New Jail – Where Did the Money Come From?

Michael Boyink/Herald A sales tax increase approved by voters in 2016 hasn’t (yet) brought in enough funds to cover the cost of building a new Douglas County Jail. In order to begin construction sooner the County financed the project using a Certificates of Participation (COP) approach.

by Michael Boyink / mike@douglascountyherald.com

The flags have been raised.

The public has been toured.

The commemorative plaques of appreciation have been handed out.

The K9 fundraiser/spend a night in the jail is all done.

The prisoners have been relocated out of the old jail.

The officers and staff of the Douglas County Sheriff’s Department are enjoying their new digs at 900 Industrial Road in Ava.

But questions came up. In Phone calls. YouTube comments. Facebook comments.

Phrased differently. But all asking essentially the same thing.

How did Douglas County get the money to build the new jail?

There are four pieces of the puzzle to look at – the initial estimates, actual numbers, the financing model, and the ongoing obligation the county has agreed to.

Initial Estimates

In 2016, Douglas County Sheriff Chris Degase described the need for a 48-bed, 17,000 square foot facility. According to an article in the Herald, “Degase believes that the jail can be built for around $5.1 million which would be paid off in 20 to 25 years.”

A proposed 1/2 cent sales tax increase would provide an estimated annual income of $450K, and be charged until the facility was paid for. After that, it would drop to 3/8 cent to cover the jail’s ongoing operating costs.

Actual Numbers

Douglas County voters approved the sales tax in November of 2016. The tax has performed above initial estimates, providing the County with $501K of income in 2018 and $529K in 2019. The tax was only collected for a part of 2017, but still returned $300K in income that year.

The county did build a 48-bed facility, but the overall finished square footage was reduced to 12,000 square feet. The total cost to build the new jail is still being calculated, but according to Douglas County Clerk Karry Davis, Douglas County has budgeted $6.4 million for the project.

Financing Model

Say you just started a job. You have income coming in, have a bit of savings, but need to buy a house that cost more than your savings. 

You would do what most homeowners did at some point – visit a bank to see if they would lend you the money to buy the house.

Douglas County was in the same position. The voter-approved sales tax was bringing in money, and the county had some funds set aside, but it wasn’t enough to cover the total cost of a new jail.

Meanwhile, the need was immediate. The old facility was 60 years old, and wasn’t able to meet federal standards for jails.

So they sought financing.

Government entities like Douglas County have choices for how to fund large projects like building a jail. They can seek various state and federal grants. They can seek to raise property taxes, then create a municipal bond funded by the additional tax revenue. They can create development funds that generate income that the county can then use (much like you might spend the interest on a personal savings account).

For the new jail, Douglas County chose a financing vehicle known as Lease Financing, specifically a Certificate of Participation (COP).

With a COP financing model, an investor buys a share of revenue from a leased building. COPs are different from a municipal bond, where an investor buys a share in the improvements or infrastructure that a government body wishes to fund.

“COP’s, or Lease Purchase Financing is the most prevalent way counties in Missouri finance new jails,” said Todd Goffoy, Financial Analyst with Piper Jaffray. “Webster County, Wright County, Dent County, and Pulaski County all used this model, because COPs don’t require voter approval. Traditional General Obligation Bonds require a ‘super-majority’ vote which is either 2/3 or 4/7, depending on when the election date is.”

Goffoy added that a COP obligation isn’t technically considered debt, but the County will have to appropriate the funds for payment each year.

While a COP financing model is based around lease payments, the County retains title to the property. “It’s not like if you or I defaulted on our mortgage and the bank forecloses and repossesses the property,” Goffoy said. “If the county were to default on payment, the bank would come in, take over operation of the facility, and try to generate a revenue with it.”

Goffoy wasn’t concerned about that happening in Douglas County. 

“I’ve been doing these for 29 years,” he said. “It just never happens, mostly because we only use COPs with facilities that are essential to the operation of the parent organization.”

While COP’s may be a new concept for those not involved in financing government projects, the concept should be familiar – Douglas County has borrowed funds from investors to finance the construction of the new jail, and the borrowed funds must be repaid in regular installments of principal and interest.

According to Todd Goffoy, Douglas County is making those payments to BOK Financial (bokfinancial.com), which has locations in Kansas City.

Ongoing Obligation

According to the 2018 Audit report performed by the Missouri State Auditor, Douglas County has committed to the following schedule of payments for financing the new jail. 

Note that for rows showing a range of years, the principal and interest amounts represent a total, not the amount due each of those years. For example, in 2024 the principal due would be 1/4 of $840K, or $210K.

Douglas County Jail – Schedule of Payments

Year                       Coupon                  Principal                     Interest                Total    

2019                         3%                    $110,000                   $182,316         $292,316

2020                         3%                     140,000                     219,944            359,944

2021                         3%                     145,000                     215,744            360,744

2022                         3%                     150,000                     211,394            361,394

2023                         3%                     155,000                     206,894            361,894

2024-2028            3%-3.25%               840,000                     962,168         1,802,168

2029-2033            3.25%-3.75%          985,000                      815,231         1,800,231

2034-2038            3.75%-4.125%     1,185,000                      611,950         1,796,950

2039-2043            4.125%-4.375%   1,455,000                      343,431          1,798,431

2044-2045            4.375%                  675,000                        44,625             719,625

$5,840,000                $3,813,697        $9,653,697