Gainesville Prison Closure a “Cautionary Tale” Indeed

The Atlanta Journal Constitution reported Monday (http://www.ajc.com/news/news/national-govt-politics/cca-to-close-immigration-detention-center-in-gaine/nb895/) that the North Georgia Detention Center,  a privatized federal immigration detention center owned by Corrections Corporation of America (CCA) and bond-financed by the City of Gainesville, Georgia is closing at the end of the year. The 502-bed facility wasn’t getting its expected flow of inmates—down to about 150 presently. The newspaper reported that the facility’s public debt arrangement had been assumed by the city from Hall County (June 2012).

Apparently the city bought the center with speculative intentions, running out a CCA/county lease arrangement and “control” the future use of the property—all part of a downtown redevelopment effort. In other words, it’s a real estate deal that looked to be paid for while the city got plans and future commitments line up over a 10-year period. One problem: it had no guarantees CCA would continue to operate. So now, the city has the property, no redevelopment plans to justify the purchase and no revenue in leases or taxes.

As one academician in New York told the AJC, it’s a “cautionary tale” (referring to municipal deals with the private prison industry). The industry has moved away from assuming development and ownership risk-and turning to public officials with blank checks from easy bond money.

I don’t see this example as a “tale” that is limited to the prison industry. It’s a cautionary tale about real estate development using public financing for speculative ventures, whether public, public/private or what is unbelievably occurring, underwriting what are exclusively private ventures (couched in fancy language—see most stadium deals).

One message left out of the story is that Hall County, with a larger tax base would have had a better ability to take the revenue hit, particularly since it already owned the site. Government borrowing is rarely understood and sold to taxpayers in terms of risk—only costs (in which the bond market’s interest rates are being found to be woefully low)—and the risks are greater for smaller jurisdictions.

The deal with a prison company with a source of revenue isn’t really much different than Sandy Springs basing its “suburban morph” to a downtown center on a private revenue stream. Even bond “inducements” such as for infrastructure improvements based on the promise of a larger tax base are questionable for a young jurisdiction which ironically takes on huge liabilities all the while starting cities with large areas and lower densities.

What’s wrong with cities incenting redevelopment? Don’t we want property improvement and public benefits? It’s not new for cities to do so. However, for those of us debating forming new cities to presumably control SERVICES, do we want such premium attention paid to development—even to the extent that plans may challenge assumptions voters are making about promised zoning control? Also, based on the experience in Brookhaven, starting its redevelopment financing board PRIOR to seating its parks director and police chief—and charting approval of redevelopment plans for Century Center prior to having an approved zoning code, trust issues during referendum campaigns are being fulfilled.

In the city-making sweeps, are new services just a delivery platform for property transactions? Few services, immediate development activity and publicly financed inducements? It’s not necessarily bad, it’s just not what we’re voting for.