Trump’s Immigration Policy Shows Why Jails Are Risky Investments

(Bloomberg Businessweek) -- James Diossa, a Democrat and the first Latino mayor of Central Falls, R.I., took the floor at a community meeting in March and called for the closure of the Wyatt Detention Facility, a 700-bed detention center for undocumented immigrants with $130 million of debt outstanding. “As someone whose own family walked across the border in search of the American dream, I cannot and will not stand by as the Wyatt attempts to profit from the exploitation of human misery and the separation of families,” Diossa said.

Jails and detention centers, once looked upon as cash cows for struggling municipalities, are now caught up in the bitter national debate over immigration. With President Donald Trump moving aggressively to detain and deport undocumented individuals, some local governments are bridling at being in business with U.S. Immigration and Customs Enforcement. The money ICE pays detention centers ($114.87 per detainee per day, in the case of the Central Falls facility) can sometimes represent their biggest source of revenue.

Investing in jails and detention centers is one of the riskiest bets in the $3.8 trillion municipal bond market because they’re subject to the vagaries of politics and policymakers. According to research firm Municipal Market Analytics, jail bonds are among the most likely to go into default. 

The pendulum had been shifting away from prisons and detention centers under President Barack Obama as tough-on-crime laws fell out of favor. Federal inmate numbers diminished each year between 2014 and 2017, according to Federal Bureau of Prisons data, and states have closed correctional facilities as they ease mandatory sentencing policies, resulting in fewer prisoners. Trump's aggressive crackdown on undocumented immigrants, however, has been good news for facilities with ICE contracts: The agency's Enforcement and Removal Operations arm said that in fiscal 2018, it recorded the greatest number of administrative arrests since 2014. On June 17, Trump said in a tweet that ICE would begin mass arrests of what he called “illegal aliens” next week.

But the same time, Trump’s demonization of undocumented immigrants themselves has spurred some cities to declare themselves sanctuaries, refusing to assist in immigration enforcement and deportation. In 2018, Atlanta stopped detaining people for ICE, turning off a $7 million spigot of federal cash, while Contra Costa County, Calif., said it would eschew the $3 million it got from ICE.

Other governments say they can’t afford to cut ties with the agency. Activists have urged officials in Essex County, N.J., to stop housing ICE detainees at a local jail, a practice that’s expected to generate more than $32 million in 2019. The county, which encompasses Newark, uses that revenue for its general fund, says spokesman Anthony Puglisi. Without the contract, the jail wouldn’t be used to its “fullest potential,” he says.

A community of 19,000 on the Blackstone River, Central Falls was a boomtown in the late 19th century, attracting immigrants from Ireland, Scotland, and Canada to work in mills that produced aprons, brooms, and hosiery. In the 20th century, the number of arrivals from Latin America overtook immigration from Europe, and by the start of the 21st century, most of the mills had closed. Today the city’s $30,000 median income is half Rhode Island’s average, and a third of residents live below the poverty line.

In the early 1990s, the Wyatt Detention Facility represented a way for Central Falls to get out from under multimillion-dollar budget deficits, says former Mayor Thomas Lazieh. In 1991 state lawmakers authorized a $30 million bond issue to pay for the center’s construction. Central Falls would receive a slice of the revenue after operating costs and debt service were paid, funds that were unpredictable but bolstered the budget. “The money that the city has received has been an advantage—a great advantage—financially to the city,” Lazieh says.

Wyatt opened in 1993 across from a baseball field, just in time for the 1994 federal crime bill, which would contribute to the number of federal inmates almost doubling by 2017. The Central Falls jail housed inmates for the U.S. Marshals Service while they awaited trial in nearby Providence. After President George W. Bush created ICE in 2003, the agency became a client. A municipal board overseeing Wyatt, the Central Falls Detention Facility Corp., sold $106 million in bonds in 2005 to expand the jail to accommodate the increased population.

The flush times didn’t last. In 2008 a Chinese inmate died after receiving what the American Civil Liberties Union described in a lawsuit as “sadistic” treatment. The case, filed on behalf of the inmate’s family, named Wyatt staff members, the Central Falls Detention Facility Corp., and ICE as defendants, accusing jailers of denying the inmate, Jason Ng, medical care despite a cancer diagnosis. The group won a settlement. In response to Ng’s death, ICE pulled its detainees from the jail.

In 2011, when benefit obligations overwhelmed the city’s budget, it passed through a rare municipal bankruptcy. The Wyatt board worked to lure back ICE as the facility endured years of deficits. In January of this year, they reached an agreement to house 225 ICE detainees as part of the Trump administration’s “zero tolerance” policy for people who enter the country illegally. But by then, such contracts were under intense scrutiny from activists and Democratic leaders.

Shortly after the new ICE detainees began arriving in March, Diossa appointed several members to the board overseeing the Central Falls detention center, including a local immigration lawyer, Joseph Molina Flynn. In April the board voted to suspend the jail’s contract with ICE, citing “human rights issues.” Separately, the City Council approved a resolution stating there was no longer a need for the Wyatt board because there was no longer a need for the jail itself. UMB Bank, the trustee representing bondholders including OppenheimerFunds, argued in a lawsuit that terminating the ICE contract would “irreparably” harm the facility and that dissolving the corporation would eliminate revenue pledged to the bonds.

Diossa, who declined to be interviewed for this story, said at the March community meeting that the city has received revenue from Wyatt in only two of the past 10 years. “The people of Central Falls cannot be held responsible for the lack of revenue and crushing debt—more than $100 million—that has crippled this prison from Day 1,” he said. After emerging from bankruptcy protection in 2012, the city saw a steady rise in its credit rating, to BBB in 2017, on the strength of its management, according to S&P Global Ratings.

City officials have entered mediation with UMB; in April, they reached an agreement to restore the ICE contract. Steven Brown, who leads the Rhode Island chapter of the ACLU, says the organization is “monitoring” the facility, with local lawyers instructing inmates on their legal rights. “We remain very concerned about ensuring that the rights of the detainees are respected,” he says.

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net, Jillian Goodman

©2019 Bloomberg L.P.