I think Deano's ID'd the right place, but it's possible that the timeframe doesn't match up. It looks like that facility opened in the 50s, but it's possible it served some other purpose prior to that. FWIW, it was city property, so if your relative would have been arrested in somewhere other than the City of Los Angeles, it might not be the place. Still, I think it's the most likely location.
At any rate, the land in question is now home to our local water district, the Castaic Lake Water Agency. They have an elaborate setup there with gardens and such, and for some reason, there's also a plot of farmland, which is odd being in the middle of this city in this day & age, much less atop a small mountain. Luckily, Google now has aerial photographs of the area, so you can see what it looks like now. I've never been up there, but there is a water tower and shells of former buildings that look pretty old.
http://g.co/maps/4sf9pThe area nearly became the site of a state prison in the 80s.
Another likelihood is that it was the Wayside Honor Rancho, which was the first honor farm in California. I think that was opened in 1938. Today it's known as the Pitchess Detention Center. It isn't in Saugus today, but the majority of the Santa Clarita Valley was considered to be "Saugus" decades ago (even today, a semi-formal name and nobody agrees exactly on where it begins and ends).
As I'm sure you've seen, there's the pornographer who did time in a "Saugus prison farm" in 1947 as well. If you have access to some academic databases, you might be able to find some more reports from the period, as it was a pretty big deal.
Also, there's a local historical society,
http://www.scvhistory.com and there's a local expert on these things, Leon Worden, who's always been very helpful when I have a question about local history. His email is
lworden@scvtv.com