Legality of GRT spending on Spaceport operations and other financial irregularities left unsettled by AG

by Kathleen Sloan | February 19, 2021
10 min read

The New Mexico Attorney General’s much-anticipated opinion on the possible criminality of management and spending irregularities at Spaceport America was delivered to the requestor, state Economic Development Department Secretary Alicia Keyes, on Feb. 10. Emphatically described by the AG’s Office as not a legal ruling, that opinion was followed the next day by a second letter from the AG’s Office that further watered down statements in the first.

The AG’s decision not to offer clear legal guidance leaves the two public boards that oversee Spaceport expenditures struggling to redefine their fiduciary powers and responsibilities largely on their own.

Keyes, who sits on the Spaceport America Authority board by virtue of her EDD position, asked the Attorney General for a formal opinion last September on various financial issues raised by a forensic audit of the tenure of Dan Hicks, fired as Spaceport America director in October. The audit was conducted by The McHard Firm of Albuquerque.

Alicia Keyes, secretary, New Mexico Economic Development Department
Alicia Keyes, Spaceport America Authority board chair, asked AG Hector Balderas for a formal opinion last September about the findings of a forensic audit of the Spaceport. The AG’s Office finally issued a response this month that it said “should not be construed as legal advice.” Source: New Mexico Economic Development Department

The audit issues included a question about the legality of spending gross receipts tax revenues on Spaceport operations that has stymied the Regional Spaceport District tax board for years. The McHard audit cited the opinion of EDD attorneys interpreting state laws as prohibiting GRT spending on anything but capital projects. The McHard report states the AG’s Office was also to rule on this particular issue.

The AG’s first letter, written by Chief Counsel Matt Baca, warns that “this response is not a formal Attorney General Opinion pursuant to New Mexico Statutes Annotated 1978 Section 8-5-2 (D), nor should it be construed as legal advice to the Authority pursuant to our office’s authority to represent public bodies under the same chapter.”

This response, which is neither legal advice nor legal opinion, suggests that Hicks, former chief financial office and whistleblower Zach De Gregorio, former Spaceport Authority Board Chairman Rick Holdridge and the other members of the two oversight boards will not be held accountable for failing to perform their fiduciary duties, as charged by the McHard report. The report was replete with exhibits and other evidence of individual and group misconduct that McHard said cost taxpayers. The amount was left untallied, but it likely totaled several millions of dollars.

After examining the evidence, the AG’s Office reached a different conclusion, conveyed in the first letter. It states the McHard findings “do not indicate any particular individual criminal conduct or violation of law.” Chief Counsel Baca did concede “they demonstrate the obvious and immediate need for clarity . . . ,” which the AG’s Office declined to provide.

The AG’s second letter again stated: “No conclusion has been reached by our office regarding the potential violations stated by the auditing firm.” The letter provides no date when such a conclusion might be reached. The AG’s Office has been in possession of the McHard report for nearly six months.

The New Mexico Office of the State Auditor, which also reviewed the McHard report and was the entity that released it to the public last November, also appears to be dropping further involvement. “The Office of the State Auditor (OSA) is not currently investigating Spaceport,” Benadette Martinez, OSA public information officer, stated in a Feb. 18 email to the Sun. “Additionally, the OSA did refer the matter to the Attorney General’s Office, however, that referral is confidential audit documentation and excepted from disclosure.”

The AG’s Office confirmed that state law prohibits the expenditure of 75 percent of the Spaceport-dedicated GRT on anything but capital projects. Since 2011, $6.4 million in so-called “excess” GRT not needed to pay off the Spaceport’s bond debt has been funneled into the facility’s operations, according to the bonds’ issuer/holder, the New Mexico Finance Authority. But the AG’s Office declined to render a clear opinion about the legality of that practice, stating: “Those funds are likely to have been spent in violation of the provisions of the Regional Spaceport District Act and the Tax Code.”

Keyes has been a member of the Spaceport Authority Board since early 2019, when she became EDD cabinet secretary. Her membership is required in accordance with the Spaceport Development Act. She became chairperson May 2020.

As the parent state agency of Spaceport America, the EDD ordered a forensic audit after the Spaceport’s then CFO Zach De Gregorio submitted a whistleblower complaint in June 2020 accusing then director Dan Hicks of financial mismanagement.

That month, The McHard Firm was hired to conduct the investigation, which expanded as more violations and irregularities were uncovered. In October, following state administrative code, McHard reported its findings to the New Mexico State Auditor’s Office, as well as to EDD.

Keyes was obviously privy to the McHard findings before the report was finalized. On Sept. 8, 2020, she wrote Attorney General Hector Balderas, asking for “final advisory opinion” on the misconduct that would be documented in the McHard report.

While awaiting the AG opinion, in the intervening months, both the Spaceport Authority board and the Regional Spaceport District tax board have delayed making decisions, primarily about refinancing bonds and settling how excess gross receipts tax revenues should be spent.

The Regional Spaceport District is comprised of Sierra and Doña Ana Counties, which since 2009 have been collecting a 1/4 cent tax on every dollar spent in their jurisdictions for goods and services for Spaceport-dedicated purposes. As allowed by law, both counties divided the tax-revenue income stream into two parts: 25 percent goes to their school districts to promote student learning in science, technology, engineering and mathematics and 75 percent goes to funding Spaceport capital projects. Both counties have representation on the tax district board that oversees the expenditure of these GRT revenues.

Most of the 75 percent portion goes to paying off two bonds totaling about $77 million that were issued by the tax district board in 2009 and 2010 to pay for the Spaceport’s construction. The bonds, which carry a 5 percent interest, could have been refinanced with the New Mexico Finance Authority as early as December 2019, but for a dispute over excess GRT spending that has crippled the proper functioning of the tax district board.

Since 2015, Doña Ana County Commissioners have been protesting, via resolutions sent to various state officials, the use of excess GRT revenue for Spaceport operations. On the other hand, the Sierra County Commissioners, who have pinned their economic development hopes on the Spaceport’s success, approve of spending excess GRT on its operations.

During the Spaceport Authority board meeting Feb. 11, Keyes and board member Michelle Coons downplayed the refinancing of the bond debt, with Keyes limiting discussion and Coons revealing little about her negotiations with NMFA. Keyes did not relate the contents of the AG’s letter to board members, merely mentioning that she had sent it to them. Neither she nor Coons said anything about GRT revenues.

At the last Spaceport tax district board meeting, NMFA staff said refinancing will save the two counties more than $8 million in interest through 2029, when the bonds will be paid off. Each month the refinancing is delayed costs $150,000 in avoidable interest payments.

Without presenting any details, Coons introduced a resolution that permitted the Spaceport Authority board to “further negotiate” the refinancing deal with NMFA, and the board approved the resolution unanimously, with no discussion.

The Sun asked Keyes to identify state laws or policies that granted the Spaceport Authority board the power to refinance the tax district board’s bonds. EDD Public Information Officer Bruce Krasnow, who reports to Keyes, responded on Feb. 12, explaining that Keyes was following directions from the New Mexico Department of Finance and Administration.

DFA Public Information Officer Henry Valdez said that was not the case. “I spoke with our Board of Finance Director (they handle our bonds),” Valdez told the Sun on Feb. 17, “and DFA doesn’t consult with Spaceport on the negotiations or related refinancing for their bonds. Please speak with NMFA.”

NMFA Communications and Outreach Manager Lynn Taulbee gave the Sun a definitive answer as to why the Spaceport Authority board was handling the refinancing of bonds supposedly issued by the tax district board, which supposedly has oversight over how Spaceport-dedicated GRT revenue is spent. It turns out the bonds were issued by both boards.

EXPLANATION OF JOINT AUTHORITY TO REFINANCE SPACEPORT BONDS

For the record, the explanation provided by NMFA is as follows:

“The Spaceport Authority issued the original bonds under its power to ‘enter into contracts with regional spaceport districts and issue bonds on behalf of regional spaceport districts for the purpose of financing the purchase, construction, renovation, equipping or furnishing of a regional spaceport or a spaceport-related project,’ NMSA Section 58-31-5(A)(8). 

“The Spaceport Authority ‘may issue revenue bonds on its own behalf or on behalf of a regional spaceport district . . . ,” NMSA Section 58-31-6. 

‘The [Regional Spaceport] District ‘may enter into contracts with the authority [Spaceport Authority] pursuant to which the authority may issue bonds under the Spaceport Development Act . . . ,’  NMSA Section 5-16-7. 

“The district may also pledge its revenues to bonds issued by the Spaceport Authority. See NMSA Section 5-16-6.

“The refunding bonds will likewise be issued by the Spaceport Authority under its power to ‘refinance a project,’ NMSA Section 58-31-5(A)(9). The Spaceport Authority ‘may issue refunding revenue bonds for the purpose of refinancing . . . outstanding authority revenue bonds,’ NMSA Section 58-31-13(A). Furthermore, the Spaceport Authority ‘may pledge irrevocably for the payment of interest and principal on refund bonds the appropriate pledged revenues that may be pledged to an original issue of bonds,’ NMSA Section 58-31-13(B).

“The NMFA will be the purchaser of the Spaceport Authority refunding bonds pursuant to the provisions of NMSA Section 58-31-6(C)(7) in a negotiated sale.”

The Regional Spaceport District tax board is to consider a resolution regarding bond refinancing at its Feb. 25 meeting.

HOW WILL THE EXCESS GRT DISPUTE BE SETTLED?

Doña Ana Commissioner Shannon Reynolds, who sits on the district tax board, declined to comment in a Feb. 11 interview with the Sun either on the Spaceport Authority board’s resolution to negotiate the bond refinancing or the AG Office’s non-ruling on GRT spending.

Jim Paxon, Sierra County Commission chairperson and member of tax district board, has said publicly that he does not consider the AG letter definitive on the issue of excess GRT spending on Spaceport operations. Paxon is seeking his own a legal opinion from Sierra County Attorney Dave Pato, according to a Feb. 13 article in the Las Cruces Sun-News.

Scott McLaughlin, interim Spaceport America director since last June, when Hicks was put on administrative leave, is acting on the possibility that the Spaceport will be cut off from excess GRT revenue factored into the budget passed for this fiscal year, which began in July 2020. The budgetary shortfall is going to be about $2 million, McLaughlin told the Spaceport Authority board at its Feb. 11 meeting.

McLaughlin said he will, as a remedy, seek operations money from the state during this legislative session to cover this and future years’ operations budgets.

McLaughlin may soon be replaced by a permanent Spaceport America director. During the Feb. 11 meeting, the board went into executive session to discuss applicants for the position. Returning to open session, the board took no action, but Keyes announced the viable candidates will undergo further vetting and background checks.

 State law permits Spaceport operations to be paid for by the state. This provision was something the AG’s Office cited in its first letter . The Spaceport Authority, “as an independent state agency, receives an operational appropriation from the Legislature,” Chief Counsel Baca stated, “which should be used to cover such things as staff salaries . . . or other operating expenses of the Authority.”

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Kathleen Sloan is the Sun’s founder and chief reporter. She can be reached at kathleen.sloan@gmail.com or 575-297-4146.
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Understanding New Mexico's proposed new social studies standards for K-12 students

“The primary purpose of social studies is to help young people develop the ability to make informed and reasoned decisions for the public good as citizens of a culturally diverse, democratic society in an interdependent world.”
—National Council for the Social Studies 

Reader Michael L. Hayes of Las Cruces commented: What impresses me is that both the proposed standards and some of the criticisms of them are equally grotesque. I make this bold statement on the basis of my experience as a peripatetic high school and college English teacher for 45 years in many states with many students differing in race, religion, gender and socioeconomic background, and as a civic activist (PTA) in public education (My career, however, was as an independent consultant mainly in defense, energy and the environment.)

The proposed social studies standards are conceptually and instructionally flawed. For starters, a “performance standard” is not a standard at all; it is a task. Asking someone to explain something is not unlike asking someone to water the lawn. Nothing measures the performance, but without a measure, there is no standard. The teacher’s subjective judgment will be all that matters, and almost anything will count as satisfying a “performance standard,” even just trying. Students will be left to wonder “what is on the teacher’s mind?” or “have I sucked up enough.”

Four other quick criticisms of the performance standards. One, they are nearly unintelligible because they are written in jargon. PED’s use of jargon in a document intended for the public is worrisome. Bureaucrats often use jargon to confuse or conceal something uninformed, wrong or unworthy. As a result, most parents, some school board members and more than a few teachers do not understand them.

Two, the performance standards are so vague that they fail to define the education which teachers are supposed to teach, students are supposed to learn, and parents are supposed to understand. PED does not define words like “explain” or “describe” so that teachers can apply “standards” consistently and fairly. The standards do not indicate what teachers are supposed to know in order to teach or specify what students are supposed to learn. Supervisors cannot know whether teachers are teaching social studies well or poorly. The standards are so vague that the public, especially parents or guardians, cannot know the content of public education.

Three, many performance standards are simply unrealistic, especially at grade level. Under “Ethnic, Cultural and Identity Performance Standards”; then under “Diversity and Identity”; then under “Kindergarten,” one such standard is: “Identify how their family does things both the same as and different from how other people do things.” Do six-year-olds know how other people do things? Do they know whether these things are relevant to diversity and identity? Or another standard: “Describe their family history, culture, and past to current contributions of people in their main identity groups.” (A proficient writer would have hyphenated the compound adjective to avoid confusing the reader.) Do six-year-olds know so much about these things in relation to their “identity group”? Since teachers obviously do not teach them about these other people and have not taught them about these groups, why are these and similar items in the curriculum; or do teachers assign them to go home and collect this information?

Point four follows from “three”; some information relevant to some performance measures requires a disclosure of personal or family matters. The younger the students, the easier it is for teachers to invade their privacy and not only their privacy, but also the privacy of their parents or guardians, or neighbors, who may never be aware of these disclosures or not become aware of them until afterward. PED has no right to design a curriculum which requires teachers to ask students for information about themselves, parents or guardians, or neighbors, or puts teachers on the spot if the disclosures reveal criminal conduct. (Bill says Jeff’s father plays games in bed with his daughter. Lila says Angelo’s mother gives herself shots in the arm.) Since teacher-student communications have no legal protection to ensure privacy, those disclosures may become public accidentally or deliberately. The effect of these proposal standards is to turn New Mexico schools and teachers into investigative agents of the state and students into little informants or spies.

This PED proposal for social studies standards is a travesty of education despite its appeals to purportedly enlightened principles. It constitutes a clear and present danger to individual liberty and civil liberties. It should be repudiated; its development, investigated; its PED perpetrators, dismissed. No state curriculum should encourage or require the disclosure of private personal information.

I am equally outraged by the comments of some of T or C’s school board members: Christine LaFont and Julianne Stroup, two white Christian women, who belong to one of the larger minorities in America and assume white and Christian privileges. In different terms but for essentially the same reason, both oppose an education which includes lessons about historical events and trends, and social movements and developments, of other minorities. They object to the proposal for the new social studies standards because of its emphasis on individual and group identities not white or Christian. I am not going to reply with specific objections; they are too numerous and too pointed.

Ms. LaFont urges: “It’s better to address what’s similar with all Americans. It’s not good to differentiate.” Ms. Stroup adds: “Our country is not a racist country. We have to teach to respect each other. We have civil rights laws that protect everyone from discrimination. We need to teach civics, love and respect. We need to teach how to be color blind.”

Their desires for unity and homogeneity, and for mutual respect, are a contradiction and an impossibility. Aside from a shared citizenship, which implies acceptance of the Constitution, the rule of law and equality under the law, little else defines Americans. We are additionally defined by our race, religion, national origin, etc. So mutual respect requires individuals to respect others different from themselves. Disrespect desires blacks, Jews or Palestinians to assimilate or to suppress or conceal racial, religious or national origin aspects of their identity. The only people who want erasure of nonwhite, non-Christian, non-American origin aspects of identity are bigots. Ms. LaFont and Ms. Stroud want standards which, by stressing similarities and eliding differences, desire the erasure of such aspects. What they want will result in a social studies curriculum that enables white, Christian, native-born children to grow up to be bigots and all others to be their victims. This would be the academic equivalent of ethnic cleansing.

H.E.L.P.

This postmortem of a case involving a 75-year-old women who went missing from her home in Hillsboro last September sheds light on the bounds of law enforcement’s capacity to respond, especially in large rural jurisdictions such as Sierra County, and underscores the critical role the public, as well as concerned family and friends, can play in assisting a missing person’s search.

Reader Jane Debrott of Hillsboro commented: Thank you for your article on the tragic loss of Betsey. I am a resident of Hillsboro, a friend of Rick and Betsey, and a member of H.E.L.P. The thing that most distresses me now, is the emphasis on Rick’s mis-naming of the color of their car. I fear that this fact will cause Rick to feel that if he had only gotten the facts right, Betsey may have been rescued before it was too late. The incident was a series of unavoidable events, out of everyone’s control, and we will never know what place the correct color of her car may have had in the outcome. It breaks my heart to think that Rick has had one more thing added to his “what ifs” concerning this incident.

Diana Tittle responded: Dear Jane, the Sun undertook this investigation at the request of a Hillsboro resident concerned about the town’s inability to mount a prompt, coordinated response to the disappearance of a neighbor. From the beginning, I shared your concern about how our findings might affect Betsy’s family and friends. After I completed my research and began writing, I weighed each detail I eventually chose to include against my desire to cause no pain and the public’s right to know about the strengths and limitations of law enforcement’s response and the public’s need to know about how to be of meaningful assistance.

There was information I withheld about the state police investigation and the recovery. But I decided to include the issue of the car’s color because the individuals who spotted Betsy’s car emphasized how its color had been key to their identification of it as the vehicle described in Betsy’s Silver Alert. Because the misinformation was corrected within a couple of hours, I also included in this story the following editorial comment meant to put the error in perspective: “The fact that law enforcement throughout the state was on the lookout in the crucial early hours after Betsy’s disappearance for an elderly woman driving a “light blue” instead of a “silver” Accord would, in retrospect, likely not have changed the outcome of the search” [emphasis added].

I would also point to the story’s overarching conclusion about the inadvisability of assigning blame for what happened: “In this case, a perfect storm of unfortunate circumstances, many of them beyond human control, hindered the search that it would fall to Hamilton’s department to lead.”

It is my hope that any pain caused by my reporting will eventually be outweighed by its contribution to a better community understanding of what it will take in the future to mount a successful missing person’s search in rural Sierra County.

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1 thought on “Legality of GRT spending on Spaceport operations and other financial irregularities left unsettled by AG”

  1. Peter Lawton

    I get the fact that we the taxpayers are funding the Spaceport operation. I would like to know what revenue is being pulled in from paying customers. The Spaceport is a decade old now, and I would assume the idea behind it was to ultimately create economic growth from paying corporate or government clients not financed by bonds and gross receipts tax revenue, as though it were a school or public library.

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