DALLAS – The Texas Senate is considering if taxpayers should bail out bond investors in a failed private prison that has remained vacant since it was completed in 2010.
House Bill 1025, which has already won approval in the House, is under consideration in the Senate Finance Committee, chaired by Sen. Tommy Williams, R-Woodlands.
The bill would provide $19.5 million for Jones County to pay holders of the defaulted bonds. In return, the Texas Department of Corrections would acquire the vacant 1,100-bed facility as a spare prison in the event that incarceration rates should unexpectedly increase.
More than 30,000 of the state’s 93,000 county beds are unoccupied both at county jails and at centers built through county-private partnerships, like the one in Jones County, according to the Texas Commission on Jail Standards.
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 prison was built by Deborah L. Williams Architecture and was to be operated for profit by Community Education Centers of New Jersey. The bonds were underwritten by Herbert J. Sims & Co. and Municipal Capital Markets Group Inc., with Hunton & Williams as bond counsel.
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.
Trustee U.S. Bank issued a notice of continuing default on March 31.
State Rep. Susan King, R-Abilene, said the state owes Jones County the money for the bondholders because it broke an agreement to house inmates in the for-profit facility.
“Now we’re looking at a county that has made no payments on this building; they’re in financial distress over it,” she said during a House debate.
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.
