Justice Strategies

In the face of tight budgets and growing public opposition to new prison spending, officials in many states have employed a variety of "back-door" schemes to finance new prison construction. The mechanisms vary but the consequences are the same: rapid prison expansion that takes place with little public involvement or oversight.

A review of recent prison, jail and detention expansion initiatives shows that such back-door financing mechanisms are becoming more common at the federal, state and local level. Behind this trend is a cottage industry of investment bankers, architects, building contractors and consultants who have made enormous profits by encouraging local and state governments to borrow tens and hundreds of millions of dollars to build prisons and detention centers that the public does not want and cannot afford.

The process of putting together a bond deal is complicated and delicate. Investors choose from thousands of options when buying municipal bonds and most seek deals that involve something between little risk and no risk at all. Yet the projects financed by bonds are often massive, involving dozens of risk factors. The task of investment bankers and others who put together bond deals is to put together a package that not only eliminates or minimizes risk factors, but also minimizes the appearance of risk.