Willacy County facing economic devastation after riot at entrepreneurial private prison leaves unit 'uninhabitable'

Riots in Willacy County at a private prison housing federal immigration prisoners last week has been called "predictable" and has left the facility "uninhabitable." Texas Prison Bidness reminded us that "An ACLU report [last year] detailed squalid conditions, rampant abuse, and little to no medical care at the facility."

The detention center is run by the Management and Training Corporation, which operates ten other facilities around the state, employed 373 workers at the site, about half of whom live in the Raymondville and Willacy County areas while the rest live across the Rio Grande Valley." Those folks are now looking for work. According to the McAllen Monitor, "The prison pays [Willacy County] for every inmate it holds, pumping more than $2.7 million into county coffers last year." In addition, "In Raymondville, City Manager Eleazar Garcia said the prison’s closure could mean the loss of about $50,000 a month in water sales in the city whose annual budget projected about $3.6 million in water revenue." Observed the SA Express News:

The Willacy County economy is deeply dependent on the prison industry, floating tens of millions of dollars in bonds through a “Public Facilities Corp.” to build the Correctional Center. The county also has a 500-bed detention center operated by MTC under a U.S. Marshals contract, and a 1,000-bed state jail, operated by Corrections Corp. of America.

Each of the more than 2,800 prisoners in the Willacy correctional facility puts $2.50 per day in county coffers, adding up to about a quarter of its yearly budget of $8.1 million. It’s unclear who will be ultimately responsible for repairs to the building or how soon prisoners will return, if at all, leading some officials to worry the county could soon be faced with a budget shortfall.

Further, "The county owes about $63 million on the prison that opened in 2006," according to the county auditor, but the commissioners court claims "bond holders would assume any risk." That's a bit of fanciful thinking of which I'm sure the good folks in McLennan County could dissuade them, if anyone has ears to listen. Or, maybe they'll listen to S&P, which just downgraded the county's bond rating because of episode.

As an aside, there may be other jurisdictions salivating to house these prisoners and take advantage of MTC's woes, but be forewarned. The feds (ICE) have already begun assenting to bail in immigration cases for the first time in recent memory, perhaps in part in response to bed shortages in the system from the Willacy riot but more probably in reaction to a recent federal judge's ruling, still under review by the agency, ordering ICE to "stop denying bond to Central American families solely to deter more immigration." So the feds may yet figure out how how to absorb this group without doling out new contracts to other vendors.

I Can't Breathe, South Texas style, and other stories

Here's a browser clearing compendium of items  that merit Grits readers' attention even though I haven't had time to adumbrate them fully.

Wrong solution to culturally inept 'surge' participants
Is it true, as Valley legislators allege, that "Too many of the Department of Public Safety troopers assigned to the South Texas border region do not understand the local Hispanic culture and are unable to speak Spanish"? Perhaps. I'll even go with, "Probably." To me, though, the solution is to scale back the politicized, pointless, metric-free, "surge," not to build a damn training center down there to make it permanent! 

Lawsuit alleges sexual assault by employee of county jail contractor
A lawsuit by a former inmate alleges she was sexually assaulted by an employee of Community Education Centers, a private prison firm out of New Jersey that operates McLennan County's local jail, reported the Waco Tribune Herald. Jail privatization has already been a financial albatross for the county, but, if true, these allegations and the process of proving them in court might turn public opinion against the county's jail contracts more viscerally. 

I Can't Breathe, South Texas style
Eighteen students and staff members at a Raymondville ISD middle school were given medical treatment after they were exposed to tear gas during a training exercise at the neighboring Willacy County State Jail, reported KWTX TV.

New Tarrant DA will create Conviction Integrity Unit
The new Tarrant County DA Sharen Wilson will create a Conviction Integrity Unit. The fellow hired to run it, Larry Moore, said correctly that the lower number of exonerations in Tarrant may be because they “didn’t have the pattern of abuse you found in Dallas," as local officials have insisted. "But frankly, all the evidence was destroyed here, and Dallas kept it,” he added, which regular Grits readers know more accurately gets to the heart of the matter.

Priced to go
Outgoing Texas Court of Criminal Appeals Judge Tom Price spoke to the Austin Statesman's Chuck Lindell about his last-minute declaration that he opposes the death penalty after sending hundreds of men and women to death. (Price's views have migrated greatly from those of the judge who was warned by the State Commission on Judicial Conduct in 2001 for a campaign message touting that he had "no sympathy" for the criminal.) Regrettably, Lindell's conversation with the judge did not stray from Price's new-found death penalty views to plumb other topics like ideological splits on the court, relationships among judges following the Charles Dean Hood debacle, or his reasons for switching sides in Ex Parte Robbins I and II. I understand Texas Monthly will publish an interview with outgoing CCA Judge Cathy Cochran early next year, though don't expect her to break decorum and speak about the insider baseball stuff.

Reddy: Pretrial detention of low-risk offenders 'counterproductive for public safety'
Vikrant Reddy of the Texas Public Policy Foundation authored an editorial in the Houston Chronicle explaining how "pretrial incarceration of those who do not pose a high risk of committing a serious crime is counterproductive for public safety." He argues for "developing pretrial risk assessment instruments that can be used to make sound determinations about who needs to be in jail and who does not."

Read more here: http://www.star-telegram.com/opinion/opn-columns-blogs/bud-kennedy/article4119384.html#storylink=cpy

Mass imprisonment and public health
I'd missed a NY Times editorial from last month regarding harms to public health from mass incarceration. Here's a notable excerpt from its opening:

When public health authorities talk about an epidemic, they are referring to a disease that can spread rapidly throughout a population, like the flu or tuberculosis.

But researchers are increasingly finding the term useful in understanding another destructive, and distinctly American, phenomenon — mass incarceration. This four-decade binge poses one of the greatest public health challenges of modern times, concludes a new report released last week by the Vera Institute of Justice.

For many obvious reasons, people in prison are among the unhealthiest members of society. Most come from impoverished communities where chronic and infectious diseases, drug abuse and other physical and mental stressors are present at much higher rates than in the general population. Health care in those communities also tends to be poor or nonexistent.

The experience of being locked up — which often involves dangerous overcrowding and inconsistent or inadequate health care — exacerbates these problems, or creates new ones. Worse, the criminal justice system has to absorb more of the mentally ill and the addicted. The collapse of institutional psychiatric care and the surge of punitive drug laws have sent millions of people to prison, where they rarely if ever get the care they need. Severe mental illness is two to four times as common in prison as on the outside, while more than two-thirds of inmates have a substance abuse problem, compared with about 9 percent of the general public.

Common prison-management tactics can also turn even relatively healthy inmates against themselves. Studies have found that people held in solitary confinement are up to seven times more likely than other inmates to harm themselves or attempt suicide.

The report also highlights the “contagious” health effects of incarceration on the already unstable communities most of the 700,000 inmates released each year will return to. When swaths of young, mostly minority men are put behind bars, families are ripped apart, children grow up fatherless, and poverty and homelessness increase. Today 2.7 million children have a parent in prison, which increases their own risk of incarceration down the road.

If this epidemic is going to be stopped, the report finds, public health and criminal justice systems must communicate effectively with one another.

IRS auditing entrepreneurial Texas jails that improperly used tax-exempt bonds

Finally, the IRS has begun to dig into shady Texas jail schemes where publicly backed bonds were used to enrich private companies, socializing risk while privatizing potential profits. Purchasers of those bonds may soon be on the hook for taxes on their earnings and counties could see their own bond ratings reduced. Turns out, the whole idea of filling entrepreneurial jails with federal inmates should never have qualified for issuance of tax-exempt bonds in the first place.

According to The Bond Buyer (Oct. 17, behind paywall, though you can sign up for a two week trial subscription), "Roughly $23 million of tax-exempt senior lien revenue bonds issued in 2003 to finance a jail may be taxable private activity bonds, an Internal Revenue Service agent has told the West Texas Detention Facility Corp." in Hudspeth County. And they're not the only one:

The jail bond deal is the latest of dozens under audit where the IRS has suggested that significant amounts of federal inmates paid for by the federal government and management contracts with private parties make the bonds taxable private-activity bonds.

Tax-exempt bonds are private-activity bonds if more than 10% of the proceeds are for private use and more than 10% of the payments for debt service are from private parties. Under federal tax laws and rules, the federal government is considered a nongovernmental or private entity. PABs are only tax-exempt if they are issued for a “qualified” purpose, and a jail is not one of these.

For example, in August (8/23), The Bond Buyer reported that:

Bond counsel Jackson Walker LLP, based in Houston, has tentatively agreed to pay $400,000 to settle a tax dispute between Crystal City Public Facility Corp. in Texas and the Internal Revenue Service over $13.94 million of revenue bonds issued to finance prison facilities. The bonds were issued in 2003, but have been under scrutiny by the IRS since 2010 and in default since last year when the U.S. Marshal withdrew inmates because misconduct and security problems, forcing the facilities to close in May 2012 for repairs and improvements.

Their liability would have been greater if they'd succeeded in getting enough federal inmates to pay the bills.

The IRS’ concerns were two-fold, according to bond-related documents. First the IRS took issue with the management contract the city had with BRG, under which the net profits were split between the two. The IRS argued this compensation structure suggested “an equity interest in the operation of the bond-financed facility,” creating a private use and payments problem.

In addition, the IRS claimed the prison had too many federal inmates. Federal inmates are considered private, not public, parties under the tax law. The IRS contended that the economics of the prison would not work without substantial federal, and therefore private, use and payments. The federal government tends to pay more for incarceration of its inmates that state or local governments.

The only reason the Crystal City jail wasn't dinged harder was that the federal inmates never materialized. If they had, "Normally that would cause a problem, but since the bonds are in default, bondholders have not been receiving any tax-exempt interest that the IRS could declare taxable."

Another facility in Burnet County did find federal inmates to fill their extra beds, but as a result may now lose the bonds' tax-exempt status, The Bond Buyer reported Aug. 8:

This week, U.S. Bank N.A. filed event notices for two separate issuers that financed jails saying the IRS had indicated the tax-exempt bonds or COPs were not tax-exempt. The bank was trustee for both sets of bonds.

One notice said the Burnet County, Tex., Public Facility Corp. has received four letters from the IRS, the first on Dec. 12, 2011 and the most recent on April 12 of this year, seeking information about $35.38 million of project revenue bonds that were issued in 2008 to build a jail.

The bank said that, in the most recent IRS letter, the issuer was asked to provide information “regarding a preliminary conclusion by the IRS that the ... bonds ... violate certain Internal Revenue Code rules that cause [them] to be taxable.” The notice said the issuer is cooperating with the IRS and that “it is unknown at this time what the outcome of the IRS examination will be.”

Bill Neve, president of the Burnet County Public Facility Corp., said the county built the 586-bed jail to hold county prisoners but provided for some extra space so it wouldn’t have to expand the jail during the next 20 years or so. The IRS is concerned about the number of federal prisoners in the jail, many of whom were housed for less than 100 days, he said.

The PAB rules contain an exception for short-term private use and define that to be less than 100 days. But Neve and other sources indicated that if the IRS thinks there is a significant number of federal inmates, it does not take that exemption into account.

In yet another instance down in Willacy County, The Bond Buyer reported Aug. 28th that the bond terms actually contemplated the possibility that the tax-exemption would be disallowed, showing they knew up front this was a dicey deal:

Bonds issued for Willacy County, Texas’s $7 million jail in the town of Raymondville are among several being audited by the Internal Revenue Service to determine whether its bonds should lose their tax exemption, according to County Judge John F. Gonzales.

Gonzales disclosed the audit at a meeting of the Willacy County Commissioners Court earlier this month, according to the Valley Morning Star of Harlingen.

The south Texas county, which has invested heavily in the prison industry, has a large stake in the tax-exempt status of the prisons. The county seat of Raymondville has earned the nickname “Prisonville” because of its heavy concentration of private lockups, most housing federal inmates on immigration violations.

Refinancing the $3 million of outstanding bonds as taxable would cost the county about $200,000, Gonzales said. The jail was built using 2004 bonds bearing 7.5% coupons on maturities of 2029 with yields of 7.75%, according to the Municipal Securities Rulemaking Board’s Emma Web site.

The original $7.65 million of unrated bonds were issued in the name of the County Jail Public Facility Corp. of Willacy County. ...

According to the official statement for the 2004 deal, interest rates would rise to 140% of the original issue rate if the deal were found to be taxable, or the issuer could redeem the tax-exempt bonds at a price equal to 105% of principal, plus accrued interest.

For barely populated Willacy County, it should be noted, $200K is real money.

The facility in Jones County that the Legislature refused to bail out last spring was another example of a failed "public-private partnership" whose bonds would lose their tax exemption if it were filled with federal inmates. The Bond Buyer reported May 2: 

The prison was pitched as an economic stimulus measure that would provide 200 jobs and annual economic impact of $5 million.  County commissioners promised county taxpayers that the for-profit prison would rely on lease payments from the state and never require local tax support. ...

The bonds used to build the prison carried junk ratings of BB from Standard & Poor’s.  Original coupons ranged from 7.25% to 9%. That rating fell to D when the default occurred. ...

The bonds were issued by the Midwest Public Facility Corp., a conduit issuer overseen by the county commissioners.  The bonds were issued as tax-exempt debt.  The issuer failed to make its $2.23 million interest and principal payment due on Oct. 1, 2011.

Meanwhile, The Bond Buyer reported Aug. 16, "Zapata County, Texas, may pay a settlement or refund bonds after an audit of $9.97 million of its debt by the Internal Revenue Service."

Lots of Texas counties have entered into these sorts of entrepreneurial jail deals and many of them have gone bust because federal inmates they counted on to pay the bills never materialized. These stories, though, show these were ill-considered and likely illegal schemes from the get-go - even if they "worked" and federal inmates were found to cover costs. Many Texas counties, like McLennan (Waco), already have had to raise taxes to cover costs for empty, never-should-have-been-built lockups. Now, it's clear their problems won't subside even if those much-touted federal inmates ever do arrive.

Are counties on the hook for debt issued by 'nonprofits' they create to oversee jail bonds?

Having yesterday mentioned Montgomery County's entrepreneurial jail scheme gone awry, I should mention another instance where a county in South Texas (Willacy County - Raymondville is the county seat, such as it is - just north of Cameron) must finagle a way out from under a growing pile of debt related to financing the Willacy Detention Center, which has failed to achieve the projected number of additional inmates after an expensive, recent expansion. A July 9 story from the Valley Morning Star on the controversy opened:

Willacy County’s debt for privately operated prisons has swelled to the point where the county may never be able to pay it back, District Attorney Bernard Ammerman says.

Comparing the debt to the ill-fated ocean liner Titanic, Ammerman says a private prison deal is on a collision course with an iceberg of debt that will sink the county financially.

But County Judge John F. Gonzales Jr. and others say the district attorney is wrong, countering that Ammerman does not understand the types of bonds used to refinance the prisons.

Attorneys who advise the Willacy County Local Government Corp. say the county and its taxpayers are not responsible for the debt connected to the so-called “tent city” detention center near Raymondville.

The debt has grown as a result of construction and renovation costs at the “tent city,” Ammerman said.

The detention center, originally built to house illegal immigrants, was refinanced last year and converted to house low-risk federal inmates from the U.S. Bureau of Prisons in the last year of their sentences, Gonzales said.

A new agreement with the federal government assures the county there will be a steady stream of income from the contract to house prisoners, the county judge said.

The Bureau of Prisons has contracted for 90 percent of the beds in the “tent city” or “dome structures,” and must pay whether they are used or not, he said.

The facility is operated by Management and Training Corp., which also ran the illegal immigrant detention center, he said.

The DA also accused county commissioners of improperly raiding the WCLGC for other projects.

Like in Montgomery County, where commissioners may sell a local prison set up under a nonprofit financing structure to avoid debt liability, Willacy County created a nonprofit, this one with two commissioners among five board members, which ostensibly carries the debt. According to the bond prospectus (large pdf, p. 19), "The Issuer [of the debt] is a nonprofit corporation formed on behalf of the County pursuant to the Act and Resolution Authorizing the Creation of the Willacy County Local Government Corporation of the Commissioners Court of the County (the 'Commissioners Court') adopted on June 19, 2006. The Issuer was formed for the purpose of financing the Facility for and on behalf of the County. ... In addition, the Commissioners Court has the right at any time to dismiss any director, for cause, or at will, and to appoint a successor to take his or her place."

It is true that the bond prospectus specifically states that, "The Series 2007 Bonds do not constitute an obligation, either special, general or moral of the County, the State, or any other political subdivision thereof." But given the level of control exercised by the commisioners court over this nonprofit - including authority to dismiss directors at will - it's wishful thinking for the County Judge to pretend that means the county won't take a severe hit on its credit rating. They'll be in the position of Germany, forced to bail out Greece in order to save the Euro.

The DA's main argument wasn't that the county was directly, legally liable, but that “Primarily our credit rating will go to junk status even more. We’ll never be able to have any type of bond issuance for anything.” He's absolutely right about that: Bond ratings agencies would consider a default by the Willacy County Local Government Corporation a major black mark and downgrade current and future Willacy County debt, raising costs to deliver government services across the board. Their just-a-little-too-smart-for-their-own-good Chinese wall may formally protect them from liability on paper, but it won't protect them from the harsh judgments of bond ratings agencies nor those who might lend the county money in the future. That old mumpsimus ignores reality.

The 2007 bond prospectus actually foresaw (p. 7) that the nonprofit's ability to pay the bonds is predicated on continued high occupancy:

The continuing demand for the beds in the Facility is predicated on the assumption that demand for detention space, in the aggregate, will continue to exceed the supply of available space. However, due to economic, social, and political factors, it is impossible to predict whether this assumption will hold true. In general, the closer the supply of bed space comes to meeting or exceeding the demand therefor, the more difficult it will be for the Issuer to house inmates at an occupancy level and at per diem rates which will generate Facility Revenues sufficient to pay principal and interest on the Bonds and to pay Operation and Maintenance Costs.

But that was written before the incarceration bubble began to burst. Today, the market has changed and there are many facilities competing for fewer contract inmates, leading some market analysts to argue against private prisons' long-term viability as investments. If the Willacy Detention Center can keep its inmate numbers up, they shouldn't have a problem. If they can't, commissioners would be foolish to suppose the county won't pay a price in the bond market for creating its own pet nonprofit, issuing a bunch of debt through it, then walking away.

Could Cheney, Gonzales indictments be legit?

The Brownsville Herald on Sunday ran a feature profiling Willacy County DA Juan Angel Guerra ("Guerra bucks the odds," Nov. 30) and his much-ballyhooed prosecution of a private prison company for murder, including indictments of sitting Vice President Dick Cheney and former US Attorney General Alberto Gonzales.

Because Willacy County politics is a complete zoo, sometimes literally, I avoid the more lascivious stories about Mr. Guerra and his various feuds with other local officials. His past exploits are why most observers (including this blog) have been dismissive of the Cheney and Gonzales indictments, but the Herald offers up the most sympathetic account yet published of Guerra's effort to drag national political figures into the mix in Raymondville. Guerra alleges that Alberto Gonzales intervened to stop an investigation into a private prison firm operating the local jail, a business in which the Vice President has personal investments:

He is most interested in "cutting the head off the snake - which is cutting off what Gonzales and Cheney are doing," Guerra told The Brownsville Herald on Wednesday.

The DA is referring to Vice-President Richard B. Cheney's and former U.S. Attorney General Alberto Gonzales' alleged neglect of inmates and failure to oversee operations of privately managed and owned prisons that contract with governmental agencies to house inmates. He claims that Cheney has investments worth more than $85 million in the Vanguard Group, which in turn invests in for-profit prisons and profits from Cheney's neglect.

He alleges that Gonzales stopped investigations into assaults at for-profit prisons in Willacy County.

A Willacy County grand jury indicted Cheney and Gonzales Nov. 17. "We the Grand Jury of Willacy County Texas duly selected and empanelled, and with great sadness, concerned and because we love our country have no choice but to move to indict our sitting Vice President Richard B. Cheney and Alberto Gonzales . . . ," the indictment states.

The grand jury also indicted the GEO Group, formerly Wackenhut Corrections Corp., Warden David Forrest and other high-profile officials for a stream of alleged offenses from organized criminal activity, murder/manslaughter, accepting fees from private prison firms by virtue of public office to official oppression.

Has he really lost it psychologically this time as some persons suggest? ...

"Does it mean that 12 people lost it also?" Guerra said of the grand jury that returned the Nov. 17 indictments.

Some say that Guerra "could be off," but "like a fox."

Yet others, like Nueces County retired state District Judge Michael J. Westergren, who has practiced law for nearly 40 years, think Guerra is on to something.

Westergren told The Brownsville Herald Wednesday that Guerra is the only one who has had the "gumption" to investigate privately owned and managed prisons and their lack of oversight.

"I certainly think it is a serious matter. It's not frivolous by any means," Westergren said, referring to Guerra's case relating to private prison firms. He said there is "substantial support" to the allegations.

Opining that investigations into activities within the private prison system had been suppressed, Westergren said, "That's not good."

"It's a nationwide problem," said Westergren, adding that the incidence of death in private prisons is estimated to be substantially higher than at other facilities. "That's pretty bad," he said.

Guerra said he invited Westergren to his office to view the evidence. Westergren described himself as an "unpaid consultant."

The indictments against Cheney, Gonzales, GEO and Forrest revolve around the 2001 beating murder of Gregorio de la Rosa in the jail in Willacy County that Wackenhut managed, Guerra said.

The Cheney connection still seems awfully slim to me without some evidence the Veep did more than invest in a private prison company. But if Guerra can show the former Attorney General personally intervened to stop a Justice Department investigation into De la Rosa's murder (or other assaults at Raymondville's various private prisons - they're the town's biggest industry), perhaps there may turn out to be some fire, or at least a little heat, behind all the smoke Mr. Guerra is blowing.

UPDATE: Indictments dismissed.