Small-Town Blues

On April 17, about 50 residents of Encinal, Texas, drove across the railway tracks to the Veterans' Hall community center to debate whether the impoverished town should add a large, privately run U.S. Marshals Service prison to its meager list of possessions. Specifically, they discussed an environmental assessment commissioned by prison proponents to reassure locals that the prison wouldn't overwhelm the water and sewage systems, kill off the endangered wildlife and violate the peaceful, starry nights.

But the real story had played itself out over the previous three years -- and it wasn't so much about environmental malaise as about shady deals, political horse-trading, and a deeply unsavory power grab by a series of private companies and middlemen looking to make a quick buck from the economic misery of Encinal -- a town of 600 people 40 miles north of Laredo -- and surrounding La Salle County. It's a salient warning of the problems this kind of business generates, as Texas now debates bills that would essentially allow the wholesale privatization of its enormous prison system, and as the federal government touts the benefits of privately run federal facilities.

The story of Encinal is also the story of what happens when individuals place private financial betterment over public well-being in determining a region's incarceration mechanisms. Indeed, this is round two of a process begun in the 1980s that situated private jails, prisons and federal holding facilities in poor counties throughout Texas and much of the South. The process ultimately led to several bond issues failing and several facilities being bailed out by the state at hand, or bought out at bargain-basement prices by other private operators. And, just as with Encinal, the process left poor cities with little more than false promises of riches that never materialized -- and debt that was all too real.

A few years back, a wheeler-dealer from Laredo named Rick Reyes rode into town proclaiming himself a consultant who would bring detention centers to La Salle and wealth to its residents. "He was," says La Salle County Attorney Elizabeth Martinez, "the mad hatter. He wore several hats, including being a consultant without a license."

In June 2000, Reyes persuaded the county's four commissioners and Judge Jimmy Patterson to issue a $2 million bond to renovate and sell to the private sector a 48-bed jail in the county seat of Cotulla, a city of 3,000 people that already had a large state-run prison. Eventually the jail contract went to a Louisiana-based company called Emerald Correctional Management. Reyes' contract awarded its author 3 percent of the total cost of the project, giving him an incentive to ensure that the jail cost the county as much as possible. Two months later, Reyes persuaded the commissioners to endorse a plan -- which hasn't been carried out so far -- to build a privately run 1,000-bed Immigration and Naturalization Service facility. Later that summer, he proposed his pièce de résistance, a $22-million bond issue that would be used to construct a 500-bed, privately run institution in Encinal to house U.S. Marshals Service prisoners. Each of the deals had produced lucrative commissions for Reyes, but the Marshals Service deal, if all went well, would net him hundreds of thousands of dollars.

Reyes knew the history of the commissioners and the judge. Both parties had recently run into trouble after borrowing $800,000 from the U.S. Department of Housing and Urban Development (HUD) to build low-income houses in La Salle County and instead "invest[ed]" the money in a get-rich-quick project in Houston that failed. As a result, the commissioners and the judge were placed on a list of individuals ineligible for future HUD loans. Patterson, meanwhile, doubled as an insurance salesman and reportedly encouraged residents who received government aid to take out home-insurance policies with his company.

Reyes proposed a series of complicated maneuvers that, he said, would shield the county from financial risk and also attract a multimillion-dollar industry into its environs. He wined and dined the commissioners and Patterson, sending them Christmas baskets and other goodies.

Patterson, two of the four commissioners and Reyes ignored telephone calls and e-mails, as well as personal visits to their offices, by The American Prospect. But Commissioner Roberto Aldaco, sitting in his living room under a framed photograph of himself with Bill Clinton, stated that the prison "would really help us in La Salle County; it would help with jobs for the new generation." Yet when asked who would pay the more than $2.5 million per year interest on the bonds, Aldaco insisted that he couldn't remember anything about any of the decisions the commissioners had made. Andy Landrum, another commissioner, said he wouldn't discuss the prison because of ongoing lawsuits involving possible environmental regulations and violations of Texas law.

What is clear, though, is that the five politicians created a shell corporation -- the La Salle County Public Facilities Detention Corporation -- appointed themselves as directors and acquired the legal authority to issue the bonds. In theory, at least, setting up such a corporation was a legal way to ensure that the county itself, while acting as a central player, couldn't be held liable should things go wrong. In practice, it gave the five men, in a county with a monthly budget of only $180,000, extraordinary discretion to both raise and distribute enormous sums of cash.

And, from 2000 onward, that's exactly what they did. They rubber-stamped documents relating to the deal and created a feedback loop between the county, the corporation, the U.S. Marshals, the private-prison industry and the bondholders, the commissioners and the judge. Minutes from the corporation's meetings revealed no discussions or debates. No outside attorneys, other than those provided by the bond underwriters, were brought in to represent the county or the corporation during contract negotiations. When the commissioners asked Martinez, the county attorney, to sign off on the deal, she refused because they had shown her none of the paperwork. Not a single outside financial adviser was consulted to help ensure favorable, or even commonsensical, terms for the county in its dealings with the two bond-underwriting firms, with the U.S. Marshals or with Emerald.

In its bid for the contract, Emerald -- which was recently condemned by the Texas Commission on Jail Standards for using noncertified guards in its Cotulla jail -- had promised such incentives as a $50,000 donation to improve Encinal's infrastructure. But there's no mention of this money in the final contract. As for the well-paid jobs the commissioners touted, the Marshals Service cost sheet lists guards being paid $19,760 a year. In the deal with the Marshals, the county (standing in for the corporation) is basically paid a certain amount per prisoner; but in the deal with Emerald, the county agrees to pay the company a basically flat rate regardless of occupancy, and local law enforcement assumes responsibility for tracking down escaped inmates. As a result, analysts predict that the county will pay out far more than it receives and that the project will eat up the bond issue's reserve funds within a few years. And the directors of the corporation never raised an eyebrow.

The bonds, about as sound as 1980s junk bonds, were finally issued in the fall of 2002, offering to pay those gullible enough to invest in them a hefty rate of 10 to 12 percent per year. As vast commissions and consultancy fees were rewarded, Reyes reputedly earned hundreds of thousands of dollars -- although this is impossible to prove because all the relevant paperwork -- including Reyes' contract and the computer disks on which this data was stored -- has mysteriously disappeared. Even Reyes himself has seemingly vanished from the region. Millions of dollars went to a construction company in a neighboring county with which Reyes had had undeclared dealings. The two bond-underwriting firms received unusually high commissions. And a land deal for the prison site paid the owner five times the market rate for 100 acres of undeveloped, mesquite-covered scrub.

Construction on the prison has begun, but critics haven't given up hope of stopping it. Encinal resident Donna Lednicky and her husband have sued the commissioners and Patterson for allegedly violating Texas' Open Meetings Act by not advertising corporation meetings the required 72 consecutive hours in advance. Rancher Greg Springer is suing the Marshals Service for proposing a floodlit facility in an area with a "dark skies" ordinance. Newly elected La Salle County Judge Joel Rodriguez Jr. is preparing to subpoena all relevant documents. And the U.S. district attorney responsible for La Salle County, Lynne Ellison, has launched an investigation into possible open-records violations, surrounding the existence and nondistribution of relevant documents.

So far, however, the prison's proponents show no sign of backing down or cooperating. In December, Patterson wrote a letter to the Marshals Service and the U.S. Department of Justice stating that the opponents were outsiders "who are associated with political, ideological, and philosophical groups ... [who] do not have the same value system that our residents possess." Patterson, the commissioners and Reyes have all ignored the certified letters Rodriguez mailed them demanding cooperation and the production of missing documents.

Whether Rodriguez is successful remains to be seen. But, for now, the citizens of Encinal are stuck paying the bill for a costly project that no one wants and that will provide few, if any, benefits. "Why is it we always get these harebrained, depressing efforts at 'improvement'?" asks resident Janet Krueger. "The things that other people don't want are what come to Encinal."

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