Prison project millions over budget
Privatization had been touted as money-saver
A prison privatization project touted as a money-saver by Gov. Doug Ducey’s administration cost Arizona tens of millions of dollars more than projected, and will continue to run over budget, according to the Arizona Department of Corrections.
Despite a recent claim from Department of Corrections Director David Shinn that decommissioning the state prison in Florence and moving incarcerated people to a private prison in Eloy led to “hundreds of million dollars a year both in cost avoidance and maintenance,” budget documents show the administration’s savings claims are wildly overblown.
In fact, closing the state prison led to cost increases that resulted from poorly negotiated contracts house, feed and medically treat prisoners, adding to the overall taxpayer burden, and specifically harming the town of Florence.
When Ducey announced the Florence prison closure in his 2020 State of the State Address, he claimed the move would “enhance safety at our remaining facilities and save taxpayers $274 million over the next three years.”
Ducey’s office told The Republic that figure came from the amount of money his team estimated the state would avoid spending on maintenance and repairs at the prison. The promised savings would come from transferring nearly 4,000 men incarcerated at the state prison in Florence to private facilities and county jails.
Two years later the Department of Corrections awarded a contract to private prison operator CoreCivic to house prisoners at the La Palma Correctional Center in Eloy.
The five-year contract took effect on Dec. 29, 2021. The state will pay CoreCivic $85.12 per prisoner, per day, for the contract, with the state guaranteeing a minimum 90% occupancy rate. But that cost could increase.
The total contract is worth more than $420 million. According to budget projections from CoreCivic, the company expects to earn a profit of more than $6 million for the first year of the contract.
The $85.12 per diem is higher than the average $78 per diem cost for staterun facilities, according to the most recent cost report available from 2020.
When Ducey announced the prison’s closure, his office estimated the process could take up to two years.
But in its subsequent budgeting process, the department submitted a cost analysis based on a four-year process for closing Florence, and moving all the prisoners there to new locations.
However, according to its budget request starting in July 2023, the department told Ducey all the prisoners at Florence would be moved to the more expensive CoreCivic facility in just 11 months.
In budget documents, the department reported that, based on the agreed-to per diems and funding commitments, it projected a $17.8 million deficit in the fiscal year beginning in July, a shortfall of $24.7 million the following year “and ongoing.”
The department did not respond to requests to further explain or elaborate what it meant by “ongoing,” or the specific reasons shortfalls would continue.
In its latest budget request, the department says it needs nearly $25 million in additional funding to cover the deficit from the fiscal year starting in July 2023, but it will be able to cover the deficit from the current fiscal year, which began in July, with “salary savings.”
There are currently nearly 2,000 corrections officer vacancies statewide, which has led to grave security conditions at several prisons, according to department whistleblowers.
‘Bad business decisions’ led to cost overruns
The department said the savings from the Florence closure fell well short of what they had projected, without explaining why.
In addition to having to pay higher per diem rates for more prisoners earlier than expected, a smaller population in state-run facilities did not generate expected savings because department contracts incentivise higher levels of incarceration.
Like the 90% occupancy guarantee with CoreCivic, the current prison health care contract with private provider NaphCare and the former health care contract with Centurion have guaranteed minimums baked in as well.
NaphCare expects to earn nearly $10 million in annual profits from the fiveyear contract that started in October 2022.
“No healthcare savings will be realized for the Fiscal Year 2024 or future
fiscal years because the contract does not allow for the guaranteed minimum population to be lowered,” the department explained to Ducey, referring to the NaphCare contract. “Therefore, our costs could only increase, not decrease.”
Estimated health care savings related to the Florence closure will actually be $9 million less than expected.
The nature of the prisons’ food contract also rewards a higher, not lower prison population. The department said the pricing for the current contract is “based on a sliding scale, meaning the more meals we need each week, the lower the rate.”
According to the department, the estimated food cost savings was $4.5 million less than it had anticipated.
The department had also hoped to maintain employees from the Florence prison, assuming they would want to transfer to the nearby Eyman prison, also in Florence.
“The additional staff will allow the Eyman complex to become fully staffed, eliminating the Correctional Officer II vacancies and providing inmates with better access to programs and other services, such as enhanced second chance programs,” Ducey’s office claimed at the time.
The department had used that equally optimistic assessment to project overtime savings related to the Florence privatization. But that projection was also way off.
“Unfortunately, many of the staff at the Florence complex chose to resign, retire, or transfer to other locations instead of transferring to Eyman,” the department lamented in its budget request. After losing more than 805 correctional officers in the 2022 fiscal year, the department said overtime costs have actually increased system-wide by more than $1.3 million.
Representative Kelli Butler, a Democrat who represents parts of north Phoenix and who served on the Joint Legislative Budget Committee overseeing DOC budget requests for two years, said she was not surprised to see the troubled state agency commit such a massive budgeting error.
“The Department of Corrections seem to always come back and say they need more money for something, despite a declining population of people who are incarcerated,” she said. “It just makes no sense.”
Butler previously criticized the department for moving prisoners to private facilities, when the department’s own publicly available data shows there are thousands of empty beds in the public prisons. The current total department of corrections prisoner population is 33,874. Of those, 9,709 are incarcerated in private facilities. According to the department, there are more than 3,000 empty permanent beds in the state prisons.
“Why would we guarantee to house the same prisoners in a private facility, if we have the capacity in our own staterun facilities that cost less?” she asked in a recent interview.
Ryan Gustin, Director of Public Affairs for CoreCivic, said the company does not require occupancy guarantees when contracting with public entities.
“The provision of a population guarantee was included by the state and was not part of a negotiating position taken by CoreCivic,” Gustin said.
Neither the Department of Corrections nor Ducey’s office responded to questions about the merits of the deal or its inherent incentives.
An Arizona Republic investigation found that Arizona lawmakers invested more in private prisons after recordhigh campaign contributions from the industry in recent years.
Butler called the guarantees “bad business.”
“It’s shocking that they would agree to guaranteed contracts that they are not even required to do,” she said. “It just seems like a giveaway to the private prison companies at the expense of taxpayers.”
Butler said in addition to the additional costs, privatization takes away the power of legislators to provide effective oversight.
“I specifically remember asking about the number of mental health counselors working in the prisons, and those numbers were available for the state prisons but they were not available for the private prisons,” she said. “It makes it nearly impossible for us to get answers or to make comparisons between private and state-run facilities.”
States that seek occupancy guarantees typically do so to ensure access to capacity as needed, according to Alexandra Wilkes, a spokesperson for Day 1 Alliance, a private prison industry trade group.
“That means ensuring that a facility is appropriately staffed and capable of providing required services and operating safely at all times,” Wilkes said. “In much the same way that a hospital must maintain a certain level of doctors, nurses and other support staff to be able to provide services - regardless of how many patients they have at any given time - a correctional facility must likewise maintain appropriate staffing to ensure safe, secure operations and required services.”
However, prison populations in Arizona, like most of the rest of the nation, declined significantly during the pandemic. The department is anticipating a modest increase in total population in the coming years, according to the budget request.
Attorney John Dacey, who represents people incarcerated who allege their confinement in private, says forprofit prisons in Arizona are unconstitutional.
“We think incarceration is the government’s responsibility alone,” Dacey said. “And that once you turn over the responsibility of incarceration to the private sector, you create a profit incentive. We don’t think profit incentive should have anything to do with those public interests.”
Bianca Tylek, Executive Director of Worth Rises, a non-profit group that advocates against the economic exploitation of people in the criminal justice system, agrees.
She says private prison occupancy guarantees are great for private companies, but bad for society.
“Our system should not be based on driving financial outcomes, and people profiting off of the loss of liberty of others,” Tylek said. “That’s not a solution that drives public safety. That’s a solution that is engineered to increase wealth for a small group of people. It’s the taxpayers and the communities that lose in the end.”
Impact on the town of Florence
Ducey’s initial announcement to close the state prison surprised locals in Florence, who said they were “startled” and “concerned” about the potential loss of income and resources. )
In a statement, Florence Communications and Intergovernmental Relations Manager Jeff Graves said while the closure will have an ongoing impact in terms of state-shared revenues and population counts, recent population gains there have helped mitigate some of the worst-case scenarios they had projected.
“One area we continue to feel the effects of the prison’s closure is our wastewater utility, which has lost over $1 million in recurring, annual revenues,” Graves said.
Graves said previously, the prison had accounted for a quarter of the annual revenues Florence collects from treating sewage. He said another challenge for the town is the loss of “dedicated inmate labor.”
An investigation by The Arizona Republic found the state makes millions of dollars selling prison labor and prisoner-made goods to private customers, as well as municipalities like Florence who pay DOC for prisoners to do maintenance work.
“Inmate crews have helped to supplement our grounds and streets staff for many years,” Graves said, “so maintaining that previous level of service without that labor has been difficult.”
That outcome is contrary to warnings Shinn, ADOC’s director, made before the legislature this summer, in which he defended privatization. In July, while asking for support for a separate private prison contract, Shinn told lawmakers Arizona communities would “collapse” if the state did not continue to house prisoners at private facilities.