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Private Detention Facility Forced into Bankruptcy, Sold at Auction
A 2007 agreement between Irwin County and Municipal Corrections demonstrates the risks that government agencies assume when they issue bonds to invest in prisons and jails. The agreement allowed the county to house up to 30 of its own prisoners at ICDC at no charge, excluding medical costs. In return, the county – which also hoped to create more jobs – issued $55 million in tax-exempt lease revenue bonds to pay off other bonds and finance a 512-bed expansion at ICDC, bringing the facility’s total capacity to 1,201.
The bonds were to be paid with revenue received from Immigration and Customs Enforcement (ICE) and the U.S. Marshals Service, for holding detainees at ICDC. However, the facility failed to house enough prisoners to generate sufficient income to make the bond payments – a problem that has plagued a number of other detention centers built by cities and counties hoping to cash in on for-profit incarceration. [See previous article, “Declining prison populations leave towns with empty jails, debt”].
Consequently, in January 2012 an Irwin County Superior Court judge, at the county’s request, ordered ICDC to be sold at auction to cover $1.6 million in unpaid taxes owed to the county and the city of Ocilla.
The tax sale caused the bond trustee, UMB Bank N.A., to notify bondholders that the bond payments were in default. With the sale set for March 6, 2012, the bondholders filed an involuntary bankruptcy petition to protect over $54 million in outstanding bond debt. The bankruptcy case was opened in Nevada, where Municipal Corrections is registered.
The company’s owner, Terry O’Brien, owns several other firms with connections to ICDC. While he has a background in construction, marketing and finance, bond records do not indicate that he has any experience managing a prison or jail. In fact, the records state O’Brien had a “limited operating history and limited assets.”
Municipal Corrections was to receive between $5,000 and $8,333 a month to cover “oversight” expenditures for the expansion project at ICDC, which it leases to the county. Another company connected with O’Brien, Detention Management LLC, has a contract to operate ICDC for a $21,469 monthly fee. A third O’Brien-related company, Correctional Center Consultants LLC, was hired to help manage the expansion project.
Officials in Irwin County expressed concerns about the future of the detention facility and whether the county would lose its third-largest employer.
“It’s a vital part of this community,” said Hazel McCranie, president of the Ocilla-Irwin Chamber of Commerce. “I need those 200 jobs here. That’s a lot of people. We are only a community of around 10,000, city and county. So, you take something like that out and it is major.”
“If it closes, then everybody loses their jobs ... and the inmates go back to wherever they came from, but we hope that it never gets to that,” added Irwin Board of Commissioners Chairman Joey Whitley.
Municipal Corrections’ Chapter 11 bankruptcy case was transferred to the U.S. Bankruptcy Court for the Northern District of Georgia in January 2013. The court approved the sale of the company’s assets pursuant to Section 363 of the Bankruptcy Code, and an auction was held on September 23, 2013.
The high bidder was Corrections Corporation of America (CCA), which already operates two ICE detention centers in Georgia. CCA submitted a winning bid of $13,048,000, though the company did not commit to continue operating ICDC and indicated it would shut down the facility.
Irwin County filed an objection the day after the auction, noting that while a competing bidder, CGL, was “economically incentivized to operate [ICDC].... CCA, in order to address significant vacancies at other facilities in Georgia, is economically incentivized to close the prison.” The county also stated that if CCA’s bid was approved, it would “economically devastate Irwin County, Georgia and result in the loss of not only the 200 jobs of persons currently employed by [Municipal Corrections], but also damage to surrounding businesses which generate revenues from the prison.”
The county accused CCA of “seeking to reduce competition and seeking to increase the amount it is charging the United States Government for the housing of its prisoners in Georgia” at the company’s other ICE detention facilities, and called CCA’s conduct “both anticompetitive and in bad faith.”
Thus, Irwin County asked the bankruptcy court to reject CCA’s winning bid – although the county apparently should have thought about such potential consequences before it entered into an agreement with Municipal Corrections and issued $55 million in bonds to expand ICDC absent a revenue stream to ensure the facility would be economically viable.
Municipal Corrections’ bankruptcy case remains pending, as does the final outcome of the auction sale of ICDC. See: In re: Municipal Corrections LLC, U.S.B.C. (N.D. Georgia), Case No. 1:13-bk-50786-PWB.
Additional sources: Atlanta Journal-Constitution, www.bloomberg.com, Associated Press, Las Vegas Sun, www.thenation.com
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Related legal case
In re: Municipal Corrections LLC
|Cite||U.S.D.C. (N.D. Georgia), Case No. 1:13-bk-50786-PWB|