Trump Immigration Crackdown Pushes Once-Bankrupt City Into Bondholder Clash

(Bloomberg) -- Central Falls, Rhode Island, is seeking to cancel a contract with the federal government to hold detainees swept up in President Donald Trump’s crackdown on immigrants who entered the country illegally, escalating a clash with investors who own bonds issued for the once-bankrupt city’s sprawling lockup.

The Central Falls Detention Facility Corp., which oversees the Donald W. Wyatt Detention Facility, voted to temporarily end a contract to house detainees on behalf of U.S. Immigration and Customs Enforcement. The decision Friday came after leaders of the city -- where more than half of the 19,000 residents are Hispanic -- passed a resolution denouncing the prison and its overseers after it started housing immigrants at the facility.

The fight highlights the tensions within local governments over the Trump administration’s aggressive approach to detaining those who crossed the border illegally, which led Atlanta’s mayor last year to stop the city from holding ICE detainees. In Central Falls, the city’s move has also prompted push-back from a trustee for bondholders, which said it’s considering legal options to protect the revenue stream that backs their investment.

"Our responsibility is first and foremost to the corporation -- we have a fiduciary responsibility to the corporation," said Joseph Molina Flynn, the chair of the corporation, whose members are appointed by the mayor. He said the board voted to suspend the ICE contract after hearing about "human rights issues," such as the facility not providing detainees with access to interpreters and legal representatives.

Debt Outstanding

Central Falls’ Wyatt Detention Facility has struggled financially over the years and has long been controversial. It was the site of what the American Civil Liberties Union called "sadistic" behavior toward one inmate, who died in 2008 at the jail and prompted ICE to pull its inmates from the facility that year. In March, the detention facility began housing over 130 detainees for ICE, according to a filing. About $98 million in debt issued by the corporation is still outstanding and in default, according to data compiled by Bloomberg.

Last week, Central Falls city council members passed resolutions saying "there is no need" for the corporation and voiced support for shutting down the detention facility, which also holds other federal inmates. That earned the city leaders a rebuke from the trustee for bondholders, UMB Bank, which said it hired law firm Mintz Levin to review legal options, according to a regulatory filing this month.

Mintz Levin said that holding immigrant detainees is part of an attempt to raise revenue and become economically viable, according to a March letter to the city’s solicitor. Last week, it warned that calls to close the detention center and the push to invalidate the ICE contract impair the rights of bondholders and could open the city up to "significant" damages. Moving to close the jail would break an agreement with bondholders and be in "direct violation" of state law, the April 2 letter says.

"Should the mayor’s threats materialize, the city and state’s reputation in the municipal finance market would be negatively affected, including likely rating downgrades," the letter says. Adrienne Walker, a lawyer at Mintz Levin, did not immediately respond to a request for comment.

Central Falls Mayor James Diossa said in an emailed statement that the facility will never be able to "solve" its crushing debt or be an economic engine for the city, which went bankrupt in 2011. Bondholders have tried to keep the facility working with the Trump administration without a public debate, he said in the statement.

"For our city to now host similar asylum-seekers who are locked-up, separated from their families and denied the legal right to asylum is outrageous and our city will not stand for it," he said. The bondholders’ "attempt to bully and intimidate the city will not work."

The warden of the Wyatt Detention Facility has 90 days to submit a report addressing these concerns and the board will reassess the contract, Molina Flynn, the corporation’s chairman, said. About 60 people are being detained in the facility on behalf of ICE and will be transferred to other locations, he said.

Molina Flynn said the detention facility could open itself up to more litigation by not providing immigrant detainees with appropriate services. "It’s going to end up costing more to not do things the right way," he said.

Daniel Martin, warden of the detention facility, did not immediately respond to a request for comment.

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