Departing FA Uses EMMA to Warn of Texas County’s Troubles

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DALLAS - On his way out the door, the financial advisor for Maverick County, Texas left red flags for investors on the Municipal Securities Rulemaking Board's EMMA Web site.

In his last disclosure as FA for the county, whose commissioners have all been either indicted or convicted in federal bribery investigations, Southwest Capital Markets Chief Executive Officer Robert Rodriguez warned investors that the county's financial straits are worsening as it attempts to run what had been a private lockup that was abandoned by its for-profit operator.

Losses for the current fiscal year that ends Sept. 30 could come to $2.28 million, representing nearly 20% of the county's $13.3 million annual budget, Rodriguez wrote in a letter posted April 17 on EMMA.

The county appears to be putting the interests of the private detention center's bondholders ahead of the investors who bought bonds that support the county jail, he said.

To keep the detention center operating, the county sheriff moved inmates from the Tom Bowles county jail to the detention center, Rodriguez said.

The county jail and the detention center have separate contracts with the U.S. Marshal's service to hold federal inmates. By moving the inmates, the county protected the detention center and its bondholders while leaving Maverick County citizens at risk on the county jail, Rodriguez said. The county has no moral or general obligation on the detention center; it does on the county jail, he said.

"Is it the citizens that are going to be taken care of or the bondholders?" said Rodriguez, who was dismissed recently by the county. The county hired First Southwest Co. managing director Raul Villasenor as the new financial advisor.

The county had anticipated earning $2.78 million from housing up to 625 federal inmates in the Maverick County Detention Center in the current fiscal year. But the center was left with a small number of inmates on Oct. 31, 2013 when its operator Geo Group Inc. abandoned the facility during a rape investigation.

As the county struggled to deal with the detention center problems, three of its four county commissioners have been convicted in a Federal Bureau of Investigation corruption probe, and the fourth commissioner is also facing indictment.

The FBI estimates that the bribery scandal has cost the county more than $1.3 million. At last count, 16 people had been indicted or sentenced.

"These defendants created a culture of corruption that spread throughout Maverick County, enabling theft and waste to thrive while taxpayers and honest businesses suffered," FBI special agent in charge Christopher Combs said in a February news release.

What makes the county's financial situation more worrisome is the fact that it hasn't produced an audit in three years, Rodriguez said.

"My biggest hope is that there is a realization by the detention center corporation and the county as to where they are financially," Rodriguez told The Bond Buyer. "Are we looking at bankruptcy? Without a valid audit we have no way to know."

At a meeting this month, Maverick County Independent Auditor Milo Martinez of Martinez Rosario & Company said that the county had a deficit of $1.4 million during its 2012-2013 fiscal year. However, that report came with a disclaimer that information from the county was inadequate to form an opinion as to the validity of the audit. If the report is accurate, Maverick County has lost $6 million during the past three fiscal years.

"You continue having a problem with the debt transactions as you continue borrowing money in 2011 and 2012 and that money was to pay bills and things for certain years and we are not able to get adequate records that we can audit to say the money was borrowed and used for the purposes that it was borrowed for," Martinez told commissioners, according to a transcript in the Eagle Pass Business Journal.

Under the Maverick County Public Facility Detention Center and the operations of the jail, Martinez said that auditors looked askance at receivables and payables as they were presented.

Martinez also said that the county might have further liabilities related to the operator of the detention center that could affect bondholders.

"We just couldn't get enough information to settle that," Martinez said, according to the Business Journal.

In his disclosure statement, Rodriguez said that he warned the commissioners before they approved the audit that it was not valid.

Rodriguez estimates the county's losses at the Tom Bowles jail at about $100,000 per month.

The county of 54,000 residents on the Rio Grande border with Mexico created the conduit Maverick County Public Facility Corp. in 2007 to issue more than $42 million of unrated bonds for the construction of the 625-bed lockup.

The PFC paid the interest due on the revenue bonds Feb. 1 but did not pay the $1.4 million principal, according to trustee UMB Bank in a Feb. 2 disclosure.

After the Feb. 1 interest payment, UMB Bank had $3.7 million in the debt service reserve, $707,547 in the project rental fund, and $215,491 in the project operating fund, the bank said.

Several previous events of default have occurred and are continuing under the indenture, according to the trustee.

"The county continues to intercept project revenues, which constitutes a violation of the county's obligations under the lease," the disclosure notice said. "The county has then remitted funds to the trustee to cover the required monthly debt service deposits along with additional funds that it requisitions back for payment of operating expenses."

Under the terms of the lease, all project revenues must be delivered directly to the trustee and are to be used to pay rental payment deposits first, prior to using the revenues to pay project operating costs and expenses, the trustee said.

For Maverick County, replacing Auditor Fidencio Ortiz has been a complicated affair involving two state district court judges, the governor's office a special counsel.

The auditor is appointed by the county's two district court judges, one of whom wanted to keep Ortiz, while the other did not. To break the tie, the county commissioners had to ask Gov. Greg Abbott's office to appoint a third judge, who agreed that Ortiz should go.

Attorney Luis R. Vera, Jr., who served as special counsel in the Ortiz matter, has since been named general counsel, replacing Rep. Poncho Nevarez, D-Eagle Pass, who also represents the county in the state legislature.

"The Legislature gave you the power to protect the taxpayers of your county and make sure there is sufficient funds there to pay those debts and those duties you owe to the taxpayer," Vera told the commissioners. "Now, Maverick County has run into a dilemma where you have a County Auditor is not allowing you to do your job."

Ortiz was expected to leave office April 27.

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