Plugging the Deficit: How Low Can States Go?

By Justin Rohrlich American states are facing a combined $125 billion budget deficit in the coming fiscal year, which has been blamed on, variously, labor costs, Medicaid spending, loss of payroll taxes due to high unemployment, and an end to federal subsidies. Budget-watchers have their eyes on Ohio, which has its collective back up against the wall with a shortfall estimated at $8 billion. Tomorrow, Governor John Kasich will release a budget that sources say will take an extremely aggressive approach toward closing the gap without raising taxes.

(To see Jeff Harding's piece on the economic impact of the Earthquake and Japan's struggle to recover, click here.)

The Cleveland Plain Dealer quotes an unnamed administration insider “familiar with Kasich's budget plan” who reports that “extensive privatization efforts” will be a key component of the initiative, with could include leasing the state turnpike, opening up state parkland to oil and gas drilling, and privatizing lottery operations. Citigroup (C), Morgan Stanley (MS), and Goldman Sachs (GS) are just a few of the Wall Street players who have been interested in exploring infrastructure deals in recent years. Chicago famously privatized its parking meters by giving a consortium led by Morgan Stanley a 75-year contract to maintain and operate the meters in exchange for a $1.15 billion bid. Kasich would also like to reform criminal sentencing laws, which could save Ohio $28 million a year by instituting alternative sentencing methods for non-violent offenders, as well as putting five state prisons up for sale to private companies like the Corrections Corporation of America (CXW) and The Geo Group (GEO), which could raise $200 million and generate 5% cost-savings.

(To see Todd Harrison's thoughts on the shock that just hit Wall Street, click here.)

This would seem to be a fait accompli, as Kasich brought in Gary Mohr, a former managing director of CCA to run the Ohio Department of Rehabilitation and Correction, after he took office in January. Incarceration costs have been a particular problem for Ohio, which is why the so-called “Pay-for-Stay” program has been in place at municipal and county lockups throughout the state for quite some time. However, Fairfield County Jail administrator Phil Johnson tells Minyanville that the results have been mixed. “Pay-for-Stay is like spitting in the wind,” he says. “It doesn't even make a dent.” In fact, Pay-for-Stay is not a colloquialism; it is a trademarked term of the Intellitech Corporation of Poland, Ohio, “the national private sector leader in recovering costs of incarceration from inmates.”

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Intellitech, which did not return calls and emails requesting comment on the financial details of Pay-for-Stay, goes into fairly extensive detail on its corporate website:

Pay for StayTM Because Your Mission is Bigger Than Your Budget “County sheriffs and jail administrators in America today are trying to operate safe and efficient jails with budgets that are seemingly too thin to bear the weight of their mission. “Many sheriffs and administrators are taking innovative steps to hold down costs and identify new revenue streams. “For example, most jails today have programs to charge inmates for medical expenses and for damage to county property. But, few jail facilities are taking full advantage of their legislated right to maximize the revenue they can recoup from inmates.”

While Fairfield County charges inmates for their time behind bars using a sliding scale, a general idea of the costs can be determined from what the “rack rates” charged by the Corrections Center of Northwest Ohio, which includes the City of Toledo:

To read the rest, head over to Minyanville.