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Just to have said it, the preposterous notion of Arizona selling its prisons then leasing them back from the buyer to solve short-term cash flow problems ranks among the most irresponsible government schemes I've ever heard of from the taxpayers' perspective. Do the math yourself - there's a fundamental economic reason people choose to buy their homes instead of rent them. It's a lot cheaper in the long run. And for better or worse, governments are in it for the long run.
For more recent private prison news check out the blog Texas Prison Bidness.
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18 comments:
Actually, it should be no suprise given Fyfe Simington's governance. There are a lot of legislators in the state who boast about their membership in the John Birtch Society. AZ ranks as either 48th or 49th in per-capita spending for education, depending on the which survey you read.
And then they have Sherriff Joe. If you want to witness an embrassment in law enforcement, enjoy this video of his baliffs reading and removing an attorney's work product:
http://blog.simplejustice.us/2009/11/04/the-poisoned-water-of-maricopa-county.aspx?ref=rss
Grits said:
"Do the math yourself - there's a fundamental economic reason people choose to buy their homes instead of rent them. It's a lot cheaper in the long run."
Where this may be true for a home, it's not necessarily true for a business property. Sure, the state may get to depreciate the property over a long period for tax reasons because they own it, but then, that is often not the same amount of recovery they could get by writing off leasing expenses the year they incur them. Also, they may have to pay a VAT tax to the local taxing authority like I did every year on every item of tangible property they own. I'm sure there is a reason many large corporations (like Walmart) lease storefronts as opposed to buying them. I'm sure it's not because they can't afford to buy them. Then, there is the issue of operating expenses and state employees to run it. I'm not an expert in the tax situation of prisons, but perhaps someone here with more in-depth knowledge can respond.
Dirty, that's not right. Any business that plans to be in place many decades like prison units would have BIG economic incentives to buy instead of lease. As for operating expenses and employees' pay, those don't go away and the state still must pay, plus a profit margin on top of it for the private contractor.
It's wrong and irrelevant that "the state may get to depreciate the property over a long period for tax reasons." That has nothing to do with it and in fact you seem confused. The state doesn't pay taxes and real property generally APPRECIATES over time, meaning future market-rate leases would cost more. The state saves money by owning instead of leasing because a) if you own, you ultimately stop paying rent and b) they don't have to pay private profit margins or future appreciation.
The unstated issue here is unions and union work rules. Politicians are singularly unable (or unwilling) to deal with unions. Private business has a slightly better record, but only slightly. The only reason this rankles is the idea that someone, somewhere will make a profit. Gawd forbid!
I was going to talk about the need to pay property taxes, but Grits is right. As a state entity they wouldn't need to pay property tax. However, now having to rent from a private company the property tax will now be included into the rent. It's like adding an un-needed tax.
I'm not sure the state is exempt from the local taxing authorities.
"I'm not sure the state is exempt from the local taxing authorities."
I am.
It's not that simple, Grits. There are different types of taxes, and city and county entities to deal with. I do know for a fact that the state will pay local entities certain assessments for certain things.
Plus, in getting back to the topic, leasing provides you recovery of expenses that may not be recoverable the same year they are incurred.
It really is that simple, Dirty. States don't pay local taxes on real property. If you think you have a source that proves otherwise, provide it.
Sale-leaseback of prisons is a gimmick that mortgages your grandchildren's future earnings to avoid taxing you today. It guarantees higher taxation overall than would otherwise be necessary because the state must still pay all the same base costs plus reimburse for local taxes, private profits, and future land-value appreciation, none of which it must pay if it owns the facility itself.
isn't the issue here bigger than whether or not property will depreciate over time and what this decision says about the fiscal responsibility of the state of arizona? it seems like the issue in the clip was clearly the wholesale privatization of the prison system being a stepping stone to turning more and more government over to private corporations who will operate in the bounds of profit and share holder returns with a complete lack of regard for the law, at least in the sense of operating with the intent to preserve the rule of law.
"Do the math yourself - there's a fundamental economic reason people choose to buy their homes instead of rent them. It's a lot cheaper in the long run. And for better or worse, governments are in it for the long run"
A bad example, considering there are so many tax advantages to home ownership
This study suggests that private prisons save money:
here.
The savings is between 5% and 20%.
But there are different studies. I've seen some studies suggesting that the savings are negligble. I'm not sure why, but it could be because: the studies are flawed or because the private sector is unfairly penalized in some way.(having to do SEC filings, more liability, etc).
At the end of the day, I think society becomes more responsible when people are put into market environments. Even if there were little savings, I would be glad that correctional officers had to be judged by the standards of the marketplace.
Whereas, I do have some questions as to whether or not the state would pay certain taxes to local entities, I do know for a fact that the state does pay taxes to the federal government. As such, leasing a property instead of owning it would allow the state to write off leasing expenses the year they were incurred, instead of having to spread the depreciation out over many years, and then no longer be able to depreciate it after that. And, raw land itself cannot be depreciated for tax purposes, only the improvements upon it can.
I would like to hear from a CPA on this if there is one reading this thread.
"At the end of the day, I think society becomes more responsible when people are put into market environments. Even if there were little savings, I would be glad that correctional officers had to be judged by the standards of the marketplace."
Stupid stupid stupid. Private Prisons are bad for taxpayers and bad for public safety. One of the reasons TDCJ has a difficult time filling its guard positions in the first place is that its guards are underpaid-- the best-paid private-prison guards, according to Testimony from TDCJ Director Brad Livingston-- make about $24,000 a year. That's $2,000 less than the worst-paid TDCJ guards. And that is why, in 2008, TDCJ-contracted facilities had a 90% turnover rate. Private prisons are bad deals for taxpayers, as Grits has pointed out, they create perverse incentives to over-incarcerate, and they put poorly-paid and poorly-trained guards in understaffed units.
"Grits has pointed out, they create perverse incentives to over-incarcerate"
I'm familiar with the argument, I just don't buy it.
Public prisons create thousands of overpaid correctional officers who are all to eager to vote and lobby for more prisons. That's why we've had the term "prison industrial complex" long before private prisons went in vogue.
Show me the evidence that private prisons are more effective at lobbying than correctional employee unions.
If it weren't so serious, I would find it amusing that we are debating the privatization of something that is an inherent government function because of the possibility of saving money, while in another venue we are trying to make something that belongs in the private sector a governmental function, regardless of the cost.
Even if it were cheaper to privatize prisons, I have ethical objections to handing over an inherent government function to a private company. This is the kind of thing we are supposed to pay taxes for. If prisons are too expensive, then we need to look at why, and fix that problem.
First, your contention that guards are overpaid ignores the difficulty TDCJ has had staffing its facilities. TDCJ's Director Brad Livingston proposed a massive pay hike to meet minimum staffing levels in its public prisons in 2008. And in private facilities, as I mentioned in my previous post, the problems are worse. TDCJ contracted facilities experienced a 90% turnover rate in 2008, and I think it's reasonable to speculate that it's because contractors start their guards at wages less than many grocery stores and fast-food restaurants.
I'd concede that if the correctional officers unions were lobbying for more prisons, it would be a problem-- but they aren't: The state of Texas hasn't built a new public prison in more than a decade.
"First, your contention that guards are overpaid ignores the difficulty TDCJ has had staffing its facilities."
It's very likely that they have had difficulty meeting staffing requirements because their staffing requirements are too inflexible. Or because the government does not recruit as effectively as the private sector.
You still haven't shown that a society using private prisons will end up incarcerating more prisoners than one with public prisons. Both have the potential for abuse.
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