The Insurance Charade

Phone Bills

Much of that money comes from revenue the state collects for telephone calls made by inmates across the state. Families have complained about the rates they're charged -- as high as $22 for a 15-minute call, says Louise Fitchue, whose daughter is in jail.

In Tallulah, Louisiana, bond insurer Ambac was paid to give its triple-A credit rating to another jail that eventually flirted with financial failure. The insurance company came out ahead.

Grace Bauer fought back tears when she testified before a state Senate committee in May 2002 about finding her 12-year-old son bruised and bloody in an isolation cell at the juvenile correctional facility in Tallulah.

Financial Stability

Bauer, 38, whose son was sent to Tallulah after he stole a car stereo, says she was sure the stories she and other family members told that day about abuse -- of beatings by guards and rape at the jail -- would cause legislators to shut down Tallulah.

Their allegations were supported by the U.S. Department of Justice, which found conditions at Tallulah, located in the rural northeastern corner of Louisiana, violated the rights of boys held there. Federal officials reported in October 1999 that 28 children were sent to the hospital for evaluation and treatment of injuries during a 20-day period.

``I don't think there was a member there who didn't want to close Tallulah,'' Bauer says.

That was until the question of the bonds came up. ``It was all about the bond issue sold to finance the prison,'' she says. ``We could say whatever we wanted, but the state wasn't going to risk its financial stability.''

Bauer was right.

State Took Over Management

In 2002, the legislature decided to keep the prison open and found a way to provide funding to pay bondholders -- because it didn't want to risk using its bond insurance, thus hurting its credit rating, says Louisiana State Senator Donald Cravins, who oversaw hearings on conditions at Tallulah. If the legislature had voted to stop appropriating funds under a contract to the facility, there wouldn't have been enough revenue to pay bondholders, he says.

The state eventually took over management of the jail and later converted it to an adult prison. Last year, the taxpayers of Louisiana paid another $3.5 million on the bonds.

In Texas, Louisiana and across the U.S., state treasurers and legislatures are making sure that no municipal bonds default and that issuers don't use their insurance, says Jonathan Justice, an associate policy scientist at the University of Delaware School of Urban Affairs & Public Policy in Newark. He says public officials fear using bond insurance, without reasoning logically that they don't need it.

``Why are the insurers getting let off the hook?'' he says. ``I don't know why you'd pay for insurance and not take advantage of it. It sounds a little crazy to me.''

<   Page 1 | Page 2 | Page 3 | Page 4 | Page 5

		Email this article Printer friendly format