In 2003 a legal review of the contract concluded that the state had the right to terminate its agreement with the private contractor, so the Legislature voted to close the prison. The facility, however, stayed open until June 2004. In addition, the state is required to pay $3.4 million in annual debt service payments for the next 15 years. TADA will retain ownership of the facility even after the debt is paid off. The Department of Corrections wants to convert the facility into an adult substance- abuse treatment center for prisoners. Community leaders and criminal justice activists, however, have told the House Appropriations Committee that they no longer want a prison in the middle of their town and want to turn the facility into an educational facility. The community proposal suffered a setback when the House Budget committee amended the bill to require the state to buy the facility before any money is spent on renovations.
In 1994 the Louisiana Department of Corrections (DOC) entered into a "cooperative endeavor agreement" with the City of Tallulah and a private prison developer called Trans-American Development Associates to construct, finance and operate the Swanson Correctional Center for Youth-Madison Parish Unit, better known as the Tallulah Juvenile Facility. Called the nation's worst "gladiator school," Tallulah's juvenile prisoners have been transferred to other locations over the past year.1
Cooperative endeavor agreements are typically public-private partnerships and can encompass almost any contract between the state and a private party. In the case of the Tallulah facility, it was privately owned but paid for with state-backed bonds.
The primary owners of TADA are George Fischer, a chief of staff, campaign manager and transportation secretary under former Governor Edwin Edwards; James Brown, former Tallulah State Senator Charles Brown's son; and Verdi Adam, who had business connections with Fischer.
Under the cooperative endeavor agreement, TADA contracted with the state to build and operate the facility, even though none of the owners had any experience managing prisons.2 The company raised the money for constructing the facility by issuing bonds, which would be paid off through an annual appropriation from the Legislature. The Tallulah debt was not backed by the full faith and credit of the government. Under state law, the Louisiana Bond Commission is supposed to approve any bonds issued by state or local government bodies. The Tallulah agreement was unique because the Bond Commission never reviewed it.3
In 1999 the DOC took over maintenance and operations of the facility after serious incidents of violence and abuse were reported. But the state continued to pay TADA and its three owners about $3.4 million a year for debt service. Under the cooperative endeavor agreement, TADA would continue to own the facility even after the state paid off its debt.4
A clause under the cooperative endeavor agreement allowed for the agreement to be voided if the Legislature did not fund the annual payments. But bond-rating firms ruled that the Tallulah debt was a state obligation. In the event of a default, Ambac, the bond insurance company, would have to pay off the debt if the state ended its agreement.
In 2002 the legislature wanted to end its contract with TADA, but the House Appropriations Committee was unable to implement the decision to shift money from its operating budget for the Tallulah facility to fund the purchase of a closed facility in La Salle Parish. Funding for Tallulah was restored through an amendment to the House bill under pressure from bond rating firms that contacted state officials and told them that the state had already damaged its financial reputation by just talking about ending the contract. They also threatened to downgrade the state's bond rating if it cut off funding for the prison.
State legislators alleged that they had not been advised about the potential liability of the deal when the state first considered entering into a cooperative endeavor agreement with TADA. Senator John "Jay" Drennan was of the opinion that "the state might be better off buying the facility for $27 million than it would by continuing to make annual payments to the owners."5 A one notch downgrade would cost the state about $7.4 million more in interest payments for the state's average annual debt of $200 million.6
Community members and criminal justice activists who supported closing the prison realized that the bond issue had to be addressed if they wanted to succeed in their efforts. In October 2002 Richard J. Marks, a partner at the law firm Piper Rudnick, was brought in to review the agreement. He concluded that the state had the right to terminate the cooperative endeavor agreement and showed that the problems at Tallulah7 "could invalidate the spirit of the agreement that requires a benefit to the public at a reasonable cost."8
He also pointed out that, "one element of cooperative endeavor agreements -- typically between public and private entities -- is that they must not only serve a public purpose, but also create public benefit proportionate to the cost." Marks' analysis pointed out aspects of the agreement already under attack, including the fact that the state would not own the prison even when the debt was paid off, and that between 1995 and 2001 the three owners of TADA had received almost $9 million in dividends and salaries when the prison had already been taken over by the state.9
Marks argued that under the circumstances, the agreement may not have met Louisiana's legal standards for cooperative endeavors. Marks submitted his report on April 18, 2003, two weeks before the Legislature introduced a bill to close Tallulah. The bill passed this time and was signed into law.10
The state, however, is still required to pay $3.4 million in annual debt service payments for the next 15 years. TADA will retain ownership of the facility even after the debt is paid off. The last of the juveniles were transferred from Tallulah in early June 2004. The Department of Corrections plans to turn the facility into an adult substance abuse treatment center for prisoners. Community leaders and criminal justice activists, however, have told the House Appropriations Committee that they no longer want a prison in the middle of their town and want to convert the facility into an educational facility. This proposal suffered a setback when the House Budget committee amended the bill to require the state to buy the facility before any money is spent on renovations.12
Activist Groups Involved:
Juvenile Justice Project: http://www.jjpl.org/
Building Blocks for Youth: http://www.buildingblocksforyouth.org/
Grassroots Leadership: http://www.grassrootsleadership.org/