September 23, 2009
Host: Ted Simons
- Arizona is in a fiscal mess. To clean it up, the state will have to cut costs or raise revenue. Privatizing prisons might be a way to do both. Earlier this month, Governor Brewer signed House Bill 2010 which allows the state to start looking for a private company to operate one or more state prisons. Mike Duran, President of the Arizona Correctional Peace Officers' Association, and Ken Gilroy, Editor of "Privitization Watch" for the Reason Foundation, a non-profit think tank that advances free market principles and limited government, debate the idea of private prisons.
- Mike Duran - President, Arizona Correctional Peace Officers' Association
- Ken Gilroy - Editor of "Privitization Watch," for the Reason Foundation
Ted Simons: As we just heard, Arizona is in a fiscal mess. To clean it up, the state will have to cut costs or raise revenue. Privatizing prisons might be a way do both. Earlier this month, Governor Brewer signed House Bill 2010 which allows the state to start looking for a private company to operate one or more state prisons. Here to talk about that is Mike Duran, president of the Arizona Correctional Peace Officers' Association. And Len Gilroy, editor of "Privatization Watch" for the Reason Foundation, a nonprofit think tank that advances free market principles and limited government. Thank you both for joining us on "Horizon."
Len Gilroy: Thank you.
Ted Simons: Mike, let's start with you. Do private prisons have a place in Arizona?
Mike Duran: Well, private prisons already exist in Arizona as you know and they've been existing in Arizona. I don't think the problem is with having them in Arizona. I think the problem is that with the house bill 2010 and taking over the existing facilities we have now. That's where the problem lies.
Ted Simons: Why taking over existing facilities? Why is that a problem if it’s ok to have them here in the first place?
Mike Duran: It's never been done. I think we're a prime example of -- it reminds me of the ALT fuels fiasco from years past where this bill was introduced and submitted without them thinking long term. I have to tell you that there's no protections in the bill itself. There’s no transparency to it. It looks like it was made for the private prisons themselves, not the public or the officers that run the prisons.
Ted Simons: And the idea of private prisons, ok in some respects but not ok as an overriding way of doing business. Your response.
Len Gilroy: I would say that private prisons have a long track record of providing quality services at a lower cost than a public option. That’s been validated-- Vanderbilt had a study that said the same thing. It states a blend of private and public prisons better manage their correction budgets and have lower cost inflation in the budgets over time and we're seeing a tremendous amount of interest in the usage of private prisons out there among the states and the federal government as well-is on the rise. That's a slow rise and right now, the private corrections account for about 8% of the total prison population in the United States so we're not at risk of widespread prison privatization but it does have a valuable role in keeping corrections budgets in check and at the same time, maintaining quality services. Under strict oversight from a federal -- excuse me, from a government agency.
Ted Siomons: The idea that running these prisons will save the state money -- valid?
Mike Duran: Not so valid. I'm more in the aspect of the security aspect of private prisons. Probably profitable, I'm sure those industries are profitable. It shows, they're on the stock market, by chance. If you want to call that successful, absolutely. But you know what? We have more at stake here. We have the safety of the public. That I don't think was taken into effect and that's what I mean by ALT fuels. It wasn't thought through. I want to quote another study. From James Austin, Professor at George Washington university. Assaults on staff are 49% higher on private prisons. In a profit tier, they make money. If you want to measure it that way, they’re successful.
Ted Simons: What about that the concern regarding security at private prisons as opposed to state-run facilities?
Len Gilroy: Well, the private prison industry would not be able to sustain itself if it was not providing adequate levels of security and living up to its end of the deal under contractual obligations with the public sector client. Harvard Law Review did a study that found on nearly every performance indicator that private prisons outperformed public prisons. There's a 90% renewal rate in the contract out there in the industry. So if they were doing a bad job, they wouldn't see their contracts renewed at such a high level.
Ted Simons: What about the concern-there's reports that private guards get less pay and less training than state officers. These things. That should be a concern. Especially the less training part.
Len Gilroy: Well, there's two pieces to that. On the pay side, there's a lot of different areas where the pay scale is definitely higher than in the private sector. That's not, you know, unique to the corrections field. On the training side, what we find is that, for instance, there are many private prison companies that require -- or that are required to get their prisons accredited by national accreditation organizations. That's part of the contract. Have to live up to the contracts to the same level of training and some companies will go beyond that level.
Ted Simons: Are you comfortable with that?
Mike Duran: The quotation he's talking about, I believe it's the American Correctional Association. So, it's a private association patting the back of a private company. So I don't know any public sector that would --
Len Gilroy: I would challenge that. In fact, the American Correctional Association is actually -- they accredit both public and private prisons. They're a national accrediting organization for the corrections industry and you find out there are about 50% of -- according to our research of private prisons -- meet the accreditation standards and while 10% of the public prisons have gone for the accreditation.
Ted Simons: If the training were the same, would you still have a problem with safety?
Mike Duran: It's not, and I don't think it would be, so really that's not the question. I'll tell you, it is different. I've got letters from private prison guards and that's a difference. We're professionally trained, state certified, versus a private guard is what it is. And which one do you want protecting the public? Which one do you want protecting that convicted felon? That's up to the --
Len Gilroy: Can I address that point? One of the things -- again, you have to realize in prison privatization or any type of privatization, it all depends on the contract. The success or failure thereof of an initiative thereof will depend on what's in the contract and how -- what standard you hold the private sector to and how you monitor and enforce that. And so these are policy issues and it's something -- so I think to address Mike's concern, those are issues that you can embed within the contracting process itself.
Ted Simons: It's a policy issue but if something goes wrong, it's one thing to say the private sector did something wrong, ok we're going to fix it. If something goes wrong with maximum security prisons, that's a big wrong. That’s something that we can't afford to have anything go wrong with. Is there not a concern that says free market, if you're not doing a good job, you don't use the service. We can't afford to have someone not doing a good job.
Len Gilroy: Well, I think you have to -- first of all, the maximum security realm, there are a number of maximum security private prisons around the country and the world, and again, I would say that -- one of the things you get with privatization is accountability. If, for instance, you were to privatize a maximum security facility and the private sector did not live up to their deal and you had safety issues and whatnot, well the accountability comes in the contract and your ability to yank the contract if they're not performing. The private sector has every incentive to perform. If they don't, they'll lose business and bad things happen in good prisons. Bad things happen in good public prisons – and bad things happen in good public and private prisons. So these are issues that are gonna come up regardless.
Ted Simons: To that point, if they're not doing a good job and historically private prisons were not doing a good job, wouldn't it suggest most folks would say we don't want it anywhere near us?
Mike Duran: Absolutely and as a matter of fact it happened recently in Tennessee. Hawaii, one the private prisons was contracting Hawaiian prisoners and had safety concerns so pulled the contract. That was a couple of weeks ago, actually. And it happens around the state all the time. Arizona did, Arizona pulled -- actually it was a mutual agreement. I believe it was Indiana, so they're not renewing the contracts all the time and the private prison such out there that it's a cheap scapegoat. That's what I call it. If this doesn't work, get another private prison. Private prisons don't work.
Ted Simons: What about the idea of investigations and how the state prison investigators working on the inside not only stop crime on the inside but help with local law enforcement on the outside? How does a private -- how do they get involved with state law enforcement?
Len Gilroy: Well in many ways, well first of all you have oversight of the contract which typically involves state correctional employees that monitor, that monitor the contract, essentially, they're people paid by the state to go to a private prison and look for problems and so many of them happen on a daily basis. You have someone there every day. Sometimes on a weekly basis but you have level. Also in the contracts, for instance, if there are disturbances or other types of issues that come up, the contracts require the private contractor to interface with public sector law enforcement. So you have to understand this is not -- it's not public versus private. This is a situation where the public sector and the private sector are coming together in a partnership because it's in both of their interests to make it work.
Ted Simons: Does that ring true to you?
Mike Duran: Well if it’s a partnership and we’re to work together, what I'd like to see in the bill, 2010, is total transparency. For them to open their books, be able to do that, put that in the law. Put that in the bill. Because I think if do you that, I don't think the private prisons will want to set foot in Arizona. I believe that.
Ted Simons: The critics here will--the peace officers' association saying you're worried about job loss and you’re worried aboutpays being cut and these things. Benefits lost and this sort of business. How do you respond?
Mike Duran: Let's talk about the retirement program. Depending on how the private for-profit prison sector wants to come in, if they want to slide in, it will cripple it. If they want to come in as drones and take over the whole prison system, it will bankrupt the correctional officer's retirement program. The county sheriff's office are involved in that. It affects quite a bit.
Ted Simons: Will retirement pay out these things? That's a lot of money going out in one fell swoop. Does that still make this cost effective?
Len Gilroy: I think, absolutely, the data shows -- a survey of 30 state correctional agencies just this year found on average, states were saving 28% in costs on the corrections costs. So now, I understand, and I respect Mike's concern about public employee pensions and, again, that's one of those policy issues in which my suggestion there would be let's not -- if this moves forward -- and we should say "if" because there's nothing guaranteed here. But if it does and say there's $100 million upfront payment which is in the bill, instead of blowing the money on budget reduction, I would suggest maybe a better way to use the money would be to deal -- to deal with these issues in terms of pensions and things like that.
Ted Simons: The concept of the bill, moving forward, exploring, seeing if anyone is willing and how far they're willing to go, should we at least not look into this?
Mike Duran: I think the legislation believes there's an obligation it look into it. Once again, I think they need to let the public know exactly what's going on and what it involves. Like I said, there's a lot of concern out there, not only with the officers, with public safety in general. Taking over -- we were talking earlier, I know there was a proposition sent in by our director that we have land available, and the state can profit from the private sector by giving or selling the land we have on our prisons grounds and building new prisons and we can assist, like you said, how do we involve ourselves with local law enforcement? We involve ourselves all the time. We just had a big sting, our organization- security threat group- worked with the FBI to catch gangs recently and we also, our canine unit, are always assisting with drugs and chasing people. It's great.
Ted Simons: Is that the kind of thing that private prisons with private guards can work as effectively -- I went through this earlier. Can you work as effectively as those agencies?
Len Gilroy: It's not a question of can. It's do they and it's required under the contract.
Ted Simons: Being required under a contract is a different thing than getting the job done. Can they get the job done?
Len Gilroy: Absolutely. You have over 150 private prisons just in the United States right now. Arizona sees fit to house its own inmates in other states in private prisons. If it's ok to send an Arizona inmate to another state, why can't we send an Arizona inmate to a private prison in our own state?
Ted Simons: We'll stop it there. Gentlemen, appreciate having you on.
Mike Duran: Appreciate it.
- Just weeks after the Governor signed the latest round of budget bills, state agencies are being told to prepare for additional cuts. Eileen Klein, Director of the Governor's Office of Strategic Planning and Budgeting, talks about the budget probklems.
- Eileen Klein - Director, Governor's Office of Strategic Planning and Budgeting
Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. Just weeks after the governor signed the latest round of budget bills, state agencies are being told to prepare for additional cuts. Here with more on the state's financial problems is Eileen Klein, director of the Governor's Office of Strategic Planning and Budgeting. Good to have you here. Thanks for joining us.
Eileen Klein: Good evening.
Ted Simons: Let's talk about the cash flow problems as the state stands right now. How bad is it?
Eileen Klein: It is bad. This deficit is different than those we have experienced in the past because for the first time we're having significant cash flow problems. So already to date, the state treasurer has been creating a means by which we can borrow from monies currently invested with the state but it's very clear by winter or spring, we'll likely need to borrow externally and he's working to set up a process by which we can go to the private sector, to banks to create a backstop of liquidity and to create, in essence, a line of credit for the state so we can be sure to pay our bills timely.
Ted Simons: And there's concern from the treasurer that if we don't have a budget, that the cost of that money is going to be higher?
Eileen Klein: It’s very true. Our potential lenders and creditors have said it's imperative we have a balanced budget. They want to be sure that we're committed to solving the deficit. That we won't be relying on them permanently to create the resources the state needs.
Ted Simons: You have mentioned it's a different cash flow problem, and a different situation from years past. Talk more about that.
Eileen Klein: You bet. It is different that, in the past, the structural deficit was largely a discussion more in theory, on paper. Obviously, it was real but we didn't have these types of pressures with cash and things that made it imperative for us to address it sufficiently. And now we face deficits that are larger and for a more continued period of time, it's clear that the situation is going to continue.
Ted Simons: In the past, words were used words were used somewhat pejoratively-- accounting gimmicks and maneuvers and these things were used. Are they not being used now? Have they been used and can't be used again? What's the status of those things?
Eileen Klein: Many of those- First I should say, it will take multiple solutions to solve this problem. Trying to balance the budget is like trying to solve a rubix cube puzzle. There are many options. Some things include deferring payments from one fiscal year to another. Asking contractors to wait for a payment. Those things are often considered to be accounting gimmicks but the state has used in the past and relied on to balance the budget. They've been used in the past fiscal year and we're not forwarding payments to schools by about $600 million. So we owe right now $600 million in payments to the K-12 system and in turn, they're issuing warrants because the state has issued payments and those are likely to continue absent a real solution like a revenue source to support the current expenditure level.
Ted Simons: And I want to talk about permanent source revenue options in a second, but mid year cuts. The governor telling agencies she's batten down the hatches.
Eileen Klein: Correct, so on Friday the Governor issued a notice asking that they prepare for reductions on the order of 15%. And that is significant and the number is due to two things. First, we have an unresolved budget gap from the current fiscal year. Obviously we have ongoing budget negotiations with the legislature. We have about a $400 million gap for the current fiscal year. But we also have a lingering deficit from fiscal year 2009 that's yet to be addressed. So as we're going through the accounting reconciliation process, we've discovered at least $500 million possibly $800 million still needs to be recovered from fiscal year '09. So when you put those two numbers together obviously we’re looking at another billion dollars that we have to address this fiscal year.
Ted Simons: Are those cuts that the governor is going to say, and so it shall be, or the kind of things she wants the legislature to work on?
Eileen Klein: I think it will be a continuing discussion. Governor Brewer has called for additional reductions all along in her 5-point plan. She’s noted that we've got to make expenditure reductions and provide for temporary revenue resources until the economy sufficiently recovers and provides the state sufficient resources. And in the meantime what we need to evaluate is: what can we really do in terms of cuts? Because we're quickly reaching the point with certain programs that either butting up against constitutional requirements, court-mandates, voter-protected initiatives and it will make it difficult to make reductions and that means the cuts will be magnified in certain areas of the state budget.
Ted Simons: The idea of a temporary sales tax, the governor strong on this?
Eileen Klein: Yes.
Ted Simons: Much to the dismay of many lawmakers. Considering lower tax revenue -- the sales taxes coming in right now are just abysmal. Will a one cent sales tax, temporary as it may be, is that going to answer the question?
Eileen Klein: The temporary sales tax was never intended to be the only solution to this problem. It was intended to be part of a complement of solutions and to be clear, Governor Brewer is steadfast and believes that sales tax is necessary, that the additional revenues are necessary to help us bridge through this problem. But we do -- we do believe that the sales tax will provide enough resources to help us get through. So we had originally projected a billion dollars and we've not changed those projections-we're concerned about how sales tax are performing but we believe there will be sufficient resources if we can get this proposal to the voters.
Ted Simons: What about federal stimulus money?
Eileen Klein: The state received about $6 million in federal stimulus monies overall. Unfortunately, not all of those were available to solve the state's general fund problem. The main areas benefit to the state's Medicaid programs. They've been deposited in the state's general fund and helped to offset the additional enrollment. As you know we've seen more than 100,000 people come on to our rolls and those will continue to grow as employers shed jobs and certainly have to shed benefits to attend to their own troubles. And we've seem the dollars come in to support education. They way those are beneficial is where we're able to substitute federal stimulus dollars for state aid payments. That’s what we’ve been able to provide this fall. And that's what has provided immediate fiscal relief to the state treasurer in terms of cash. Those dollars have been helpful in that regard.
Ted Simons: And the additional dollars will be helpful. One-time solutions will be helpful for now. What are we looking at down the road?
Eileen Klein: That is the problem. The more we rely on one -- one-time fixes, the harder the problem is to solve in subsequent fiscal years. If you look at fiscal year '11, next year you'll have far fewer federal dollars to rely on maybe $400 million instead of $2 billion we're counting on right now. This year, we had authorized $735 million in sale and leaseback of state buildings that will not be available next year. So not only do we need to find that $735 million to replace but also have to make the first debt service payment. The more we defer payments or use temporary means to solve the problem, the more we amplify the problem in the next fiscal year.
Ted Simons: And, correct me if I’m wrong, but state recovery will have to lag the general economic recovery because those are the monies that come back to the state.
Eileen Klein: It's very true. And, in fact, you'll see even the Rockefeller institution reported it takes at least two years for states to recover. So, we're hoping we'll see signs of recovery this fall. Most economists think our revenues will recover but not enough to make up for the increased caseloads we’re facing. It could take as long as five years for us to climb back out.
Ted Simosn: You've taken the reins relatively late in the game here. Early August. Were you surprised when you went over the numbers?
Eileen Klein: I think the most surprising thing is the need to deal immediately with the cash problem. Dealing again with the budget portions, those were all well anticipated and you could see many of these problems building over the years. But solving this cash situation, making sure the banks will be there as our backstop. I think that's something that nobody has yet really sufficiently prepared for. We're now operationalizing for the first time these provisions in state statute and while it's important we take care of that, it's also a clear indicator of how serious this situation is.
Ted Simons: Do you think that message is getting out that this is beyond what ideology and beyond what people may have experienced or thought about in the past?
Eileen Klein: This is very serious and after this next round of cuts in particular, it will be abundantly clear to people that we need to do something very drastic to make sure that the state can support and provide for the people who need it most.
Ted Simons: Real quickly, before we let you go, are there parts of the budgets, the cuts that might be necessary, already are necessary, that concern you the most?
Eileen Klein: I think the part that concerns me the most is the notion that we could just cut across the board 15%. That there's some sort of excess that people commonly want to say there's a lot of fraud, waste and abuse. The reality is asking for 15% reductions from these agencies will require them to analyze what services will you no longer be able to provide and that's the hardest question and one we need to get some input from the public on. What do they want the state to do from this point forward?
Ted Simons: All right. Thank you for joining us.
Eileen Klein: You're welcome.