The Michigan Department of Corrections currently gobbles up $2 billion annually, $1.9 billion of which comes from the general fund budget. Policymakers should look at prisons, as there is potentially hundreds of millions of dollars in savings available in just this one area.

Ideas for reform can and should include privatization (to varying degrees) and perhaps wresting concessions from corrections employees. Gov. Rick Snyder, to his credit, has made it clear that he intends to privatize food services operations of prison stores, which could save $9.5 million. More can be done.

Michigan spends a fortune on corrections both in absolute and relative terms. At a recent conference co-sponsored by the Citizens Research Council of Michigan, the organization reported that in 2008 Michigan ranked 6th among the 50 states in spending on corrections (as a percentage of income). Michigan ranks 6th among 46 states (four were excluded) in salary alone for corrections personnel, and that corrections pay has grown faster than both inflation and the state civil service average for salary increases, according to the CRC.

At the same conference, the nonpartisan House Fiscal Agency reported that DOC personnel costs went up an average of 3.7 percent annually from fiscal 1997 through fiscal 2010, and that these increases in non-salary fringe benefit and retirement costs are the primary driver (6.5 percent and 6.3 percent respectively) of cost increases related to personnel.

Mackinac Center analysts have repeatedly explained the fact that government employee compensation at all levels — particularly with regard to benefits — is very expensive. We calculate that benchmarking all government employee benefits packages in the state to private-sector averages would save $5.7 billion annually. About $700 million of that total can be attributed to state civil service employee benefits, including those for corrections workers, who make up 29 percent of all state employees.

The Mackinac Center has examined comparative corrections spending in the past, and a couple of the findings are worth repeating.

In a 2007 essay titled “What Price Government,” I analyzed prison guard responsibilities and compensation at the state’s privately built and operated youth correctional facility in Baldwin compared to those of guards in the state system. The differences were stark.

At the time, the state reported a pay range for corrections officers (level 8) of $14.35 to $21.06 an hour, or between $27,500 and $40,400 annually plus fringe benefits such as vacation and a sick pay. This compensation was earned even during the initial training period. Private corrections guards for the Baldwin prison started at $14.48 an hour after training.

The biggest compensation differential, however, was in non-salary benefits, including retirement benefits. Our 2007 piece indicated that the private, for-profit operation of the Baldwin facility would share 50 percent of the cost of health insurance with employees who chose to add dependents to their insurance plans. So, if the total cost of insurance was $700 monthly for a family plan, the employee would pay $350 of that. At the same time, a state employee with a family of four might pay less than $63 a month in insurance premiums while the state would contribute more than $1,100.

So wresting compensation concessions from corrections employee unions is probably a great way to lower the cost of running state prisons. Another option is privatization.

Privatization can include more than just contracting out for management of existing facilities or services within a particular prison. In 2003 we reported, for instance, that Tennessee had collected proposals from private prison officials to run the entire state prison system.

The proposal with the greatest savings would have shaved 22 percent off of the state prison tab. If that percentage could be saved in Michigan, it would amount to more than $418 million in annual savings, and the cost of providing prison services would probably grow more slowly, too. Large-scale privatization is hardly unprecedented: New Mexico houses about 45 percent of its prisoners in privately managed facilities.

There are countless options for reforming spending in state government, and policymakers should consider all of them. Prisons are an obvious area due to the absolute and relative high cost of running them.  

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Michael LaFaive  is director of the Morey Fiscal Initiative at  the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

Michigan’s Urban Cooperation Act of 1967 allows two or more units of government to create so-called “Interlocal Agreements,” where local governmental entities can join forces to provide services like public safety, transportation and water usage without having to jump through big bureaucratic hoops or bog down the Legislature for approval. There are, to date, 999 ILAs on file with the Michigan Secretary of State’s office. A Mackinac Center review of these ILAs found several eyebrow-raising trends beyond the sheer growth in number of these agreements, including disturbing ways ILAs have recently been used.

There were just three interlocal agreements signed prior to 1970, and 37 by 1979. Another 108 were created in the 1980s and 121 during the 1990s. From 2000 to present, some 727 ILAs have been signed, including 91 so far in 2011. The rate of increase may be due in part to the fact that ILAs are no longer used for the sole purpose of facilitating so-called “core functions” of government.

For example, 58 ILAs involve the Michigan Economic Development Corp., which itself is a product of an interlocal agreement between the Michigan Strategic Fund and “participating public agencies” such as local economic development organizations.

ILAs have also been twisted in such devious ways that private residents were forced into government unions without either their knowledge or approval — and without approval from the Legislature. The Michigan Constitution specifies that only the Legislature can designate public employees.

The Michigan Quality Community Care Council is the product of an interlocal agreement between the Michigan Department of Community Health and the Tri-County Aging Consortium. Created in 2004, the MQCCC touts on its website that it “offers a tool for finding, choosing, and hiring a provider.” What’s not mentioned is that the MQCCC also provided a so-called public “employer” for the Service Employees International Union to organize against and create the 55,000-member SEIU Healthcare Michigan. The SEIU takes union dues from the Medicaid subsidies paid to home care workers (as well as registered nurses, nursing home aides and hospital support staff), collecting as much as $6 million a year.

The Michigan Home-Based Child Care Council was another such interlocal agreement, formed by the Michigan Department of Human Services and Mott Community College. Its purported reason for existing was “to improve the quality of home-based child care in Michigan.” Like the MQCCC, the MHBCCC provided an “employer” for another 40,000 business owners and independent contractors who became members of the government employee union called Child Care Providers Together Michigan, a joint effort by the United Auto Workers and the American Federation of State, County and Municipal Employees. Union dues were skimmed from subsidy checks sent to day care providers on behalf of low-income parents who sought child care while working or attending school. This arrangement netted the union more than $4 million from Jan. 1, 2009 to Sept. 30, 2010.

Fortunately, due to the Mackinac Center Legal Foundation’s lawsuit against the DHS over the illegal withholding of those dues, Michigan Gov. Rick Snyder effectively ordered the dissolution of the MHBCCC interlocal agreement.

So make that ILA total 998. And that could drop to 997. According to a March 7, 2011, MIRS article, Gov. Snyder plans to disband the MQCCC.

Interlocal agreements could also receive some legislative attention. Michigan Sen. John Proos, R-St. Joseph, last year recognized that ILAs could be misused. He told the Mackinac Center that he was troubled by a “few very egregious, over-the-top examples of how interlocal agreements have abused what are, in essence, a really good idea.”

As a member of the Michigan House in 2010, Proos introduced House Resolution 270, which would have urged the Michigan Attorney General to take steps to beef up scrutiny of interlocal governmental agreements. The bill would also require any ILAs in the state to have biennial audits conducted by the Auditor General and be reauthorized by the governor.

There may be hundreds of examples of ILAs serving the people and doing what the Urban Cooperation Act of 1967 intended. But there are tens of thousands of reasons why the residents of Michigan should be on high alert when new ILAs do more than the basic functions of government without legislative scrutiny or voter accountability.

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Kathy Hoekstra is a communications specialist at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.