NCJ Number
129553
Journal
National Sheriff Dated: (December-January 1988) Pages: 18-19
Date Published
1988
Length
2 pages
Annotation
Michigan uses lease-purchase bonds as a primary means of funding prison construction.
Abstract
General obligation bonds, a typical means that many States and local governments have used to borrow money for jail and prison construction, require that the voters or their elected representatives approve the bond issues. The government then issues the general obligation bonds which are purchased by banks for sale to investors. The proceeds are then used to build a project, and the bonds are repaid over a number of years from general tax revenues. Lease-purchase bonds, on the other hand, are based on a different credit structure. The government selects or creates an entity, usually a building authority, to issue bonds on its behalf. That entity issues the lease-purchase bonds and uses the proceeds to pay for construction. The bonds are retired through annual lease payments appropriated by the government, and the government owns the facility upon making the final payment. Because of the annual appropriation feature, the bonds are not considered legal debt in most States and can often be issued on a less restrictive and more timely basis. Lease-purchase bonds can also open the door to some innovative financing structures that can result in additional savings. Other funding mechanisms considered in Michigan through State-local cooperation are per diem payments for bed space, shared facilities, and a court fee increase for financing assistance.