Quicken Loans owner Dan Gilbert

CHICAGO — Wayne County, Mich., is contemplating the fate of a half-built, bond-financed jail in downtown Detroit that has been abandoned for more than a year amid major cost overruns and an FBI investigation.

County commissioners are to vote Thursday on whether to abandon the project and begin a new facility on a state-owned former prison property about 10 miles outside downtown. Michigan Gov. Rick Snyder and others support the move, saying a jail could hinder downtown's fragile recovery.

Last week, however, a county board committee rejected the move to the former prison site, saying Wayne would have to take on too much debt to make the move.

The committee's 9-2 vote makes it more likely the full board will vote to continue construction at the current site, where work was halted in June of 2013 amid cost overruns that boosted the budget to $390 million from an original projection of $220 million.

If it rejects the move away from downtown, the county board will then decide between continuing to build the new jail or to rehab its current facilities.

The vote comes weeks after a grand jury indicted former Wayne County chief financial officer Carla Sledge and two others after an investigation into the project's financing. Sledge, who retired in 2013 and now lives in Florida, is charged with two counts of misconduct in office and two counts of willful neglect of duty. She's accused of lying to the county board and building authority about the finances of the project.

Wayne County operates three jails and had hoped to save money by consolidating services and costs at one facility in downtown Detroit.

Wayne County Executive Robert Ficano's office estimates the current half-finished project would cost $380 million, nearly double original estimates. Building a new facility, which would include jail, courthouse, and juvenile detention facility, on the former prison site would cost $651 million, meaning the county would have to issue another $400 million of bonds, according to the executive's office.

"At this point in time, the county does not have the financial wherewithal to pay an additional $260 million to build new court and juvenile detention facilities," Ficano said in a statement. "Absent significant financial assistance from the State of Michigan or elsewhere, a move to Mound Road is not financially feasible and we support the decision of the Commission in this regard."

Dan Gilbert, a major Detroit real estate owner and developer who also owns Quicken Loans Inc., has offered the county $50 million for the downtown jail site and the adjacent criminal justice facilities.

"Detroit is at a critical and monumentally important juncture," Gilbert said in a statement issued after the committee vote last week. "We are coming out of bankruptcy while investment, interest and enthusiasm in downtown is at a 60-year peak … We remain convinced that the correct solution does not include a new hulking jail on the Gratiot site."

County officials have so far rejected the offer, saying the county can't walk away from the $157 million of bond proceeds it has already spent.

The county sold $200 million of taxable recovery zone economic development bonds in December 2010 through the Wayne County Building Authority, with debt service payments coming from cash rental payments from the authority to the county, according to bond documents. The county commission authorized a $300 million borrowing, and it still may issue the remaining $100 million.

The bonds constitute a full faith and credit limited-tax GO pledge of the county, but are subject to property tax limitations. The bonds have been actively traded in the last several days, according to the Municipal Securities Rulemaking Board web site. Term bonds with a 2040 maturity saw yields hovering around 8.48% in Oct. 15 trading. Bonds with a 2025 maturity were yielding between 8.09% and 7.67% earlier this week.

The county is clinging to its investment-grade ratings from Standard & Poor's and Moody's Investors Service, which rate its limited-tax GO bonds BBB-minus and Baa3, respectively. That's one notch above speculative grade. Moody's has a negative outlook on the county. Fitch Ratings rates the county BB-minus, which is in junk territory.

 

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