New Mexico AG seeks to void county's ICE contract for bond-financed facility

New Mexico's Justice Department asked the state Supreme Court on Wednesday to invalidate a contract between Otero County and U.S. Immigration and Customs Enforcement (ICE) that generates revenue to pay off unrated bonds issued for a facility used to process individuals accused of civil immigration violations.

The action came a day after S&P Global Ratings revised its outlook on the county to negative from stable, citing large general fund deficits that could be exacerbated by the loss of the ICE contract.

The writ of mandamus petition contends the intergovernmental service agreement (IGSA) with ICE that was reapproved last week by county commissioners to avoid a bond default was done without legal authority and lacks approval from the state's Department of Finance and Administration.

"Otero County did not obtain the approval state law requires, and the agreement is invalid," New Mexico Attorney General Ra?l Torrez said in a statement. "We are asking the court to act swiftly to prevent its enforcement."

The petition claims county commissioners made "an apparent effort" to evade the prohibition of agreements involving the detention of individuals for federal civil immigration violations under the Immigrant Safety Act, which Gov. Michelle Lujan Grisham signed into law in February.

With the law not taking effect until May 20, Otero County commissioners last week reapproved a five-year, $283 million ICE agreement after the state's justice department determined March 13 commission action on the contract was invalid due to a state Open Meetings Act violation. The move to replace a prior ICE agreement that expired on March 15 was aimed at avoiding a default on a nearly $5.26 million debt service payment due on Wednesday.

Revenue generated under ICE agreements is the sole source of payment on $18.48 million of outstanding bonds from a $62.305 million unrated jail project revenue bond issue the county sold in 2007 to finance a 1,096-bed facility.

The county did not immediately respond to a request Wednesday for comment about the petition. Last week, Otero County Attorney R.B. Nichols told commissioners state approval for previous IGSAs with ICE was never sought or questioned.

S&P's outlook revision covers its A-minus underlying rating on insuredgross tax receipts revenue bonds the county sold in 2014.

"Should the county's ability to extend its ISGA with ICE, find a different operator, or make debt service payments be impaired and the facility closes, the county's current budgetary imbalance could be exacerbated by the loss of about $500,000 in annual rental income and any additional expenses needed for facility upkeep," S&P said in a rating report.

The county's general fund deficits, which reached $3.7 million in fiscal 2025, "could lead to a downgrade if the county does not make meaningful progress toward achieving balanced operations," according to the report.

"Although the county is budgeting for a smaller $392,747 general fund deficit in fiscal 2026, management has not articulated a plan to restore balanced operations," it added, noting the negative outlook reflects a one-in-three chance of a rating downgrade within two years should S&P's view of the county's general creditworthiness worsen.

In response on Tuesday to the negative outlook, Nichols said state lawmakers dismissed credit rating concerns the county and others raised when the Immigrant Safety Act bill worked its way through the legislature.

"The S&P outlook revision puts the real-life consequences of that decision on paper for investors and the public to see clearly," he said in an email. "Otero County will continue to work to meet its legal obligations to its bondholders and to protect the interests of the county and its investors."

Commissioners have authorized the procurement of outside litigation counsel to defend the ICE contract and the jail bonds. Nichols previously pointed out constitutional prohibitions against contract impairment and a New Mexico statute that specifically prohibits any laws that would impair existing revenue bonds.

Otero County last sold bonds in 2020: a $8.355 million subordinate lien countygross receipts tax revenue issue insured by BAM Mutual. Moody's Ratings gave the bonds an underlying A2 rating. An AA rating from S&P was based on the insurance.