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.
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’S ATTEMPT TO OBTAIN LEGAL CLARITY
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.”