Over the last few decades an industry has developed around private contractors managing prisons for states and localities. The argument for contracting this out is as in most cases to save money. There is also an industry related to the Federal and State prison systems in that they employ thousands of workers as well as provide a labor force that in the Federal case makes up the UNICOR company.
Now with state tax revenues falling and incarceration costs rising some states are looking to cut back on prison populations as a way to save costs. In California where they are facing a massive deficit and prison costs make up ten percent of their budget a Court has ordered thousands of prisoners released to cut overcrowding. The overcrowding is related to budget problems not supporting the necessary construction. At the same time the prison guard union has been able to win itself significant benefits and pay which also increases the costs.
Some states made an effort to expand their systems to take on Federal and other states prisoners. In Michigan the prison in Standish was set to close due to lack of "residents" with the result that three hundred jobs may be lost. Michigan is talking to California about perhaps taking some of their population off of their hands for a cost and are also proposing maybe accepting the prisoners from Guantanamo Bay in Cuba.
The Federal Prison Industries, UNICOR, has done well over the years as they are a preferred source for government contracting. As such they are to be considered first for a product if they provide it over other bidders. It is similar to the Native American or Disable company preference in Federal Acquisition laws and regulations. It has been reported though that despite the advantages of being preferred and having low wages the company has lost money so far this year and is considering closing some of their business ventures. While this may aid private companies as there will be more work available to them it will hurt the Federal Government as they used the earnings to offset some of their costs.
There have also been scandals related to the practice of paying contractors to manage prisons. In Pennsylvania two local judges were convicted of taking bribes from the company managing a local youth detention facility for sending kids there. The company was paid based on the number of customers so it was in their interest to increase that. In Ohio a state employee arranged a deal where he sold prison made furniture at a low price to a friend's company and then had the state buy equipment from that company at artificially high prices. Like all efforts around contracting and money it attracts a fair share of fraud and abuse.
If a company, union or locality becomes dependent on a prison for revenue it will have a hard time weaning itself of off it. Like in Michigan and Pennsylvania the will need prisoners to keep it open. In California there have been complaints that the prison guard union has lobbied for anti-crime policies to sustain a large population to maximize their jobs. That does not mean that there is not a need for prisons but that it needs to be managed properly.