Reform Schools Reformed: How Competitive Tendering Saves Your Money

With surging juvenile crime rates and limited budgets, state governments have been hard pressed to handle the increasing demands on the juvenile-justice system. This strain has led to increased privatization of juvenile-corrections services. Once found only on the outer fringes of libertarianism, advocates of privatized corrections are new viewed as being well within the mainstream. For not only are private firms considered to be more efficient in the delivery of services, but they are considered to be more open to innovation. Just consider bureaucratic behavior.

Public Choice Theory
Public choice theory “begins with the bedrock of all economics, the assumption that human beings are rational and seek to maximize things that are important to them,” according to scholars James Fesler and Donald Kettl.1 Bureaucrats are not exempt from this behavior. As rational actors, bureaucrats seek to promote their self-interest. This leads them to avoid risk and promote their careers. So they tend to enlarge programs and budgets without necessarily delivering better services. In the end, inefficient government is created.

During the 1980s, Ronald Reagan appointed the President’s Private Sector Survey on Cost Control, better known as the Grace Commission after its chairman, business leader J. Peter Grace. The commission made three primary criticisms of government operations. First, “inefficient management gets rewarded with higher appropriations and more staff.”2 In many cases, government budgets are based on the previous year’s budget. If an agency does not spend all its appropriations one year, it may suffer a budget cut the following year. This creates a strong incentive to spend all money appropriated – whether or not it is necessary. Second, with government “insulated from competition, it need not respond to changes.”3 With a monopoly in a given service, the public sector can administer programs the same way year after year. Innovation need seldom occur. Third, powerful interest groups, such as unions, “grow up and around government programs and protect them from the need to change and adapt.”4 These powerful groups fight to keep their share of public services, even if it is against the public interest.

Privatization Theory
Under privatization theory, qualified private providers compete to deliver government services. Government contracts out its traditional services – whether it be trash collection, corrections or mass transportation – to the company that provides the service at the most cost-effective price. If the private firm does not perform as expected, the contract is terminated. When was the last time a bureaucracy was abolished for providing inefficient and poor services?

There are several reasons why the private sector can provide services more efficiently. First, it is relatively free of politics, bureaucracy and costly union contracts.5 Second, private firms are not only held accountable by the terms of their contracts, but by their investors, too.6 Last, the free market requires firms to compete by maximizing services while minimizing costs – or face replacement by competitors. The market demands efficiency. It is these factors that have led to the expansion of private firms into the juvenile-justice system. I propose to discuss two examples of private-sector management of juvenile-correctional programs: (a) the Paint Creek Youth Center in Ohio and (b) Maryland’s own Charles H. Hickey, Jr. School. Paint Creek and the Hickey School are operated by New Life Services and Youth Services International (YSI), respectively.

Paint Creek Youth Center
This analysis of the Paint Creek Youth Center (PCYC) is based on a 1988 study conducted by the federal Office of Juvenile Justice and Delinquency Prevention (OJJDP), a subdivision of the U.S. Department of Justice. New Life Services established PCYC in 1984 with funding from OJJDP. PCYC services 34 male youths, aged 15 to 18, who have been convicted of first- or second-degree felonies. The delinquents are not just warehoused to serve their time. At PCYC, there is a highly structured environment, with intensive aftercare, educational instruction and job training. The program attempts to reform these juveniles by placing them in a positive peer community. The positive peer community is based on the premise “that youth need help, particularly from their peers, to learn acceptable behaviors and develop positive, supportive, caring relationships,” according to the OJJDP report. Paint Creek also expects offenders to accept responsibility for their actions. The institution requires students to work for wages to provide restitution to victims and to offset court costs.

Has PCYC been effective in providing better services for Ohio’s taxpayers? The RAND Corporation conducted an evaluation of 31 graduates between March 1986 and October 1987. Rand found that 88 percent of the graduates were either in school full time or working full time. Two of the graduates received their general equivalency diplomas (GEDs) while at PCYC. All but one earned enough money to pay his full restitution and court costs prior to leaving the program. There were no assaults on youth or staff.7 These are certainly promising statistics. Unfortunately, however, no recidivism-rate figures were provided by the RAND study. The story of the Hickey School, on the other hand, allows a more detailed analysis of the potential benefits of privatization.

The Hickey School
The history of the Hickey School has been one of disappointment. In 1990, when the school was still government-operated, then-Governor William Donald Schaefer (D) said that the students were being “warehoused,” learning “how to be better criminals.”8 A 1991 examination of the school by the Public Justice Center in Baltimore found fighting among students to be routine and meaningful vocational training absent.9 Worse, the school’s recidivism rate was 50 percent.10 It is no small wonder, then, that in 1993 the state turned to privatization.

Originally, Maryland awarded the operation of the Hickey School to Colorado-based Rebound, Inc. However, the state soon proved unsatisfied with Rebound’s management of the school and terminated the contract. The main reason was 21 escapes in just ten weeks.11 Maryland then exercised its rights in a market economy by searching for a new firm. During the period of state management of the facility, it had not of course been possible to do this. Thus, in July 1993, Maryland entered into a five-year contract with YSI to operate the state’s oldest and most trouble-plagued reform school.

The Hickey School is a much larger facility than PCYC, but it operates on many of the same principles. The school is organized into four separate programs – detention, impact, enhanced security and sex-offense treatment – with a total capacity of 320 students (though for the purposes of this article, Hickey’s two dozen sex offenders are not counted toward per-capita cost calculations; the sex-offender program is a new and expensive one that was not in place during the period of state control). Each youth is placed into one of the four programs by the state Department of Juvenile Justice (DJJ).

YSI has created a more constructive atmosphere for Hickey students through a positive peer culture (PPC), as at Paint Creek. The PPC works by giving students the skills necessary to identify and correct each other’s behavior. The school tries to get students to control seven areas where their critical thinking has gone awry: power thrust, inability to empathize, victim stance, impulsiveness, failure to accept obligations, anger and disrespect. Once a student is identified as demonstrating problems, another student confronts him in a positive manner – in an attempt to help. This provides students with a method of settling conflicts without resort to violence, the use of which was often previously their first reaction.

But YSI offers its students more than just a positive peer culture. The Hickey School is fully accredited as an educational facility that offers courses found in any public high school. In addition, the Applied Learning Center offers students vocational education and on-the-job training in construction, printing, computers, landscaping and horticulture, electrical repair and automotive repair. Several students are currently taking college courses through a satellite program. Athletics is emphasized – football, basketball, and track and field events. The teams compete with other public schools. These activities enhance self-esteem, the work ethic and cooperation. For drug and alcohol dependency, a state-certified substance-abuse program is offered, along with Alcoholics Anonymous and Narcotics Anonymous sessions. YSI has designed the school to have a life-altering impact on its students. Some students have even traveled to South America to participate on a mission to help children in need of reconstructive surgery.

All this sounds good, but is there any evidence of long-term success? Examine the numbers. Between 1986 and 1991 the budget of the Hickey School grew by an average of 11 percent each year under state control (in nominal dollars). For fiscal year (FY) 1986, the school operated on a budget of $11,162,462. In FY 1987, the budget jumped to $13,986,407 with an annual per capita cost of $35,327. For FY 1988, the budget and annual per capita cost were $14,699,681 and $44,397, respectively. The school in FY 1989 operated on $14,998,363. For FY 1990, the school operated on $15,985,162, at an annual per capita cost of $61,442. In FY 1991, the budget was $18,5981,826 with an annual per capita cost of $51,721. (See figure 1, where dollar sums have been adjusted for inflation.) For the next year, the despairing state turned management over to the private sector.

In FY 1992, Rebound assumed operations with a dramatically lower budget of $14,051,431 and an annual per capita cost of $39,140. Because of the above-mentioned problems that Rebound had, the state once more assumed control of Hickey for FY 1993. The FY 1993 budget was $14,222,119 with an annual per capita cost of $47,914.

When YSI won the contract to run the school, the firm had its work cut out for it. The whole program needed to be reformulated. For fiscal years 1994, 1995 and 1996 the budgets were $14,291,348, $14,238,808 and $14,282,415, respectively. Annual per student costs were $48,119, $47,942, and $48,088.12 How has YSI managed to turn the school around without dramatically increasing spending? One reason is YSI’s ability to avoid expensive and unproductive union contracts. Another reason is that YSI has reduced bureaucratic positions. Finally, when YSI took over the facility, it reduced bloated government salaries to fair market value. With these changes, more money could be devoted to programs that actually benefited the students. Nor has the staff-to-student ratio been reduced to cut costs. Indeed, YSI has increased the ratio to 1-to-6 from the state’s 1-to-7 ratio.13

Hickey may become a model reform school for the nation. YSI commissioned a consulting company, Advanced Technologies Support Group, Inc., to conduct a survey of students discharged from all its juvenile-justice programs across the county in 1995. The company compiled the results and found that YSI’s overall performance to be impressive. First, YSI’s overall recidivism rate was a low 15 percent.14 Second, of the graduates who were still attending school, 75 percent were passing.15 Third, YSI clients – students, parents, etc. – overwhelmingly approved of the company’s programs. The satisfaction rate was 86 percent.16

Are there any direct signs of improvement at the school? Yes. YSI has been credited with dramatically reducing escapes.17 This is, of course, important for protecting the community.

The director of detention, Roland Johnson, who has spent over 20 years in the juvenile-justice field, points to three big areas of improvement since privatization. First, relations with the court system have been improved. In the past, probation officers had little contact with juveniles under their supervision at the school. Why? Because if a probation officer knew one of his juvenile offenders was locked up, then that was one less person to worry about in a large case load. YSI makes sure that probation officers are in contact with their students.

Second, under private management it is now easier to terminate staff members who do not do their jobs. Employees are held accountable for their actions. By contrast, in government, once a civil servant has achieved tenure, termination can be lengthy and difficult.

Last, the units where the students reside are much cleaner than before YSI took over. Each day students are supervised by staff in doing cleaning details.

What can we learn from the privatization of juvenile justice programs? Most notably, it is good public policy. Financially strapped governments can use privatization to stretch more out of their citizen’s tax dollars. The function of government should not be to provide an endless array of in-house services. Rather, it should be the duty of elected officials to purchase or otherwise furnish essential services at the lowest cost-effective rate.

By breaking the monopoly government has on juvenile justice, private firms can compete with each other to provide innovative and better services to save these juveniles from a life of crime. Even when private firms operating public services do not function perfectly, they still often perform more efficiently than the public sector. Only the public sector has somehow managed, for the most part through political pull, to insulate itself from the citizenry’s right to expect a return on tax monies. The private sector enjoys no such immunity. For this reason alone, we should let it loose on the public sphere.

Mr. Muhlhausen is a graduate student at the University of Maryland, Baltimore County (UMBC) and a youth counselor at the Charles H. Hickey, Jr. School.

End Notes

[Top] 1. James W. Fesler and Donald F. Kettl, The Politics of the Administrative Process (Chatham, N.J.: Chatham House, 1991), p. 196.

[Top] 2.Fesler and Kettl, The Politics of the Administrative Process, p. 197.

[Top] 3. Fesler and Kettl, The Politics of the Administrative Process, p. 197.

[Top] 4. Fesler and Kettl, The Politics of the Administrative Process, p. 197.

[Top] 5. John DiIulio, “What’s Wrong with Private Prisons?” The Public Interest, No. 92, Summer 1988, p. 68.

[Top] 6. DiIulio, “What’s Wrong with Private Prisons?” p. 69.

[Top] 7.All information taken from U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention, A Private-Sector Corrections Program for Juveniles: Paint Creek Youth Center (Washington, D.C.: Government Printing Office, 1988).

[Top] 8. Sandy Banisky, “Colorado Company Picked to Run Hickey School,” (Baltimore) Sun, Nov. 25, 1991, p. 6A.

[Top] 9.Kate Shatzkin and Matt Ebnet, “New Operator May Be on the Right Track, but It’s not Moving Fast Enough for the State,” (Baltimore) Sun, August 21, 1994, p. B1.

[Top] 10. Banisky, “Colorado Company Picked to Run Hickey School.”

[Top] 11. Editorial, “No 70-Day Miracle,” (Baltimore) Sun, Nov. 25, 1991, p. 6A.

[Top] 12. All figures taken from Maryland General Assembly, Analysis of the Maryland Executive Budget, various fiscal years (Annapolis, Md.: Maryland General Assembly). Per capita expenditure figures for FY 1986 and 1989 not provided.

[Top] 13. Dennis Yancheski, director of administrative services, Charles H. Hickey, Jr. School, personal conversation with the author.

[Top] 14. Advanced Technologies Support Group, Inc., “Outcomes Study Results,” unpublished study prepared for Youth Services International (YSI), Dec. 1995.

[Top] 15. Advanced Technologies Support Group, Inc., “Outcomes Study Results.”

[Top] 16.Advanced Technologies Support Group, Inc., “Outcomes Study Results.”

[Top] 17.Shatzkin and Ebnet, “New Operator May Be on the Right Track.”

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