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PLN's "Prison Profiteers" mentioned in article re private prison in Hardin, MT

Billings Gazette, Jan. 1, 2009.
PLN's "Prison Profiteers" mentioned in article re private prison in Hardin, MT - Billings Gazette 2009

Was Hilton just the latest to seek gains from Hardin?

Billings Gazette

By ED KEMMICK Of The Gazette Staff

Posted: Sunday, October 18, 2009 12:15 am

When American Police Force pulled the plug on a deal that could have given it control over Hardin's empty jail, Gov. Brian Schweitzer said Hardin city officials "have been duped by con artists over and over and over and over again."

He's not the only person who believes that.

The story of Michael Hilton - the shadowy founder of APF whose documented propensity for fraud fed the impression that he was trying to pull a scam on the city of Hardin - has been told by newspapers and other media all over the country in recent weeks.

Less talked about is the possibility the governor was referring to - that the original scam may have been perpetrated by the consortium of companies that talked Hardin into building the detention center in the first place.

"Hardin was a cookie cutter deal," municipal bond expert Christopher "Kit" Taylor said - the same basic proposal pitched by the same group of companies to dozens of communities, mostly in Texas but in other parts of the country as well, that were looking for economic development.

But at least most of the other prisons built on speculation eventually had some inmates and were making money, if not as much as promised by the groups who developed them, Taylor said.

"The problems aren't as extensive as they are in Hardin because in Hardin they have no prisoners," he said.

Though the Texas consortium behind the Hardin prison still has defenders, there were warning signs that it was promising more than it could deliver.

Flaws seen in study

In November 2007, two months after the jail was completed, a report from the state's Legislative Audit Division called into question the feasibility study that helped convince Hardin officials that there would be a need for the 464-bed facility.

"There are a number of assumptions made related to financial viability that appear to be unfounded," the report said, and flaws in the data and methodology made it impossible for local officials to "validate the analysis with any confidence."

The feasibility study was conducted by GSA Ltd. of Durham, N.C., a company that had performed similar studies for similar prison projects involving the same group of developers.

"When I saw it was the same set of players, I said, 'They're all in bed together.' GSA doesn't get paid unless another prison's built," Taylor said. Taylor was executive director of the Municipal Securities Rulemaking Board from 1978 to 2007. The board was created by Congress in 1975 to write rules regulating the behavior of dealers in the municipal securities market.

In Hardin and elsewhere, Taylor said, private-prison consortiums pitch their deals as risk-free economic development projects. They are touted as being risk-free because they are funded by tax-exempt revenue bonds that can be repaid only by money earned on the projects, not by taxing local residents.

Project revenue bonds, as they are known, were traditionally used by local governments to fund the construction of things like sewer and water systems, projects for which there was an obvious public need. And the bonds could be paid back by a virtually guaranteed revenue stream - the fees paid by property owners who had to have the services.

Kevin Pranis, an analyst for New York-based Justice Strategies, wrote about the use of such bonds to finance correctional facilities in "Prison Profiteers," an anthology of criminal-justice pieces published by Prison Legal News.

Pranis said bond investors have to rely on the opinion of bond issuers "who have a stake in making prison bonds looks as safe as possible."

While bond documents like the one issued for the Hardin project are full of information about how quickly prison populations have grown in recent years, they "contain little or no information about sentencing and correctional policy reforms, shifts in public opinion or other trends that would weaken the case for new prisons," Pranis wrote.

The bonds are sold

To build the Hardin jail, the Two Rivers Port Authority, an economic development agency created in 2004 by the Hardin City Council, issued $27 million worth of revenue bonds.

That was in 2006, several months after the Texas-based consortium that originally pitched the deal submitted the only design and construction bid advertised for by the city of Hardin.

The deal was brokered by James Parkey, owner of Corplan Corrections in Argyle, Texas, who specializes in the design and development of prisons as economic development tools. The bonds were sold by Herbert J. Sims and Co. and Municipal Capital Markets Group. For their services, Sims and Municipal Capital collected $1.6 million in underwriters' fees.

Dealing in prison-related bonds has been a lucrative business for Municipal Capital. Texas Monthly magazine reported in 2006 that the company had earned $5.4 million by financing $92 million in project revenue bonds to build three jails in a single Texas county, Willacy County.

The Hardin construction contract went to Hale-Mills Construction of Houston, which was paid $19.8 million. The facility was to be run by CiviGenics-Texas.

Corplan has put together similar deals, many involving Municipal Capital Markets and Hale-Mills Construction, but sometimes with different operators. When Parkey first pitched the idea to Hardin, Emerald Cos., another big player in the corrections industry, was named as the prospective operator.

Schweitzer said the common denominator in all the projects is that "rainmakers" go into small towns and counties with high unemployment rates and present complete packages, offering to take care of design work, bond sales, construction and operation. In theory, all the governmental entity has to do is issue the bonds in its name and then sit back and collect the revenues.

Taylor said problems arise because the companies make their money regardless of whether the prison ever gets enough inmates or is opened at all.

"That's true of the bond lawyers, it's true of the underwriters, it's true of the feasibility study," he said.

Taylor said the municipal bond market is even more lightly regulated than the general bond market.

Virtually the only rule is that bond issues have to be accompanied by an official statement, and the statement "can't be knowingly false and misleading. Those are the only requirements today," he said. "That is nowhere near what is required in the corporate area."

Schweitzer also said Hardin officials should have known that Parkey and his company, Corplan Corrections, "had a shaky reputation."

In 2006, a consultant doing work for Corplan was convicted of funneling bribes to two county commissioners in Texas in connection with development of a detention facility there. The two commissioners were also convicted on bribery charges. Parkey, who did not return phone calls seeking comment, has previously said he had nothing to do with the criminal activities.

Parkey defended

One of Parkey's defenders is Paul Green, who was the economic development director for the city of Hardin in 2004, when Parkey first pitched the prison idea.

Green said he visited three or four towns in Texas and Arizona that had prisons developed by Parkey and his associates, and in each case local authorities had nothing but praise for Parkey and the prisons he helped build. Parkey was also known for staying involved in projects for years, something he wouldn't have done if short-term gain were his only goal, Green said.

As late as last month, two years after the Hardin prison was built, Parkey was still involved in that project. After Greg Smith was suspended as director of Two Rivers Authority, Parkey personally asked Green if he would meet with APF frontman Michael Hilton, which Green did.

Green said he came away from the encounter convinced that Hilton didn't have the wherewithal to make good on his grandiose promises to Hardin, but he was still impressed by Parkey's evident concern for Hardin.

"That's why I have a high regard for James," he said.

Willacy County, Texas, Sheriff Larry Spence has also been generally happy with the way things turned out in his county. He said he was on the "public facility corporation" - similar to Two Rivers Authority, established as the bond-issuing entity - when Corplan helped develop a county jail and detention facility for the U.S. Marshals Service in the county.

Both of those facilities are doing well and are paying the revenue bonds off on schedule, he said. Spence said the latest project - a 1,000-bed detention center built with the idea of temporarily detaining illegal immigrants caught along the nearby Mexican border - has been doing less well.

It filled up initially and was quickly expanded to 3,000 beds, Spence said, but lately its inmate population has been hovering at around 1,000 and may be in trouble. He said he wasn't involved in that project directly.

In Hudspeth County, Texas, County Judge Becky Dean-Walker also expressed satisfaction with the $23.5 million West Texas Detention Facility, built by the same consortium.

There was trouble finding enough prisoners at first, she said, but the facility added 500 beds last year.

"To me that's just a business," she said. "They've been very good for Hudspeth County."

Taylor, the bond expert, said the problem in some areas has not been a lack of prisoners but unanticipated costs associated with the facilities. Some of the Texas prisons have been built in sparsely populated counties with little infrastructure in place, and building a prison requires them to install expensive water and sewer lines, on the taxpayer's dime.

In other cases, cities and counties have had to hire more police or sheriff's deputies to handle big increases in traffic, and in counties nearly all the prison workers end up being commuters coming from many miles way.

"The upshot was, they barely got any money from the operation of the prisons," he said.

It started in Billings

One thing often overlooked in all the attention focused on Hardin is that the Texas consortium originally had its eye on Billings.

On the Two Rivers Authority Web site, a timeline said the project's origins go back to June 2004, when Parkey and one of his associates met with then-Gov. Judy Martz at the airport in Las Vegas, as she was on her way to the Western Governors' Association annual meeting in New Mexico.

It isn't clear who arranged that meeting, but Parkey came to Billings the following month at the invitation of the Montana Department of Commerce.

Among those present at a gathering hosted by the Big Sky Economic Development Authority were people from Hale-Mills Construction and Emerald Cos., the proposed operator, and Mike Harling, an executive vice president of Municipal Capital Markets Group.

The list of other attendees makes it clear how important the proposal was and how seriously it was being taken. All three Yellowstone County commissioners were there, along with the chief of police, the sheriff, the mayor, city officials, three representatives of the Department of Corrections and staff people representing all three members of Montana's congressional delegation.

In a packet of information addressed to Martz, Corplan laid out its proposal for a 500-bed adult detention center to be built in Billings. It was described as a "turnkey" operation that would be completed in 12 months and turned over to local officials. Corplan told of having designed and built 33 correctional facilities in five states.

Green, the economic developer from Hardin and a former employee of the Big Sky EDA, was also invited to the meeting. He said Billings officials clearly had no interest in a prison. But in Hardin, people were still kicking themselves for having failed to make a bid for the private prison that ended up being built in Shelby.

Green and Parkey started talking that day about the possibility of taking the Billings prison concept and moving it 50 miles southeast, to the struggling town of Hardin

Parkey and his associates found a much warmer welcome there.