Jackson County, Missouri, hits the market with a $260 million special obligation issue that will wrap up financing for a new jail complex long in the works that was chosen as the best option to deal with overcrowding and other public safety and mental health treatment goals.
The bonds are expected to price as soon as Tuesday. Morgan Stanley is senior manager and Columbia Capital Management is advising. Gilmore & Bell PC is bond counsel. The bonds mature in 2058 with about $160 million expected in term bonds in 2048, 2053, and 2058.
The county began exploring a new facility eight years ago. Studies concluded the current facility was ill-equipped to deal with overcrowding, in poor physical condition and its design fell short of current standards.
“This detention center project is not only a milestone for our justice system, but also an engine of economic growth and job creation,” Jackson County Executive Frank White said in a statement earlier this month after the council signed off on final approvals needed that had some delays.
The council signed off earlier this month on the financing, the project design, and the maximum price tag. The county was under the gun to act on the pricing contract this month or risk the price tag rising.
The new facility allows the county to provide “evidence-based treatment and training that address the individual needs of detainees” while “instituting best management practices and providing a safe environment for detainees, visitors and employees,” the county said in an investor presentation.
The project could influence interest and the final pricing results, according to CreditSights.
“While we expect that many investors will appreciate the opportunity to add this highly rated Midwestern credit to their portfolio, we also anticipate that because the bonds are being issued to finance a correctional facility, some investors may choose to not participate,” CreditSights said in its “Muni New Issue Notes” report, suggesting the bonds could price wider to older parity bonds.
“We expect that among investors who screen potential purchases for social purposes, some may approve this project while other will not. Investors that are comfortable with the credit and the use of proceeds should be prepared for lesser secondary market liquidity, relative to non-correctional parity bonds,” reads the CreditSights report authored by Patrick Luby, senior municipal strategist, and Sam Berzok, analyst.
The 475,000 square feet facility is being housed on 107 acres with room for 1,000 detainees with the ability to expand up to 1,700 while also housing full mental and behavioral health services, two court rooms, and programming space to meet rehabilitation needs.
The county and its design-build team have struck a guaranteed maximum price contract of $301 million with execution on the contract expected when the bonds are closed.
“The county will fund total costs of the project from proceeds of the bonds” including interest on undisbursed project funds and other funds available to the county,” the presentation reads. “The county does not anticipate incurring any additional debt related to the project.”
The bonds carry an AA-minus and stable outlook from S&P Global Ratings, one notch lower than the county’s AA rating due to the appropriation risk associated with the special obligation credit that’s common in Missouri.
“The rating reflects our view of such factors as the county’s strong economy, very strong reserve position, standard financial management practices and policies, and well-funded pension and other post-employment benefit liabilities,” said S&P analyst Coral Schoonejans.
As part of the review, S&P looked deeper at the county’s involvement and project risks.
S&P said it considers the county to have a strong involvement as “the project involves the building of a detention center to replace an existing facility to improve capacity, design and condition.”
The county can use all legally available funds to repay the bonds but intends to use property tax revenue. The guaranteed maximum pricing contract mitigates the risk that cost overruns would lead to a material reduction in reserves, S&P said.
Jackson County, which includes a portion of the Kansas City metropolitan area and its downtown, benefits from stable tax growth, a sizable reserve of $99 million in 2021, or 80% of $123 million in expenses. The county close out 2022 with a $140 million fund balance based on its unaudited results, which more than covers $111 million of expenses.