As prison populations have increased, the State's corrections system has required an increasing proportion of State expenditures. Between fiscal years 1985-86 and 1995-96, when total general-purpose revenue spending increased 67 percent, the average daily adult inmate population doubled, and expenditures to incarcerate adult inmates increased 129.4 percent, from approximately $126.6 million to an estimated $279.0 million. The Department of Corrections predicts adult inmate populations and expenditures will continue to increase into the foreseeable future. Wisconsin's daily per inmate cost of $53.51 ranks 30th among the States and is slightly higher than the average reported in a national survey. As incarceration costs have increased, corrections officials in Wisconsin and nationally have looked to privatization of services as one way of controlling or reducing costs; however, experience in Wisconsin and other States has shown that although it may be possible to reduce costs through contracting in some cases, in others the costs of contracting may exceed the costs of direct provision of services. To manage its resources most effectively and ensure that the desired goals of contracting are met, the Department of Corrections must approach decisions to contract for services in a more systematic and businesslike manner, which involves establishing clearly defined objectives against which contract services, costs, or performance can be assessed. Rehabilitation programs must be thoroughly evaluated so as to ensure their cost-effectiveness. 16 tables and appended response from the Department of Corrections