Here's an idea: sell off our prisons to the highest bidders, reap a pile of short-term cash to inflate near-empty state coffers, then lease back the prisons for 20 years at a cost to the state that far exceeds the original purchase price paid by the companies. While we're at it, let's completely privatise medical and mental health services – and mandate that bidders come in with lower per prisoner cost estimates than those currently paid out by the state. And, to cap it off, privatise the day-to-day operations of all the prisons, including supermaxes and death row sites, and, in an incentive to cut corners, split the savings 50-50 between the state and the private companies doing the administering.

Conservative fantasy? Alas, no. This is the set of kooky proposals recently embraced by legislatures in a near-insolvent Arizona, looking to trim dollars from their state budget.

A boondoggle to the private sector? Sure. A recipe for disaster as poorly paid, under-trained private prison guards assume control over supermax prisons – an environment in which private guards have had little-to-no prior experience (historically, private prison companies looking for easy criminal justice pickings have shied clear of hard-to-manage high security facilities)? Almost certainly. An invitation for prisoners to sue as medical and mental health services are farmed out to low-ball bidders? Yes, again.

"I'm telling you, it takes the cake," says Caroline Isaacs, programme director of the prison-reform group the Arizona Friends Service Committee. "I've lived here for 15 years, and I'm completely blown away by this. This has never been done anywhere."

A couple of weeks ago, the Pew Centre on the States, a division of the Pew charitable trusts, found that 10 states were facing particularly devastating budget implosions. Not surprisingly, many of these – including California, Arizona, Nevada, and Florida – were states hit particularly hard by the bursting of the housing bubble. Much has been written about California's crisis. But in many ways smaller states like Arizona are in even bigger trouble; and as they teeter on the brink, so increasingly bizarre policy proposals are gaining traction. Arizona's even contemplating selling off its capitol building, for Pete's sake.

A few years ago, in my book American Furies, I compared the reactionary practices of the Maricopa county jails – centered in Phoenix and run by the infamous Sheriff Joe Arpaio – to the progressive reforms being implemented in Arizona's state prisons by then-corrections commissioner Dora Schriro.

Schriro had made a name for herself in correctional circles through modernising prisons in the state of Missouri, developing a reform theory she labeled the "parallel universe". Her results had been impressive: lower recidivism rates, lower in-prison rates of violence, educational successes with inmates, drug-treatment programs that actually worked. In Arizona, too, she brought outside-the-box thinking to a large, and violent, system. For a few years, Arizona became something of a poster-child for prison reform.

But Schriro moved to DC to work for the Obama administration, researching and writing on conditions of confinement for illegal immigrants awaiting deportation, and then recently moved on to run the jail system in New York City.

She left behind a new, and relatively ineffectual, corrections administration in Arizona, one unable to defend its reforms from a conservative, and increasingly fiscally desperate, legislature and governor (Janet Napolitano, the previous, Democratic governor, also went to DC to work in the new administration, and her successor, Jan Brewer, is a Republican).

Now, the vacuum might soon be filled, as Arizona stands poised to go where no American state has gone before: sending out a request for proposals that could soon see an almost entirely privatised state prison system. That's a leap back not just a few decades but a few hundred years in correctional thinking.

Private prison companies in America have a dismal track record: a slew of escape scandals and prisoner abuse allegations brought major companies to their knees about a decade ago; workers at the facilities are paid abysmally low wages; and medical services, along with access to education, drug treatment, and vocational training frequently are on-paper fictions rather than genuine realities.

Privatisation might generate a few tens of millions of dollars for Arizona in the short-term; but the long-run costs – both financial and moral – of farming this basic state function out to for-profit private companies will likely be immense.