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September 2, 2011

Should Ohioians wonder if we could have gotten more than $72.7 million in a prison sale?

The question in the title of this post is prompted by this Reuters report on the prison sale that went through in Ohio yesterday.  Here is the story:

Ohio said on Thursday it had gone through with a controversial plan to privatize a portion of the state's prison system, the latest step in Republican Governor John Kasich's campaign to shrink government and close the state's budget shortfall.

Officials said the state had sold the Lake Erie Correctional Institution, an 11-year-old prison housing about 1,500 nonviolent prisoners, to the Corrections Corporation of America for $72.7 million. The state will now pay the Nashville-based company to run the facility.

The privatization of parts of Ohio's prison system was one of the deficit-closing provisions contained in the budget Kasich signed into law earlier in June.  In all, Ohio hoped to sell five prisons, and raise as much as $200 million, in the privatization process.  But the bids on the other four facilities fell short of the state's hopes and they will remain in government hands for now....

Carlo LoParo, spokesman for the Ohio Department of Rehabilitation and Corrections, told Reuters the state of Ohio would pay CCA a per diem of $44.25 for each inmate at the Lake Erie prison.  He said CCA's operating costs will be eight percent less than estimated state operational costs, generating a projected $3 million in annual savings.

Ohio has used private companies to manage state-owned prisons since 2001.  Currently, Ohio has 31 correctional institutions housing approximately 51,000 inmates.

Ever the questioning blogger, I cannot help but wonder if Ohio might have even gotten more dollars out of this deal.  I am pleased to learn that the state refused to sell four other prisons because of concerns the offers were insufficient.  But how can I find out, as an interested blogger and Ohio voter, whether the deal that did go through was a good one for Ohio. 

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September 2, 2011 at 01:03 PM | Permalink


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It is really difficult to tell. Prisons are specialized, unlike a variety of industrial and office space, with a limited number of buyers. There are fewer comparibles one can use to benchmark a sale.

That said, CCA has about 10,000 empty beds now according to a recent SEC filing. The don't really want to pick up more capacity unless it is cheap and/or has a significant guaranteed income stream. (Interesting to see if the contract has the usual short term cancellation policy.) More generally,I'm not sure there are any examples of public infrastructure sales where the govt has come out obviously ahead/where private firms have buyers remorse. Hire local officials as consultants, lobby, hand out political donations, grease the wheels for a good deal.

If you really wanted to know, you could FOIA all documents and correspondence about the five prison sales. It would be a bit pricey and take years, but could be interesting.

Posted by: Paul | Sep 2, 2011 7:42:23 PM

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