Balancing it with “no time” money.

KasichOffOnPrisonSale Like prison privatization proceeds that was supposed to be nearly $200 million?  Or State revenues from growth in the economy that has already not  performed as projected?  For the last two months, Kasich has been touring the national political circuit telling anyone who’d book him that he solved Ohio’s “unprecedented” budget crisis.   Apparently, Kasich forgot that a budget is a plan, and not necessarily the reality.  Before you declare your budget is balanced, perhaps you should wait a month into it first.  Had Kasich done that, Kasich would have realized  his budget was already running a deficit.  Today’s announcement about Kasich’s prison privatization plan going bust suggests an even growing hole in his budget

Reviewing today’s press release from the Ohio Department of Rehabilitation & Corrections raises more questions than answers.   The Kasich Administration is spinning the press that the private sale of just one prison as opposed to the five prisons is not indicative of any problems. 

I.  Does Kasich’s scaled down plan still meet the expectations set for it in the budget?

Here’s what the DRC’s press release said:

The recently-passed state budget authorized the administration to sell six prisons to private operators for a projected $75 million in revenue: $50 million for five DRC facilities and $25 million for a Department of Youth Services facility.

Here’s what the Legislative Service Commission’s Greenbook on DRC says about the budget’s private prison provisions (pg. 6):

The Department believes the sale of these facilities could generate as much as $200 million in new revenue for the GRF, however, the net one-time gain may be closer to $75 million when current debt obligations are subtracted from the total sale. The Department does not expect the sale and transfer of operations to be complete until the end of December 2011. (emphasis added.)

The difference?  The DRC press release suggests that the budget projected $75 million in gross revenues, but LSC says net.  That’s a HUGE difference.

In other words, LSC said that even if the five-prison sale generated $200 million in new revenues for the General Revenue Fund, the net of that would be closer to $75 million once current debt obligations (bonds) tied to those facilities were retired from the proceeds of the sale.  So what does $73 million for selling the Lake Erie Correctional Institution to a private company (which is still less than $75 million) gross mean?  It means Kasich’s private prison plan grossly (or net?) missed the mark and maybe only nets Ohio $43 million as opposed to the amount budgeted.

II.  What does today’s announcement say about privatization?

Beyond the sale of Lake Erie Correctional Institution to a private corporation, DRC basically broke their plan down into two steps:

  1. Marion County’s North Central Correctional Institution (NCCI) and the vacant Marion Juvenile Correctional Facility will be operated by a private company;
  2. The North Coast Correctional Treatment Facility in Lorain County, currently operated by Management Training Corporation, will become a state operation and be merged with the state-operated Grafton Correctional Institution.

So the first part is the privatization of one facility and the reopening of a closed facility that will now be under private operation.  The second part is taking a facility that is presently privatized and having the State take it over and merge it with another State-operated facility.

Pop Quiz:  Which option does the Kasich Administration say will save over twice as much as the other in operational costs?  The second option.  Yes, today the Ohio Department of Rehabilitation and Corrections said the State will save $7 million de-privatizing a facility and merging it with an existing State facility that it will save with privatizing the operations of other facilities or even the entire sale of a prison.  More than both combined, actually.

Dan Ramos“[T]he Department’s intention to bring North Coast Correctional under state control is a shining example of how government can often, though admittedly not always, offer an economical, expedient and accountable service to Ohioans. I hope that similarly diverse attention can be given to problem-solving efforts in the future,” said State Rep. Dan Ramos (D-Lorain).

“The fact that the Kasich administration found a buyer for only one state prison shows they greatly overestimated the potential cost savings from privatization,” said State Senator Mike Skindell (D-Lakewood).

“Today’s announcement is further proof that Ohio’s state-run prisons are already being operated efficiently and effectively, thanks in no small part to the hard work of the employees of the Department of Rehabilitation and Correction. If that wasn’t the case, DRC would have been able to find more private companies willing to purchase Ohio prisons with the stipulation they cut operating costs by at least 5%.”

So what does this say about privatization in general?  Will the Administration equally miss the mark on the Turnpike?  Lottery?  Liquor profits?

III. The “buy more, save more” fallacy.

The Kasich Administration says this plan will expand the number of prison beds by 702 additional prison beds but save the State in $13 million in operating costs.  But this is misleading.  The savings are based on the Administration’s frame of reference.  You see the claim of “savings” is based on what the Kasich Administration estimates what the State’s operational costs would be if the State operated the same facilities.  But remember, that before this plan, one of the facilities was one that neither the State or the private sector was operating.  So is it correct to frame it as a “savings” when the State is now paying to operate a facility it’s not presenting operating?  It’s impossible for Ohio to gain over 700 prison beds while spending $13 million less than it was without those beds, folks.  Math doesn’t work this way.

The Kasich Administration hasn’t been this far off on a projection since it promised the General Assembly that JobsOhio would be a self-funding entity that wouldn’t need much more than the initial $1 million in state money it was appropriated back in February.  Then, we were told they needed to privatize the liquor profits… and then Third Frontier money had to be thrown in, too.  We still don’t know if a single company has committed any private money to Jobs Ohio, either.

It’s like Kasich’s entire budget was based on this old  “In Living Color” sketch:

No money, mo’ problems.

2014 can’t come quick enough for Ohio.

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