Taxpayers pay for private prisons. Nearly every dollar that reaches companies like CoreCivic and The GEO Group comes from a government contract funded by federal, state, or local tax revenue, and in many cases from bond debt that taxpayers service for years after a facility is built. As of 2022, about 90,873 people were held in private prisons across 27 states and the federal system, roughly 8 percent of the total state and federal prison population, and the cost of housing them runs into the billions annually.
The Three Layers of Government Writing the Checks
Private prison money arrives through three main channels, and each one traces back to a different tax base.
Federal agencies pay with congressional appropriations funded by federal income taxes. Three agencies drive most federal spending on private detention. Immigration and Customs Enforcement is the largest customer by a wide margin: its FY 2026 budget request includes approximately $4.18 billion for custody operations, with a $501 million increase to sustain 50,000 detention beds.1U.S. Department of Homeland Security. ICE FY2026 Congressional Budget Justification As of early 2025, ICE owned just 10 of the roughly 220 facilities it used to hold people; private operators and intergovernmental agreements handled the rest. ICE has signed contracts worth hundreds of millions with individual companies, including a no-bid 15-year, $1 billion contract with GEO Group for a single 1,000-bed facility in New Jersey.
The Bureau of Prisons began placing federal inmates in private prisons in the mid-1980s to manage overcrowding, eventually contracting for 15 facilities housing about 29,000 people.2Federal Bureau of Prisons. BOP Ends Use of Privately Owned Prisons President Biden’s Executive Order 14006 in 2021 directed the Department of Justice to stop renewing those contracts, and the BOP wound them down. On his first day back in office in January 2025, President Trump issued Executive Order 14148 rescinding that directive. The BOP stated it would comply, meaning the federal door to private prison contracts is open again.
The U.S. Marshals Service was never covered by Biden’s phase-out and has continuously used private detention. Federal law authorizes the agency to contract with private entities when federal, state, and local facilities are unavailable, and those facilities must meet American Correctional Association standards along with fire, security, and riot planning requirements.3Office of the Law Revision Counsel. 18 U.S. Code 4013 – Support of United States Prisoners in Non-Federal Institutions
States pay from general funds filled primarily by income and sales taxes. State legislatures pass appropriation bills authorizing these payments, so private prison spending competes directly with education, healthcare, and infrastructure for the same pool of money. Twenty-seven states held inmates in private facilities as of 2022. Some house a significant share of their prison population that way; others use private beds only for specialized needs or overflow.
Counties and municipalities enter their own agreements, usually to handle overflow from local jails. A county sheriff with crowded conditions might contract with a private operator and pay from the county general fund, which is supported by property taxes and local sales taxes. These contracts tend to be smaller than state or federal deals, but they can weigh heavily on a rural county’s budget.
How the Contracts Move the Money
The basic payment mechanism is a per-diem: the government pays a daily rate for each person housed. Rates vary with security level, geographic region, and included services. Contract data from various states has placed per-diem costs that can start below $50 and climb well above that for higher-security operations. The rate typically covers housing, meals, basic medical care, and security staffing.
The more consequential piece of most contracts is the occupancy guarantee, sometimes called a bed quota or lockup quota. About 65 percent of private prison contracts reviewed in one national study included these clauses, which require the government to pay for a minimum percentage of beds regardless of how many are actually filled. The guarantees typically fall between 80 and 100 percent, with many clustered around 90 percent. If a 1,000-bed facility has a 90 percent guarantee and only 700 beds are occupied, the government still pays for 900. The gap is public money spent on empty beds.
These contracts usually run multiple years, locking in spending commitments that outlast individual budget cycles. Disputes over payment calculations, staffing levels, or service quality sometimes land in civil court, and the litigation costs come from the same public funds that pay the contract itself.
Bond Debt: Paying Before Anyone Is Housed
Beyond ongoing per-diem payments, taxpayers often fund the construction of private prison facilities through government-backed debt. The most common instruments are lease-revenue bonds and certificates of participation. A government creates a financing entity, that entity issues bonds to investors to fund construction, and the government leases the completed facility, making annual payments that cover the bond debt. Because annual lease payments can technically be canceled by a legislature, courts in some states have ruled these instruments do not count as traditional public debt, which lets governments sidestep voter approval requirements.
Counties have also used industrial revenue bonds to finance private prison construction. These mechanisms allow local governments to take on significant financial obligations without a public referendum. When debt service and interest are included, the long-term cost to taxpayers can substantially exceed the original construction price, and the obligation to make bond payments persists for years even if the facility underperforms or closes.
Costs That Sit Outside the Contract
The per-diem rate on paper does not capture the full cost taxpayers bear. Several expenses sit outside the main contract but still come from public money.
- Government monitoring. Every private prison contract requires oversight staff on the government side. State corrections departments and federal agencies assign contract monitors who inspect facilities, review staffing levels, and audit compliance. Those salaries and travel costs fall on the agency, not the company.
- Litigation and liability. When lawsuits arise over conditions, use of force, or civil rights violations inside private facilities, the government often shares in the legal costs. Some states require private operators to carry liability insurance covering the state. Arizona, for example, requires private prison operators to provide $10 million in financial responsibility to cover potential state liability from prisoner escapes, including civil rights claims. Even with indemnification clauses, governments frequently end up paying legal defense costs or settlements that exceed the insurance coverage.4Arizona Legislature. Arizona Code Title 41 – Section 41-1682 – Private Prisons Prohibitions Liability for Services Financial Responsibility
- Performance penalties and enforcement. Contracts may include liquidated damages for staffing shortages or safety violations, but collecting those penalties requires documentation, enforcement, and sometimes litigation. The administrative cost of holding a contractor accountable is itself a taxpayer expense.
- Deferred maintenance. When a private company builds a facility with the understanding that ownership will eventually transfer to the government, the company has little incentive to invest in long-term upkeep. Deferred repairs become the government’s problem once the transfer happens.
What Inmates and Their Families Pay
Not all the money flowing into private prisons comes from government budgets. A secondary revenue stream comes from fees charged to incarcerated people and their families for basic services. While the government pays the per-diem rate, companies and their subcontractors collect additional revenue from phone calls, commissary purchases, and money transfers.
Phone and video calls have historically been a major cost burden. The FCC has progressively capped these rates. Beginning April 6, 2026, the effective rate cap for audio calls from prisons is $0.11 per minute, and video calls are capped at $0.25 per minute. The FCC has also banned separately assessed ancillary charges like automated payment fees and third-party transaction fees, requiring providers to fold those costs into the per-minute rate.5Federal Communications Commission. Incarcerated Peoples Communications Services A 15-minute call at $0.11 per minute still costs $1.65, and for families making daily calls, the monthly total adds up.
Commissary markups on food, hygiene products, and other essentials vary by facility and vendor. Families depositing money into inmate accounts often face transaction fees ranging from a few dollars to nearly $12 per deposit depending on the amount. These charges are not technically taxpayer costs, but they fall disproportionately on low-income communities and supplement the revenue private operators and their affiliated vendors earn from the corrections system.
Does Any of This Save Taxpayers Money?
The central argument for privatization has always been that competition and profit motive produce lower costs for taxpayers. The evidence does not support that claim in any consistent way. A widely cited meta-analysis of cost studies found that private prisons were no more cost-effective than public ones, and that facility size, age, and security level predicted daily cost per inmate better than whether the facility was public or private.
Simple per-diem comparisons are misleading. A private facility might report a lower daily rate, but that figure typically excludes the government’s monitoring costs, the cost of capital if public bonds financed the building, and the price of any services the government still provides directly. Research has also found that states with more private prison capacity tend to incarcerate more people overall. One study estimated that private prisons increase a state’s prison population by an average of 178 additional inmates per million residents per year, an effect that adds millions in annual costs even if the per-bed rate looks competitive.
Private prisons shift costs around more than they reduce them. Some line items get smaller. Others get buried in different budget categories or pushed onto future years through bond obligations and deferred maintenance. For a taxpayer trying to understand what they are actually paying, the headline per-diem rate is the least useful number to look at.