Mat-Su Borough disputes prison audit

PALMER — The Mat-Su Borough disputes the existence of “avoidable cost overruns” in the construction of the Goose Creek Correctional Center, as cited in a state-commissioned audit released this week.

“I still have money left,” said borough purchasing officer Russ Krafft, who is overseeing construction of the project for the borough. “When all is said and done, I’m probably going to have a million dollars left over.”

The prison at Point MacKenzie was built by the Mat-Su Borough under a relationship authorized through a state law passed in 2004 that sought to increase the number of prisoners housed in the state through relationships with municipal governments. The borough borrowed the money to build the prison and intends to re-pay the bonds using annual lease payments from the state.

But that legislation set a per-bed cap of $135,000 per inmate.

In his audit released last week, auditor John P. Johns of Anchorage, said that pencils out to $252 million for Goose Creek. But the total project costs exceeded that by $50 million.

The borough actually borrowed only $244 million to build the prison, but Johns said that doesn’t take into account a pretty hefty list of other expenses:

• $32 million for interest costs during construciton.

• $16 million to pay for sewage treatment.

• $2.4 million in bond issue costs.

• $6 million for utilities that the Department of Corrections received through a state budget appropriation.

• $2.5 million for initial planning and construction.

But Krafft said that doesn’t jive with opinions from the attorney general regarding what should be included as capital costs with regard to the per-bed cap.

“It’s the borough’s position that based on the opinions rendered by the attorney general in regard to financing costs, and the fact that the wastewater project is separate from the prison, that there were no cost overruns,” he said.

Krafft said the subject of bond issuance costs and interest on the borrowed money came up while the project was under way and the state attorney general was asked to weigh in.

According to Johns’ audit, “The attorney general opined that bond issuance costs and interest expense during construction could be excluded from the definition of capital cost and therefore excluded from the cost limitation.”

Krafft said he and the borough are referring to that legal opinion when they say that $34.4 million shouldn’t count as an overage.

Johns, however, disagrees, citing generally accepted accounting principles and the state’s own accounting manual.

Krafft said Johns audit also is in error when it asserts that the prison and wastewater costs relate to a single project.

“What the auditor has done is he’s taken two separate projects and lumped them together,” he said.

Considered together, the auditor said, costs exceeded the $252 million cap.

Krafft said he agrees that combining the two projects total costs exceeds the $252 million cap, but he said “they shouldn’t be lumped together.”

A private company will run the treatment facility, paying for its construction through a contract with the prison. The facility was built to serve the prison through a relationship with the borough.

Krafft said that it was actually the state’s Department of Corrections that pushed to turn the wastewater treatment over to a private company.

“DOC is the one that said that they did not want a water treatment facility located on their property. They have that down in Seward and they did not want that here,” Krafft said.

Johns’ audit was the result of a legislative inquiry last year into project construction costs. In part, legislators wanted an accounting of the prison’s site selection process. Johns audit revisits the site selection process that roiled the Valley in 2008. At the time, sites on the table included Houston, Sutton and Palmer in addition to Point MacKenzie. Houston and Sutton dropped out for various reasons.

“Palmer was not selected despite the fact that it was the only location which offered connectivity to an existing and adequate utility with minimal upgrades needed,” according to Johns’ report.

But that assertion also is in question. Krafft said the prison is expected to produce about 250,000 gallons of wastewater daily, and Palmer’s sewage treatment plant has trouble keeping up with current demand. Wasilla’s is more-or-less maxed out, too. The borough has been looking at wastewater for a while now and part of that process includes examining whether Palmer’s existing system could have handled the prison.

“It appears as though it’s close to $30 million for Palmer to be able to upgrade,” Krafft said.

Contact reporter Andrew Wellner at andrew.wellner@frontiersman.com or 352-2270.