The Economic Costs of Mass Incarceration

The following was a virtual talk given by Frank Zarro for the End Mass Incarceration event.

The American justice system is an $80 Billion dollar a year drain on the economy and when the indirect costs of justice system related, and prison costs are taken into consideration the number surpasses $1 Trillion annually. The figures are all too familiar- 2.3 million in our jails and prisons and about 10% of the entire population under some form of justice system supervision. Recidivism rates are at about 68%, nationally accounting for a third of the prison population on any given day. Technical parole violations in states like New York which result in reincarceration are at all time highs, even in the face of increased risks of Covid and parole eligible prisoners there are routinely denied release and placed on two years holds. About 64% of the incarcerated population is Black, mostly men, Latinex and poor. About 98% of all criminal convictions are by guilty plea, often in the face of actual and factual innocence, most with prison sentences and 80% of all criminal defendants cannot afford private defense counsel and must rely on an overburdened underfunded public defense system, which in many respects accounts for the almost 100% plea rate. Less than three percent of all attempts at appellate and post-conviction relief succeed. Corrections officials in many states have abandoned rehabilitation and re-entry preparation and focused prison life on punishment and hardship. In the communities, police on black violence is and has for a very long time been out of control, with increased incidents recurring amid mass outcries and even during criminal proceedings against other offending police officers. Prosecutors and police have blankets of immunity layered over them making true accountability the exception and not the rule.  The American criminal justice system has led us to large fiscal and moral deficits and has created a culture of impunity for law enforcement and deprived the weakest among us the services and resources they need to survive. 

Since the murder of George Floyd, we hopefully have experienced a long overdue national awakening on race and criminal justice. Evangelicals and social and fiscal conservatives as well as progressives and activists seem to be coming together on the importance of addressing the evils of mass incarceration and planned to fail re-entry and all that has led to it. Some are motivated by fiscal impacts, others by moral imperatives and the fact is that no matter the motivations, we seem to be gaining some momentum in favor of justice. Let us hope. 

So now the questions:

What do we do to eliminate mass incarceration and the collateral effects of conviction and all that has led up to it?

Whose responsibility is it to pay for it?

Who benefits from it and what can we accomplish by defunding the criminal justice juggernaut and redirecting these expenditures to badly needed social programs and services?

We have now come full circle in America in terms of our collective political and economic will to acknowledge the crucial role of the government in providing resources and services to people, families and communities who are for whatever reason unable to provide for themselves. 

From Franklin Roosevelt’s New Deal to Lyndon Johnson’s Great Society, Richard Nixon’s New Federalism, Jimmy Carter’s inclusive economics, Clinton’s welfare reform and corporate economy, to George W’s compassionate conservatism, and Barak Obama’s pragmatic progressivism and the Trump/McConnell cabal for increasing the wealth and influence of the rich and powerful to the Biden/Harris Newer, Bigger, New Deal, we have witnessed a transient and dissonant history when it comes to America putting it’s money where its mouth is on social programs. Under President Biden and the Democratic majorities in the House and Senate the federal government has begun to resume its proper role, but for how long? 

Each of us on this conference this morning has determined that we need to eliminate the plague of race and poverty based mass incarceration in the United States at the root. To do this we need to identify how we are going to continue to advocate, create, implement and pay for the necessary policies and mechanisms to achieve true and lasting social, racial, procedural and economic justice in our country and how we will spend the money we divert from police, prosecutors, courts and correctional facilities on education, healthcare, childcare, climate justice and programs that advance equality, justice and human empowerment. 

So where do we go in a capitalistic system with private prisons, Corrections Officers Unions as impenetrable as the walls they guard, and yes, a prison industrial complex which is emblematic of reconstruction interrupted, the emergence of Jim Crow and the perpetuation of the “new plantations” which are now called correctional institutions.

Today I want to talk with you about how we fund de-carceration, end the churning of poor people and people of color in and out of our prisons with calculated recidivism and dismantle, prison by prison, brick by brick, these carriers of racism and instruments of generational separation and genocide.

I remember attending a conference after finishing graduate and law school where one of the speakers began his talk by saying, “If you look at any problem in America and the answer turns out to be anything but money, look again” I was startled by the cynicism at the time but as the years progressed I became convinced that it was indeed possible to do well and do good and that in the capitalist society we have in the United States we just needed to find ways to make it work for and include the overlooked and ignored. This is the work we do now and after years of study and trial and error and direct system involvement I have concluded that we cannot rely on philanthropy and government action alone and must look to a hybrid form of capitalism to address social needs especially when it comes to matters of criminal justice and incarceration. Toward this end we have focused on prisoner re-entry program development and finance, thru social impact financing concentrating on employment, education and wellness for justice involved individuals and their families and utilizing private sector resources to fund the work of reducing and eliminating prison populations and empowering individuals, families and communities to recover from the indelible marks of incarceration and its multiple consequences. 

Social impact financing is a viable alternative to total reliance on government funding from tax revenues to finance progressive criminal justice initiatives which address the exigencies of mass incarceration and related issues. The reason that this is important is because executive and legislative officials have for years shunned the use of taxpayer money for any criminal justice expenditures other than enforcement and have been reluctant to propose the use of public funds for anything that bears resemblance to a “soft on crime”, counter police/prosecutor program or service. Ever since the US pivoted to the law enforcement model of criminal justice administration in the 1970’s, elected officials for the most part have directed taxpayer dollars to police, prosecutors, prison construction and security. Even in so called “Blue” states like New York and Massachusetts, Governors have for decades deferred to police unions, and enforcement model advocates in the budgets and the laws they pass. So, while we never give up on persuading our state, federal and local officials that investing in progressive justice policies and initiatives is necessary and proper, we try not to put all our eggs in one basket and look for alternatives sources. This also involves defining “defunding” and walking a clear and safe path to creating alternative community policing practices and the alternatives to conventional systems for disposition of accusations against members of our communities, especially the underserved. There is so much we can accomplish for the good with the money and human capital that has been devoured by the existing criminal justice system. 

In a real sense, social impact financing is a hybrid philanthropic/investment vehicle for people who choose to invest in public benefit programs with private capital. This is also an altered form of capitalism which maintains the return on investment and profit goals but subordinates them to more compelling and worthy social needs. 

By way of comparison, if you invest money in a stock or bond you have presumably researched the offering entity’s financials and past performance and studied their business models and projections going forward to assess whether investing your money with them, allowing them to use your money to achieve their business goals, is a safe investment as far as it goes. So, for example, if you purchase a Port Authority of New York and New Jersey Bond, it will have a face amount, a maturity date and a rate or dollar amount for return on investment when the instrument matures, becomes due. The source of your repayment and return on investment is the additional revenue created by your money, i.e., tolls, fees etc. Money invested, new money created, return on investment made.

A social impact bond works much differently.  A Social Impact bond is an instrument issued by a third party funding source and offered to investors on what is known a “pay for success basis”. In the Port Authority example, the investor received their money back with a predesignated return from actual direct revenues achieved using the invested funds. In a social impact bond, the investor understands going in that the return of their capital and some rate of return would be based solely on the outcome of an independent audit of the results of the social impact project created and administered with their funds. In other words, based upon good social and fiscal verifiable outcomes only. The society must have benefited first before the investors are repaid. 

The first Social Impact Bonds were issued in 2011 in the UK through, Social Finance Ltd., a global not for profit impact consulting firm, in connection with the creation of a justice initiative to reduce recurring incarceration. The following year Social Impact Bonds began in use in the United States with the issuance of $25 million in bonds by Goldman Sachs through it is Urban Investment Unit in New York to finance a prisoner e-entry program at Rikers Island. Social Finance U.S opened offices in Boston and San Francisco and organized social impact bond programs in Connecticut, New York, California and elsewhere, largely on homelessness remediation, prisoner reentry, family services and juvenile justice matters. My first experience in impact bond financing was in the area of public defense with a view toward creating and financing a separate and independent public defense system in New York State to replace existing, weak, inequitably funded and managed and conflicted systems. The absence of data and the means to retrieve it coupled with the lack of political will left the work undone. The eventual scarcity of data was also the cause of the less than successful outcome of the initial Goldman/Rikers bonds. 

Let us create a social impact finance scenario to the work required by California’s recent decision to administratively effect the early release of 74,000 state prisoners with varying levels of offenses and security classifications by reducing good time requirements for sentence reduction by one third from one fifth of the term originally imposed. 

A social impact bond project has five primary actors: 

1. Government partner 

2. Not for profit or social benefit program developer.

3. Third party funding source.

4. Social impact advisor contract negotiator

5. An independent evaluator. 

By way of illustration only, California, DOC can be the government partner, EMI the NFP program developer, Social Finance, the consultant, government contract negotiator, Maycomb Community Fund, a workforce development fund formed by woman who worked on the Rikers project at Goldman, and for the independent evaluator, let us say the Urban Institute. All these references are made for discussion purposes only and to familiarize you with some of the leading actors in the field. I know these people, but they are not part of this presentation. 

EMI presents a proposal to California DOC for the creation of a program to successfully employ, educate, feed, house and provide medical care and family support services to the 74,000 prisoners about to be released to the community. 

Social Finance assists EMI in the preparation of a pay for success contract with California DOC, which provides among other things for the provision of impact data to EMI by the various state agencies.

Impact data is independently audited by Urban Institute, a designated third party evaluator to ascertain the direct impact metrics to the state for fairly and humanely providing for the release of these individuals.

California DOC pays EMI a predetermined sum based upon a percentage of the fiscal and other outcomes achieved and verified but audit.

Maycomb Community Funds having raised the initial capital for EMI to conduct the services is repaid with a fee or interest for its services and may now assist the state in Social Impact Bond issuance for further, more comprehensive re-entry programming and funding.

The most important aspect of this work is in the accumulation, storage and use of impact data. If today you were to look for real time comprehensive data on criminal justice and re-entry you would find that there is no one source you can go to with access to this data. Some emerging not for profits and research groups such as Measures for Justice in Rochester, New York are doing really good work on tracking data in limited target jurisdictions on criminal justice activity from arrest to post conviction stages. Data on reentry is far behind and given that a large portion of jail and prison populations are the result of recidivism, this creates a major obstacle to addressing the issues. The collection, verification and analysis of re-entry data is the key to creating viable solutions and ending recidivism and the absence of it has been a major obstacle in the more widespread use of social impact financing to achieve critical public benefit outcomes. An essential element of a social impact pay for success arrangement between a government partner and an impact program developer requires at the outset that state, local or federal agencies make their data, technology and fiscal offices available to the program developer to provide real time metrics on social and fiscal outcomes of the programs they are undertaking together. The availability of impact data has heretofore been the missing piece and the accumulation and storage of this vital information has been our priority since we began doing this work. To borrow a phrase from our colleagues at Measures for Justice, “No data, no change.” 

Just last month, California DOC announced that it plans to administratively release 74,000 state prisoners by shortening sentences by one third instead of the one fifth that has been in place since 2017. This will include over 63,000 prisoners with violent felony convictions who will now be eligible for “good time” sentence reduction credits and another 20,000 prisoners with parole permissive 25-life sentences who are now made eligible for release. In addition, over 10,000 prisoners convicted of non-violent felonies will now be eligible for release upon serving half of their sentences and that same formula will be applied to the state’s 2,900 non-violent “third strike” prisoners. Also, any person incarcerated in a minimum security of camp facility will now get one month of good time for every month served regardless of the nature of the offence involved. What California has done here is logical and makes for good justice and fiscal policy and can be readily applied in all the states. Now let us explore how a social impact analysis would quantify the outcomes and encourage and reinforce the adoption of similar policies.

The most readily available and measurable re-entry metric is the occurrence and cost of recidivism, so let us start there. It is just one measure and there are any more we identify but for purposes of this analysis, let us start here.

It cost California $132,860 per year to house a prisoner. Available California data on rates of recidivism is at 41.9%. If we calculated the number of recidivating people by the per prisoner annual cost of incarceration, we see that it will cost California $55,651.34 to reincarcerate these individuals. Now, if we employ and fairly and constructively provide for basic human and family needs for the justice impacted, the data available in the public domain tells us that we reduce the rate of recidivism from 41.9% to 20% for these returning citizens and California reduces its prison and criminal justice expenditures by $2,735,928,600 per year. These are funds that can be used on schools, health care infrastructure, creating independent and equal public defense programs, promoting community justice programs such as restorative justice and other alternatives to conventional methods, homelessness and other root causes of inequality, and incarceration. In addition, the sums saved by the state become the basis to pay a return on investment to Social Impact investors and for the services of the impact program developers. 

Now let us briefly review some further public domain data on reentry for California and similar data for New York, Texas, Wisconsin, Arkansas and Georgia. We have more detailed tables and spread sheets available for you to look at if you would like.

The data we need to retrieve from government partners in Social Impact projects goes far beyond recidivism and directly measurable fiscal outcomes. Impact target areas go to very root causes and conditions precedent to arrest and incarceration and have an even greater fiscal and social impact. Here are just a few of them.

Additional revenues realized by the state, local and federal government from payroll, sales and other taxes paid by employed returning citizens.

Reduced reliance on social financial support programs.

Increased participation in drug and alcohol counseling and recovery programs.

Increased support and cohesiveness in the reunited family unit.

Decrease in juvenile justice system involvement by children of formerly incarcerated parents.

Advancement in education of returning citizens and children.

Reduction in community crime.

General increase in GDP.

And many more we will be happy to share with you.

The significance of the accumulation and measurement of this data goes far beyond measuring fiscal outcomes and reallocation of resources and goes to the moral and political imperatives but creates the blueprint for dismantling the grotesque and oppressive system which has led to the mass incarceration we live with today. With this data and the money saved by utilizing intelligent and socially responsible fiscal tools we can close prisons, build schools and hospitals in underserved communities, build housing, feed people and create an equitable and accessible health care infrastructure. We can rebuild lives, strengthen families and communities and yes, reduce crime. 

The data we collect, store and use becomes a powerful and elegantly subversive public policy tool. With it, we can effectively make the case to lawmakers, executives and administrators that it makes good fiscal and policy sense to:

1. Fairly and humanely release and employ incarcerated people scheduled to be released.

2. As California is now doing, release more people by reducing sentences and increasing good time incentives. In truth, any prisoner who can be in a medium or minimum security facility can be safely released to community supervision. 

3. It makes ultimate, fiscal, moral and policy sense to stop incarcerating and spend the time and money to identify and eliminate the root causes of incarceration and utilize our fiscal resources to implement alternative approaches to community safety and restorative justice methods and practices and rethink sentencing, grand jury, public defense, court, prosecutorial, corrections and policing systems and methods and replace them with programs and policies that are fair, efficient and humane. 

   
   

Social impact financing goes far beyond re-entry and can be an important part of what we have been calling “defunding”. Defunding in some cases is the only option. The police department in Minneapolis needed to be defunded. Public funds cannot be used for oppression. Case closed. In other areas of the justice system, we may be talking more about redirecting funds. Police do not fill up our prisons by themselves. The need prosecutors and court clerk and judges and jails a prison personnel. In order to rebuild the criminal justice system and end mass incarceration we must defund, reallocate and make the people and agencies we provide money to regularly and formally accountable. 

Money, it has been said is the root of all evil and Jesus sure got it right when he used the eye of the needle metaphor. Money is however the most fungible of all material things. It has no name; it has no memory and no real value other than what we decide to do with it. Social Impact financing is just one tool that can be used to humanize capitalism and make more inclusive how we view and use money. Yes, it is possible to do well and to do good. 

Approximately 750,000 prisoners a year are released back to their communities. Just about 95% of people committed to prison will return some day. The collateral consequences and scars of a criminal record are staggering and permanent. Employment, housing, healthcare, family life, all the things free people take for granted every day are a daily burden and a reminder that once the system leaves its mark on a person it never goes away. 

The first step in ending mass incarceration is ending recidivism, the rest is critical too, but this must be the starting point.

Capitalism in the United States is here to stay. We need to find ways to use it to empower our people. 

Thank you.