Wayne County gets two more months to decide on jail options

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DALLAS -- A Wayne County, Michigan Commission vote today gives County Executive Warren Evans’ administration another two months to decide the fate of the half-built, bond financed jail in downtown Detroit.

The county was facing a Sept 28. deadline to decide on whether to go with the original proposal for completing the jail at the Gratiot site submitted by Chicago-based Walsh Construction or pay the firm a $500,000 stipend if the county opted otherwise.

The county is also reviewing a second proposal from firm Rock Ventures to build a new jail at an alternative site that hinges on a decision regarding a tax issue with the Internal Revenue Service over potential penalties the county could incur on the original borrowing for moving the jail.

“[The decision] allows Walsh to remain an option while we continue to negotiate with Rock Ventures on their proposal to build a new criminal justice complex,” said Evan’s spokesman James Martinez.

The commission’s action extends the deadline to Dec. 1 and also locks in pricing in Walsh to finish Gratiot. The county would only pay the stipend to Walsh if it went with Rock Ventures plan.

Martinez said that no decision has been made by the IRS but the county is still making progress with Rock Ventures negotiations, but substantial work still to be done. Land acquisition from city is also progressing well. “We remain optimistic IRS will make a decision that allows us to move with Rock proposal should we be able to reach a contract with Rock,” said Martinez. “We want to finish this project as quickly as possible, but it's a very complex process and we need to do our due diligence and get the best possible results for Wayne County.”

The IRS in July 2015 began conducting a targeted audit of the Wayne County Building Authority's 2010 bonds due to concerns about possible tax code violations, according to a disclosure notice the county filed. Jail construction began in 2011 but was halted in 2013 due to rising costs.

The IRS notified the county about six months ago that the audit was resolved without any adverse action and no penalties would be imposed as long as about $50 million of remaining proceeds were used to complete the project on the current site.

Opting to move the site would expose the authority to losing the federal subsidy payments the county receives for the taxable bonds that were issued under the recovery zone economic development bond program. At risk is a total of about $170 million in subsidies, which includes more than $50 million the county has received so far.

Moving the site would free up the downtown location for a soccer stadium Dan Gilbert the founder and chairman of Rock Ventures and Quicken loans, together with the Detroit Pistons Owner Tom Gore are seeking an Major League Soccer expansion team, which they want to have play in a $1 billion mixed-use development anchored by the stadium at the 15-acre consolidated jail site.

In return for the jail site, Rock Ventures would build the county a new Criminal Justice Center with a 2,280 bed jail, criminal courthouse, prosecutor offices, sheriff administrative offices and a juvenile detention facility at an approximate cost of $520.3 million. The county would be responsible for $380 million plus the cost of acquiring the land and Rock would cover any cost overruns. The $380 million would be funded through a combination of unused proceeds from a $200 million direct-pay, taxable recovery zone economic development bonds (RZEDBs) sold in 2010 by the Wayne County Building Authority and the issuance of about $200 million of new bonds, according to Evans.

Walsh Construction’s proposal includes two jail options at Gratiot, with approximately 1,608 beds at $269 million and 2,200 beds at the cost of $317.6 million. Its plan does not include the cost of renovating the Frank Murphy Hall of Justice, which is estimated to cost $36 million. The total cost of the Walsh proposal with the renovations to Frank Murphy is estimated to be about $353 million. The county also says it would be at risk for cost overruns with Walsh's proposal, unlike with the Rock proposal.

In May, Moody’s Investors Service affirmed the county’s Ba1 limited tax general obligation rating while revising its outlook to positive from stable. S&P Global Ratings also affirmed the county’s LTGO rating of BB-plus and positive outlook while Fitch Ratings raised the county’s issuer default rating by one notch back into investment-grade territory at the BBB-minus in late May.

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