NM AG: Excess Local Tax Revenues Improperly Spent to Support Spaceport America Operations

by Douglas Messier
Managing Editor

Excess local tax revenues collected to support Spaceport America have been improperly spent on the facility’s operational costs, the New Mexico Attorney General’s Office has concluded.

Chief Counsel Matt Baca addressed the long-simmering controversy over excess gross receipts taxes (GRT) collected in Sierra and Dona Ana counties in a letter to state Economic Development Secretary Alicia Keyes, who also chairs the New Mexico Spaceport Authority (NMSA). The Las Cruces Sun-News reports:

The statutes addressing spaceport tax districts made clear, Baca wrote, that 75 percent of local GRT (currently collected by Sierra and Doña Ana counties) must be used for “the financing, planning, designing, engineering and construction of a regional spaceport,” while the other 25 percent may be retained by the local government for its use. 

Nowhere in statute or tax code, Baca wrote, “did the Legislature state permission to use gross receipts taxes collected by local governments for the operational costs of running the Authority itself.” 

Since 2009, 75 percent of the revenue was directed by the tax authority toward repaying bond debt for the construction of the spaceport and 25 percent for “local spaceport-related education.” 

The tax has generated an excess of several hundred thousand dollars annually that went to spaceport operations instead, to the dismay of some elected officials.

Dona Ana County officials say the state should pay for operations not covered by the spaceport’s revenues. They also are seeking repayment of the improperly used tax revenues.

Residents in Dona Ana and Sierra counties approved one-half cent tax increases in 2007 and 2008, respectively. The approval was part of a $200 million state-led initiative to build the spaceport to serve as the operational base for Richard Branson’s Virgin Galactic suborbital space company.

When they unveiled the plan in 2005, Branson and then-Gov. Bill Richardson promised Virgin Galactic would fly 50,000 passengers on suborbital flights from the facility within 15 years.

Thus far, Virgin Galactic has flown exactly two suborbital flight tests and no passengers. The company is still in the midst of a flight test program of its SpaceShipTwo vehicle that began in 2010. That program could be completed and commercial service commenced later this year.

Residents of the two counties have continued to pay higher taxes even though they have seen few of the economic benefits they were promised by state and Virgin Galactic officials when the project was announced 15 years ago.

Spaceport America’s annual budget is $12.7 million. Revenues from Virgin Galactic and other tenants do not cover all operating expenses. To date, the gaps have been filed with excess GRT revenues and state funding.

Baca’s letter also addressed the duties of NMSA’s executive director. The letter said the responsibilities are limited to hiring staff, managing day to day operations, overseeing the procurement process, and reporting to the NMSA’s Board of Directors. Responsibility for procurement of goods and services lies with the NMSA board.

In December, the NMSA board asked the Attorney General’s Office to review the tax issue and proposed modifications to its bylaws. The board is revising the bylaws in the wake of a scandal that broke last year involving the authority’s two top employees.

An outside audit released in November concluded that former Executive Director Dan Hicks had exceeded his authority on spending, travel and hiring. Hicks was fired in October after the auditing firm submitted its report to state officials. He had been put on administrative leave earlier in the year.

The report recommended that Hicks and former Chief Finance Officer Zach DeGregorio, who blew the whistle on Hicks, be investigated for possible criminal charges.

The audit concluded that DeGregorio had facilitated Hicks’ misconduct. The report also alleged that he had farmed out most of his job to an outside contractor. DeGregorio left his position at the spaceport last year.

The Sun-News reported that Baca told Keyes in a follow-up letter that the Attorney General’s Office had not reached any conclusions about possible criminal charges against Hicks and DeGregorio.

The audit also found that former NMSA Chairman Rick Holdridge was lax in his oversight of operations and took actions that allowed violations to continue. He was replaced as chair of the board by Keyes last year.