Unpredented Per Capita Prison Debt in Texas

There are 18 Texas counties with project revenue bonds for prisons that are financed through lease-purchase agreements. These are among the poorest and most sparsely populated counties in the nation.

Many of these sponsor prisons and detention centers for immigrants under agreements with ICE, USMS, and BOP. Others typically are county jails and detention centers that were constructed with the intent of attracting inmates from other state jurisdictions, other states, and USMS. The counties with the largest prisons are those that have immigrant inmates, notably Willacy and Reeves.

In most of these prison-town counties, the hosting town, usually the country seat, has become a prison town – where the detention center or prison is the primary single source of employment and revenue.

Another measure of the centrality of imprisonment in the life of these Texas communities is the per capita debt from prison bonds.

When it comes to per capita public debt, Texas is a leader on two counties. It has the lowest per capita tax debt in the nation – meaning that the tax burden from state taxes is the lowest in the country. At last count – according to 2004 census figures – Texans had a per capita state-tax burden of only $1,368.

But, because of the recent proliferation of public bond-financed privately run prisons, these 18 counties have per capita debt burdens from lease-purchase contracts that far exceeds the per capita burden from either state or tax-backed debt.

The main reason for this is that the prisons are usually located in the most sparsely populated counties.

Hudspeth County, which hosts a USMS immigrant prison, has only 3,240 inhabitants spread over 4,572 sq. miles – less than one person per square mile. Yet it has incurred a prison debt of $21.8 million for a private prison for USMS-custody immigrants, which is run by the Shreveport, La.-based Emerald Corporation.

According to the Texas Bond Review Board, this revenue debt translates into a per capita prison debt of $6,636. The $21.8 million in outstanding revenue debt doesn’t include the $18.8 million in debt service that Hudspeth County will pay until the bonds mature in 2025.

The per capita prison debt exceeds the county’s annual per capita income --$9,549 – which is one of the lowest in the nation. One-third of the families in this border county lives under the poverty line.

And Hudspeth County is hardly the exception among prison communities in Texas. Reeves County, which owns a Bureau of Prisons immigrant prison operated by GEO Group, has a per capita prison debt of $8,224. Like Hudspeth County, Reeves County is mostly open expanses of highland desert, with five people for every square mile. One quarter of its families lives in poverty, yet there is a $92 million prison debt.

Deep in South Texas, Willacy County, like Hudspeth County, ranks as one of the poorest counties in the country, with an annual per capita income of $9, 421. Raymondville, its county seat, hosts the largest ICE immigrant detention center, which is operated by Management & Training Corporation (MTC). The Texas Revenue Review Board says that Willacy County residents face a per capita debt ratio from $130.6 million in outstanding prison bonds of $7,755.

When entering into these prison-financing deals, Texas county governments are assured that there is no financial liability. If the public facility corporation issuing the debt cannot pay off the bonds, it will be the bondholders who will take the hit not county residents.

It is true that the government and its residents don’t face any direct liability if there is a default, but there are costs and risks. If there is a default, the bond issuing capability of the government will likely suffer, since its bonds will be downgraded (meaning both that investors will be harder to find for its municipal bonds and that the interest rates for these bonds will increase.”

This is the case with Reeves County, whose bond ratings dropped to junk bond status after it was unable to meet payments in 2003 when the beds in a newly constructed prison were empty and again in 2006 when there was uncertainty if Reeves County and another West Texas county, Garza County, would win new contracts with the Bureau of Prisons for holding “criminal aliens.”

The 18 Texas counties with prison bonds are not the only Texas localities that private prisons. All the major private prison corporations have taken advantage of Texas as the country’s most receptive state for private prisons. Corrections Corporation of America, MTC, and Cornell Companies, for example, both own and operate immigrant prisons for the Bureau of Prisons.

Photo/Tom Barry: Dilapidation in Sierra Blanca, prison town and county seat of Hudspeth County.

Speculative Prisons in Texas

(The Prison State of Texas, Part II)
ICE, USMS, and BOP all have contracts and agreements with county governments – most of them impoverished – that then subcontract the prison business to private prison companies in return for a small percentage of the per diem payments. Many of the immigrant prisons are financed by revenue bonds with lease-purchase contracts. They are revenue bonds rather than general obligation bonds because rather than being secured by the “full faith and credit” of the issuer, they are sold to investors based on assurances that the bonds will be paid through revenues generated by the projects the bonds finance, namely prisons. Revenue bonds aren’t issued by governments but by public corporations established by governments – in the Texas case, public facility corporations – that typically exist solely for the purpose of issuing revenue bonds. But rather than having these public facility corporations own the prisons, the corporation, which exists only on paper, leases the prison back to the local government. As it pays the lease, the government is also buying the prison from the corporation, and will own it when the bonds mature – usually in 15-20 years. The government entity usually enters into an agreement with a federal government agency or corrections institute from another state. Under this agreement or contract, the local government agrees to take responsibility for the care of inmates provided by the federal agency, and then the local government immediately turns around and signs a subcontract with the private operator to assume its prison responsibilities. When the bond comes to term, the local government will own the prison and the bond investors will have earned high, tax-exempt interest for 15-20 years. During this time, the commissioners’ court will, by way of contract with the private operator, receive a small fee – usually $1-3 per inmate per day – from the private operator. One problem is that after 20 years of occupancy, the prison building depreciates so it may be of little or no value when the county assumes ownership. Another problem is that there is a federal agency like ICE or USMS doesn’t provide any guarantee that it will provide any number of inmates over any period. The agency simply signs an intergovernmental agreement, which states that the county is authorized to receive federal prisoners. Because there is no guarantee that prisoners will be placed once the prison is open, most immigrant prisons are what are known in the prison trade as “speculative prisons.” Texas Counties and Prison Debt Data from the Texas Bond Review Board shows that 18 Texas counties are financing prisons through revenue bonds based on lease-purchase agreements. At a time when the state of Texas had finally started to stabilize its prison population, local governments were incurring more prison debt. The amount of prison debt outstanding rose from $573.7 million in FY 2007 to $622 million in FY 2008, “a substantial $48.4 million increase.” That 8 percent increase came following a 41 percent increase between fiscal years 2006 and 2007. Over the past ten years there has been a nearly six-fold increase in county prison debt in Texas.
Next: High Per Capita Debt Shows Long-Term Commitment to Prison Business

The Prison State of Texas

Texas is a national leader, having the nation’s highest percentage of residents who are uninsured, the highest percentage without a high school diploma, and the highest number of state-authorized executions.

It also leads the nation in the number of privately operated prisons and the number of prisons dedicated to immigrant detention. For decades it has been brandishing its “lock-‘em up” reputation, enthusiastically joining in the nationally declared wars on crime and drugs that were launched in the 1970s by the Nixon administration.

From 1978 to 2004, the inmate population rose 573 percent, while the state’s population increased only 67 percent. The cost of imprisonment as strategy to address crime and drug use has recently forced the state government to reconsider continuing to grow its penal system. In 2007 the state projected that if its prison population continued to grow at the same rate, the state would need 17,000 more prison beds at the cost of nearly $1 billion.

However, as a recent Washington Post article reported, the state government has wised up with new policies that promote alternatives to sentencing that encourage probation, parole, and treatment instead of prison. According to the Pew Center on the States, it costs an average of $79 a day to keep an inmate in prison but about $3.50 a day to monitor the same person on probation or parole.

Adam Gelb, director of the Pew Center’s Public Safety Performance Project, told the Post that more than half the states are trying to reduce the growth in their prison populations through alternative sentencing. "The economy is bringing a lot of states to the table," Gelb said, "and the research has pointed to a path for them to more public safety at less cost."

As a result, the prison population in Texas started dropping for the first time in 2007, gratifying state lawmakers concerned about rising correctional expenses in a state notoriously reluctant to raise taxes.

Prisons for Profit

But state prisons are just one part of Texas’ penal geography. The state has also seen an explosion of county prisons built to attract prison populations from other jurisdictions, largely other states and an array of federal agencies.

A 2004 study by the Urban Institute, "The New Landscape of Imprisonment: Mapping America's Prison Expansion,” found that Texas led all states in prison construction between 1979 and 2000. Texas opened 137 new prisons – a 706-percent increase.

"Texas is in a league of its own," explained the study’s coauthor Jeremy Travis. "Texas added the most prisons, saw the largest percentage increase in its network of prisons, entered the new century with the largest number of prisons, had the biggest growth in counties that are home to at least one prison, and had the most counties increasing their prison count by three or more facilities."

Instead of costing local taxpayers money, a still-expanding network of prisons and detention centers in Texas is earning new revenues for more than two dozen county and city governments. In conjunction with private prison firms, local governments in Texas have since the mid-1980s led the way in establishing prisons for profit.

It is still taxpayer money that paying the per diems of the inmates, but the costs of the new prisons doesn’t draw down local or state revenues. Rather the billion dollar business draws per-diem payments from other states attracted by the relatively low cost of imprisonment in Texas but mainly from the federal government.

Immigration and Customs Enforcement (ICE), the U.S. Marshals Service (USMS), and the Federal Bureau of Prisons (BOP) have all found Texas the most attractive state in the nation to place federal inmates. Most of the business that these three agencies do in the state involves immigrant prisoners and detainees.

Photo/Tom Barry: Border Patrol in Del Rio, Texas, waiting for immigrants to arrest and imprison under Operation Streamline

Next: Speculative Prisons in Texas