DALLAS – Despite political and legal challenges to President Obama's deportation deferrals, prospects for bond-financed immigration detention centers continue to wane, experts say.
"Even though we don't know what ups and downs will occur in the next few years in immigration and detention policy, the trend line is very much against increased detention, primarily detention in the private prisons," said University of Texas Law School adjunct professor William H. Beardall, a specialist on immigration issues who directs the school's Transnational Worker Rights Clinic.
"We are headed for comprehensive immigration reform," Beardall said. "Everyone in the field knows that. It will come, it's just a matter of when."
Until that happens, American voters must decide which path to follow in the presidential campaign as the U.S. Supreme Court considers Texas' challenge to Obama's immigration enforcement decisions.
Republican contender Donald Trump has pledged mass deportations of the estimated 11 million undocumented residents of the United States.
"You're going to have a deportation force, and you're going to do it humanely," Trump told MSNBC.
Even a less drastic ratcheting up of deportation actions could require expanded capacity in detention centers for those challenging their deportations, including families.
Beardall says that, despite campaign rhetoric, the removal of such a large number of people already participating in the American economy would be a political nonstarter.
"That's the kind of talk that represents a politically significant temper tantrum," Beardall said. "This is not new. Throughout the history of the U.S. there have been recurring spasms of antipathy for the waves of immigrants."
More moderate Republicans, such as Sen. Marco Rubio, R-Fla., and former Florida Gov. Jeb Bush have voiced support for reform of the current immigration law while dismissing the possibility of mass deportations.
On the other side of the political divide, Democratic presidential candidates Hillary Clinton and Bernie Sanders have vowed to halt the use of private detention centers for federal inmates and immigrants.
"No one, in my view, should be allowed to profit from putting more people behind bars -- whether they're inmates in jail or immigrants held in detention centers," Sanders said. "In fact, I believe that private prisons shouldn't be allowed to exist at all, which is why I've introduced legislation to eliminate them."
It was presidential politics that launched the private detention industry in 1981 and accelerated other versions of public-private partnerships that have become so prevalent today.
In his first year in office one year after the Mariel boatlift of refugees from Cuba, President Reagan created the Presidential Private Sector Survey on Cost Control to begin privatizing some government operations, including prisons and immigration detention.
One of the first takers on Reagan's proposal was the newly formed Corrections Corporation of America, founded by former Tennessee Republican Party Chairman Thomas W. Beasley, real estate investor Doctor Robert Crants, and Texas corrections expert T. Don Hutto.
In 1983, CCA won the first contract to operate a private immigration detention center in Houston. While building the Houston Processing Center, CCA housed inmates in rented motel rooms.
Thirty-one years after that first for-profit detention facility opened, CCA is bidding for a renewed contract with Immigration and Customs Enforcement in competition with other private operators.
The Houston Processing Center could close if another team of operators creates a proposal that bests CCA's. For its part, CCA is proposing redevelopment of the existing 1,000-bed facility.
"That's the contract that founded the company," said Cameron Hopewell, head of investor relations for CCA. "It's a contract that we will fight hard to keep."
Among the competitors is the Emerald Companies, which is still seeking a town or county willing to support its bond-financed proposal.
After Chambers County, Texas, rejected Emerald, the company is seeking a formal expression of interest from Cleveland, Texas, near Houston.
U.S. Rep. Brian Babin, came out against the immigration processing center in his district, despite the jobs it would bring.
"I'm opposed to any new illegal immigrant processing center in Liberty County, Chambers County or anywhere in the United States," Babin said in a prepared statement. "What we should be doing is immediately deporting those who are illegally crossing the border."
Officials in Cleveland were more sanguine, saying they would welcome the jobs but expressing reluctance to invite the processing center into their community. They also cited a number of bond-financed detention centers that have failed, leaving local communities looking for new operators.
Texas has experienced a rash of such failures in the past year.
On Nov. 20, the Maverick County Public Facilities Corp. announced that the trustee for an abandoned detention center financed with $42.3 million of bonds in 2007 was considering the county's offer to buy the lock-up for only $10.9 million.
The same day, bondholders for a $23 million detention center in LaSalle County, Texas, agreed to accept 40 cents on the dollar from the county for that facility.
Another immigration detention center in Raymondville, Texas, remains closed after inmates rioted on Feb. 22, leading to cancellation of the federal contract and downgrades for $78 million of bonds.
Moreover, nine of 21 conduit issuers created by Texas counties to issue about $1.3 billion in municipal bonds for private detention centers have defaulted on their debt over the past decade, according to disclosure notices and news reports.
While Emerald's proposal in Cleveland would require bonds backed by revenue from the facility, CCA would provide its own finance as a real estate investment trust. While Emerald generally operates in leased detention centers, CCA usually owns the facilities in which it operates. That curtails the need for bonds.
"When you look at some of these revenue bonds, some were built on a somewhat speculative business," Hopewell said. "There have been a lot of defaults on those types of facilities."
Mike Harling, executive vice president of Municipal Capital Markets, which is working with Emerald on the proposal in Cleveland, said that the bond model for detention facilities is still viable. However, investment-grade credit ratings are required.
"I think the business model is viable for a transaction where there is a client waiting for the facility and willing to pay for it," Harling said.
MCM co-managed a $63.4 million taxable revenue bond issue for a private detention center in Alvarado, Texas, recently that garnered a BBB rating from Standard & Poor's with a stable outlook. The detention center, currently under construction, will rely heavily on immigration detainees.
In Garza County, Texas, S&P downgraded bonds for a detention facility there to BBB from BBB-plus.
"The rating reflects what we view as the industry's inherent weaknesses,
primarily the potential fluctuation for facility demand," analyst Ed McGlade said.
The Garza County facility issued $35 million of taxable refunding bonds in 2012 to replace tax-exempt bonds, amid a series of adverse tax decisions from the Internal Revenue Service.
The original detention center built in 1999 tripled from its original 576 beds to 1,670 with a 2006 bond issue.
"As the contract with the Federal Bureau of Prisons terms out in 2017, as the industry standard is now shorter one-year contracts, and as recent events have caused government agencies to finally begin to terminate these types of contract, we felt that there is increasing risk for contract renewals and, therefore, the lower rating," McGlade wrote in the S&P ratings action.
CCA's Hopewell said that the need for a reliable number of beds on a regular basis will favor the large operators.
In addition to the private detention facilities, the Federal Bureau of Prisons holds smaller contracts with local jails, some of which are privately operated.
"Trying to manage 25 here, 25 there can be difficult," Hopewell said. "What's happened in our industry is consolidation. It's not that the number of people being detained is increasing."
Indeed, large immigration events such as the surge of children and families from Central America in 2014 forced ICE to find facilities that could house families that did not seem like prisons.
To handle the inflow, CCA repurposed so-called "man camps" typically used in the oilfields, and added playgrounds and other features at the South Texas Family Residential Center in Dilley, Texas.
On the legal front, Texas is taking the lead in challenging President Obama's deferred deportation of immediate family members of non-citizens and children born outside the country but raised in the United States.
On Feb. 16, U.S. District Court Judge Andrew Hanen in Brownsville, Texas, issued an injunction, halting Obama's decision to defer deportation of 5 million non-citizens who met certain criteria.
In a 2-1 decision, the Fifth U.S. Circuit Court of Appeals upheld the injunction. The Obama Administration has appealed to the Supreme Court, which has not announced whether it will take the case.
