North Dakota's temporary closure of a county jail over death triggers rating review

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The state-ordered temporary closure of a North Dakota county’s debt-financed jail for procedural violations — that came to light after the death of a person in custody — poses new threats to the county's already speculative grade ratings.

Rolette County had previously included an appropriation in its budget to cover a $377,000 late-July rental payment the jail needed to make an Aug. 1 debt service payment, and this week voted to honor it, said county Auditor Valerie McCloud.

“COVID-19 is having an impact on the county’s finances and the jail closure doesn’t help,” but the county has “no intention of not making the payment,” McCloud said Wednesday.

The debt-financed Rolette County Law Enforcement Center replaced a 60-year-old facility.

Concerns over the debt burden and the county's appropriation commitment amid the jail’s closure recently prompted Moody’s Investors Service to put Rolette County’s Ba1 issuer rating and Ba3 lease rating on review for a downgrade. Moody’s had cut the ratings in 2017 to junk levels over the weight of the lease debt for the new jail and a drop in oil production revenues. The issuer rating was previously A3.

The county sold $9.2 million of lease certificates of participation in 2016 to finance the 16,000-square-foot, 48-bed jail and law enforcement facility for the county and to house the city of Rolla’s police department. It opened in 2018.

The COPs are secured by rental payments equal to debt service made by the county to bond trustee Zion Bank, subject to annual appropriation, prompting a two-notch difference in the ratings. The lease runs through 2046.

“The county's Ba1 issuer and Ba3 lease ratings were placed under review because of the heightened non-appropriation risk caused by the county's weak financial position and its current inability to use its jail facility, which was temporarily closed by the state while it investigates several compliance violations,” Moody’s said.

The jail is the pledged asset supporting the lease bonds and has historically been a financial burden for the county, Moody’s said. Analysts will assess the county's long-term commitment to the lease, the impact of the closure on county finances, and implications of any state findings through its
investigation. It expects to complete its "review in the coming weeks.”

The shutdown impacts revenues received by the county to support operations as it has contracts to house inmates for other jurisdictions.

The county makes a late-January lease payment to cover an interest payment due Feb. 1 — $169,000 coming up in January 2021 — and an interest and principal payment Aug. 1. The jail received $311,00 in fees from other governmental units last year that go toward operations, McCloud said.

The county implemented a capital projects levy to serve as a dedicated revenue source for the lease payments. Revenue generated from the levy covered 38% of the fiscal 2018 lease payments. The county taps other general funds, tax revenues from windmills and revenue generated from renting out beds to cover the remainder.

The trustee has the right to take possession of the jail facility upon non-renewal of the lease-purchase agreement.

The North Dakota Department of Corrections and Rehabilitation issued a June 18 order shuttering the facility by June 22 as it conducts an investigation into possible protocol violations stemming from the death of Lacey Higdem while in custody. Higdem died on June 4. “Based on the initial review, the DOCR correctional facility inspectors are in the process of completing an in-depth investigation,” the notice reads.

The Rolette County Law Enforcement Center staff had not completed a medical screening of Higdem and surveillance camera video showed the woman exhibiting signs of intoxication during the booking process and while in custody and surveillance camera video did not show staff completing periodic observations of her well-being, as required.

DOCR facility inspectors had conducted the most recent annual inspection of the jail in October 2019, finding four areas of noncompliance with correctional standards, including non-compliance with inmate observation rules. “RCLEC did not implement corrective actions to address areas of noncompliance from the DOCR inspection report from the inspection on October 24, 2019,” the order read.

County Sheriff Nathan Gustafson said the county faces an “overwhelming” drug problem and “will be seeking Department of Corrections assistance in making the improvements” at the jail.

Rolette County, located in north central North Dakota along the Canadian border is home to about 14,603 residents as of 2018. The Turtle Mountain Reservation is located on 46,000 acres in the county and the Bureau of Indian Affairs is one of the non-county agencies that uses the jail.

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