DALLAS -- A Pecos County, Tex., for-profit jail project will make an Aug. 1 payment to bondholders despite earlier predictions that a shortfall was imminent, a lawyer for the county said yesterday.
Barney Knight, a lawyer for Bickerstaff, Heath & Smiley in Austin, which represents the county, said the trustee, First City Bank in Houston, confirmed that funds were available to eliminate an expected $7,243.57 shortfall. He would not elaborate on the sources of the funds.
He said yesterday that county officials mistakenly believed all other funds were empty when they forecast a possible default. The officials earlier this month said they expected a shoftfall when the $597,187.50 payment came due.
The lease revenue bonds are not obligations of the county, but they were issued by a nonprofit conduit financing corporation in 1989. Six counties in Texas issued a total of $74 million of tax-exempt junk bonds for the jails.
"Somebody called the trustee and just didn't know what they were asking," Mr. Knight said, referring to Pecos County District Attorney Richard Barrajas. "I knew there had to be other funds available. I knew they couldn't have used all those funds up."
In fact, he said that if county officials had inquired, they would have been told that while there was a deficit in the debt service account, there were available surpluses that could be transferred from other accounts.
Mr. Knight also explained that the trustee has said funds are available to make the next payment in February 1992.
Officials at First City, the trustee bank, have not returned numerous telephone calls over the past two weeks, and a spokesman yesterday refused to comment.
Mr. Barrajas, a critic of the project, yesterday said the trustee left no doubt in his mind that project funds were empty.
"I had inquired of First City and was told that there were no other funds available," he said. "They sent records to the [Pecos County] judge, and they all showed zero balances."
Pecos County Judge Fredie Capers was not available for comment yesterday, but earlier this month he said the shortfall and zero balances were confirmed by letter from the trustee.
Officials at the five other counties have declined to discuss the status of their for-profit jails. At least four counties have retained outside counsel to advise them on their liability if the projects default.
Also, the conties hope to lobby Texas lawmakers during the current budget-writing special session to allow the private facilities to be used to ease crowding in the state correction systems.
A similar proposal was killed in the spring session and has been opposed by the Texas Department of Criminal Justice.
The possiblity that project funds may already have been exhausted alarmed some officials because the bond issues were structured so that capitalized interest and reserve accounts would ensure debt service through the February 1992 payment.
By that time, the six jails were expected to be up and running in time to make their first stand-alone debt service payment in August 1992. However, only Agelina County, Tex., is currently being used while the five other 500-bed jails remain empty.
"At this point, our outlook is still the same," Mr. Barrajas said of the jails' prospects of being used. "It's not very good."
Mr. Barrajas said he is continuing a grand jury investigation into the project and its finances, which was originally begun last year in an attempt to get information on the project. He now describes it as a criminal investigation.
Grand jurors will meet again Thursday and are investigating whether there were conflicts of interest and unnecessary cost overruns in the project, he said. The panel recently subpoenaed some 9,200 pages of construction records.
"We're trying to size up the relationship of the parties," Mr. Barrajas said.
He also said some project costs are being scrutinized. Specifically, he noted that the jail financing corporation was billed $6,000 for the installation of a flagpole at the new jail.
"We know from the records that the flag pole cost $965," he said. "We just want to find out if the other $5,000 was for labor."
