the topic of prison design, finance, construction. Additionally, I found that this material shed much needed light on the area of public vs. private corrections operations. Quite often I have listened to the private operating companies rail against the "inefficiencies of the public sector" and make the case that only private operations companies can produce lean, efficient corrections operations. With the material presented in the "White Paper", I have the information necessary to understand the positions of both sides in that debate and can make knowledgeable decisions on how best to expend our limited state resources. I also feel that I can confidently say that the public sector can compete with the private sector when given a safe, secure and operationally efficient facility in which to work. This "White Paper" permitted my staff and I to understand how to provide that to our Department of Corrections and communicate that to my colleagues in the Legislature. This has been an invaluable resource for my staff and I.

I was quite pleased when the authors asked me to critique and assist in editing this updated version of the "White Paper". I believe that this material can help everyone who works in the area of corrections to focus on the important issues at hand and can help move forward the debate in this area that is of such critical importance to all State budgets.

I. THE CHALLENGE FACING CORRECTIONAL ADMINISTRATORS:

The rapid increases in incarcerated populations over the last 15 years have placed major strains on federal, state, and local correctional systems. A number of states are under court order to improve their prison systems, and many jurisdictions are specifically required to reduce overcrowding in jails and prisons. In this climate, correctional administrators are examining many options for dealing with their population problems, while at the same time meeting their responsibilities for both public safety and prudent use of public resources. The choices they face are complex and not easily resolved. Those who decide to construct new correctional facilities never do so lightly, because substantial expenditures are often involved, and lengthy delays may be incurred in preparing voter referenda and construction plans. These delays, in turn, can significantly increase costs.

II. DISCUSSION:

A. General.

1. According to a recent report published by the General Accounting Office (GAO), the total federal and state prison population grew from about 329,000 inmates in 1980 to about 1.1 million inmates in 1995, which is an increase of about 242 percent. The federal inmate population grew from 24,363 to 100,250 (an increase of about 312 percent), and the state inmate population grew from 305,458 to 1,026,882 (an increase of about 236 percent).

2. Federal and state corrections agencies, as well as non-governmental forecasting organizations, have projected that the prison population will continue to grow in future years. For example, the Bureau of Prisons projected that the federal prison population could reach about 125,000 inmates by the year 2000, an increase of 25 percent over the 1995 level. The National Council on Crime and Delinquency projected that the total federal and state prison population under sentencing policies in effect in 1994 could reach 1.4 million inmates by the year 2000, representing an increase of 24 percent over the 1995 level.

3. The tremendous growth of the prison population has precipitated a serious overcrowding problem, with state and federal prisons operating well beyond capacity. According to the 1995 Corrections Yearbook, on January 1, 1995, prisons in 51 agencies "were operating with 98,767 more inmates than their operating capabilities provided. The average system was operating with 14.9% more inmates than its rated capacity." In their book, Privatizing Correctional Institutions, Bowman, Hakim, and Seidenstat concluded that conventional efforts appear unable to cope with the increasing shortage of beds and that a bold solution is required. They note that, increasingly, governments have come to rely on the private sector.

4. The increasing number of inmates in our state prisons requires innovative planning and actions to prevent enormous social, economic, legal, and public safety repercussions. Private involvement can ease overcrowding by making facilities available more quickly by using the design/build-lease/finance approach to constructing and financing prisons.

B. Design/Build Versus Design/Bid/Build.

1. Traditional construction concepts are giving way more and more these days to new ideas. One of these ideas, which is really not so new but which has only recently become popular, is the design/build project delivery method. In fact, according to ENR Magazine, between 1995 and 1996 alone, the number of U.S. projects ($5 million and above) completed using design/build grew more than 100 percent.

2. Under the traditional construction method, known as design/bid/build, the owner commissions an architect or engineer to prepare drawings and contract specifications under a design contract, and subsequently selects a construction contractor by competitive bidding (or negotiation) to build the facility under a construction contract. Under the design/build method, one entity (design/builder) forges a single contract with the owner to provide for architectural/engineering design services and construction services.

1. The design/build approach offers a number of advantages over its traditional counterpart. Some of these advantages are as follows:

a. Provides single-source responsibility. b. Eliminates disagreements between the owner and the developer. c. Protects the owner from litigation. d. Reduces project delivery time. e. Reduces design costs. f. Provides on-target budget assurance.

g. Encourages innovative design solutions.

C. Public Versus Private Financing.

1. There are two methods of financing the construction of state prison facilities. One is General Obligation (GO) Bond financing, and the other is lease/finance with use of Certificates of Participation (COPs). The lease/finance method, along with design/build, provides for total developer responsibility for construction of the prisons and eventual ownership by the state. A developer using private financing would cause the state to pay excess costs. The lease/finance public financing method using COPs would lower payment costs for the state, as well as provide for equity appreciation and acquisition of the facility over the term of the lease period. The use of private financing, with the state using a pure lease, would not allow the state to acquire ownership, but, instead, would allow the vendor to acquire equity for which the state would receive no benefit. Tax-exempt financing, as opposed to private financing, would lower the financing costs and provide for appreciation and acquisition of an asset by the state.

2. The GO Bond and lease/finance COP methods are tax-exempt and provide equity appreciation and ultimate acquisition of the facility by the state. Unlike private financing and leasing from a private entity, lease/finance COPs place a permanent cap on any inflationary costs on the capital cost of facilities. Like GO Bond methods, lease/finance COP methods would protect the state from inflationary escalations and costs associated with re-negotiations using indices available in the private sector for pure leasing of facilities. In essence, COP lease/purchase financing is the better method of financing public institutions, particularly when they involve delivery of complex projects which can be completed more efficiently and effectively by a selected developer with a qualified team of experienced architects, engineers, contractors, and subcontractors.

D. Design/Bid/Build GO Bond Method Versus Design/Build COP Method.

1. The design/bid/build GO Bond method ensures only one thing - on bid day the state will receive the lowest bid. The state may thereby inadvertently obligate itself to enter into a multi-year contractual relationship with a less than ideal, inefficient, uncooperative general contractor, along with some good, reliable subcontractors. Perhaps the contract would go to a good general contractor and less than ideal subcontractors, or worse still, to a less than ideal general contractor and less than ideal subcontractors. On bid day, these are all unknowns which could drive up the project cost and delay delivery of the prison facility.

2. Under the design/build COP method, the state would receive bids for all phases of the project design and construction from a single entity. The state could then evaluate a turnkey proposal and, if found acceptable, proceed with a known delivery team. If bids under a design/build COP concept are not competitive, the state could revert to the design/bid/build GO method. The design/build approach would present the best, most cost-effective, and most comprehensive proposal. Further, it would allow the state to thoroughly evaluate the total design, construction, and finance team, including architects, engineers, finance members, contractors, subcontractors, and material suppliers, prior to issuing the contract, thus ensuring that an experienced team of professionals who can work together on a complex, specialized project receives the contract.(1)

E. Private Versus Public Operation of Prisons.

1. Privatization of correctional services is a major issue in the penology and criminal justice arena, especially when the question turns to operation of entire correctional facilities for profit. In considering the extent to which corrections should be privatized, a key question is whether private contractors can operate at lower costs to taxpayers, while providing at least the same level of service as the public sector. A number of studies have been done comparing private and public correctional operations. Several of these are summarized below.

a. Archambeault and Deis were commissioned to do a comprehensive, in-depth comparative analysis of three prisons in the State of Louisiana. One of the prisons was operated by the State Department of Public Safety and Corrections. The other two were operated by private contractors. All three prisons were comparable in terms of physical design, capacity, and types of inmates. Additionally, all three were operated under state laws and Department of Public Safety and Corrections policies and standards. Based on the data analyzed, Archambeault and Deis concluded that the two privately operated prisons significantly out-performed the state operated prison on the majority of the measures used to compare the three prisons. Specifically, the authors concluded that both private prisons were 14 to 16 percent more cost effective in operational measures when compared over the previous five fiscal years.

b. In a study entitled Private Sector Involvement in Prison Services and Operations, Camp and Camp explored the extent, value, and potential of private sector roles in corrections in order to understand how and where private sector roles might be modified, combined, or expanded to produce the most advantageous forms of prison management. Their research included investigation and analysis of existing reports and evaluations of private sector involvement in corrections, and a review and analysis of the opinions of correctional administrators, researchers, scholars, and private sector providers. The study identified both benefits and liabilities of private sector involvement in prison operations. It seemed to indicate that the pluses of private prison operation - less costly, more efficient operation, and improved personnel training and management - were significant enough to outweigh the liabilities in the opinion of the respondents.

c. In a 1996 report, the GAO assessed the findings and conclusions of five studies completed since 1991 that compare private and public correctional facilities in relation to operational costs and/or quality of service. The correctional facilities that were the focus of these studies varied in terms of geographic location and the types of inmates housed. The GAO could not conclude from the studies that privatization of correctional facilities will not save money. However, the studies did not offer substantial evidence that savings had occurred. With regard to quality of service, of the two studies that made the most detailed comparative assessments, one reported equivocal findings, and the other reported no difference between the compared private and public facilities.

2. There is a limited track record available pertaining to the private operation of prisons, and there are cases where it has not worked. On the other hand, there are indications that state governments can be inventive and out-perform private companies both in service and cost effectiveness. The fact that the public sector is showing an interest in improving its performance and a readiness to become competitive with the private sector is a positive development.

F. Preparation of the Request for Proposal (RFP).

The RFP sets the requirements under which private companies must operate or deliver services. It needs to be comprehensive, clear, and provide all the necessary information for the vendor to make a rational business decision. The RFP should be clear about requirements for the financial strength of the vendor, its prior experience in managing similar projects, and references from other agencies that have used its services. The contractor should be required to provide detailed plans with timetables once the award is made. A well-prepared RFP should guide potential bidders but not be too detailed, difficult, or full of red tape. More specifically, the RFP should:

1. Allow for bidder creativity in development of proposals (e.g., development and submission of bilateral prison designs). 2. Use target ranges (e.g., 2,000 to 2,500 beds), rather than an absolute number of beds, to encourage innovation and competition. 3. Use maximum prison capacity (100%) for contract evaluation instead of assuming a 95% (or lower) occupancy rate. 4. Always provide for state ownership of the prison. 5. Require that performance and payment construction bonds be provided by the contractor performing construction.

G. Methods of Prison Ownership and Operation.

1. Requests for proposal should allow for the following options with respect to prison ownership and operation: a. Option 1: Public ownership and public operation. b. Option 2: Private ownership and private operation. c. Option 3: Public ownership and public or private operation.

2. Option 1 is how most state prisons are currently being operated.

3. Option 2 represents how most "privatization initiatives" are being employed around the country. This methodology replaces public ownership and operation with totally private ownership and operation.

4. Option 3 is the most advantageous to the taxpayers. It contemplates the state requesting bids from private contractors for the design/build-lease/finance of prisons and separate bids from private correctional firms for operation of the prisons. Both bids would assume state ownership of the prison and would allow for tax-exempt financing. These two factors always produce tangible benefits to the state by reducing the long-term finance cost of the constructed facility and by providing the state the power to change the private operator without losing control of the facility. For instance, under Option 2 above, if the state were unhappy with the operator's performance, it would have to keep the operator or lose access to the prison facility. Under Option 3, in a similar scenario, the state could cancel the operator's contract and hire another operator or operate the prison with state employees. Regardless, Option 3 would provide the state the broadest approach to prison ownership, construction, and operation, and preserve the state's power to make choices that would be in the best interest of the taxpayers.

H. The Benefits of Competition.

1. Almost every facet of American life is touched by competition. Competition is the cornerstone of our economy and, some would say, of our national character. Competition can make us reach beyond our own perceived limitations and attain a higher level of performance. An RFP should set goals, establish standards, and provide parameters for all bidders, public or private, to meet. This would assure that the state obtains the intended benefits of competition.

2. Nationally, the trend has been to leap into total privatization with private companies building, financing, owning, and operating adult prison facilities. We do not favor this approach. Rather, we believe that creating a method whereby all interested bidders, public and private, have an opportunity to bid on the same project, by the same standards, would produce the most positive results for the state.

3. There should be true competition between public and private entities, and any future RFPs should require competitors, public and private, to offer the same pay scales and fringe benefits, and to be held to the same training and performance standards. The private and public sectors should be able to compete on a level playing field. This would improve the quality of the correctional product delivered, enhance the service provided to the taxpayers, and provide them with the lowest cost available.

4. The single biggest element in creating a level playing field between public and private bidders is allowing for comparatively equivalent financing methods. Comparing only public finance methods, such as GO Bond tax-exempt financing with straight private financing methods, would always skew the results in favor of public financing, and a fair and effective comparison of services and costs could not be obtained. RFPs for prison construction and operations should permit bidders to submit bids using lease/finance COP financing. This would provide an accurate means of comparing private and public offers, since GO and COP financing are both double tax-exempt and would provide as level a playing field as possible.

I. 2,236 Bed Bilateral Prison: A Volume Solution to a Volume Problem.

1. Unfortunately, the crime problem in America shows no signs of abating. As indicated above, the demand for prison beds has increased dramatically in recent years and, with new sentencing guidelines and "three-strikes you're out" laws, the demand will only increase. The people have spoken, and they have said catch the criminals and remove them from society.

2. States cannot solve the prison space problem with patchwork solutions - that is, by providing a few hundred beds here and there each time a crisis situation presents itself. Instead, they need to take a proactive role in planning and administering their prison capital building program in an attempt to avoid recurring space problems. This would allow beds to be brought on line in accordance with projected need and, more importantly, without diverting all available funds from other equally important state functions. According to statistics compiled by Corrections Compendium, a criminal justice watchdog publication, the capacities of prisons scheduled for completion in 1997 will be larger. Moreover, Jack Chapman, manager of justice facilities for Turner Construction, says "it's more cost-effective to build one 2,000 bed facility than two 1,000 bed prisons."

3. With ever-increasing prison populations and correctional costs, the need to search for alternative solutions becomes apparent. One alternative that will help mitigate both problems is the prototype 2,236 bed bilateral prison design developed by the National Corrections Corporation in coordination with experienced corrections professionals. The design is called a bilateral prison because it separates two distinct prison populations along a central administrative and service core/spine. Neither prison population can intrude on the other, but both can be serviced from the central core, thus creating efficiencies of operation and a lower staff to inmate ratio, which produces savings in labor costs. The design is also flexible so as to allow for implementation of different operational and programmatical philosophies (e.g., unit management vs. indirect supervision). The operating efficiencies of the 2,236 bed bilateral prison when compared to 538 bed and 1,076 bed prison facilities are summarized below.

a. The 2,236 bed bilateral prison facility offers a staff to inmate ratio of 1:6.141, which is a 33.7 percent more efficient staff to inmate ratio than the 1,076 bed facility and a 36.8 percent better staff to inmate ratio than the 538 bed facility.

b. The 2,236 bed bilateral prison facility provides an estimated annual payroll per inmate savings of 34.7 percent (or a total annual savings of $6,683,022) over the 1,076 bed facility and an estimated annual payroll savings of 44.7 percent (or a total annual savings of $10,148,822) over the 538 bed facility. Over a 40-year period, without factoring in inflation, the savings in labor costs alone for a 2,236 bed facility over a 1,076 bed facility would amount to approximately $267,320,880. These payroll per inmate savings are based on average wages paid in the Southeastern United States and would be even greater in higher wage regions.

c. When compared to other medium/maximum security facilities in South Carolina, the Lee Bilateral Correctional Institution produces an annual savings in energy costs of approximately $231,512 - $259,860 due to its superior energy design and construction. This is a continuing, recurring savings over the life of the institution.

4. Labor costs constitute a major portion of correctional expenditures and are subject to inflationary economic trends. If a facility's design provides for an efficient staff to inmate ratio, as does the 2,236 bed bilateral prison, it will not only yield cost benefits initially, but it will provide a hedge against spiraling labor costs in the future. In this regard, the 2,236 bed bilateral prison, with its lower number of staff, provides built-in protecti