Shutdown Pain Hits Local Jails That House Federal Inmates

(Bloomberg) -- The partial government shutdown has left local jails across the country scrambling to pay their bills because they rely on money they get from U.S. agencies to house federal inmates, and those checks have stopped flowing.

For some facilities, federal funds make up a large portion of their revenue. A jail in Florida doesn’t have enough money to cover payroll due to the shutdown, forcing it to consider dipping into reserves set aside for bond payments. A detention center in Rhode Island may receive a loan at an 11.25 percent interest rate to stay afloat.

The strain on taxpayer-financed local jails is another unintended consequence of the record shutdown that has left border patrol agents working without pay and shuttered most immigration courts. The irony is that many of these jails hold people who are in the U.S. illegally -- the very group that President Donald Trump says is the reason the nation needs a wall along its southern border.

“We can’t pay our bills. That’s pretty sad – we shouldn’t be in a situation like this where the federal government shuts down," said U.S. Marshal Kenneth Runde, who oversees the northern district of Iowa. “We can’t buy paper clips. We are running on our supplies until we run out. The federal government ought to get their act together and grow up.”

The U.S. Marshals Service alone contracts with 1,800 state and local governments to rent jail space. And Immigration and Customs Enforcement detains thousands at local prisons across the county.

Bond Funded

CoreCivic Inc., a private prison company that contracts with the federal government, said through a spokeswoman it isn’t getting payments as well. And federal prison guards are working without pay, which is straining small towns like Florence, Colorado, where more than 860 people are employed at an incarceration complex. Some detainees reportedly went on hunger strike at a federal jail in Manhattan after visiting hours were reduced to cut costs amid the shutdown.

States and local governments rushed to build prisons and jails beginning in the 1990s in response to swelling inmate populations, sometimes taking on municipal-bond debt to finance them. When lawmakers re-evaluated tough-on-crime laws that had caused inmate populations to increase, the need for such facilities began to decline and for years has been rippling through the $3.8 trillion municipal-securities market as some emptied-out jails defaulted on their debts.

Shutdown Pain Hits Local Jails That House Federal Inmates

In Rhode Island, officials in Central Falls borrowed $106 million in 2005 to expand the Wyatt Detention Facility to house federal inmates for U.S. Immigration and Customs Enforcement. It was the site of what the American Civil Liberties Union called "sadistic" behavior toward one inmate, who died in 2008 at the jail. That prompted ICE to pull its inmates from the facility. It has struggled financially ever since and was placed under temporary receivership in 2014. The facility now holds detainees from the Marshals Service, Federal Bureau of Prisons, and the U.S. Navy, according to its website.

Now, bondholders faced with the risk that the jail could run out of money are arranging a $1.5 million bridge loan with 11.25 percent annual interest, according to a filing by trustee UMB Bank. Warden Daniel Martin declined to comment.

U.S. Marshal Jamie Hainsworth, who oversees the district of Rhode Island, said the facility would be reimbursed after the shutdown ends. But the longer it lasts, the harder it will be for localities to sustain.

Tapping Reserves

A detention center in Florida’s Baker County said in a filing that the Marshals Service and Immigration and Customs Enforcement owe it $2 million for services in November and December, which it does not "believe" will be paid until the shutdown ends. Additionally, a loan that would have paid off bonds issued through a local development corporation hasn’t closed because of the shutdown, the filing says.

The trustee on the debt, UMB, is asking bondholders to let the center dip into its debt service reserves in order to pay its staff and operating costs.

In Glade County, Florida, the local jail detains about 450 federal inmates, many of them for ICE. The county gets about $88 to $90 per day per inmate.

"It’s quite substantial," said Keith Henson, who manages detentions operations for the Glades County Sheriff’s Office in Moore Haven. If the government doesn’t pay for its bed space by the end of the month, that’s when the prison would start feeling an impact and would consider dipping into its reserves to cover any shortfalls, Henson said.

©2019 Bloomberg L.P.