Money/Financial Interests

NPR covers financial problems with speculative lock-ups in Texas, and the background is even more troubling

NPR's John Burnett has an excellent piece today ("Private Prison Promises Leave Texas Towns In Trouble," March 28) about several Texas communities that have been left high and dry by private prison deals gone bad.  The story is the second part of a two-part series on private prisons - Friday's story chronicled the GEO Group's extremely troubled Walnut Grove youth prison in Mississippi.

Today's story follows the fortunes of Littlefield, home to the Bill Clayton Detention Center, formerly operated by GEO Group.  That community has been paying back loans it floated to build the prison facility before its closure in 2008.  According to the story:

"For the past two years, Littlefield has had to come up with $65,000 a month to pay the note on the prison. That's $10 per resident of this little city.

...  To avoid defaulting on the loan, Littlefield has raised property taxes, increased water and sewer fees, laid off city employees and held off buying a new police car. Still, the city's bond rating has tanked.

The village elders drinking coffee at the White Kitchen cafe are not happy about the way things have turned out. 'It was never voted on by the citizens of Littlefield; [it] is stuck in their craw,' says Carl Enloe, retired from Atmos Energy. 'They have to pay for it. And the people who's got it going are all up and gone and they left us...'

'...Holdin' the bag!' says Tommy Kelton, another Atmos retiree, completing the sentence."

The backstory to the Bill Clayton Detention Center is no less troubling. The state of Idaho pulled its prisoners after the suicide of Randall McCullough, who, according to news reports, had spent more than a year in solitary confinement.  GEO was later hit with a massive lawsuit over in the McCullough case. Since the facility's closure, Littlefield has had its bond ratings dropped and turned to two different private prison companies in an effort to fill the prison beds.   Idaho had pulled its prisoners from another GEO-operated facility in Texas - the Dickens County Correctional Center - in 2007 after an investigation of the suicide of Idaho prisoner Scot Noble Payne found "squalid" conditions.

And Littlefield is certainly not alone in troubles brought about after private prison deals went bad.  The NPR story today tells of how the CEC-operated Jack Harwell Detention Center in McLennan County sits half-empty after county spent $49 million to build it.  The sitting McLennan County Sheriff was on the payroll of CEC at the time the county voted to finance the construction of the facility. 

And, Scot Henson over at Grits for Breakfast recently chronicled a long list of privately operated jails that are seriously under-capacity due to a declining prison population.  Of course, there is an obvious public interest in declining prison populations and low crime rates.  However, private prison corporations are always looking for new groups of people to put behind bars.  Right now, companies like CCA and GEO Group are betting on increased immigrant detention, but the trend hasn't carried far enough to save towns with speculative prisons like Littlefield.

State Budget Deficit Might Result in Termination of 2,000 Private Prison Beds

Texas' current budget deficit might result in a termination of private prison contracts.  According to the Financial Times:

The Texas budget plan includes closing 2,000 places in private prisons and more than 1,500 job losses.

And according to Scott at Grits for Breakfast, the Texas Department of Criminal Justice (TDCJ) budget summary outlines 1.3% of spending in the current fiscal year. However, according to the TDCJ budget summary, it seems that these cuts may be to treatment prison beds and not hard prison beds.  The cuts mentioned involve beds in substance abuse and intermediate sanction facilities.  

These are still prisons that require many low-level, non-violent prisoners to be away from their families and communities. However, if law makers really want to reduce corrections spending they should be exploring opportunities for sentencing reform that continue to reduce the number of people who enter into Texas prisons and their length of stay.

We will continue to monitor the budget's impact on private prison capacity as it develops.

Texas 2011 budget plan includes private prison cuts at TDCJ

With the new year comes the newly proposed Texas budget plans. While seemingly no department or sector was spared from the widespread cuts, we were surprised to hear that private prison cutbacks were on the table in this tough-on-crime state:

In public safety and corrections programs, the budget report recommends shutting down a unit in Sugar Land, three Texas Youth Commission lockups and 2,000 private prison beds, a move that could close at least two additional lockups. About 1,562 prison jobs were also chopped.

Probation programs would see funding cut by 20 percent, parole supervision would be cut by almost 9 percent, and the agency's construction and maintenance funding could be cut by 83 percent, along with 90 jobs. The Victims Services Division would be eliminated. (Kate Alexander, Austin American-Statesman, "Spartan budget plan calls for broad cuts," January 19, 2011).

When browsing around the actual budget plan document itself, the Legislative Budget Board looks to other states that, in an attempt to balance the state budget, have also cut private prison contracts:

Other states, including New York, Colorado, North Carolina, and Kansas, closed units with excess capacity, left correctional positions vacant, reduced correctional staffing levels, reclassified facilities and ofenders, and terminated contracts for private facility operations. In most cases, decisions on prison closures, reclassifications, and changes in staffing levels necessary to achieve the desired level of savings were made by the chief executive leadership of the states’ Department of Corrections under direction by the Legislature or governor. North Carolina and Kansas both experienced savings of approximately $23 million from the realignment decisions, while New York’s changes resulted in savings of $8.4 million per year. (page 337)

We will continue to monitor the 2012-2013 budget plans while trying to find more specific information regarding which private prison contracts (if any) are on the chopping block.


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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