SANTA FE, N.M. — A first-of-its-kind internal audit of the state’s Rail Runner Express found questionable expenditures, weak financial controls and failure to check for possible environmental hazards involving train property prior to purchase.
Citing bad business decisions and “political pressure,” the audit uncovered practices such as buying vehicles for staff use with commuter train money and paying a hefty amount for certain right of way.
The audit also concluded that under then-Gov. Bill Richardson, the DOT relinquished direct oversight of the project — and taxpayers may have been subjected to unnecessary and increased costs as a result.
“It does show a number of poor decisions made along the way,” said Pete Rahn, chairman of the State Transportation Commission and an appointee of Gov. Susana Martinez. “It’s fairly clear to me that it was all about expediency and not good business practices.”
As one of Richardson’s signature public works projects, the Rail Runner Express was spearheaded by the Mid-Region Council of Governments, a regional planning agency based in Albuquerque.
MRCOG’s executive director Dewey Cave fired off a response to the audit report on Friday, contending it was biased.
“The audit report contains ‘findings’ and ‘conclusions’ that are based upon supposition and innuendo rather than on audit evidence,” stated the letter, which was endorsed by MRCOG Board of Directors chair and Albuquerque City Councilor Debbie O’Malley, and Los Ranchos Mayor Larry P. Abraham, chair of the Rio Metro Regional Transit Authority District, which took over Rail Runner operations in 2009.
The controversial commuter rail line required a huge up-front investment and is expected to cost taxpayers more than $875 million, including interest and fees, over the next 15 years.
Fares account for about 15 percent of the Rail Runner’s $23 million annual operating budget.
The audit, which took more than a year to complete, was conducted by the DOT’s Office of Inspector General at the request of the Martinez administration.
Some of the findings:
♦ MRCOG bought nearly $140,000 worth of new Ford Explorers and Ford trucks with train money and federal funds, listing the city of Albuquerque as owner on title records. Former MRCOG executive director Lawrence Rael said the vehicles were “pool cars” used by staff, including himself at times, to check on train-related issues in the field.
♦ In the haste to cut a deal to acquire the BNSF Railway line, which dates back 120 years, environmental assessments focused on the track and train station areas, but failed to include potentially contaminated rail spurs.
♦ The state paid a private partnership an additional $514,250 settlement over the appraised value to acquire 98 acres of land needed to route the train on La Bajada Mesa, south of Santa Fe. Other property owners received far less of a “settlement fee” for their land, but the DOT agreed to pay the amount partly because there was a December 2008 deadline to finish the project.
Rael said last week he hadn’t seen the audit report and wasn’t interviewed by auditors.
But he defended the agency’s work on the project, saying prior MRCOG internal audits showed no problems with how funds were spent.
“We did everything we were told to do by the DOT, that was required by the DOT. For them to now come back and find issues …” said Rael, who retired from the agency in 2009.
“I just worry about how much of this is sour grapes, or the politics of the administration or what have you.”
Richardson first pitched the idea of a regional commuter rail after assuming office in 2003, contending the project would ease traffic congestion and boost economic development.
The start-up of rail service coincided with his run for the Democratic nomination for president, which ended unsuccessfully by the time the last leg of the project was completed in December 2008.
Though the Martinez administration ordered the audit in mid-2011, auditors were delayed by insufficient documentation and inconsistencies in data, according to their 41-page report.
“While interviewing NMDOT personnel from the division involved with (Rail Runner) activities, questionable business practices, as well as political pressures, were brought to the auditor’s attention on more than one occasion,” the report stated. The report didn’t say what political pressures might have been exerted.
Although the DOT has a transit and rail division, MRCOG was asked to spearhead the project. Rael said MRCOG had more transportation planning expertise than the DOT to launch a commuter rail line.
That left DOT with “minimal oversight” of the project, while shouldering unnecessary liability and paying most of the bills, the audit report stated.
“We noted this lack of oversight led to improper safeguarding of … assets, insufficient support documentation and the payment of unallowable costs,” the audit report stated.
During the course of the inquiry, auditors “encountered obstacles that made it difficult to account for and substantiate costs,” the report added.
Augusta Meyers, spokeswoman for MRCOG, said in an email on Friday that her agency’s staff fully cooperated with auditors. “Additionally, no documents were missing or incomplete on our end,” the email stated.
Many of the officials who made decisions related to the train start-up and operations have since left state government or retired.
“Now that we know what the issues are, our focus will be on cleaning them up,” said Tom Church, DOT deputy secretary for business support.
Church added: “We intend to have additional audits on a regular basis and work towards having all financial and contractual controls in place.”
The audit comes more than six years after the Richardson administration opted to buy about 98 miles of BNSF-owned track from Belen to Santa Fe for $75 million, and paid $4.6 million for another 182 miles from Lamy to the Colorado border.
That northern portion of track isn’t used for Rail Runner service, and there is no plan to extend operations there. But the purchase was part of a package deal that allowed the state to acquire the southern track the rail plan required.
Martinez has terminated the northern track purchase, which technically still hadn’t closed by the time she took office in 2011. The administration has asked BNSF for a $2.3 million refund.
Auditors concluded that purchase of the extra track to the stateline was illegal because the Legislature never authorized money for that purpose.
The start-up costs for Rail Runner were approved as part of a $1.6 billion transportation bill that only authorized the rail project to extend to Santa Fe, the audit found.
The matter has been turned over to the state Attorney General’s Office for review, Church said.
Paper trail incomplete
Under a joint agreement, MRCOG would submit Rail Runner-related invoices to the DOT for reimbursement. But the paper trail was so incomplete that “we cannot conclude whether our audit sample of expenses represents the entire (Rail Runner train) operating costs invoiced to the NMDOT,” the audit report stated.
Auditors did find invoices showing MRCOG had purchased six vehicles, two four-wheel drive Ford Explorers and four F-150 Ford trucks, for Rail Runner operations and maintenance.
The DOT paid for two of the six with federal Congestion Mitigation and Air Quality Improvement funds in 2006, and that may not have been a proper use of the money, the audit found.
While agreeing to pay for one truck with Rail Runner bond proceeds in 2007 after initially balking, the DOT in 2009 refused to pay invoices for two others.
That led MRCOG to find other revenue sources, tapping the annual proceeds paid by BNSF and Amtrak for use of the train track. Those funds, which total about $2 million a year, had been routed directly to MRCOG, physically bypassing the DOT, the audit report said.
Auditors also recommended that the state be identified as the owner of the vehicles.
In another finding, the audit report said, a contractor hired to operate and staff trains and maintain the track, locomotives and property hasn’t adequately secured inventory and kept track of it.
Previous DOT managers also made the decision to provide insurance coverage for that private company, MRCOG and BNSF in the operation of the commuter rail service. That causes “unnecessary liability for NMDOT,” the audit report said.
Extra cleanup costs
A private Albuquerque firm studied contamination along the rail line prior to the BNSF track sale, but didn’t include three rail spurs on the leg from Belen to Bernalillo, the audit found.
That inquiry wasn’t completed until four years later in 2009, three years after the state bought that section of track.
One assessment stated that the railroad spurs could be considered as having “recognized environmental conditions.”
The audit said it appeared the state took ownership before getting pertinent environmental records from BNSF.
The result, the audit said, could be cleanup costs involving the rail spurs, and “long term and far reaching fiscal effects.”
Rael recalled that the DOT back then was supposed to take responsibility for the environmental due diligence involving the spurs.
He said he didn’t know the outcome.
Higher settlement fee
Providing rail service to Santa Fe required about seven miles of new track to allow the train to cross land on La Bajada Mesa and enter the median of Interstate 25.
Of the 179 acres of private property acquired for the construction, nearly every landowner received an additional settlement fee equal to 7 to 10 percent of the appraised value.
But in one case, the extra fee came to 96 percent.
DOT officials at the time approved the higher fee citing damage to the property during the agency’s quest to find a suitable site, and the fact that a road had to be built and sprinkler system installed.
But officials at the time also noted that a construction contract had already been awarded and work was well under way.
“In conclusion, due to a mandatory completion date of Dec. 15, 2008, and the fact that equipment and labor had already been mobilized … the NMDOT was left with little to no options for this acquisition,” the audit report said.
In other Rail Runner-related construction, the audit noted that more than $2.5 million was spent for two train stations that aren’t being used, including the Zia Station in Santa Fe and the Lobo Special Events Platform, which was built for patrons attending athletic events in the University of New Mexico corridor.
The last scheduled Rail Runner service to the Lobo stop was for the New Mexico Bowl in December 2009.