“Those who cannot learn from history are doomed to repeat it."
- George Santayana (paraphrased)
We are in the midst of a disagreement about the County Road Bond. I believe it is useful to revisit the last major county project, what we were told and how that project was handled to have an idea of what we as taxpayers are being asked to believe about this road bond. That project was the Joe Corley Jail.
The Jail, which had been occupied since approximately August of 2008, entered the public conscience when it did not have a sufficient amount of County Prisoners to satisfy the IRS requirements for County Prisoner Occupancy to maintain the tax exempt status of the bonds issued for its construction. In early 2013, it was stated or implied that the Joe Corley had to have at least 30% occupancy by County Prisoners by August. The Commissioner’s Court announced that because of this situation, in order to not forfeit the favorable tax status, they were exploring selling the Jail.
I am a person that believes in the principle of Occam’s razor which says that the simplest solution is often the best. I started asking questions as to why they didn’t just transfer the required amount of prisoners from the County Jail to Joe Corley. I received explanations that Joe Corley was not configured to either have County prisoners or configured to have both Federal and non-Federal Prisoners. That because of this configuration problem, there was insufficient time between January and August 2013 to reconfigure the Joe Corley to continue the favorable tax status.
At the time, I thought, “How could they miss this”? and “Who missed this”? Since the Montgomery County Jail Financing Corporation (MCJFC) was responsible for financing the Joe Corley, I expect that would be the place where responsibility lay. In reality, the ultimate responsibility rested with The Commissioner’s Court since the MCJFC was, by its Articles of Incorporation, the members of the Court. I decided to look into it using the Freedom of Information Act (FOIA).
What I found was deeply disturbing. I came to the conclusion that the Court was either totally incompetent or willingly entered into or were manipulated into a scheme to benefit GEO, the operator of Joe Corley while the County owned it. They are now the new owner of Joe Corley.
This sordid tale begins with the County Jail which at the time was approaching legal prisoner capacity. It was determined that a second jail needed to be built which would handle the excess capacity from the County Jail. We would use it for our overflow prisoners and any excess capacity would be used by mainly Federal prisoners either from the US Marshal or from Immigration (ICE). Concurrently, it was decided to pursue tax favorable status for the Bonds that were to build the Joe Corley. In order to get that status, the County/MCJFC would have to seek a letter ruling from the IRS determining that the way the building was being used was not, in effect, a “business enterprise”. That would mean being used for County needs and not just to sell space to others who needed prison capacity. You will see that this tax favorable status permitted a gradual filling of the Joe Corley by County Prisoners.
The First step for the County was to request from the IRS a “Private Letter Ruling”. They do this by disclosing the planned usage of the Joe Corley that would justify their getting tax favorable status. In this September 2006 letter, the County and MCJFC requested through their Attorneys, Fulbright Jaworski, that the IRS grant them this status based on the following key representations:
- County’s rate of population growth will continue.
- “County’s detention facilities are approaching maximum capacity”.
- “County will enter into a development agreement…to construct…a detention facility with approximately 1100 beds”.
- “The Jail will be constructed and operated in accordance with both the Texas Commission on Jail Standards and all federal prison standards. As a result of meeting these standards, the Jail will be capable of housing BOTH LOCAL GOVERNMENTAL AND FEDERAL PRISONERS”. (Emphasis mine)
- “During the first five years of the Jail, County expects that federal prisoners will occupy an average of 70% of the beds in the Jail …”
- “After this initial five-year operating period, County expects that the number of County prisoners or prisoners of other local governmental entities in County (“non-federal prisoners) housed in the Jail will exceed 30% of the beds.”
- “…NO PORTION OF THE JAIL (emphasis mine) will be designed or constructed to meet needs peculiar to the housing of federal, as distinguished from non-federal prisoners.”
- “The Jail is being financed to serve long-term needs of the County, and is not being financed for a principal purpose of providing the Jail for use by the Federal Agency”.
- “The principal purpose of providing the Jail is not for use by Federal Agency, but rather to accommodate the expected future increases in the number of county prisoners”.
Please note the use of quotes. These representations by the County to the IRS were taken directly from the Fulbright Jaworski letter to the IRS. As you can see, the County never was in the dark about the required County inmate population in the JCJ being at 30% of the BEDS (emphasis mine), that the facility was to be the additional jail capacity the County needed for the future and the jail was always to be utilizable by both County (Non-Federal) and Federal Prisoners. In other words, we were telling the IRS that this is how we were going to do it and asked if it was satisfactory to get a favorable tax status.
Four months later, the IRS laid out the acceptable representations made by the County to receive and maintain that tax favorable status. The IRS apparently reached some agreement with the County on changes to their representations in the Fulbright Letter. Here are some of the key requirements set out in the IRS Letter Ruling:
- “To meet its increasing demand for detention facilities, County will construct a new detention facility within its borders.”
- “…to finance the construction costs Facility as well as to purchase the land (NOTE: VERY IMPORTANT) on which Facility will be located”.
- “Because Facility will be constructed and operated in accordance with all State and federal prison standards, facility will be able to house local government prisoners and federal prisoners”.
- “At the time construction of Facility is completed and Facility is placed in service, County expects that County prisoners or prisoners of the local government entities (the’ non-federal prisoners’) will occupy at least 30% of Facility BEDS (emphasis mine). (NOTE: Day one of the operation of JCJ required 330 County and non-federal prisoners. It’s percentage of beds - not prisoners - which is determinant.)
- After Facility’s first five years of operation, County expects that federal prisoners will occupy less than 50% of the beds”. That means August of 2013. (NOTE: This number goes down to less than 10% before expiration of the 20 year bond.)
- “County represents that Facility is being constructed to serve the long-term needs of County, and is not being constructed for a principal purpose of providing the Facility for use by Federal Agency”.
- “The ruling contained in this letter is based upon information and representations submitted by County and accompanied by a penalty of perjury statement executed by an appropriate party”.
Item #7 certifies that the County knew exactly their responsibility to always have dual use of the JCJ by Federal and County prisoners and that on day one they needed to have 330 County and “non-federal” prisoners in the Joe Corley. To my knowledge, if there has ever been a County or “Non-federal” prisoner in the JCJ, they have been few and far between.
Why ignore the IRS Agreement? Well, if you never intended to keep the Joe Corley Jail for future growth in jail population, saying “The IRS made me sell it,” works as well as anything else. Even though compelling the County to sell it was never the case with the IRS.
Why would you deliberately not keep the Joe Corley? Answer, someone else wanted it. Earlier, in the IRS letter Item #2 above, I talked about the importance of the purchase of the land where the Joe Corley was to be built. The County purchased it from someone who most assuredly wanted to build a prison on it. However, this was a private company. It did not have the advantage of being a government entity. This would introduce the concept of “Not in my Back Yard” or NIMBY where local interests prevent the introduction of something undesirable to their community. A private jail would have to overcome resistance from the public to put a private jail near the County Jail. This would be a Jail which would not serve County needs but house prisoners often not from Montgomery County. That land was owned by GEO.
When the smoke cleared after the County’s failure to live up to the bargain with the IRS that they themselves constructed, GEO owned the Jail that they wanted on the land where they intended it to be constructed. On top of that - and this is a big Plus for GEO - they were granted a commitment of non-obstruction to build another Jail on other land near the Joe Corley that they had quietly purchased recently. Again, this Jail would likely have few Montgomery County prisoners or even Texas prisoners. This means that we will have two additional jails that we did not need or likely would not want in Conroe. Was there an alternative solution to selling the Joe Corley to GEO and what would be the cost?
The County could have elected to lose the “Tax Exempt” status of the Bonds. To do so would involve a payment to the Bondholders due to loss of that status as they would have to pay taxes on the interest received from the bonds where they don’t now. I inquired what that amount was and submitted a FOIA request for that purpose. I do not have the exact figures yet but have been told by someone who would know that it was less than $10 Million and perhaps even less than $5 Million. The reason for the difference is it would have to be determined whether they had to pay from August 2013 forward or from the initial issuance of the Bonds in 2008. These Bondholders were not individuals but Institutions. The Bonds were sold on the Private Market not the Public one. These were big players.
If the County lost the “Tax Exempt” status, the prisoner mix could be anything they wanted in the two County jails. We would have retained the Joe Corley.
Instead of opting for this less than $10 Million penalty, they decided to sell the Joe Corley which gives the County the need to build a new jail to handle their prison over capacity. It also gives the County two more jails owned by GEO holding roughly 2500 mostly non-County inmates. What is the cost of the new jail we have to build?
The County went out to get estimates and selected and hired a consultant, Broaddus Planning, to produce those estimates. Though I don’t know, I would suspect, that this consultant knew something about building jails to currently required specifications. They quoted two numbers. One number was to build the County Jail up by adding more floors. The second was to build an entirely new jail at a new location which would hold all County prisoners including those currently in the County Jail. To do it either way, they advised, would cost approximately $200 Million. Now County Leadership is protesting this number as too high. They may think this Consultant is incompetent to come up with this figure. However, it would be their vetted, “incompetent” consultant. Until there is a new number issued by a different source with more competence, this is the only prudent cost that can be used. On top of that you would have to pay the interest on the bonds.
There is one more “Wild Card” in all of this. Only the County Sherriff as “Keeper of the Jail” can determine the acceptability of a jail where he is responsible for County Prisoners. The Court cannot compel him to move prisoners. Not securing his pre-approval of the Joe Corley mixed use deal was either incompetent or par for the course.
The choices for the Court were clear. On the one hand you could absorb the less than $10 Million it would cost to continue operating the Joe Corley as presently run and transition it to all County Prisoners over the next twenty years OR, choose the option that favored GEO. That option included two GEO run private jails with few County Prisoners and building a new Jail at the current cost of $200 Million plus interest. They chose the GEO option.
Earlier I talked about Occam’s razor which posed that the simplest solution is usually the best. The simplest solution was to pay the penalty. They didn’t choose it. Instead they incredibly opted for the solution that benefitted GEO. Why? The reader will have to decide which option they would have taken and why the Commissioners opted to do what they did.
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