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More problems for CEC in central Texas

Amid the recent news that CEC dropped it's contract with Falls County, the company also has concerns with the Jack Harwell Detention Center in Waco -- about a 45 minute drive from the Falls County facility -- creating more suspicion that CEC is not performing well in Texas. Since CEC is not a publicly-traded company, I was unable to find any SEC filings that could confirm these suspicions. However, the company has made significant spending cuts in Texas, suggesting a financial lagging.

According to Grits for Breakfast, the Jack Harwell facility in Waco is still failing to raise enough revenue to pay for itself:

"'McLennan County extended Tuesday an agreement to keep its downtown jail closed for another six months, but the arrangement will yield a substantially lower financial reimbursement than the original deal.' 'Lower' is relative, though. The county was supposed to receive $240,000 over the last six months and got nothing. Now they're supposed to receive $60K from the contract over the next six months, but could easily again wind up with nothing.

Regular readers will recall that McLennan County (Waco is the county seat) used the county's credit to issue bonds to build a large detention center, one not needed for their own purposes but built as a speculative venture to house inmates on contract, partnering with private prison company CEC to manage the facility. But the contracts never came, so McLennan actually closed their perfectly good, already-paid-for jail in order to move all the inmates into a pay per head contract facility, just so there'd be some revenue to pay the bonds. I found this mind-bogglingly irresponsible - a veritable doomsday deal, it's been called - but for several years before the recent economic bust the practice was all the rage.

Regrettably, the private prison company appears to hold all the cards in the negotiations and is threatening to walk away from the deal entirely, leaving county taxpayers holding the bag." 

The escape plan for CEC is similar in both Waco and Marlin. In both cities, CEC has no consequences for failure as the company can get up and leave, footing the bill of the jail to the county's taxpayers, all the while keeping the money they earned from facility they didn't have to pay for. Even if the jail operates at a loss, CEC can cut their losses and walk away whereas McLennan County will still owe the $49 million on the bonds. As stated by Grits:

Without the public really understanding the magnitude of what was happening, commissioners bet the economic farm on this deal. Said one commissioner, "What people have to understand is that so goes that jail, so goes McLennan County." Readers may recall that County Judge Jim Lewis claimed earlier this year that CEC, not the county, was on the hook to pay off the jail bonds. Now it's clear to everyone this was a pure corporate subsidy: The company profits if it succeeds, but if it fails they walk away and taxpayers must pony up for the debt or default and ruin the county's bond rating. 

While this situation appears as the story of a company taking advantage of a Texas County, it is also the story of a Texas County allowing it to happen. The best advice that any Texas County commissioners can receive is (1) to seriously question the need for a new jail or prison in the first place, rather than speculatively building one and hoping for a profit, and (2) if a jail or prison is absolutely necessary, manage the county budget in such a way that private prison companies need not get involved in the first place in order to avoid these types of financial meltdowns.

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