Fewer Prisoners, Fewer Workers – Higher Prison Costs

Taxpayers should be enjoying a peace dividend from the falling crime rate

Crime in Michigan is falling. The rates of both violent crime and property crime are at long-term lows.

Yet this has not translated into state budget savings. The $2 billion Department of Corrections budget has barely budged despite the fact that the prison population has fallen 15.6 percent from 2006 to 2015 – which ought to mean lower costs.

With fewer prisoners, there are also fewer corrections officers. The number of full-time equated positions in the department was reduced from 17,782 FTEs in fiscal year 2007 to 14,179 FTEs budgeted for FY 2015.

But higher prison worker employment costs and prisoner health care costs have negated any savings from having fewer prisoners and a smaller workforce.

The employment cost increase is primarily due to underfunding in the state employee pension system, which has been closed to new workers since 1997. Newer state employees are offered defined-contribution benefits instead.

For the pension system as a whole (not just the prison workers portion), annual contributions to pre-fund benefits earned during the year by covered employees are down to $41.2 million, but payments to “catch up” on underfunded benefits cost $505.3 million, according to the state’s latest actuary report.

The gap between what the state has saved to pay retirement benefits in the state employee system and what it expects to pay out (the unfunded liability) has increased from $1.8 billion in 2007 to $6.2 billion in 2014.

Another reason for the employment cost increase is that the state now sets money aside to pay for retiree health care benefits, rather than the previous practice of paying the insurance premiums as they came due. The state pays for this by assessing the costs onto its payroll, which includes corrections department workers.

Note that while employment costs increased, this does not mean corrections officers are taking home higher paychecks or receiving more benefits. The increased costs are due to benefits already earned and offered but not adequately paid for. (Other Michigan governments suffer the same problem.)

The cost of health care for prisoners also drives the prison budget. Prisons are not immune from the cost contagion affecting the health industry. While a reduction in the prison population contained the increase, health care expenses still increased from $231.0 million in FY 2007 to an estimated $287.9 million in the current fiscal year. The report notes that an increase in the number of older prisoners in the system is partially responsible.

Taxpayers should be enjoying a peace dividend from the falling crime rate. But potential savings have been consumed by pension underfunding and rising health care costs.

There may be hope for future savings as the state has fewer employees earning benefits in the old system and pays down the unfunded liabilities that remain. But the decreasing crime rates have not yet produced lower prison costs.


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