Entrepreneurial prison scheme in Montgomery County may lose tax-exempt status for too-few local inmates

The blog Texas Watchdog brings word of another county level public-private jail scheme seemingly gone awry, drawing a federal investigation that could result in the loss of non-profit status for a separate corporation set up by the county to run the operation. Grits discussed the arrangement (and the risks) in some detail back in 2008. The problem: Projections of ever-rising numbers of county inmates never materialized, and if the jail is not being used for county purposes, it's just an entrepreneurial project, not deserving of non-profit status. Reported the Conroe Courier:

The Montgomery County Jail Financing Corporation was created, in part, to seek financing through bonds exempt from federal taxes. But the approval by the Internal Revenue Service in 2006 was based on a ruling request stating federal prisoners – including those from the U.S. Marshal’s Office and Immigrations and Customs Enforcement – would occupy an average of 70 percent of the 1,100 beds in the facility, according to county documents.

The Joe Corley Detention Facility started housing its first inmates in August 2008.

In that same ruling request, submitted by Houston law firm Fulbright and Jaworski LLP on behalf of Montgomery County, after the initial five-year operating period, “(the) county expects that the number of county prisoners or prisoners of other local governmental entities in the county housed in the Jail will exceed 30 percent of the beds. Eventually, County expects that non-federal prisoners will occupy close to 100 percent of the beds in the Jail.”

But no county inmates are being housed in the Joe Corley Detention Center, County Judge Alan B. Sadler said Friday.

“We would be losing our tax-exempt status because there aren’t enough county inmates in Joe Corley,” he said.

If Montgomery County lost the tax-exempt status for the approximately $45 million in bonds it issued to cover construction costs and associated fees, Sadler said, “the tax implications would be huge.”

He and commissioners “did not anticipate” the potential loss of the tax-exempt status for the detention center, he said. 

Commissioners "did not anticipate" the possibility the jail wouldn't fill up and risk the viability of their deal, but Grits did. So it wasn't that the problem couldn't be anticipated, but county officials thought they could get something for nothing. In politics as in life, though, there's no such thing. For a while these sorts of "partnerships," which socialized risk while privatizing profits, were achingly common among Texas counties.  But they fostered utterly predictable perverse incentives that came back to bite those jurisdictions when the private prison bubble began to burst. Now Montgmery County wants to sell off its bad investment. Perhaps they'll find a buyer - the GEO Group, which presently operates it, is reportedly interested - but it'd be worth checking in with the City of Littlefiled to see how that endgame strategy worked out for them. Private prison companies typically only want to buy facilities where pols are foolish enough to guarantee them inmates.