Texas Prison Bid'ness

I've been covering this story over at the Grassroots Leadership blog. Last month, Williams & Williams Worldwide Real Estate Auction thought they had sold the Bill Clayton Detention Center - formerly operated by the GEO Group - for $6 million to an anonymous online buyer.  You can watch the auction, where prisoners are referred to as “product,” here.

Now, the City of Littlefield has announced that the buyer has backed out the deal.  According to a story yesterday at KCDB.com (“Littlefield Detention Center bid falls through,” September 16, 2011):

“The private buyer made the offer via telephone during the July auction.  Thirty days after the bid, the contract on the property was supposed to close.  However, the City received word that the deal had fallen through.

‘It didn’t happen and the reason it didn’t happen was because the person who put in the highest bid basically backed out on their bid and kind of put us in a tailspin,’ City Manager Danny Davis said.

After years of mismanagement and broken contracts, the $11 million dollar detention center sat vacant. The city was left to foot the bill, still owing more than $9 million on the property.  The city was certain the bid of $6 million would help close the gap on their debt.  The news of the bidder’s change of heart is frustrating for Davis.”

As we've written about in the past, Littlefield has been paying back loans it floated to build the prison facility before its closure in 2008. That year, the state of Idaho pulled its prisoners from the facility, then operated by GEO Group, 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.  One has to wonder why, given this history, a different owner would be more successful in turning this "turn-key detention center" into a financial success. 

We'll keep covering this story as more details emerge.

Littlefield's troubled Bill Clayton Detention Center in west Texas, featured last month in an NPR expose about the problems with speculative private prison building, is now, literally, on the auction block. 

According to a press release this morning on Business Wire ("Williams & Williams to Auction Medium Security Detention Center in Littlefield, TX On July 28th," June 7)

A unique opportunity to acquire a turn-key medium security detention center will be offered when Williams & Williams Marketing Services, Inc. auctions the Littlefield, TX-based Bill Clayton Detention Center on July 28th at 11 am CDT. Offered in cooperation with Coldwell Banker Commercial Rick Canup Realtors, the property will sell to the highest bidder above the opening bid of $5,000,000. Interested buyers can bid on site or live from anywhere via www.auctionnetwork.com.

However, buyers may be wary of such a purchase. Littlefield has been paying back loans it floated to build the prison facility before its closure in 2008. That year, the state of Idaho pulled its prisoners from the facility, then operated by GEO Group, 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.  One has to wonder why, given this history, a different owner would be more successful in turning this "turn-key detention center" into a financial success.

In a fascinating and disturbing example of what can go wrong when a locality finances a speculative prison, the Fitch ratings agency has downgraded the City of Littlefield's bond rating after the city's GEO-operated Bill Clayton Detention Center lost its contract to hold Idaho prisoners, and has subsequently been dumped by the private prison corporation. 

According the Ad Hoc News article ("Littlefield, - Fitch Downgrades Littlefield, TX' COs to 'BB'; Outlook Negative," August 24th)

Fitch Ratings has downgraded to 'BB' from 'BBB-' the rating on Littlefield, TX's (the city) outstanding $1.3 million combination tax and revenue certificates of obligation (COs), series 1997, and removed the ratings from Rating Watch Negative. The CO's constitute a general obligation of the city, payable from ad valorem taxes limited to $2.50 per $100 taxable assessed valuation (TAV). Additionally, the COs are secured by a pledge of surplus water and sewer revenues. The Rating Outlook is Negative.

The downgrade reflects events related to the operation of the city's detention center facility, which accounts for the majority of outstanding debt (which was not rated by Fitch but is on parity with the series 1997 bonds). To the surprise of city officials, Idaho announced their plans to leave the Littlefield facility in January 2009, citing the need to consolidate all of its out-of-state prisoners into a larger facility in Oklahoma. In addition, the detention center's private operator, the Geo Group, unexpectedly announced termination of their agreement to manage the facility effective January 2009. The move to leave Littlefield by the Geo Group is significant, given that the established private operator had made sizable equity investments in the detention center reportedly totaling approximately $2 million. In the past, the ability of the Geo Group to quickly replace prisoners with little disruption in operations, as well as their investment in the Littlefield detention center were cited as credit strengths.

The article isn't quite accurate in saying Idaho's decision to remove prisoners from the facility was a surprise.  The decision followed the suicide of Idaho prisoner Randall McCullough, who killed himself after the GEO Group held him in solitary confinement for more than as a disciplinary measure.  McCullough's death followed the tragic death of Idaho prisoner's Scot Noble Payne a year prior at GEO's Dickens County Correctional Center. After Noble Payne's suicide, a subsequent investigation revealed squalid conditions and the Idaho Department of Corrections Health Director called the GEO prison the worst facility he'd ever seen.

Still, the outlook for Littlefield isn't good.  According to the Ad Hoc News article,

On Dec. 9, 2008, Fitch placed the series 1997 bonds on Rating Watch Negative, reflecting the city's active pursuit of various alternatives to remedy the situation and possibly resolve it within the next several months. Funds to repay debt service on detention center COs through August 2010 had been identified through available city funds as well as a debt service reserve fund. The city indicated to Fitch in May 2009 that it was in negotiations with another established jail operator (the operator) to assume management of the Littlefield facility and that the operator was attempting to secure an agreement with a federal agency to house prisoners. Resolution or near resolution of this agreement was expected by August 2009. However, the operator has yet to secure a prisoner agreement and the timing for resolution remains uncertain.

Littlefield's story should be a cautionary tale for other cities and counties considering floating debt to finance a private prison corporation.  We'll keep you posted on how this story develops.  In the meantime, see our previous coverage of the Bill Clayton Detention Center:

Removal of Idaho Prisoners from GEO Jail Threatens County's Finances, Jan. 15, 2009

Idaho Cancels Contract with GEO's Bill Clayton Prison, Nov. 6, 2008

Idaho Removes Some Prisoners from Texas Private Prisons, Oct. 15, 2008

AP on Idaho Inmates in Texas Private Prisons, Sept. 24, 2008

Idaho Inmate Died After More Than a Year in GEO's Solitary Confinement, Sept. 22, 2008

Another Idaho Inmate Commits Suicide in a GEO Group Texas Prison, Aug. 21, 2008

Idaho Prisoners Also Being Transferred to GEO’s Bill Clayton Unit, July 23, 2007