DALLAS — Standard & Poor’s on Tuesday downgraded $7.9 million of revenue bonds for a speculative West Texas jail to CC from A-minus after Jones County officials indicated plans to default on the debt if they cannot find a tenant for the facility.
Analysts also assigned a negative outlook.
The bonds, issued in 2009, were part of the $30 million used to build the lockup in hopes of attracting inmates from the Texas Department of Corrections. Since then, incarceration rates in Texas have declined as state and local governments seek to cut costs amid falling revenues.
Last month, the town of Littlefield near Lubbock took a $6 million bid for its abandoned jail in an effort to reduce its nearly $10 million bond debt. Unlike Jones County, Littlefield pledged its tax revenue to support the debt and has no plans to default.
The downgraded bonds were issued in the name of Jones County Public Facility Corp. and backed by a pledge of lease payments from the Texas Department of Corrections for inmates who were expected to be available for incarceration.
The original debt issue of $25 million was approved by voters in 2005 to build the 1,127-bed facility in the county seat of Anson, which has an estimated population of about 2,500.
The town is part of the Abilene metropolitan statistical area.
Jones County Judge Dale Spurgin last December told the Abilene Reporter-News that investors knew that they were buying speculative debt, even though the bonds carried investment-grade ratings of A-minus.
“They have bought those bonds knowing they are at risk,” Spurgin said.
That comment prompted Standard & Poor’s downgrade.
“We believe the county’s stated plans are consistent with our view of a clear lack of willingness by the county to meet its financial obligations to bondholders,” analyst Sarah Smaardyk wrote. “If the county does not make the payment, they will default on the bonds. However, if the county makes the principal and interest payment in December, we could raise the rating to investment grade.”
Between June 2008 and June 2009, the total inmate population in local jails across the United States fell by 2.3% as the number of inmate beds grew by 2.9%, according to the Bureau of Justice statistics. That was the first decline in incarceration since the survey began in 1982.
The lower incarceration rates have had a severe impact on private prisons but have also affected public lockups.
Under HB 1 enacted last month by the state Legislature, the Texas Department of Criminal Justice recently closed the Central Unit in Sugar Land, saving $25 million per year and eliminating 290 jobs at the 1,060-bed prison.
The department’s total appropriation for the 2012-13 biennium beginning Oct. 1 is about $162 million, or 3% below the agency’s funding request.
However, it could have been a lot worse.
The Bill Clayton Detention Center that was auctioned July 28 in Littlefield, Texas, held inmates from Idaho before that state in January 2009 cancelled its contract with operator Geo Group, which, in turn, canceled its contract with the city of Littlefield.