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A Kentucky County Is an Economic Prisoner of Its Own Jail

  • County faces a multi-notch downgrade as state pulls inmates
  • In debt for lockup, Grant County can’t afford to close it

A rural Kentucky county is being held prisoner by its own jail.

Grant County, about 80 miles (129 kilometers) northeast of Louisville, has been burning through cash to pay for the troubled lockup, which is about a third empty because Kentucky moved state inmates elsewhere after local officials briefly planned to shut it down. Despite the loss of prisoners, the county later decided it was more expensive to close the indebted facility than to keep it running. As a result, it’s contending with a budget shortfall that’s left it seeking to avoid becoming the state’s first county to file for bankruptcy since the Great Depression.

"The jail is nothing but a sinkhole,” said William Hill, mayor of Corinth, which has about 180 residents.

The saga illustrates the potential pitfalls for state and local governments that ran up debt to build correctional facilities, sometimes in a bid to profit from the once-swelling prison population or the continuing crackdown on immigrants in the U.S. illegally. The number of inmates has been on the decline as states re-evaluate costly tough-on-crime laws, and more than a dozen local agencies have defaulted on bonds issued for their jails, according to data compiled by Bloomberg.

Grant County sold about $5.3 million of bonds to refurbish the facility two years ago, pledging to use the government’s general funds, instead of just jail revenue, to cover the debt. S&P Global Ratings said the county’s budgetary performance has "materially weakened" and it could face a multi-notch downgrade. While the county had $2 million in reserves at the end of June 2015, that’s expected to be largely used up over the next three months, according to S&P.

The budget gap may be as much as $2.5 million, or more than a fifth of its budget, through November 2017, said Rob Marshall, a local business owner who is part of a group working with the county on its finances. The fiscal court, which oversees the annual spending plan, is considering implementing a job-license tax to plug the hole.

"The burden is being put on the backs of people," said Marshall.

The tax, if passed, would generate a projected $3.4 million next year, enough to resolve the county’s fiscal strain, Peggy Updike, Grant County’s treasurer, said in a phone interview.

“I think once they pass this payroll tax we will be able to get back on our feet to where we were before,” Updike said. “I know a lot of people mention bankruptcy, but that’s something that our department and our local government wouldn’t allow.”

The four members of the fiscal court, which governs the county didn’t respond to repeated requests for comment.

Grant County in the late 1990s decided to begin expanding the jail from about 28 beds to 300 so it could house state inmates, said Darrell Link, the former county judge executive. In 1998, the Grant County Public Properties Corporation sold about $8 million in revenue bonds to expand the detention facility, bond documents show.

The step was intended to help cover the county’s law-enforcement costs, since it receives $31 a day for every state prisoner it holds. If it housed about 250 inmates, officials estimated that the jail would cost as little as $500,000 a year, instead of some $2 million if it held only county prisoners, Link said. 

Revenue from housing state inmates has dropped 21 percent since 2013 to $2.4 million in the fiscal year ended June 30, according to fiscal court meeting minutes. Last year, after initially deciding to close part of the facility for repairs, the Grant County fiscal court decided instead to close it for good, according to meeting minutes. That led the state to pull more of its inmates and employees quit to find new jobs, said Jason Hankins, the spokesman for the jail.

Faced with the cost of moving county prisoners elsewhere while still in debt, the county in September decided to re-open. But the state hasn’t brought inmates back because the jail is understaffed and parts are still closed for renovations, Hankins said.

Troubled History

The county has long had issues associated with the detention facility. In 2005, the U.S. Department of Justice’s Civil Rights Division found that inmates’ constitutional rights were violated because guards failed to adequately protect them from assaults. Two former deputy jailers were sentenced to prison in 2008 on charges of federal civil rights violations, conspiracy and obstruction.

The county has also faced six wrongful termination lawsuits, three of which are considered whistle-blower claims, and a suit filed by the estate of a deceased former inmate, according to bond documents filed in 2015.

Link said the magistrates made the county’s financial problems worse with their aborted plan to close it. "I would very much like to make the jail go away -- there’s always problems at the jail," he said.

The county had almost $16.6 million in long-term debt outstanding as of June 30, 2015, according to the county’s financial statement.

The county fiscal court has struggled over how to balance the budget. It has considered layoffs, eliminating the parks and recreation department and even liquidating some jail equipment, according to meeting minutes provided by the county.

James Wells, the mayor of Dry Ridge, which has about 2,300 residents, said he’s worried about how a county bankruptcy could affect services and the city’s ability to issue bonds. He said tax hikes would burden town residents, who already pay a tax of their own to support emergency medical services for the county.

"It has a domino effect," he said.

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