Craig Harris

The Republic | azcentral.com

Kingman schools and Mohave County will lose $1.5 million under a private prison refinancing plan.

GEO Group to get a $2.5 million subsidy from Ducey Administration under deal.

A private-prison refinancing deal that will give the operator a taxpayer-funded subsidy may not save the state quite as much as expected this year.

After The Arizona Republic noted the agreement would cut this year's property-tax revenues flowing to Mohave County government and the Kingman Unified School District by $1.5 million, the state reversed course and agreed the county and school district would be paid so they do not face an immediate budget crisis.

The $1.5 million would have affected revenues for various northwest Arizona taxing districts — for example, a library and fire department — in addition to general county government and the school district.

The deal nonetheless will affect those budgets in future years. It was brokered by Gov. Doug Ducey's office and private-prison operator GEO Group.

State to pay $137M for Kingman-area prison

The plan calls for the state to buy the private-prison complex in Golden Valley, about 20 miles from Kingman, for $137.4 million from Mohave Prison LLC. That entity is owned by Tucson-based Community Finance Corp., a private foundation that financed the prison's construction. The purchase will allow the state to refinance the building debt at a lower interest rate, saving it money over the next nine years.

Corrections had been making debt payments on the prison through a per diem on each inmate housed by GEO. The per diem also covered the property taxes.

After the refinancing, the state will lower its per diem to GEO to $40.37 per inmate, a decrease of about 32 percent. The prison houses 3,347 minimum- and medium-security inmates.

Putting the building under the state's control also takes the complex off the Mohave County property tax rolls, thereby contributing to the annual savings. Total annual savings — including debt restructuring and tax abatement — have been estimated at roughly $8.7 million, or about $80 million over nine years.

State to spend $21M to house 1,000 private-prison inmates in Eloy

The Ducey administration plans to send more than a quarter of the savings back to GEO Group so the company can increase wages for its correctional officers and cover increased food and inmate health-care costs in Kingman. GEO Group, which took over operation of the prison last year from another private-prison operator, contributed heavily to Ducey's gubernatorial campaign.

Though property-tax savings were calculated into the overall savings plan, the state retooled its plan Friday after The Republic began asking questions about how the plan would affect Kingman schools. The school district stood to lose $874,000 in tax revenues in the current budget year from the prison refinance deal. To cope, the district had planned to raise its tax rate, pushing the tax burden onto Mohave County residents to recover the loss.

That decision is now on hold, but only for a year.

RELATED: A year after riots: Changes afoot to make Kingman prison safer

Uncertainty about handling of property taxes

Megan Rose, a Department of Administration spokeswoman, said if the property taxes need to be paid to close the deal Nov. 1, then they will be paid. She did not indicate who would be responsible for that payment.

Thereafter, the prison will cease paying property taxes.

Public records obtained by The Republic show the state had no intention of paying the property taxes this year. It had included those savings in Department of Corrections documents profiling the deal that was given to state lawmakers.

The refinancing is the latest example of a close relationship between private prisons and key Republican lawmakers, who have awarded multimillion-dollar contracts to the firms to house inmates. On July 19, additional Arizona inmates began arriving at a private prison in Eloy to ease overcrowding in state-run facilities.

Heather Shaw-Burton, Kingman school district's finance director, said the district planned to change its tax rate next month to recoup the anticipated loss in property taxes. Mohave County planned to make cuts if it had lost more than a quarter-million dollars in property taxes.

Those decisions on whether to raise taxes or cut budgets will be put off for a year.

How state will use its savings

GEO and the Ducey administration forged the refinancing deal, while the Department of Corrections in June received approval to put it in place from the Arizona Legislature's Joint Committee on Capital Review.

The state plans to use its savings to:

Pay GEO $2.5 million a year to cover some operating costs and pay increases for guards. That will raise correctional officer pay in Kingman by nearly $2 an hour, lifting the average pay to $33,300.

Improve inmate health care at state-run facilities.

Open a new 100-bed community corrections center in Maricopa County.

About $2 million of the savings has not been allocated.

"This will allow the state to invest in education, health care and public safety, including the Community Corrections center in Maricopa County created to reduce recidivism and growth in our prison system," Ducey's office said in a statement. "These savings will also result in raises for correctional officers at the Kingman facility, an important component in recruiting and retaining quality law enforcement and maintaining order in the prison."

The statement also said property taxes from the prison would eventually have ceased in 2025, when the property was scheduled to be turned over to the state under a separate contract. The Governor's Office said it is likely additional state money would be provided to Kingman schools if they suffer losses.

Refinancing deal questioned

Florida-based GEO Group, which reported a profit of $139.4 million last year, contributed financially to help Ducey get elected in 2014. The company also gave its chief executive a $2.3 million raise last year.

House Democratic Leader Eric Meyer, D-Paradise Valley, characterized the refinancing deal as bad public policy because Mohave County governments are losing money while a "special interest giveaway" goes to GEO.

"We negotiated a deal to save money, but we are giving a quarter that we saved back to the company. It makes no sense to me," Meyer said.

Pablo Paez, a GEO spokesman, said the company has invested in the Kingman-area prison since winning a bid last year to take over the once-troubled facility. A riot last summer, when the prison was operated by a different company, caused major damage to the complex. Paez declined to disclose specific figures on GEO's investment in Kingman.

"We are proud of what we have accomplished in Kingman," Paez said.