Texas Prison Bid'ness

Community Education Centers' speculatively-built Jack Harwell Detention Center in Waco, TX is still empty, two months after construction was finished. According to the Waco Tribune, CEC is still having troubles finding a federal agency to contract with the facility:

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.

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. (Regina Dennis, Waco Tribune, "A new jail in McLennan County--but no inmates to fill it," 23 April, 2010)

CEC was unable to find a sufficient amount of inmates to fill the facility in order to pay for the bond with revenue from housing inmates, which could put the county's Public Facility Corporation at risk of defaulting on a $49 million (plus interest). 

Attorney for the County, Herbert Bristow, was quoted in the article saying that the County is not liable to make payments in the case of a default. The facility belongs to the County's Public Facility Corporation. CEC is managing and operating the facility while the County's PFC pays for the construction and maintenance of the infrastructure, which puts the PFC on the hook for payments. 

Rick White, a long-standing follower of this McLennan County bond issue, told me Bristow "tried to convince the taxpayers who are on the hook for this $50 million, plus interest that [this facility] is a 'private jail.' Nothing could be farther from the truth." I tried to gather a response from Bristow, but he was unavailable for comment.

When reviewing the bond's text, there are many places that reference the County PFC's obligations to make payments for the "private jail." Even if CEC doesn't do their part and create a revenue stream by housing prisoners, the County's PFC is still be on the hook to make payments. Nowhere in this bond does it state that CEC is responsible for anything. Their only job in this agreement is to produce revenue within the facility, and if they don't, well, they don't make any money -- but they don't lose any money, either.

However, that doesn't mean that there is no risk to the County.  As we've seen in Littlefield, TX and Hardin, MT, localities can have their bond ratings devalued based on the performance of their PFC-owned jails. 

Despite this comfortable situation that CEC is in, the company is still asking for financial help from the County. Peter Argeropulos, CEC senior vice president, said "What we expected and what the studies had indicated have not materialized at this point" to which County Commissioner Kelly Snell responded "Your plan’s not working, and it’s not working because you can’t get the prisoners, so you’re coming to the court wanting concessions that are going to cost the taxpayers money, that’s where I have a problem" (Waco Tribune, "A new jail in McLennan County--but no inmates to fill it"). The concessions the Commissioner talks about was Argeropulos' solution to move inmates from Waco's other jail downtown into the new Jack Harwell Detention Center and essentially do their job of finding inmates for them.

This is a story of a prison company promising the world to a county by ways of a 'private jail at no cost to the county!' If other counties in Texas are considering a private jail, the story of Waco is a cautionary tale that should get taken into account when considering the options. How exactly this bond plays out is something we will have to wait and see. Whatever information we gather on the subject will surely get relayed back here, so check back here in the future to read the next chapter of this failing bond saga.