The settlement in the Ruiz prison lawsuit requires the Texas Department of Corrections to reduce prison populations of existing units and will require that either new beds be found for offenders displaced by the mandated loss of beds or that offenders be released from prison. The present maximum capacity and the completion of new construction will not completely absorb the 1987 depopulation, and no new capacity will be added by any prison construction currently being completed. The Computerized Legislative Analysis Simulation Model projections, using a 50-percent parole recommendation rate and ajdusting for the effect of contemplated diversion programs, show that the State will need an additional 18,378 prison beds in the next 4 years. In addition, Ruiz-mandated renovations and improvements are needed for existing prison facilities. It is, therefore, recommended that the necessary legislation be adopted to permit maximum flexibility and least cost for financing the necessary new construction, renovations, and improvements. Appendixes provide construction and renovation timelines, a discussion of financing and refinancing methods, and information on privatization and new construction methodologies. 6 tables.