The Moore American

May 1, 2013

IRS says Cleveland County jail bond OK

By Joy Hampton
The Moore American

MOORE — The Internal Revenue Service has determined that $52 million in bonds used to build the F. DeWayne Beggs Detention Center qualifies as tax exempt.

In a letter dated April 18, Allyson Belsome, manager of Tax Exempt Bonds Field Operations for the IRS, notified the Cleveland County Justice Authority that despite some minor housekeeping changes regarding bond yield calculations, the IRS was closing the examination with “no change to the position that interest received by the beneficial owners of the bonds is excludable from gross income.”

“In its ‘No Change Determination,’ the Service found that even though the total cost for construction, furniture, fixtures and equipment was less than originally estimated, the Authority took no improper actions,” Assistant District Attorney Carol Dillingham said. “We now have a modern, well-equipped, efficient county jail that came in well below budget. The county has retired $13 million of the bond debt, years ahead of schedule, and could terminate the tax well before its 20-year term.”

The new detention center has been housing record numbers of inmates in the past few weeks.

On Monday, Undersheriff Rhett Burnett reported to the Board of County Commissioners that 426 prisoners were being housed at the new facility. That number sets a new record and is up two heads from the count the previous week.

Nearly a third of the inmates housed at the jail are Department of Corrections prisoners, most of which have received judgment and sentencing and are waiting transport to state facilities. In the meantime, the state pays $27 per day per prisoner to Cleveland County for housing DOC-bound inmates. Sheriff Joe Lester said actual costs are double that figure. Municipalities throughout the county $45 per day per prisoner housed at the county jail. That number is expected to increase soon, Lester said earlier this year.

Meanwhile, staffing to open all of the available jail pods has been a challenge. The Sheriff’s Office continues to look for employees for the new facility as the number of prisoners rises.

For the Cleveland County Justice Authority, the hard work is over.

In 2008, Cleveland County voters approved a quarter penny sales tax increase to pay off the bonds that built the $31 million project. Bond money also was used to pay for equipment and furniture for the jail.

“We were able to legally use bond money to buy the first year of supplies as well,” Cleveland County Commissioner Rod Cleveland said.

Supplies mean everything from uniforms to toilet paper.

Despite that, costs by professional estimators set the project cost higher than the actual costs, and the county has taken heated criticism for the bond overage.

“Construction jobs in our region were few and far between,” Cleveland said. “They bid it, for their labor and overhead, very, very slim, and we were the beneficiaries of that.”

The letter from the IRS noted the difference between amount bonded and the cost of the project.

“Because the IRS has the ability to use hindsight in its review, it can determine at any time that more bonds were issued than were necessary for any given project,” Dillingham said. “In this case, the final cost of the jail was less than estimated. The IRS did not find that the costs projected by professional cost estimators were incorrect or that the Authority’s reliance on professional estimates was misplaced or in any way improper.”

County officials have used the surplus funds to pay down the bond’s principal.

“We’re able to pay it off early because we applied the excess money to the principal,” Cleveland said.

The IRS letter also recommended a minor bond yield calculation change.

“In the future the county will take the yield calculation to six decimal places rather than the four used previously,” Dillingham said. “Despite the economic recession of 2008-2009, the Authority invested the bonds at the most attractive rates available, yet the rates were historically low. Accordingly, the difference between the decimal calculations made no difference, and the IRS found no wrongdoing.”