Alabama: State looks to private sector to help solve financial woes

By Mike Sherman
Montgomery Advertiser

Montgomery, Alabama - 3/12/03 - With Alabama facing court orders to reduce prison overcrowding and a $500 million funding crunch, Gov. Bob Riley is turning to the private sector for relief; and a Birmingham think tank suggests that financially struggling schools do the same.

As part of the plan to decrease the population at Tutwiler Prison for Women, the Department of Corrections has proposed transferring prisoners out-of-state.

Privatization -- or contracting state government services to private businesses is not new -- as state and local officials nationwide struggle to find ways to make government more efficient and cost effective in tough financial times.

The value of government contracts with private organizations is up 65 percent since 1996 and totaled an estimated $400 billion nationally in 2001, according to a National Legislative Program Evaluation Society fall 2002 report.

Early this year, a study by the Alabama Policy Institute, a conservative, non-profit Birmingham think tank, reported that outsourcing major school services such as transportation, lunchroom operation and maintenance of buildings and grounds could save Alabama school boards up to $87 million annually.

The governor and prison commissioner Donal Campbell proposed in February to move approximately 300 state inmates to private out-of-state facilities as part of a plan to ease overcrowding at Tutwiler. The prison's population was 982 in late February. The state's goal is 750.

Last month, despite opposition from lawyers representing plaintiffs in the case, U.S. District Judge Myron Thompson, who has ordered a reduction in the population at the prison, did not overrule the plan.

Campbell, who formerly headed the Tennessee prison system, said he and the governor only are considering the private sector for new prison construction. He said three private prisons work well as part of the 14-prison Tennessee system.

Calls to the Tennessee prison system were not returned.

"Privatization is an option we want to keep for down the road," Campbell said.

A couple of Alabama taxpayers like the idea of moving public jobs to the private sector.

"It is an excellent idea," said Gene Nichols, 42, a sheet metal and air conditioning worker from Mobile, after eating lunch at a Montgomery mall.

"Some people think they have a lock on government jobs and they take them for granted. It's possible somebody else could do a better job with new blood and new ideas," Nichols said.

Co-worker Johnny Clark, 42, also from Mobile, said, "You've got a lot of small businesses that could do the job and get established."

But representatives of public employees say the state should reject a turn to the private sector. Lawmakers who head budget committees and others who represent the Montgomery area say they detect little support among legislators for privatization of services.

E.J. "Mac" McArthur, executive director of the Alabama State Employees Association, doesn't want private industry involved in government functions.

"If you build a prison, you'd better have a lot of input from communities to make sure it is not near a church or school. You won't have that input with private companies," he said.

McArthur argues that governmental services should not be driven by the profit motive.

"The companies will not come here for altruistic reasons. They will try to make a profit. The state of Alabama is already the lowest in cost per inmate. Financially, it will not make sense," McArthur said. Alabama's cost per inmate per day is about $26-$27.

Campbell said the prison system will seek bids on moving the Tutwiler inmates to private facilities, but saving time to satisfy the court and reduce the Tutwiler population may take priority over saving money.

Rep. John Knight, D-Montgomery, chairman of the House Government Finance and Appropriations Committee, said he doesn't sense tremendous interest among legislators in moving in the direction of privatization of prisons.

"I think the coin flips both ways. Some can point to cost-savings, but there are horror stories in other states on prison privatization," Knight said. "Alabama prisoners should be Alabama's responsibility, and we should live up to that responsibility. Many poor families will lose the opportunity to see and visit family members if they are imprisoned out of state."

Can privatizing save money?

Kilby Correctional Facility officer Marlon Cole stands guard in an area where one officer is assigned to look after 228 inmates.

The Alabama Policy Institute said public school systems could realize significant savings by allowing private businesses to operate school buses, staff lunchrooms and perform maintenance duties.

John Hill, API director of research, said its study released in January estimates $21.6 million could be saved by contracting out transportation services, $60 million by outsourcing lunchrooms and $5 million more from maintenance for a total savings of $87 million.

"The biggest obstacles are local resistance, with people afraid they will lose their jobs in cafeterias and as school bus drivers, and concern that benefits will be reduced. But often that is not the case. Research in the early '90s showed displacement of 3 percent to 10 percent, and that was at the management level," Hill said.

"It has not taken root much here," said Paul Hubbert, who heads the Alabama Education Association."

Rep. Richard J. Lindsey, D-Centre, who chairs the House Education budget committee, also is skeptical. "I've heard very little from people who feel there are major cost savings there. I would be curious to see where savings come from. I guess it would be lack of employee benefits," he said.

The Brewton school system in south Alabama, has for about 20 years allowed a rotating schedule of private vendors to serve lunches of pizza or hamburgers or other fast food at T.R. Miller High School.

"It really started when students were not eating," said Lynn Smith, superintendent of Brewton's schools. Smith was unable to say how much savings were realized by not having the four or five lunchroom workers on the payroll. He is also uncertain whether the system retained the workers in other jobs when it began to rely on private vendors two decades ago.

The high school benefits from flexibility under the private vendor system, Smith said.

"The vendors pay a percentage of sales -- about 10 percent-15 percent -- and the school can use any profit where they want. I'm not sure if there are real savings," he said.

Sally Howell, a representative of the Alabama Association of School Boards, says the state's 128 local boards should be able to outsource work when possible.

"In Alabama, a bus driver is considered a full-time employee and entitled to benefits. The private sector can be more cost-effective and not offer as lucrative a benefit," Howell said. "In the private sector instead of running buses two times a day they can use buses between runs for other things."

Montgomery School Superintendent Clinton Carter doesn't think outsourcing would save significant amounts of money, said Angela Mann, spokeswoman for the system.

"Outsourcing groups of employees is not something he has considered. We do outsource things like getting printed letterheads and envelopes through the prison system, and there are some contracts for specific jobs like concrete repairs. We used to outsource repairs on refrigerators and stoves, but now we have a team of four employees in-house who can fix them and Mr. Carter says it saves money," Mann said.

Larry Butler, Autauga County school superintendent, said the system uses its own staff for school work.

"These are excellent people as employees of the system and you want to use citizens and keep them on board as long as you can," he said.

He said Autauga contracts with a private firm to haul garbage from schools, but does not know how much is saved.

Bruce Fulmer, superintendent of the Elmore County school system, said his system contracts out grass cutting.

"If you hired a crew and paid insurance and retirement, you would go broke," Fulmer said, but he had no estimate of savings from outsourcing.

"I think we have it about as good as we can get it. Somebody would have to show me the savings from converting lunchrooms and transportation," Fulmer said.

A full-time custodial worker at Troy State University Montgomery's downtown campus said a private clean-up service had been tried there, but the school reverted to public employees.

"They worked from 5 p.m. to 11 p.m., but the building was not getting cleaned," said TSUM custodial worker Roberta Hopper of Montgomery.

Kilby Correctional Facility officer George Pugh prepares equipment at the beginning of his shift. Kilby is 14 officers short of a full staff

Guin Nance, chancellor at Auburn University Montgomery, said that university outsourced its food service from September 1999 to August 2002, then resumed control.

"We discontinued it when we found we were much more sensitive to having the cafe open in the evenings. We try to balance student needs with the financial bottom line. We don't want to lose money, but if we break even I will weigh in toward the students," Nance said.

McArthur says state employees worked hard to pass a 1999 law that provides for direct and effective control over corrections institutions in the state in an attempt to head off privatization. The law also forbids control of corrections institutions by a "nongovernmental entity" without approval of both the Alabama House and Senate.

McArthur thinks that law would bar private prison construction or operation in Alabama.

It might, but that law did not stop the transfer to out-of-state facilities after Campbell got an attorney general's opinion that said it did not apply to such a move.

Other states

James Barber, deputy director of the Mississippi Legislative Peer Committee, said privatization may have peaked and plateaued, based on what colleagues in other states have said.

"Some politicians think there is always economy in the private sector and want to contract out services. Sometimes it works and sometimes not," said Barber, who was moderator of a panel on privatization in September 2002.

Mississippi allows private firms to operate new prisons built with state bond issues, but recently the governor closed one saying it did not have the inmate population to fund it and that it would be cheaper to operate a state facility, Barber said.

Governments that turn functions over to private business should carefully ensure accountability, he said.

"When we did it, we wrote into the contract that our agency has the right to go in and audit and the state auditor has the right to audit and the company can't keep us out," Barber said.

The future of privatized services

Tri-county area lawmakers say that privatization of public services is not the route to take.

"There are places for privatization. In my tire business I am there to make a profit. Some places that will work and in certain others it won't," said Rep. Mac Gipson, R-Prattville. "The experience around the state with privatization of bus services and food services has not been real successful. Companies pay less and don't get loyalty to the system. I don't think privatization is 'one size fits all,'" Gipson said.

A veteran Montgomery County lawmaker is also skeptical.

"There is no such animal as tremendous savings from it. You have got to have something substantive to increase revenue or abandon services. We have 67 counties and 128 school systems. If we start by closing 50 systems, that would be savings," said Rep. Thad McClammy, D-Montgomery.


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