OVERVIEW OF PRISON BOND
CASE STUDIES
As noted
in the Prison Finance
section, over the last
two decades, a majority
of new prisons (both
public and private) have
been financed by issuing
different kinds of
bonds. Lease revenue
bonds and certificates
of participation, in
particular, have been
widely used. The
issuance of these bonds
often involves creating
new entities such as
non-profit building
corporations or shell
agencies that serve as
conduits for
facilitating the
process. But such
arrangements also add to
ambiguity over ownership
and lack of
accountability and
liability when problems
occur.
In spite
of the increase of the
number of prisons and
other infrastructure
projects funded with
bonds, many of these
projects have been
marked by problems
relating to their
financing mechanisms.
When bond deals are put
together without
adequate due diligence
or public participation,
they can, as some of the
cases in this section
will illustrate, create
serious financial and
legal challenges for
communities and
municipalities.
Such
problems can arise
because a project may be
ill-conceived. For
example, in the case of
Grady County, Oklahoma,
officials issued $17.5
million in bonds to
finance two county jails
that could end up in
default because
projected revenue
streams were
unrealistic. The county
is exploring options to
get out of its financial
mess.
In some
cases, elected officials
may not be aware of the
implications of a deal
or contract. For
example, elected
officials in the state
of Louisiana claimed
that they had not been
told that the state was
legally bound to make
payments for the
Tallulah Youth Facility
even if the facility
closed. The state
continues to pay $3.4
million in annual debt
service payments, after
Tallulah's juvenile
detainees were
transferred to other
locations, because bond
rating companies
threatened to downgrade
the state's credit
rating if it stopped
making payments.
The Texas
examples show how the
bond issuance process
can be influenced by
community engagement and
how communities are
using the public
participation process to
negotiate projects.
North Carolina's
examples illustrate how
it has departed from
traditional financing
methods and is
increasingly using
appropriation debt
financing to support
prison expansion, which
also has had its share
of problems.
For more
see:
The Kingman facility
The Tallulah Juvenile
Facility
Three
prisons in Anson,
Alexander and Scotland
Counties &
Two prisons in Greene
and Bertie Counties
Two
jails in Grady County
La
Salle County Facility
Hudspeth facility
Reeves County Detention
Center III
Other Texas cases
