Background
On December 5, 2016, a court specialized in trusts and bonds in Minnesota approved a forbearance agreement between U.S. Bank (the Trustee), San Luis Facility Development Corporation and Emerald Correctional Management L.L.C. (the then operator of the detention center).  (Attached here #4, the Order and the Forbearance Agreement).
 
The Order and Forbearance Agreement moved the payment of principal on the bonds down on the waterfall to after payment of costs of operations (which included the license fee of the City of San Luis).  The Trustee (U.S. Bank) can terminate the forbearance agreement with 90-days of notice, and the earliest termination date is December 1, 2018. (Please see page 17 of attachment #4, in Section 6).

 

The Order also approved an interim operating and management agreement, under which the detention center is currently operating.  The Trustee's 90-day notice also terminates the current interim operating agreement unless the Parties agree otherwise.  (Please see attachment #5, page 4, Section 2.01, last sentence).  
 
On April 7, 2017, San Luis Facility Development Corporation agreed to the assignment of the Forbearance agreement to LaSalle Corrections, L.L.C.
 
In May of 2018, the Trustee sent to the bondholders a Notice of Updated Financial Information and Inmate Population at the Project indicating that revenue is up.  (Please see attachment #6)
 
On August 28, 2018, the Trustee sent to San Luis Facility Development Corporation and LaSalle Corrections a 90-day notice to terminate the forbearance agreement on December 1, 2018. (Please see attachment #7).

Need for a Memorandum of Understanding Now
Early this year, Keith Marshall (U.S. Bank Trustee) indicated that he was contemplating terminating the forbearance by December 1, 2018, due to the high inmate numbers.  This summer he stated he did decide to send the notice and would do so before September 1st to be sure the forbearance would terminate at the earliest possible date, December 1, 2018.
 
Your legal counsel reviewed the documents and found Emerald only assigned the forbearance agreement to LaSalle, not the underlying operating agreement.  Which means with the termination of the forbearance comes the termination of the agreement with LaSalle to operate the facility.  Your legal counsel alerted LaSalle’s Director of Accounting Tim Kurpiewski.  

Mr. Kurpiewski said that unless there is an agreement in place by October 1, he would be required to give the Union a 60-day notice of mass layoff under the WARN Act (the Worker Adjustment and Retraining Notification Act, 29 United States Code § 2109).  As a result, LaSalle would propose sustainable numbers to take to the Corporation as the basis to start negotiations on the agreement.

Two Reasons no Proposal for the Board Yet
(1) Misunderstanding about the Waterfall
Mr. Kurpiewski did propose some numbers but did not have the Trust Indenture of October 1, 2005, between San Luis Facility Development Corporation and U.S. Bank, and so did not understand that LaSalle could not change the waterfall from the structure in the Indenture once the Trustee terminates the forbearance.  So, LaSalle's proposed numbers contemplated the principal bond payments at the bottom of the waterfall rather than the top as required by the indenture.

(2) Need to Know the Federal Per Diem Rate
To calculate the proposal, Mr. Kurpiewski needed to know the Marshals response to our June 18, 2018 request to change the per diem rate due to the need to correct the classification under the classification system of the Department of labor from Guard II ($16.99 per hour) to Correctional Officers ($20.94).  It was likely that the Department of Labor would be requiring the classification and higher rate whether the Marshals changed the per diem rate or not.  When the answer did not come in July, LaSalle requested a 30-day extension with the due date being August 23, 2018. The answer awarding the higher per diem rate finally came September 18, 2018. (See the sixth attachment).
 

As of the writing of this Agenda Item Review form,  LaSalle has not provided the compensation proposal for a new contract.

 

 So as not to trigger the 60-day layoff notice, we need to have at least an MOU done before October 1.  The MOU is an agreement to agree to have a contract negotiated by November 1 and in any case before December 1, 2018.  If there is no agreement by December 1, 2018, then we agree to use the 2011 Emerald Contract, which under the current Marshals rates makes the license fee $4.50 per inmate day.  

(Please see attachment #3, page 6, Section 3.03(c) and the paragraph following it).  The thought behind having the 2011 contract as the fall-back contract if there is no contract, is to provide an incentive to get parties to get the new contract done on time by November 1 or no later than December 1.