DALLAS Bonds issued for Willacy County, Texas’s $7 million jail in the town of Raymondville are among several being audited by the Internal Revenue Service to determine whether its bonds should lose their tax exemption, according to County Judge John F. Gonzales.
Gonzales disclosed the audit at a meeting of the Willacy County Commissioners Court earlier this month, according to the Valley Morning Star of Harlingen.
The south Texas county, which has invested heavily in the prison industry, has a large stake in the tax-exempt status of the prisons. The county seat of Raymondville has earned the nickname “Prisonville” because of its heavy concentration of private lockups, most housing federal inmates on immigration violations.
Refinancing the $3 million of outstanding bonds as taxable would cost the county about $200,000, Gonzales said. The jail was built using 2004 bonds bearing 7.5% coupons on maturities of 2029 with yields of 7.75%, according to the Municipal Securities Rulemaking Board’s Emma Web site.
The original $7.65 million of unrated bonds were issued in the name of the County Jail Public Facility Corp. of Willacy County. Underwriters were Herbert J. Sims & Co. and Municipal Capital Markets Group. The law firm of Jenkins & Gilchrest served as bond counsel.
According to the official statement for the 2004 deal, interest rates would rise to 140% of the original issue rate if the deal were found to be taxable, or the issuer could redeem the tax-exempt bonds at a price equal to 105% of principal, plus accrued interest.
Bonds become taxable if more than 10% of the proceeds are for private use, such as a corporate prison company, and more than 10% of the payments for debt service are from private parties.
The county built the jail with plans to use excess capacity for holding inmates for the U.S. Marshal’s Service to provide additional income.
Earlier this month, the 96-bed jail held 75 prisoners, including 64 held by the Sheriff’s Department and 11 by federal agencies.
In addition to the conduit issuer for the county jail, county commissioners created the Willacy County Local Government Corp. and the Willacy County Public Facility Corp. to issue bonds for privately operated prisons for federal inmates.
Standard & Poor’s on Aug. 15 affirmed its triple-B rating and stable outlook on the Local Government Corp.’s $75 million of taxable revenue bonds issued in 2011. With interest, the debt will amount to $189.6 million at payoff, according to Willacy County District Attorney Bernard Ammerman. The debt was issued for what is known as “Tent City,” a prison for low-risk inmates.
In February, the Public Facility Corp. refunded as taxable $20 million of revenue bonds for another prison. Those bonds were rated BBB-plus by S&P with a stable outlook, despite what analysts called “the correction industry’s inherent volatility.”
