[T]he state treasurer says she has “serious concerns” about the financing of a proposal for a new prison and mental health facility using a partnership between the state and a private company.
Gov. Phil Scott’s administration offered a concept for a 925-bed prison and psychiatric care facility in Franklin County last month in response to a legislative request to analyze the state’s mental health and corrections needs.
The project has an estimated $150 million price tag, and would be built out over time.
One option for funding the proposal would be setting up a lease-to-own arrangement with a private company. The private prison giant CoreCivic has already expressed interest in building a facility.
State Treasurer Beth Pearce said in an interview on Tuesday that such an arrangement could count toward the total amount of debt the state is able to take on. That would put the proposal in competition with other projects and initiatives the state funds using bonds.
She is still researching the issue, which she discussed with the House Institutions and Corrections Committee earlier this month, and expects to know more within the coming weeks.
The state regularly issues bonds to pay for infrastructure and capital needs. The budget for those items is set in the biennial capital bill. Vermont lawmakers and the administration craft the capital spending package based on a recommendation from an advisory commission on how much debt the state can afford to take on.
“We advise on the number, the amount that you can afford,” Pearce said. “The Legislature and the governor work out what projects you’re going to fund with it.”
Pearce said the state has been reducing the amount of debt it takes on recently, and she does not anticipate that the commission will change course in the near future.
Increasing the debt Vermont takes on, she said, could constrain the state’s future bonding authorization.
Pearce emphasized the importance of sticking to the commission’s recommended debt cap for the state’s financial health, and said a funding arrangement for a potential facility “must be considered within that process.”
Pearce said state officials and lawmakers should also consider whether a partnership with a private company is the most prudent funding model.
General obligation — the same method of bonding used for the capital bill — tends to be regarded as the “more responsible” way to pay for infrastructure projects, she said.
Deputy Administration Secretary Brad Ferland said that the administration is aware that certain types of leases on a new facility would count toward the state’s debt limit.
“We do know that that clearly has to be taken into to consideration when we’re figuring out,” he said.
The state has many other capital needs, and could not commit the full bonding capacity to building such a project, he said.
Ferland emphasized that the model for the 925-bed campus is “just a report,” a plan offered as one possible option that can serve as a discussion point.
Rep. Alice Emmons, D-Springfield, who chairs the House Institutions and Corrections Committee, said lawmakers were also aware of the potential implications of a proposal for the bonding capacity.
“I think it’s really a valid concern,” she said.
Emmons also emphasized that lawmakers are in the early stages of exploring the option, and that they are considering many avenues.
“We have not said yes and we have not said no to it,” she said.
The state has taken on major infrastructure projects through general obligation bonds before, she said, pointing to initiatives like the construction of the state office complex in Waterbury. She said there would be a rigorous planning process for any new project.
Eric Kim, a director at Fitch Ratings and the lead analyst for Vermont, said that the agency likely would factor a project the state undertakes through a public-private partnership into its credit rating.
In general, he said, when states contract with developers in such arrangements, the rating agency considers the state on the hook for the debt the developer takes on. He noted that there are no specific details of an arrangement in Vermont yet.
The state currently has a AAA rating — the highest Fitch offers.
Vermont, he noted, has a strong tradition of sticking to the debt recommendations the commission offers. Kim expects that the state would evaluate a potential public private arrangement within that framework.
