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Controversy and Lawsuits Surround South Texas Private Prison Deals

by Matthew T. Clarke

Cotulla, a south Texas town known or the illegal drug-sting convictions of a quarter of its African-American citizens, now has a new claim to infamy -- private prison scams. Cotulla, population 3,000, is the county seat of LaSalle County. In June, 2000, self-proclaimed and unlicensed prison consultant Rick Reyes talked the LaSalle County CommissionersRay Landrum, Albert Aguero, Domingo Martinez, Roberto Aldaco and former County Judge Jimmy P. Pattersoninto issuing a $2 million bond to renovate a 48-bed Cotulla jail before selling it to the private sector. The renovation contract went to Louisiana-based Emerald Correctional Management and Reyes pocketed 3%. Reyes then talked the commissioners into endorsing a plan to build a privately-run, 1,000-bed INS prison. Later, he proposed the issuing of $22 million in bonds for construction of a 500-bed, privately-run U.S. Marshals Service prison in Encinal.

To shield the county from liability, Reyes proposed creating a shell corporation, the LaSalle County Public Facilities Detention Corporation (LCPFDC), appointing the commissioners as directors and issuing the bonds. This allowed a poor county with a monthly budget of $180,000 to issue $22 million in bonds and spend the money it raised. The 10% - 12% interest rate bonds were issued in the fall of 2002 to those gullible enough to buy them. Reyes presumably made a small fortune on commissions and consulting fees.

The commissioners paid millions to a construction company in a neighboring county Reyes was associated with. They paid unusually high commissions to two bond-underwriting firms. They paid five times the market rate for the land to build the prison on. The project hemorrhaged money.

The county commissioners Reyes was dealing with had a shady history, having borrowed $800,000 from HUD to build low-income housing and blown it all on a failed Houston-based get-rich-quick scheme. Because of this, they were ineligible for further HUD loans. Whether Reyes saw them as potential marks because he thought they were dishonest, or because they were gullible is unknown. The records of Reyes's dealings with the commissioners, including his contract and financial data, disappeared as did Reyes.

The slimy dealings in LaSalle County came to light when Patterson lost an election to Joel Rodriguez. As LaSalle County Judge, Rodriguez began to question the deals publicly in such media outlets as The Bond Buyer, The San Antonio Express-News and LaRedos.com. In response, on July 14, 2003, Municipal Capital Markets Group, Inc. (a Dallas bond underwriter), Emerald Correctional Management, (a Shreveport, Louisiana-based private prison operator), and Corplan, Inc, (a Dallas architectural firm), filed suit against Rodriguez claiming his "threatening activities and communications with third persons" was endangering separate deals to build a 1,000-bed INS prison in Cotulla and jails in Val Verde and Hudspeth Counties. Nonetheless, on July 17, 2003, Hudspeth County commissioners approved a $24 million deal with Emerald Correctional Management. Patterson, who remains the head of LCPFDC, sued Rogriguez for defamation in a separate action and, in a third lawsuit, a LaSalle County citizens group accused the county commissioners of violating the Texas Open Meetings Act.

In July, 2003, the LaSalle County commissioners hired Austin attorney James P. Allison to examine the jail contracts. The 500-bed jail will cause a loss of $373,808 in the first year, $1.2 million in the second, and more than $1.9 million thereafter according to Rodriguez. The loss is expected because the county's contracts require it to pay Emerald a set amount to manage the jail regardless of occupancy, but specify that the INS will pay the county only on a per prisoner basis. Rodriguez claims the county is already losing thousands of dollars each month because it must pay to have its own prisoners housed elsewhere.

Rancher and civic activist Bill Addington is leading an investigation into the Hudspeth County jail deal in which he said the commissioners, acting as the West Texas Detention Facilities Corporation, approved the $24 million deal with the same partners, without even having the written terms available.

"They didn't have the draft bond agreement, the operating agreement, nothing," said Addington. "They really have no knowledge of any details."

On September 24, 2003, La Salle County Commissioners paid $20,000 to the Prison Inquiry Group, acknowledging that they violated the Texas Open Meetings Act. Under the terms of the settlement, Rodriguez took Patterson's place on the LaSalle Count Public Facilities Detention Corporation, defendants agreed that all public documents in the project will be filed with the county clerk and they also agreed to pay the plaintiffs' attorney fees and costs in this action and negotiate future jail deals in good faith. The settlement also requires the county to post its meeting notices in Encinal as well as Cotulla. While denying any violation of the Open Records Act, the county did agree to improve its record management practices relating to the jail project. See: Prison Inquiry Group v. LaSalle County, LaSalle County District Court, 81st District, Case Number 2002-02-00098-CVL.


Sources: The Bond Buyer, The American Prospect, San Antonio Express-News

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Related legal case

Prison Inquiry Group v. LaSalle County