Committed to the First Amendment and OUR Freedom of Speech since 2008
Dear Commissioners, April 16, 2014
Publisher's note: My apologies for being slow to post all contributions, but I have been endeavoring to catch-up after my bout with the flu, while ironically under the weight of so many contributions. On this one post, I combined two of Warren Smith's most recent submissions to help present his fundamental position.
While Warren asked that this not be published until the commissioners have a chance to discuss this data, I can assure everyone, including Warren, that they will not. Their minds are made up, and they are moving with all haste to begin this project before a new group of commissioners can get elected. Sorry Warren, but information such as this must be made public as soon as is possible. Only then will it be put to some good use.
Gentlemen:
No one has yet offered any kind of cash flow spreadsheet for the public to use in assessing the proposed jail to be built in Chocowinity.
Commissioner Klemm laid out some revenue and inmate census projections in the Washington Daily News on March 15, 2014.
Working with the commissioner"s guidelines, I have created a spread sheet for the next twenty years, in hope of giving some structure to the question of how this proposal compares to remodeling the courthouse facility.
I have no knowledge of just what cost are to be considered. Rather than try to construct a detailed list of expenses, I have assumed that the reimbursement of $55/day/inmate will cover all variable costs of incarceration plus a margin of profit. For the sake of simplicity, I have assumed that the actual variable costs of housing and caring for an inmate amounts to 90% of the reimbursement. I have also assumed that both costs and reimbursements rise by 3% yearly.
These simplifications have allowed me to create two streams of cash flows. Cost of inmates per day both housed at our facility as well as sent elsewhere for housing, and revenue generated from inmates transferred into our facility.
These are the only variable cost and revenue items considered in this spreadsheet.
I have also included the cash flow for investment both in the construction of the Chocowinity Jail and I have allowed for significant improvement in the Courthouse and its jail as well. I have assigned a 40 year maturity to the debt and I have priced both bonds at 3.5%
In order to bring all cash flows into present value terms, I have discounted all yearly cash flows by a factor of 5%. This includes both the actual cost of the debt and an estimated risk factor to allow for unforeseen difficulties with the project. The risk factor is subjective but standard.
This is a very simple analytical tool. It is much more a schematic than a detailed look at the project. I am not trained for this work and the work must be checked for accuracy and the logic of the analysis.
You gentlemen are the only people who have seen this. I ask that this not be published or distributed until the commissioners can discuss, consider and evaluate the work and the conclusion.
I did not do this to help further fractionalize what is already a very tense environment. I honestly hope this can be of some help in the discussion of our county's future.
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Gentlemen,
On March 15, 2014, Commissioner Klemm outlined jail revenue expectations and inmate population estimates for an article in the Washington Daily News.
The attached spreadsheet incorporates those estimates in a twenty-year time frame.
Rather than try to construct a detailed list of expenses, the prisoner reimbursement rate of $55/day/inmate, mentioned in the article, is assumed to cover all variable costs of incarceration plus a margin of profit. (Note: Compare assumptions to NC DOC link below.) The variable costs of housing and caring for an inmate are assumed to be 90% of the reimbursement fee. Both the variable costs of incarceration and reimbursement levels are projected to rise annually at a rate of 3%. Costs of housing prisoners during the construction/remodeling phase were assigned to neither project.
These simplifications have allowed for the creation of two streams of variable cash flows, i.e., cost of inmates per day housed at our facility plus inmates sent elsewhere for housing at our expense, and reimbursement revenue generated from inmates transferred into our facility. These are the only variable cost and revenue items considered in this spreadsheet.
The assumptions include the $20,000,000 cash flow for construction investment in the new jail and allow $7,000,000 for a significant improvement in the courthouse and its jail. The fixed cost of debt service is computed on bonds of 40-year maturity with 3.5% coupons.
All cash flows were restated in terms of present value using a discount factor of 5% as a "hurdle rate." The "hurdle rate" includes both the actual cost of the debt and an estimated risk factor to allow for unforeseen difficulties with the project. The risk factor is a subjective but standard adjustment, and was applied to both projects.
This is a very simple tool, but it does serve to give some focus to important variables. It is, admittedly, much more a schematic than a detailed look at the project. The work must be checked for accuracy and the logic of the analysis. It is a model that, for all its shortcomings, treats both projects in an equivalent manner. Those who dispute the assumptions or believe the model comes to an incorrect conclusion need to support their argument with a better model. "It takes a model to beat a model."
Under the assumptions in the model, the new jail has a series of negative annual cash flows significantly worse than the negative cash flows created by remodeling the courthouse facility. Over time the disadvantage does not fade. There are too few revenue-producing prisoners able to transfer into our facility to effectively defray the financing costs. The drag from the new construction's larger capital outlay is never overcome. The net result is a twenty-year negative present value of $60,000,000 for new construction and a negative present value of $42,000,000 for the remodeling.
By building a new jail we will be paying $18,000,000 more, in today's purchasing power, than we would have spent to accomplish the same task if we had extensively remodeled the courthouse.
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Gentlemen,
I ran a google search of "financial cost of prisons and jails," what came up carries no good news for Beaufort County. There are several academic studies here. When you scan them, remember they generally study state prisons in small communities. This implies that the state put up the construction money and pays operating expenses. The results would be much worse if the local community paid for the jail/prison.
Also on Mr. Langley's proposed project:
Phase 1 is $20,000,000 facility with 176 cells and an over built core infrastructure to support a future build out of an additional 174 cells.
If we do not actually expand to 350 cells, then the over built core is wasted money. If we do not expand soon, then the infrastructure will become outdated.
Therefore, taxpayers are at real risk of being encumbered with another $15,000,000(+/-) for completion of the 350 bed facility. This is more than we spent on our schools and more than we received for our hospital.
Taxpayers did not get to vote on Phase 1, and should not expect a vote on funding Phase 2 either.
$35,000,000 in debt will all be paid to out of state creditors. It will leave our community. However, the $2,000,000 in debt service will require a 4c hike in tax rates....that is before operating costs.
If a private investor borrows money, then he expects the present value of the income from the project to exceed the present value of the repayment of the borrowed money. The positive present value criteria is highly unlikely for the jail. In fact, arguments for positive investment returns are little more than a forlorn hope.
Common sense argues against a business being both government run and commercially viable.
Research:
"Despite widespread popular beliefs that prison construction offers substantial economic benefits to local areas, empirical research has suggested otherwise."
http://www.realcostofprisons.org/materials/dont_build_it_here.pdf
http://www.realcostofprisons.org/materials/TTT_paper1.pdf
http://www.realcostofprisons.org/papers-finance.html
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Go Back
Gentlemen:
No one has yet offered any kind of cash flow spreadsheet for the public to use in assessing the proposed jail to be built in Chocowinity.
Commissioner Klemm laid out some revenue and inmate census projections in the Washington Daily News on March 15, 2014.
Working with the commissioner"s guidelines, I have created a spread sheet for the next twenty years, in hope of giving some structure to the question of how this proposal compares to remodeling the courthouse facility.
I have no knowledge of just what cost are to be considered. Rather than try to construct a detailed list of expenses, I have assumed that the reimbursement of $55/day/inmate will cover all variable costs of incarceration plus a margin of profit. For the sake of simplicity, I have assumed that the actual variable costs of housing and caring for an inmate amounts to 90% of the reimbursement. I have also assumed that both costs and reimbursements rise by 3% yearly.
These simplifications have allowed me to create two streams of cash flows. Cost of inmates per day both housed at our facility as well as sent elsewhere for housing, and revenue generated from inmates transferred into our facility.
These are the only variable cost and revenue items considered in this spreadsheet.
I have also included the cash flow for investment both in the construction of the Chocowinity Jail and I have allowed for significant improvement in the Courthouse and its jail as well. I have assigned a 40 year maturity to the debt and I have priced both bonds at 3.5%
In order to bring all cash flows into present value terms, I have discounted all yearly cash flows by a factor of 5%. This includes both the actual cost of the debt and an estimated risk factor to allow for unforeseen difficulties with the project. The risk factor is subjective but standard.
This is a very simple analytical tool. It is much more a schematic than a detailed look at the project. I am not trained for this work and the work must be checked for accuracy and the logic of the analysis.
You gentlemen are the only people who have seen this. I ask that this not be published or distributed until the commissioners can discuss, consider and evaluate the work and the conclusion.
I did not do this to help further fractionalize what is already a very tense environment. I honestly hope this can be of some help in the discussion of our county's future.
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Cover Letter
Gentlemen,
On March 15, 2014, Commissioner Klemm outlined jail revenue expectations and inmate population estimates for an article in the Washington Daily News.
The attached spreadsheet incorporates those estimates in a twenty-year time frame.
Rather than try to construct a detailed list of expenses, the prisoner reimbursement rate of $55/day/inmate, mentioned in the article, is assumed to cover all variable costs of incarceration plus a margin of profit. (Note: Compare assumptions to NC DOC link below.) The variable costs of housing and caring for an inmate are assumed to be 90% of the reimbursement fee. Both the variable costs of incarceration and reimbursement levels are projected to rise annually at a rate of 3%. Costs of housing prisoners during the construction/remodeling phase were assigned to neither project.
These simplifications have allowed for the creation of two streams of variable cash flows, i.e., cost of inmates per day housed at our facility plus inmates sent elsewhere for housing at our expense, and reimbursement revenue generated from inmates transferred into our facility. These are the only variable cost and revenue items considered in this spreadsheet.
The assumptions include the $20,000,000 cash flow for construction investment in the new jail and allow $7,000,000 for a significant improvement in the courthouse and its jail. The fixed cost of debt service is computed on bonds of 40-year maturity with 3.5% coupons.
All cash flows were restated in terms of present value using a discount factor of 5% as a "hurdle rate." The "hurdle rate" includes both the actual cost of the debt and an estimated risk factor to allow for unforeseen difficulties with the project. The risk factor is a subjective but standard adjustment, and was applied to both projects.
This is a very simple tool, but it does serve to give some focus to important variables. It is, admittedly, much more a schematic than a detailed look at the project. The work must be checked for accuracy and the logic of the analysis. It is a model that, for all its shortcomings, treats both projects in an equivalent manner. Those who dispute the assumptions or believe the model comes to an incorrect conclusion need to support their argument with a better model. "It takes a model to beat a model."
Under the assumptions in the model, the new jail has a series of negative annual cash flows significantly worse than the negative cash flows created by remodeling the courthouse facility. Over time the disadvantage does not fade. There are too few revenue-producing prisoners able to transfer into our facility to effectively defray the financing costs. The drag from the new construction's larger capital outlay is never overcome. The net result is a twenty-year negative present value of $60,000,000 for new construction and a negative present value of $42,000,000 for the remodeling.
By building a new jail we will be paying $18,000,000 more, in today's purchasing power, than we would have spent to accomplish the same task if we had extensively remodeled the courthouse.
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Accompanying Spreadsheet
| 15 | 16 | 17 | 18 | 19 | 20 |
| -$936,546 | -$936,546 | -$936,546 | -$936,546 | -$936,546 | -$936,546 |
| 110 | 110 | 115 | 115 | 115 | 115 |
| 65 | 65 | 60 | 60 | 60 | 60 |
| $77.12 | $79.43 | $81.82 | $84.27 | $86.80 | $89.40 |
| -$3,096,343 | -$3,189,234 | -$3,434,225 | -$3,537,252 | -$3,643,369 | -$3,752,670 |
| -$1,829,657 | -$1,884,547 | -$1,791,769 | -$1,845,523 | -$1,900,888 | -$1,957,915 |
| $85.69 | $88.26 | $90.91 | $93.63 | $96.44 | $99.34 |
| $2,032,953 | $2,093,941 | $1,990,855 | $2,050,581 | $2,112,098 | $2,175,461 |
| -$3,829,594 | -$3,916,385 | -$4,171,685 | -$4,268,739 | -$4,368,705 | -$4,471,670 |
| -$1,842,100 | -$1,794,141 | -$1,820,092 | -$1,773,749 | -$1,728,845 | -$1,685,325 |
| 15 | 16 | 17 | 18 | 19 | 20 |
| -$327,791 | -$327,791 | -$327,791 | -$327,791 | -$327,791 | -$327,791 |
| 75 | 75 | 75 | 75 | 75 | 75 |
| 35 | 35 | 40 | 40 | 40 | 40 |
| $77.12 | $79.43 | $81.82 | $84.27 | $86.80 | $89.40 |
| -$2,111,143 | -$2,174,478 | -$2,239,712 | -$2,306,903 | -$2,376,110 | -$2,447,394 |
| $85.69 | $88.26 | $90.91 | $93.63 | $96.44 | $99.34 |
| -$1,094,667 | -$1,127,507 | -$1,327,237 | -$1,367,054 | -$1,408,065 | -$1,450,307 |
| -$3,533,601 | -$3,629,775 | -$3,894,739 | -$4,001,748 | -$4,111,967 | -$4,225,492 |
| -$1,699,723 | -$1,662,842 | -$1,699,262 | -$1,662,809 | -$1,627,245 | -$1,592,543 |
Gentlemen,
I ran a google search of "financial cost of prisons and jails," what came up carries no good news for Beaufort County. There are several academic studies here. When you scan them, remember they generally study state prisons in small communities. This implies that the state put up the construction money and pays operating expenses. The results would be much worse if the local community paid for the jail/prison.
Also on Mr. Langley's proposed project:
Phase 1 is $20,000,000 facility with 176 cells and an over built core infrastructure to support a future build out of an additional 174 cells.
If we do not actually expand to 350 cells, then the over built core is wasted money. If we do not expand soon, then the infrastructure will become outdated.
Therefore, taxpayers are at real risk of being encumbered with another $15,000,000(+/-) for completion of the 350 bed facility. This is more than we spent on our schools and more than we received for our hospital.
Taxpayers did not get to vote on Phase 1, and should not expect a vote on funding Phase 2 either.
$35,000,000 in debt will all be paid to out of state creditors. It will leave our community. However, the $2,000,000 in debt service will require a 4c hike in tax rates....that is before operating costs.
If a private investor borrows money, then he expects the present value of the income from the project to exceed the present value of the repayment of the borrowed money. The positive present value criteria is highly unlikely for the jail. In fact, arguments for positive investment returns are little more than a forlorn hope.
Common sense argues against a business being both government run and commercially viable.
Research:
"Despite widespread popular beliefs that prison construction offers substantial economic benefits to local areas, empirical research has suggested otherwise."
http://www.realcostofprisons.org/materials/dont_build_it_here.pdf
http://www.realcostofprisons.org/materials/TTT_paper1.pdf
http://www.realcostofprisons.org/papers-finance.html
Respectfully,
Warren Smith
Beaufort County, NC
(Please forward to Mr. Langley)
Considering that Beaufort County may build a new jail /sheriff's office: What should be the best course?
7.51% Build a modern jail/S.O. in the southwest corner of the county
43.3% Build a modern jail/S.O. behind the courthouse in the county seat
49.2% Do not build a jail/S.O. anywhere
746 total vote(s) Voting has Ended!
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