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FROM: The Advocate

Loophole could give state out from bad deal, lawyer argues

The state may have a loophole in its quest to wriggle out from a contract for the privately owned juvenile prison at Tallulah, according to a new report by a bond attorney.

The contract is derided by critics for costing the state millions of dollars in management fees and dividends that are paid to the prison's politically connected owners.

That loophole may lie in the legality of the cooperative endeavor agreement between the state, the city of Tallulah and the prison's owners, said Washington, D.C.-based bond attorney Richard Marks of Piper Rudnick.

Marks, who is working pro bono for the Juvenile Justice Commission, wrote to commission Chairman Mitch Landrieu on April 18.

Two years ago, the Legislature tried to end its obligation under that agreement by cutting off funds to house juvenile offenders at the prison. That attempt stalled when Standard & Poor's, a bond rating agency, threatened to lower the state's credit rating, a move that could cost the state millions of dollars in higher interest fees on all its outstanding debt.

Standard & Poor's, however, may back down on that threat if a court finds the cooperative endeavor agreement illegal, Marks said.

Marks said the state cannot bring the matter to court, but attorney David Utter said a private resident or organization could do so.

"We're going to look hard at whether a lawsuit is in order," Utter, executive director of the nonprofit Juvenile Justice Project of Louisiana, said Wednesday.

Utter, a longtime critic of state Corrections Secretary Richard Stalder, lays the blame for the situation at Stalder's desk.

Marks' seven-page letter, Utter said, "confirms what we all knew: Secretary Stalder got the state into a very bad deal, benefiting (former Gov.) Edwin Edwards' cronies more than the children and our communities, and then made it worse by amending the contract a number of times."

Stalder was not available Wednesday for comment. Melissa Callahan, a corrections department spokeswoman, said neither she nor Stalder have seen Marks' letter.

The prison's principal owners are George Fischer, Verdi Adam and James R. Brown.

Fischer served as chief of staff, campaign manager and transportation secretary for Edwards and as health secretary during the administration of former Gov. Dave Treen.

Adam is a former highway engineer who has other business investments with Fischer.

Brown is the son of the late state Sen. Charles Brown of Tallulah.

Senate Finance Committee Chairman Sen. Jay Dardenne, R-Baton Rouge, and House Appropriations Committee Chairman Jerry Luke LeBlanc, D-Lafayette, both said Wednesday they haven't seen Marks' letter. "We're paying a ransom because of a bad deal that the state entered," LeBlanc said.

"We're obviously going to have to deal with it during the budget process" of this legislative session, Dardenne said.

Marks, in his letter, said the cooperative endeavor agreement may be invalid because:

The state will not own the prison at the end of the 25-year agreement, thus the cost to the state "may not be proportionate to the public benefits" of the lease;

The dividends and salaries, more than $8.7 million from 1996 to 2001, given to the owners are excessive considering the owners' lack of equity risk in the project; and,

The state could build another prison for less than $29.8 million remaining on the debt.

Marks said the state also should fully explore whether the cost of stopping the annual lease appropriations might outweigh the costs of a bond-rating reduction.

Marks also advised the state to proceed slowly on purchase negotiations because the state may end up paying twice for the prison: once to the institutions that financed the debt and once again to the prison owners, who put up the prison as collateral.

A less expensive "cure," Marks said, would be to allow Ambac Assurance Corp., the debt insurer, to dip into funds placed in a reserve to offset the amount of the 1988 private debt.



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