Community Education Centers, the New Jersey-based detention company under contract to manage and operate the jail, has been unable to secure agreements with state and federal agencies to house inmates.Naturally, CEC wants the county to bail them out. This is becoming a too-familiar tale, and for good measure, in this particular case let me throw in an "I told you so." This outcome was as predictable as it was unnecessary and ill-advised. The same thing happened with CEC in Johnson County, the Trib noted:
Meanwhile, CEC must begin repaying the $49 million in project revenue bonds that financed the construction of the jail. The $313,000 monthly debt service is to be paid using revenue from housing inmates, placing the company under a crunch to fill beds.
While funds already have been set aside for the first payment of $1.9 million due in June, CEC must begin making revenue soon or risk defaulting on the bonds. Doing so would mean the county loses the new jail.
CEC wants some relief from the county to cover the financial obligation, but some commissioners say getting involved could end up costing taxpayers.
CEC exercised an escape clause last month to pull out of managing Johnson County jails with one more year to go on a three-year contract.
Argeropulos said Johnson County’s jail population had dropped by 25 percent, causing CEC to lose money.
A separate entity was created to issue the bonds, so county taxpayers aren't formally on the hook, though I suspect it would affect the county's bond rating in the event of default.
Herbert Bristow, attorney for the county, said if CEC defaulted on repaying the bonds, the county would not be liable to make payments.
The McLennan County Public Facility Corp., a seven-member board including the commissioners court, issued the bonds in 2009.
“It was done by design to insulate the county,” Bristow said. “But the end result is if it’s a doomsday deal, and we can’t find any prisoners to put in it . . . the bondholders have the right to take the property back and get whatever value there is in it.”
This is happening all over the state: This month Littlefield, TX had its bond rating lowered and now, according to Texas Prison Bidness, must "reduce spending in other areas to pay a debt service on an empty jail." Down in Webb County, which is presently considering a similar deal, commissioners should take these as cautionary tales - harbingers of the dangers of speculative, entrepreneurial jail building.
Private prisons enjoyed a market "bubble" over the last several years that appears to be bursting. I suspect this won't be the last time we see one of these speculative jail building deals fall through after construction is complete. These companies have figured out how to make their risk public and the profits private. That's a smart business model for them, one supposes, but Waco's example shows why it's not such a great idea for taxpayers.