State bond error may be resolved with little impact

But while officials are embarrassed, state may receive millions from bonds

SANTA FE — New Mexico may have dodged a bullet — if not a few bruises to its reputation — after a high-profile mistake in state bond refinancing.

Members of the state Board of Finance signed off Friday on a plan to reinvest roughly $80 million in general obligation bonds that had been called by the state this summer earlier than allowable.

Board members and outside financial experts both said the error — which was discovered after a June bond sale — is not expected to affect investors or the state’s bond rating, and state bond attorneys and financial advisers said they won’t charge any more money to fix it.

In fact, the state could still end up making between $1.6 million to $3.5 million on the bonds, according to the state Department of Finance and Administration.

However, at least one board member acknowledged losing sleep over the matter, which received national attention in recent days from investor publications. The board’s financial adviser also expressed remorse for the situation.

“We wish we weren’t here,” said David Paul, a Colorado-based financial adviser with Fiscal

Strategies Group, during Friday’s special meeting at the state Capitol. “We made a mistake, and we take responsibility.”

The Board of Finance in June authorized refunding $79.8 million of 2015 general obligation bonds in an attempt to generate cost savings. But that maneuver was not yet allowable under the 2015 bond issue’s terms.

Among others, two outside financial advisory firms and three lawyers did not catch the mistake, which apparently stemmed from confusion surrounding a since-corrected wording error on the 2015 general obligation bond issue’s official statement.

Three elected state officials — Gov. Susana Martinez, Lt. Gov. John Sanchez and Treasurer Tim Eichenberg — serve on the state Board of Finance. None of the three was present for Friday’s meeting, though Martinez participated via telephone.

The credit fix approved on a 4-0 vote calls for the money in question to be invested in tax-free bonds. It could also be used to buy 2018 severance tax bonds, which would put the state in the strange situation of purchasing its own bonds.

However, several state bond attorneys and advisers indicated Friday they had informally been in touch with the Internal Revenue Service about the plan and expected it to pass muster with the federal tax agency.

“I think we got lucky in this situation it got caught right away,” board member Adelmo “Del” Archuleta of Albuquerque said during Friday’s meeting.

While several board members praised how bond attorneys and advisers responded to the mistake, a waiver approved Friday did not absolve the firms of liability. But a state finance department spokesman said there were no plans “at this time” to pursue legal claims in the matter.