Behind the scenes in Central Falls: correctional facilities as economic development?

Last year, Associate Justice Mark Pfeiffer the Rhode Island State Receiver appointed to manage the finances of Central Falls issued a report detailing the reasons for Central Falls deep and longstanding financial problems.

The major structural drivers: 1) Collective Bargaining Agreements (CBAs). Unionized municipal employees constitute 71 percent of Central Falls’ workforce. Their CBAs are described as “highly restrictive,” and give the government little leeway to make adjustments. 2) The John Hancock pension plan for fire and police, 3) Unfunded OPEB totaling $32 million,  and 4) The Wyatt Detention Facility.

In 1991, the city, operating through a newly-created state entity, “the Central Falls Detention Facility Corporation”  (CFDFC) made an intergovernmental agreement with the U.S. Marshals Service to operate the Wyatt Detention Facility in order to “pursue economic development through the acquisition or construction of correctional facilities.”

Wyatt is tax-exempt and is supposed to make an annual payment to the city, “In this way, Wyatt would still provide the City with the benefit of economic development – tax revenue for the City – but would do so in the form of an impact fee payment rather than through taxes.”

The quasi-public CFDFC was to oversee Wyatt which now houses about 700 detainees. Building of the facility was financed by $30 million in revenue bonds, and a 2005 expansion financed by another $106 million in bonds. Per diem payments from the U.S. Marshals Service were to repay the bonds. But, a decreased number of detainees from Immigration and Customs Enforcement  (due to the death of a detainee), led to a decrease in projected revenues at the facility. Thus, CFDFC suspended payments to Central Falls. A fact compounded by Central Falls’ inability to accurately budget for the loss (they continued to budget as if they would receive payments).

The receiver’s report states, “the impact fee is a discretionary payment that holds a lower priority than payments to bondholders…In other words, The City is the last beneficiary of payments by Wyatt, although the very creation of Wyatt was designed to benefit the City.” Bondholders are threatening to sue if Wyatt pays the City before it pays them. Wyatt is in bad financial shape with current debt service costs slated to grow substantially. (Moody’s doesn’t think the Chapter 9 filing will affect Central Falls GO bondholders.)

Part of Wyatt’s tangled web can be traced to one questionable assumption: that the construction of federal correctional facility by the issuance of revenue bonds would result in local “economic development” in the form of revenues for Central Falls. Wyatt gets $100 a day per detainee from the federal government.

Now the legislature is considering taxing the facility to generate revenues. As one legislator notes, “It is certainly not the economic development engine that was envisioned…If they can pay those kinds of salaries to top administrators, they should be at least able to pay the city $500,000 per year.”

In June, the Rhode Island legislature issued a resolution to study Wyatt further.