New Mexico county OKs ICE agreement to avoid bond default

A New Mexico county is gearing up to fight a state law banning agreements involving the federal civil immigration detention system that threatens bonds it issued for a jail.

In order to avoid a default on revenue bonds it sold in 2007, Otero County commissioners on Friday approved a resolution to replace a now-expired intergovernmental service agreement with U.S. Immigration and Customs Enforcement with a five-year contract that will allow the county to make a nearly $5.26 million debt service payment due April 1.

"There's a lot at stake here," Roy Nichols, the county's attorney, told commissioners. "There's the county's credit rating, ability to borrow in the future. And then there are the jobs, 284 jobs, and the substantial amount of (gross receipts tax) revenues and other money that goes into the economy as a result of this facility."

The replacement ICE agreement runs afoul of House Bill 9, The Immigrant Safety Act, which was signed into law by Gov. Michelle Lujan Grisham in February. It requires the state and local governments to terminate existing agreements involving the detention of individuals for federal civil immigration violations and prohibiting new, extended or renewed agreements.

Nichols said approval of the ICE agreement that runs through March 15, 2031, comes before the law takes effect on May 20. He added the resolution also authorizes him to initiate litigation in state and federal courts over constitutional prohibitions against contract impairment and a New Mexico statute that "specifically addresses the prohibition of any laws that would impair existing revenue bonds."

"The legislature was made aware of these and chose to ignore our warnings," Nichols said.

The southern New Mexico county sold $62.305 million of unrated jail project revenue bonds in 2007 for a 1,096-bed correctional facility. The bonds, which were structured with term maturities in 2013, 2018, 2023, and 2028, are secured by a first lien on the facility's net revenue.

Since it opened, the facility has operated as an ICE processing center under agreements that provide the sole source of revenue for the bonds, according to Nichols.

Another bill, which became law, makes appropriations to hold harmless local governments for potential revenue losses related to HB 9. Otero County was allocated $5.94 million for bond payments.

With an effective date of July 1, Nichols said that law cannot address the April 1 debt service payment and fails to make the county whole.

Outstanding bonds from the 2007 issue totaled $18.485 million, according to a Feb. 6 notice on HB 9 posted by bond trustee US Bank on the Municipal Securities Rulemaking Board's disclosure website.

Otero County last sold debt in 2020 with an insured $8.355 million subordinate lien gross receipts tax revenue bond issue that carried an underlying rating of A2 from Moody's Ratings. S&P Global Ratings gave the bonds an AA rating based on a BAM Mutual guarantee.