Overpaying for Prison

March 21, 2011 -- Keeping some federal detainees in motels might be cheaper than renting them a cell in a local jail.

A report released today reveals the federal government will sometimes pay more than $100 a night to house detainees at state and local corrections facilities. For that price, you can get a clean room, cable TV, and a buffet breakfast at many national, motel chains.

An audit conducted by the Justice Department's Office of Inspector General charges that the federal government is paying $1.2 billion a year – and at least $15 million too much – for jail space. Ironically, the report also found that the feds are often being ripped off by their correctional colleagues in state and local government.

"We found that state and local detention facilities at times take advantage of a shortage of options for federal detainees and demand rates that appear to generate excessive profits – sometimes in the range of millions of dollars," the IG report states.

It's simple supply and demand: state and local governments have empty jail cells, the federal law enforcement officials need them to house federal detainees temporarily. Immigration or drug enforcement sweeps, for example, can flood the system with suspects who need to be incarcerated. With demand for jail space high, state and local governments are driving a hard bargain.

The audit found that the federal government pays an average of $65 per night to keep between 35,000 and 37,000 detainees locked up every night. In some cases, however, the audit found the feds pay as much as $119 a night. According to the Hotel Price Index for 2010, the average hotel room in North America cost just under $115 per night.

The IG examined 25 agreements for jail-day rates paid by federal corrections officials, and found that it "potentially paid about $15 million more than it cost the facilities to house federal detainees…." The audit concluded that the federal government "would have realized significant cost savings if it had consistently used a jail's operating expense data as leverage in its negotiations to achieve a fair jail-day rate."

In one case, the IG says, a local correctional facility raked in an estimated $8 million in profits over three years, after providing the federal government with inaccurate information during price negotiations. In other instances, the audit found that state and local governments took advantage of circumstances such as short-term, local jail space shortages to demand inflated jail-day rates.

But the audit also found that some federal negotiators may have been trying to help out local corrections facilities with inflated payments, by using the most favorable formulas to set the daily rental cost of a jail cell.

The IG report says, "We believe that the lack of sufficient evidence to show how pricing factors were considered during negotiations made it appear that negotiators picked certain price analysis techniques because they yielded the highest rates for state and local facilities."

The report notes that the cost of renting jail space has continued to rise even though the detention population housed in state and local facilities has remained relatively constant. Detention costs increased by 19 percent from $743 million in FY 2005 to $888 million in FY 2010.

That means the cost of renting a jail cell has risen faster than the cost of a hotel room. The Hotel Price Index reports that the price of a hotel room in North America rose 2 percent in 2010, the first rise in price since 2007.