Editorial: Interest Rate Rigging Scandal Touches N.M.

This train left the station long ago, possibly hauling a boxcar full of questionable financing deals.

It’s hard to believe that after all this time New Mexico is still having to deal with aspects of the pay-to-play scandal that tarnished the administration of then-Gov. Bill Richardson. Now the state Department of Transportation is looking into whether alleged interest rate rigging was part of the process when the state borrowed more than $200 million for road projects and the Rail Runner.

The alleged manipulation of the Libor (London-Inter-Bank Offering Rate) index used by many banks to set daily interest rates, is the latest international financial scandal. Last month, Barclays Bank agreed to pay $450 million in fines to settle charges it had rigged Libor rates. Several other banks are under investigation.

Initial findings suggest rate-rigging began as far back as 2007.

The New Mexico connection is that about $200 million of the financing of the Governor Richardson Investment Partnership is connected to the Libor. And about $558 million of the $1.9 billion GRIP initiative is related to the Rail Runner.

The state DOT, represented by the New Mexico Finance Authority, entered a set of variable rate bond arrangements, or swaps, to help finance the projects.

The Finance Authority issued the GRIP bonds and hired CDR Financial Products as an adviser on $420 million in the swaps that are estimated to cost the DOT an additional $67 million in fees over the next 20 years.

With interest, the state will have paid about $900 million to borrow $420 million.

Getting out of the swaps would cost the DOT an estimated $130 million at a time when local road projects and maintenance are sidelined for lack of cash.

You might remember that CDR is the California firm that contributed $100,000 to Richardson political action committees around the time it won its initial contract to advise the state on GRIP financing in 2004. Since then, irregularities in the bid scoring documents have been discovered.

A federal grand jury looked into CDR’s political contributions in New Mexico and its bond work. No criminal indictments were returned, but a letter from the U.S. attorney stated that the procurement process had been corrupted.

Several CDR executives recently have been criminally prosecuted in connection with a massive bid-rigging scheme in other states. One former CDR official testified at a criminal trial in April in New York that his company made nearly $1 million for 13 hours of work on the New Mexico GRIP financing package.

In round numbers that’s about $76,923 a hour. Nice work if you can get it.

Meanwhile, the DOT is trying to get the New Mexico Finance Authority, which has been charging it more than $3 million a year to administer the GRIP bonds, to lower the payments to about $500,000. The $3 million annual payments, set during the Richardson administration, far exceed the actual costs and should be lowered.

So while the heady days of Richardson-era wheeling and dealing may be behind us — at least we hope so — the fallout for financing the former governor’s pet projects continues on down the track.

This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.