Federal, state and local governments, struggling to balance their budgets, are examining options for increasing revenues and reducing costs. One option is to transition some of the services that governments have traditionally "owned" to the private sector, for example, prisons. Since some legislators question whether private prisons are worth the cost, governments do well to consider the advantages and disadvantages of such a decision.
The ultimate amount a government pays to a private company to run a prison can be less than if the government were to run the prison itself. Factors such as lower labor costs affect that. Public service employees usually make more in overall wages -- salary plus benefits -- than private employees do. These wages add up to more than half the operating expenses of a prison. Private firms still pay similar salaries as governments do, but payments for overtime, health care and workers' compensation claims are generally lower.
Read More: Arguments For and Against Prison Privatization
Private firms claim that because the contracts they have with governments can be canceled, they have a greater incentive to provide better service than public prisons. This means that private prisons are generally safer; living conditions are better; and, most important, the rehabilitation of the prisoners back into society is more effective.
The danger exists that a government could become too dependent on a private firm to run a prison. This could eventually lead to much higher costs of operation, because the private firm could initially "lowball" its bid, then after the government becomes dependent on it, dramatically increase the cost.
Government agencies are supposed to be completely transparent about what is going on. Transparency is especially important in a prison because the prison staff is tasked with the ethical treatment of the prisoners. In a private firm, however, transparency is missing, so firms could treat prisoners poorly primarily to make an extra buck.