Although "three strikes and you're out" has fast become the battle cry of a crime-weary public, few of its supporters acknowledge the fact that the policy will likely translate into longer sentences, frequent overcrowding and skyrocketing costs for local governments. Privatizing correctional facilities offers opportunities for localities to reduce costs by allowing the negotiation of maintenance contracts and the flexibility to improve operations. It may also offer alternative financing mechanisms, thereby freeing up scarce government resources.

The national inmate population stands at one million, and experts predict it will double in the near future, with an associated cost of $40 billion for more cells. Operating and capital expenses for prisons and jails now total over $31 billion annually.

Overcrowding in state prisons, in particular, results in additional burdens for county jails. In addition to housing a mixture of inmate classifications, county jails must hold "paper readies" - those inmates who have been through the courts and are waiting for delivery to state prisons - for longer periods of time. State reimbursements paid to counties holding these inmates often do not cover associated costs, especially when special needs, such as additional medical and mental health services, are required.

Despite the 1994 Crime Bill's projected $7.9 billion for new prisons, only a portion of new state prison construction will be funded. The appropriation does not include operational costs of these new facilities, nor does it fund construction of local jails.

Among the alternatives to bond issues and other forms of traditional financing is multi-year leasing, which is being used in New York City. For example, New York rents 400 prison beds, when capacity is available, to the U.S. Marshals Service as a revenue source. "This suggests an opportunity for financing new facilities through lease arrangements," says John Shanahan, president of Mark Correctional Systems, Maywood, N.J.

Governments allowed to sign multi-year leases with private facility developers would avoid tying up funds in prison construction. "Multi-year lease commitments require agreements between local and state governments, backed by their own commitment to assign inmates to that institution," says Shanahan.

In the same way that a developer would sign a contract with a hotel chain or real estate management company, promising a 90-percent occupancy rate over 50 years, a corrections developer would contract with a local government to fill jail beds.

Historically, prison/jail cost control has been limited to outsourcing medical care, food services, education and vocational training, but in areas such as Bay County, Fla.; San Diego; San Antonio and Odessa, Texas, municipalities are privatizing the overall operations of their facilities. In San Antonio, for instance, the building housing the privatized Central Texas Parole Violator Facility was formerly the county jail which Paul Bailey, the facility's administrator, once ran as a county employee.

With the onset of overcrowding in the 1980s, the county issued a bond for a new 2,000-bed county jail. When the new facility opened, the old jail remained vacant for a year.

Wackenhut Corrections Corp., based in Coral Gables, Fla., negotiated with the Texas Department of Criminal Justice to operate the old facility and thereby create a new revenue base for the county. The facility reopened in 1989 after the county funded a $1.4-million renovation of the eight-story high-rise building.

Today it houses more than 600 adults. For the state, it houses female parole violators and male paper readies awaiting transfer, and, for the U.S. Marshals Service, it accommodates pre-trial detainees and individuals involved in cases at the nearby federal courthouse.

According to Bailey, municipalities interested in privatizing operations contracts should:

* Be cost-conscious. They should develop specifications for the contracting company, making it clear how officials expect the facility to be run.

* Appoint a monitor to represent the locality and to work with the contracting company. This liaison should have 24-hour access to the building, inmates, records and staff, says Bailey, and should be capable of developing a sound working relationship with the contractor and operations personnel.