CHICAGO -- Wayne County, Mich. has halted construction on a largely bond-financed $300 million jail complex in downtown Detroit amid cost overruns.
The county ordered a 60-day work stoppage starting last Friday to review the project and bring down costs, according to Chief Financial Officer Carla Sledge.
Wayne currently operates three jails and hoped to save money by consolidating services and costs at one facility in downtown Detroit.
The county issued $200 million of recovery zone economic development bonds in late 2010 to finance the project. The county commission authorized a $300 million borrowing, but the county hasn’t yet needed the additional borrowing, Sledge said. That $100 million deal could come later this year, depending on the status of the project.
Original estimates put the cost of the building the jail at $220 million, but the contractor’s most recent budget estimate came in at just under $400 million, Sledge said.
“We were surprised by that number and not in a position to say that you can go forward,” she said. “We’d rather halt construction and bring in an independent third party to review some of their proposals and see whether these things make sense.”
Another proposal on the table would have the county sell the site to a developer, namely Quicken Loans founder Dan Gilbert, and lease a state-owned prison called Mound Road for $1 a year for 99 years. The county is interested, but the offer has not yet come, Sledge said.
“Until we are made an offer from Gilbert, we can’t just continue to operate as if there is something that is going to change,” she said.
Sledge said the county will do what it can to bring expenses back down to $300 million. One idea is to trim the number of beds in the new facility to 1,600 from 2,000 and keep open one of the current jails to house the rest.
The county’s jail population is about 2,200, Sledge said.
The county sold $200 million of taxable stimulus bonds in December 2010 though 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 rentals constitute a full faith and credit limited-tax GO pledge of the county, but are subject to property tax limitations.
The largest tranche of the bonds, $143 million, which feature a 2040 maturity and a 10% coupon, were yielding 6.8% in June trading, according to the Municipal Securities Rulemaking Board web site.
Sledge said the county has been working closely with its bond attorneys and financial advisors to ensure compliance with Internal Revenue Service rules.
“We’ve talked with our FAs and bond counsel when we were talking about the possibility of Gilbert securing the current jail site, because we wanted to make sure we could do that with the current bonds,” she said. “Bond counsel took a look at it and said if we were to sell the current site and move somewhere else, all that we need at the end of the day is that the developer doesn’t look like he or she got some special benefit,” she said. “It was going to work, if we had gotten the offer.”
The county’s FA is Acacia Financial Group Inc. Bond counsel is Miller, Canfield, Paddock, and Stone PLC.
Wayne is Michigan’s most populous county. It includes Detroit, which makes up about 22% of the county’s $101 billion tax base.
Standard & Poor’s is May lowered its rating on Wayne County’s limited-tax GO bonds to BBB from BBB-plus, saying the downgrade reflects ongoing financial deterioration caused by a structural deficit. Moody’s Investors Service rates its LTGOs Baa2 with a negative outlook and Fitch Ratings has a BBB-plus rating on the county.