Pay for Performance: Texas and Private Prisons

Texas can be a national leader yet again, showing how our principles work for prisons - if we’re bold.

Dear Readers,

As you probably know, we work on policy in almost three dozen states around the US via the Cicero Institute, which I founded and chair. This note to Texas on private prison reform, written with our Cicero public safety policy director Devon, might seem niche, but it demonstrates a key principle that could fix broken government systems everywhere: that we should pay for results, not just activity.

So many public institutions are captured by special interests who profit from dysfunction. Whether it's healthcare, education, or criminal justice, the scam is the same: insiders use regulation to block competition, extract more money, and deliver garbage results.

We’ve gotten outcomes-based public safety legislation passed in seven states, but there is a lot left to fix. As it looks to make changes, Texas has the chance to improve its prisons and demonstrate these principles, while saving taxpayer money, and positively impacting thousands of families. It’s time to start paying for the results we want.

Joe

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Texas leaders are taking bold action to address increasing costs and poor conditions in our private prison system. With seven private prison contracts set to expire soon, state officials are rightfully looking for ways to save taxpayer money while improving results that aren't nearly what they could be. This presents an incredible opportunity to switch to an outcome based model — introducing accountability to a captured, dysfunctional industry.

The Challenge:

The Texas Department of Criminal Justice (TDCJ) is looking to take control of these prison operations primarily due to the rising rebid costs, projected to increase by 20%. However, shifting to state control carries considerable risk.

New Mexico tried something similar when the state took over just 3 private prisons. The results were disastrous: unexpected costs spiraled into the hundreds of millions.

Our 7 prisons and facilities have over 6,000 beds and 900 employees. Texas would have to recruit hundreds of new wardens, corrections officers, chaplains, and maintenance workers to keep facilities operational. While TDCJ successfully converted a jail, prison, and pre-release facility in 2023, the departure of the existing executive director of 9 years will make this transition harder. Texas has a better alternative rooted in our reform history.

Texas's Track Record of Smart Reform:

In 2007, Texas led the way in criminal justice reform with its groundbreaking probation and parole programs. Facing projections for an additional 17,000 prison beds, costing $2 billion, we chose a different path. The state expanded drug courts, invested $241 million in treatment and rehabilitation programs, and shifted incentives away from revocation and toward rehabilitation.

Critically, we offered financial bonuses to successful local probation departments – they could win additional state funds if they reduced parole revocations by 10%. The results were remarkable. Texas saved $2 billion, reduced revocations by 39%, and saw crime rates drop to their lowest point since 1968. Paying for the right metrics saved taxpayers money while keeping citizens safer.

In 2014, Texas pioneered another bold experiment with Texas State Technical College (TSTC), fundamentally changing how the state funded higher education. Instead of paying colleges based on enrollment numbers, Texas tied funding directly to the wages students earned after graduation – essentially paying schools for how successful they were at preparing students for the workforce. The simple incentive worked. TSTC funding surged more than 40% in less than a decade as graduates consistently earned higher wages and contributed more to the economy.

The Outcome-Based Solution:

Instead of simply taking over these facilities or continuing the status quo, Texas can use this opportunity to align incentives in our corrections system through outcome-based contracts.

This framework flips the current dynamic on its head. Instead of telling operators exactly how to run their facilities, the state sets clear goals – lower recidivism rates, safer conditions, better post-release employment – and lets companies figure out the best way to meet them.

The approach is already used successfully in countries like Australia and New Zealand, where prison contracts tie a significant portion of compensation to in-facility safety and post-release metrics. Their criminal justice systems have improved outcomes as a result. The model is not only financially viable but also familiar to some of the multinational private prison companies operating in the US.

Changing the Status Quo:

By paying for results, Texas can not only correct the system’s rising cost burden but also add the benefit of reducing long-run crime. We currently lack the incentives needed for improvement.

In 1999 there were 12 for-profit prison companies. Today, three control 96% of the market, and are protected by complex procurement rules and regulatory barriers that make it nearly impossible for new entrants to compete. This industry capture has led to the rising costs Texas leaders are rightfully addressing today.

However, there are organizations eager to disrupt the status quo. Social Purpose Corrections, for instance, was founded by former corrections leaders frustrated by the lack of creativity in the industry.

Shifting to an outcome-based model can create room for new companies like this – and others – to enter the market and push for better results. States like Arizona and Utah have introduced the idea of metrics-based prison contracts, but none have had the courage to execute.

Instead of choosing between expensive state takeover or continuing an unsatisfactory status quo, we can chart a third path that saves money and improves outcomes. Texas should be known for innovation and using its tradition of boldly embracing the principles of a free society to get the best results in everything it does.

Read more on Cicero public safety policy here.

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