Private prison bust hurts Texas communities, but leaves private prison corps unscathed

Two stories about the economics of for-profit prisons in Texas have caught our attention this month.  Both talk about a recent spate of communities in Texas defaulting on bonds that were issued to pay for private, for-profit prisons intended to detain or incarcerate immigrants.  

The basics of the stories - one by Bloomberg's Lauren Etter ("Border jails facing bond default as immigration boon goes bust," August 2) and the other by the San Antonio Express-News John MacCormack ("Prison bust spreads across rural Texas," August 22) - cover the boom in private prisons financed by local Texas communities on the promise that federal contracts would come rolling in.

Bloomberg's Etter summarizes the issue:

"In Texas, the heart of a jail-building boom over the past decade, nine of 21 counties that created agencies to issue about $1.3 billion in municipal bonds to build privately run correctional facilities largely for migrants have defaulted on their debt. A dozen other facilities from Florida to Louisiana to Arizona, many that housed immigrants, have also defaulted, according to figures from Municipal Market Analytics, a bond-research firm based in Concord, Massachusetts."

Several other Texas facilities are in danger of defaulting as well. The story covers the incredible boom in facilities being built between 2000 and 2010 on county-issued debt (largely through quasi-governmental entitites often called Public Facilities Corporations or PFCs) through the lense of La Salle County, just north of Laredo.  In La Salle, county officials issued more than $20 million in debt to build a detention center that won a U.S. Marshals contract for private prison corporation Emerald to detain pre-trial federal prisoners, mostly immigrants being charged with entering or re-entering the country without authorization.  

But other prison companies were pitching similar deals in other parts of the state and soon the "demand" for immigrant prisoners couldn't keep up with supply of prison beds.  Counties were left on the hook - with more than $700 million in outstanding debt around the state, according to Bloomberg, mostly for jail contruction.  In La Salle, the company simply pulled out of the deal last winter and left the county's PFC with more than $20 million in debt and a jail with a leaking roof.

The side of the story that isn't, in my opinion, detailed sufficiently in either piece is that the private prison companies have emerged largely unscathed because of these lost contracts. Companies like Emerald in La Salle or GEO Group in Eagle Pass made money on these deals while the getting was good and then walked away from the contracts when the bottom fell out of the market. This is a classic case of privatized profit for the prison companies and socialized risk for the taxpayers of small, often struggling, counties.  And, to make it even more scandalous, in many of these deals, the bond issuers, prison developers, and prison pitchmen got paid up front. In La Salle, former Webb County Commissioner Richard Reyes reportedly got paid $700,000 to put the deal together. I bet that's $700,000 La Salle County wishes it had now. 

What's even more remarkable is that Emerald, the same private prison corporation that walked away from the facility in La Salle because it couldn't find enough prisoners to make it profitable, is still out pitching similar schemes in other parts of the state - recently in Alvarado and Cleveland.  

Note to Texas counties - If a jail financing deal seems too good to be true, it most likely is.