Texas Bond Review Board approves GO sale leading ambitious slate of prison bonding.

DALLAS - The Texas Bond Review Board yesterday approved a $61 million competitive general obligation sale, the first of a large slate that will nearly double the state's prison debt by next year.

Also, the $672.1 million of financings to be sold by August 1993 through the Texas Public Finance Authority will push the double-A rated state's outstanding GO debt over $3 billion for the first time.

And debt sales to build new prisons may only be the beginning of the stress on the state budget. In a four-year plan given to the board yesterday, the Texas Department of Criminal Justice estimated that next year it will seek legislative authorization to spend another $1.08 billion on construction in fiscal years 1994 and 1995.

"We may not actually need that much," said Celeste Byrne, facilities finance manager for the prison system.

However, if lawmakers were to approve the plan, it would exhaust a $1.1 billion GO bond authorization approved by voters last November and require as much as $700 million in new moneys - mostly likely from bonds.

"The need for prison bonding is not unique to Texas," said James Dearborn, assistant vice president for state ratings at Moody's Investors Service.

As states continue the increased use of debt for prisons, he added, rating agencies are less concerned with debt levels than with the impact of increased costs of operating new facilities.

"These capital facilities do require substantial operating expenditures," Mr. Dearborn said.

Texas budget officials said this week that in the last two fiscal bienniums, the cost of corrections has been one of the fastest-growing segments of the state's $30 billion a year budget.

"We're talking about huge amounts," said Selden Hale, chairman of the Texas Criminal Justice Board, which oversees the crowded state prison system. "It's going to be steep for several years."

For instance, in 1990, the prison system cost $795 million to operate. For the fiscal year that begins Sept. 1, the system is expected to need $1.08 billion. That figure could grow by at least $400 million a year through the end of the decade, said Jim Oliver, director of the Legislative Budget Board.

"It's been growing like crazy," he said, adding that current revenues are not expected to pay for the operations of prisons now being built. "Until we revise the tax structure, we're not going to be able to open the prisons we're building."

But that is not deterring plans to build bond-financed prisons. With next month's $61 million offering, the state will embark on the first part of its $1.1 billion program to acquire or build 25,300 new beds by the middle of the decade.

Not only will the plan increase operating costs, it will mean exponential growth in the service on prison debt. When the state finishes selling the initial $672.1 million next fall, Texas will have nearly doubled its prison debt to $1.385 billion, or just over one-third of the state's outstanding GO bonds.

Over all, the state now has $2.8 billion of GO debt outstanding for all purposes.

At the same time, debt service on the 20-year obligations will double to $132.4 million a year, which comes to about $363,000 a day.

Proceeds from next month's bond sale will be split between planning costs and the state purchase of six 500-bed jails built by county jail corporations in sparsely populated areas of Texas.

All but one of those projects have remained empty since construction was completed last year. They were financed with the sale of $74 million of junk municipals in 1989 by Drexel Burnham Lambert Inc.

The projects were supposed to generate profits for the six counties that built them by charging a daily fee to the state or other units or government needing to rent space to relieve crowded facilities.

Instead, the state earlier this year decided to buy the facilities for no more than $6 million each, about half the debt outstanding on each project.

"That's somewhat under what they cost to build and for the land," said Mr. Hale, who once argued the facilities could not be used. "We're getting a real good deal."

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