DALLAS — Wayne County, Mich., is open to moving its unfinished downtown Detroit jail to make way for a soccer stadium, but only if it is not saddled with the money and debt it has already sunk into the project.
That requirement sets a high bar to free the site up for the billion-dollar stadium-anchored development proposal from businessman and developer Dan Gilbert, who founded Quicken Loans. Gilbert recently unveiled renderings of a Major League Soccer stadium he wants to build in Detroit, possibly at the Gratiot Ave. jail site, through his Rock Ventures company.
Gilbert's firm and the county are expected to evaluate the costs and viability of the plan for the county in the coming months.
The county sold $200 million of taxable recovery zone economic development bonds in December 2010 through the Wayne County Building Authority to fund the Gratiot jail and can't abandon the project unless the bonds are fully paid off. It has spent about $157 million so far.
"With regard to the Gratiot jail site, the county's priority is protecting the interests of Wayne County taxpayers," said Wayne County spokesman Ryan Bridges. "Right now, finishing the Gratiot jail is the best option for quickly and cost-effectively building the new jail Wayne County needs."
Wayne County, which because of financial distress has been working under a state consent agreement since 2015, halted construction of the Gratiot jail in 2013.
Cost overruns already had driven the original projected budget of $220 million to $390 million.
The abandoned jail project costs Wayne County an average of $1.2 million every month from its general fund for bond payments.
In his March State of the County address, County Executive Warren Evans said solving the county's financial crisis will improve its ability to borrow money for essential projects like the jail.
However, Evans said, completing the jail will likely cost more due to natural increases in construction costs.
Bridges said additional borrowing to pay for the project is expected but the county doesn't have a dollar figure because "at this time we don't know what the cost will be."
To change plans and go elsewhere, "the county would need a guarantee that there will be no additional cost to taxpayers in solving our jail problem," Bridges said.
"The County will, however, listen to any proposal that allows us to build a jail and all the corresponding criminal justice facilities elsewhere, provided it doesn't increase the cost for Wayne County taxpayers and doesn't delay our current timeline," he said. "No one has provided us with a proposal with the guarantees we need, and until then we shall proceed with our plans to finish building the jail at Gratiot."
Gilbert has been trying to buy the jail site from Wayne County since 2013. In October of 2013 he offered the county $50 million for the downtown jail site. The offer was rejected. That proposal did not address the county's obligation to pay debt service on the $200 million of taxable recovery zone economic development bonds.
Matt Cullen, CEO of Rock Ventures, said the company will work with Wayne County on a side-by-side cost comparison and economic analysis of building the jail on the existing Gratiot site and the cost of moving it to another site on Mound Road, north of downtown Detroit.
"Once that study is complete, we will know if there is a gap and both parties will know the actual cost and can move forward accordingly and share next steps in the process with all key stakeholders and investors," said Cullen. "Like Wayne County, Rock Ventures wants to move forward with this project in a way that makes sense for both the county and taxpayers."
In September, the county disclosed an Internal Revenue Service audit of the jail bonds. Wayne receives a federal subsidy equal to 45% of the annual interest payments on the taxable bonds under the federal recovery zone program.
The examination puts the county at risk of having to repay $37 million of previously received subsidies and losing $41 million of subsidies over the next five years. Due to statutory limitations, the county would not be able to raise tax revenue to make up for increased interest costs if the subsidy is lost.
If the county loses the subsidy, the building authority would have a hard time refinancing the debt, officials have said. Bonds maturing after 2021 — which are the bulk of the debt — are not subject to optional redemption until the end of 2020.
"The IRS audit of the jail bonds is still pending. As long as the county completes the jail on Gratiot, we do not anticipate a tax problem with these bonds," said Bridges. "We fully intend to complete the jail at Gratiot. Any change in those plans would require, amongst other things, indemnification of any tax problem that might arise from using the bond proceeds elsewhere."
Wayne County carries across-the-board junk-level ratings with Fitch Ratings and S&P Global Ratings assigning a negative outlook. In February, Moody's Investors Service revised the outlook on its Ba3 rating to stable.
The bulk of the $200 million of taxable bonds -- $143.3 million - feature a 2040 maturity and a 10% coupon. The bonds constitute a full faith and credit limited-tax GO pledge of the county, but are subject to property tax limitations.
The $45 million 2025 maturity, which carried an interest rate of 9.25%, and the $143 million 2040 maturity that carried 10% rate have traded this month at full value, over par.
"The payments for the stadium bonds are ultimately a limited tax obligation of Wayne County," said Fitch analyst Arlene Bohner.
"So we expect the county to make good on those payments, regardless of what is going on at the site," she said.
"The MLS stadium is too speculative at this point for us to add insight to," said Moody's spokesman Joe Mielenhausen. "We're monitoring the county's actions on addressing its criminal justice needs, but since it's still finalizing its decision on the jail site, we can't comment quite yet."
