A Journal Special Report Reprint Articles first appeared in the Albuquerque Journal on Dec. 5-8, 12, 15, and 17, 1999 and Jan. 4, 2000. Four-Lane Politics

ADOLPHE PIERRE-LOUIS/JOURNAL LONG STRETCH: N.M. 44 runs from the Albuquerque metro area to the Farmington area in the northwest part of the state. Four-Lane Politics A Journal Special Report Reprint 1

Why We Did The Series The widening of 118 miles of N.M. 44 from San Ysidro to the Four Corners area is the biggest road project in New Mexico history. At a cost of $420 million, including

Mike Gallagher financing, it is also the most expensive. The Johnson Mike Gallagher, 45, became an administration says its plan is so innovative it could investigative reporter in 1986. Some of his investigative pro- change the way states handle highway construction pro- jects include stories on the deaths of patients at the state hospital for jects. Critics call it a disaster in the making. the disabled, drug trafficking along the Southwest border, problems in the state prison system, unsolved Journal investigative reporters found that highway offi- murders of prostitutes in Albu- querque, false charges of child sex- cials jumped the project ahead of other needed road work ual abuse, questionable invest- ments of public money, illegal gam- and entered into a questionable warranty deal at a cost of bling and the private business practices of certain state officials. Last year, the Journal dispatched $62 million. They also found that the only company to bid Mike on an unusual assignment: report and write on the problems in on the project proposed it in the first place. Russia. Contents N.M. 44 on Fast Track 2 Gov. Defends Going Into Debt For N.M. 44 17 N.M. Law Limits Involvement of Potential Bidders 7 Financing Project Through Koch Colleen Heild Would Have Cost State More 20 A 14-year veteran of the Journal A 20-Year Warranty 9 staff, Colleen joined the investiga- tive team in 1996. Officials Defend N.M. 44 Project 21 After moving here from the El N.M. Project Large-Scale Test Paso Times, she covered federal courts in New Mexico. That led to For ‘Euro-Design’ 11 more in-depth reporting, such as the fatal shooting in 1988 of a Highway Department Criticizes Series 21 Mountainair policeman. Koch Is Nation’s 2nd Largest Her work has included investiga- Privately Held Company 12 tive projects on problems in the N.M. 44 Road Deal Needs Scrutiny 22 Albuquerque Police Department and the state foster care. Widening of N.M. 44 Jumped Her investigative stories led to to Top of List 13 changes in the way the state han- Bids on N.M. 44 Meet Expectations 23 dles vehicle dealer plates and helped spur the city of Albuquerque to try to recover money spent on a Koch Supports Many tire shredder that didn’t work. Candidates, Causes 15 N.M. 44 Deal Gets 2nd Look 24 Four-Lane Politics 2 A Journal Special Report Reprint

RICHARD PIPES/JOURNAL HOT WORK: Workers lay asphalt on a nine-mile section of N.M. 44 south of Cuba. N.M. 44 on Fast Track $420 Million State Project Raises Questions, Criticism

Stories by MIKE GALLAGHER AND COLLEEN HEILD ■ Journal Investigative Reporters

ete Rahn had a problem. building money to N.M. 44 so Johnson highway department from Wichita-based It was April 1997 and Gov. could fulfill his desire to build the road to Koch (pronounced “coke”) Industries. Gary Johnson had let his High- the heavily Republican area of the state. The multibillion-dollar conglomerate way and Transportation Depart- Rahn would have had a tough time had an answer for all Rahn’s problems. It P ment chief know in no uncertain selling that kind of solution when N.M. 44 said it could design the road, build it, terms that he wanted N.M. 44 from San wasn’t even his department’s top priority. finance it and give the state a long-term Ysidro to the Farmington area widened to The project was going nowhere, maintenance warranty. four lanes. barring some incredible stroke of good “If we weren’t going to kill projects and But Rahn didn’t have any way to do it. fortune. we weren’t going to take 27 years to Johnson had just vetoed legislation that And that’s just what happened — or is complete the project, we had to find would have paid for N.M. 44 and other it? something different,” Rahn said. “So the road projects by raising the gasoline tax. Less than two weeks after Johnson something different that came up was There was virtually no chance the ordered Rahn to find a way to build N.M. this proposal that Koch had submitted. Democrat-controlled Legislature would 44, what Rahn described as an agree to shift the bulk of state road- “unsolicited” proposal showed up at the Continued on Page 3 Four-Lane Politics A Journal Special Report Reprint 3

Continued from Page 2

“Their (Koch) proposal was crucial to EVOLVINGEVOLVING PROPOSALSPROPOSALS us. Without it we didn’t have an option on building the road.” Rahn emphasized that the proposal was Koch State Koch unsolicited, but Koch representatives told proposal RFP proposal State/Koch the Journal that state highway officials April 21,’97 Fall ’97 Dec. 1,’97 contract asked the company to give them one. What prompted Koch to send the proposal isn’t the only issue involved in Warranty ✔ ✔ ✔ ✔ the project. Some of the others: ■ The department allowed Koch to bid on the project even though the Koch Warranty proposal formed the basis for the state’s based plans. Rahn contends this didn’t violate on road ✔ ✔ ✔ ✔ state law because the state took only smoothness “concepts” from Koch, and not specifics. ■ Koch was the only bidder in a process critics contend eliminated any potential Warranty life based ✔ ✔ ✔ ✔ “I’m just one of on traffic those New Mexicans that’s Financial incentives grown up believing for rapid ✔ ✔ ✔ ✔ construction that 44 arguably needs four-laning more than Bond/ any other road in the state.” letter of ✔ ✔ ✔ ✔ GOV. GARY JOHNSON credit required competition. Design/ ■ At the time it was awarded the build ✔ contract, Koch had never built a major highway in the United States. And the design it proposed had never been used. Design/ manage ✔ ✔ ■ The state is paying Koch $62 million to ✔ provide a 20-year “ride quality” warranty for the state — a sum critics say is way too Private much for a road design touted for its financing superior quality. ✔ ✔ ✔ ■ The state is financing the road by pledging future federal highway money — Public a move critics say may divert funds from financing other projects. ✔ ✔ ✔ ■ Other states that have used the financing method have first submitted it to the Legislature or the voters. The RUSS BALL / JOURNAL Johnson administration did neither. ■ Highway department officials that 44 arguably needs four-laning more Highway Administration. vaulted the N.M. 44 project to the top of than any other road in the state.” Rahn says the project is needed for their priority list even though it didn’t The state is committed to pay more economic development and safety and is rank first among other state two-lane than $20 million a year for the next 20 a good deal for taxpayers. roads in traffic or accidents. years for the N.M. 44 widening. That Legislative critics disagree. Johnson said, “I’m just one of those money comes out of about $300 million a “This was a monumental mistake,” said New Mexicans that’s grown up believing year the state receives from the Federal Continued on Page 4 Four-Lane Politics 4 A Journal Special Report Reprint

RICHARD PIPES/JOURNAL HEAVY MOVERS: Trucks hauling asphalt oil and aggregate line up at an asphalt batch plant on N.M. 44.

Continued from Page 3 After his veto, the Farmington area was about the N.M. 44 project between his in an uproar. department and Koch Industries prior to Sen. Billy McKibben, R-Hobbs, a “I personally got a lot of pressure not to the arrival of Koch’s proposal. frequent critic of the governor. sustain a veto,” said Republican Sen. He said the unsolicited document “I’m an old salty conservative that’s Raymond Kysar of Farmington. showed Koch’s lobbyists were on top of been there for a long time and seen lots Kysar said he transferred that pressure highway issues in Santa Fe in 1997. and lots of things. And I’m telling you to Johnson. A check of records found no lobbyist there’s a disaster in the making in that “Every time I talked to him,” Kysar registered on behalf of Koch. N.M. 44.” said, “I pushed widening N.M. 44.” Koch officials said there had been The Koch proposal landed on the Early contacts several meetings in the winter of 1996-97 highway department’s doorstep on April with state highway officials about the 21, 1997, just 10 days after Johnson had Of hundreds of documents reviewed by department’s road maintenance problems ordered Rahn to come up with options for the Journal, the earliest mention of any in northwest New Mexico. widening N.M. 44. contact between Koch Industries and The state ultimately rejected a Koch “The governor called me and said I Rahn was Jan. 17, 1997. proposal for taking over the state’s want N.M. 44 four-laned and I want a Rahn’s calendar indicates he was to highway maintenance in that area. proposal for it,” Rahn said. meet for more than an hour at the But according to Koch officials, as Rahn, who had lived in Farmington and Albuquerque office of Koch Materials, a those talks came to an end state officials was head of Johnson’s 1994 campaign Koch subsidiary that sells asphalt. told company representatives they had there, was in a quandary. Rahn said he didn’t recall the meeting problems meeting a “pledge” to widen He said that unless the department and is sure N.M. 44 wasn’t discussed. N.M. 44. stopped $214 million worth of road work He said the most likely reason for the The Koch officials said they were around the state for three years and meeting would have been to “drum up asked by highway department officials to redirected the money to N.M. 44, there political support” among private come up with some options. was no way to pay for the project. contractors and suppliers for the Bob Heitmann, vice president of Koch’s Johnson was one year away from department’s 1997 legislative package. Performance Roads Division, said his seeking re-election and had made Rahn said in an interview that he widening N.M. 44 a priority. wasn’t aware of any communication Continued on Page 5 Four-Lane Politics A Journal Special Report Reprint 5

Continued from Page 4 Rahn said he and other officials toured NEW MEXICO 44 Koch’s asphalt laboratory, received a company and state officials had been COLORADO briefing about the company and met with talking about topics such as higher- NEW MEXICO company officials. quality roads and warranties in the Farmington Koch officials said that after Rahn context of repair issues. visited their headquarters, all After some conversations with highway Bloomfield communication between the department officials in Santa Fe, Heitmann said, and the company was cut off. “They said why can’t you just give us Rahn said his agency took steps to something written that kind of describes ensure fairness and didn’t discuss what you’re talking about.” Nageezi specifications with Koch representatives. As a result, Koch Industries sent the 44 “We had a very open process, even state what it called a “discussion draft” Cuba though there was only one bidder. that outlined a plan to design, build, Everyone had access to this,” Rahn said. finance and warranty N.M. 44. “Koch was the only one to step up to the The April 21, 1997, cover letter that plate.” accompanied the draft said, “The special map McKibben questions whether there was San arm’s-length dealing between the provisions document will become the area Ysidro Albuquerque 25 document that the state will use to put the 40 company and the state. project out for bid.” Bernalillo “You know how unbelievably stupid the The letter was addressed to Benny Albuquerque (Indian) gaming compacts are,” he said. Roybal, then-deputy secretary for 25 40 “You might compare this as the highway highway operations, with the salutation, construction compacts. Written, titled “Dear Benny.” JOURNAL and finalized by the people that are going Roybal, who retired this year, denied to participate.” asking for the proposal. Some questions He said he might have spoken to Koch Koch, were huge financial backers of about the maintenance concept, “but not Republican Party candidates and causes. Department records show the Koch proposal, with some modifications to in regards to necessarily 44.” Rahn said he thought Koch was a small make it fit state law, became the keystone Rep. Dan Silva, D-Albuquerque, asphalt supplier, and his first reaction to the Koch discussion draft was that he “We’ve always wondered how the company could fulfill “We had a very the financial promises contained in the suspected there proposal. open process, Rahn said that as far as he knows, no was a pre- one in the highway department called even though there Koch about Johnson’s orders to widen selection of N.M. 44. was only one individuals.” Rahn said he mentioned Koch by name bidder. Everyone during a 10-minute meeting in May 1997 STATE SEN. when he presented Johnson with the had access to this. Koch was MANNY ARAGON options for building N.M. 44 — a 27-year timetable, diverting most other state road the only one to step up to the money to the project or essentially following the Koch proposal. plate.” PETE RAHN, chairman of the House Transportation “It (Koch’s name) didn’t carry any Committee, said he was unaware of weight,” Rahn said. HIGHWAY SECRETARY highway department contacts with Koch Johnson gave the department the green before the project was announced. light to proceed. “I think it raises a lot of questions,” he On May 13 and 14, Rahn and five said. “No one likes a situation where highway officials traveled to Wichita to of the state’s N.M. 44 plan. there is only one bidder on any project.” visit Koch Industries headquarters. After the Koch proposal was delivered Senate President Pro Tem Manny “By that time we were obviously and months before the project was let out Aragon, D-Albuquerque, said he wasn’t interested in what we were hearing (from to bid, highway department files show: surprised. Koch) and saw there were ways to make ■ There was a series of telephone this work,” Rahn said. “We’ve always suspected there was a conferences in late April and early May pre-selection of individuals,” he said. State highway officials said they were 1997 between state highway and Koch careful not to violate any laws in their Industries officials to discuss the Stepping carefully dealings with Koch after the proposal proposal. arrived. ■ In early May 1997, department Rahn said politics played no role. “We were well briefed by the attorneys reviewed the proposal and He said he didn’t know that Koch’s department attorneys not to discuss owners, brothers Charles and David details of the bid,” Rahn said. Continued on Page 6 Four-Lane Politics 6 A Journal Special Report Reprint

Continued from Page 5 state might have to pay Koch Industries a The attorney general said in a letter that fee for its proposal and was concerned the project as outlined wasn’t prohibited advised Rahn it was sound but needed to about copyright. by state law. be reworked because state law prohibits The notes and internal memoranda show design-build contracts. The state the legal staff had questions about the A single bidder developed a design-construction possibility that Koch might be the only The Request for Proposals, or RFP, that management concept to avoid that bidder. emerged called for one private developer prohibition. A May 4, 1997, memo directed to Rahn, to perform five duties: design; oversee ■ Highway officials traveled to Koch reviewing Koch’s proposal from and manage construction; warranty the Industries headquarters in mid-May to department General Counsel Arthur J. work; finance construction; and post a review Koch’s “European” road design. Waskey, refers to Koch as the contractor $50 million performance bond. Asked whether Koch had an advantage and parenthetically to “(whatever The highway department had never over other companies when the project company was selected).” before requested a warranty on a road was finally put out for bid, Rahn said, “I Waskey in the same memo identified project, had never sought private guess any time you’re the first into a several potential problem areas and made financing and hadn’t rolled all the market, you have an advantage.” recommendations on how they might be elements of a project into one RFP. Sen. John Arthur Smith, D-Deming, had avoided. Only once before had the state left a different view. He acknowledged that procurement construction management up to a private “Whenever you have one bidder on a code issues “may be tricky.” firm, and that was on a much smaller project this size, it raises questions about A major hurdle was Koch’s proposal that scale. the process,” he said. “You have to wonder the contract include designing and Koch had reservations about submitting if it was a political deal.” building the road, which was prohibited by a bid because it was no longer a state law. design/build project. Legal issues Waskey suggested that be changed to a Koch wanted as much control over design and construction management Upon receipt, Koch’s proposal was construction as possible to make sure the contract. That recommendation ultimately immediately given to the highway work would be good enough for the was included in the Request for Proposals. department legal staff to review. warranty, Heitmann said. The department on June 4 submitted a Notes from several meetings show “At one point in time because of the way concept paper to the state Attorney repeated references to “Koch.” They also the RFP came out, we had some pretty General’s Office for review. It didn’t show the department was concerned the mention Koch Industries. Continued on Page 7

CHRONOLOGY OF N.M. 44 PROJECT

1/17/97 — New Mexico High- to discuss options for widening Wichita office. 8/21/97 — Highway Commission way and Transportation Secre- N.M. 44 to present to Johnson. approves releasing Request for Pro- tary Pete Rahn meets with offi- Koch Industries proposal is marked 5/26/97 — Highway department posals to widen N.M. 44. cials of Koch Industries in Albu- with a star. Highway officials also officials meet and discuss request querque. Rahn says N.M. 44 reject public financing option. for federal funding, citing economic 8/24/97 — Highway Department wasn’t discussed. development and safety problems submits application to Federal High- 5/2/97 — Conference call as justification for fast-tracking fed- way Administration for N.M. 44 3/20/97 — Legislature passes between Highway Department offi- eral approval. widening. HB1059 to increase highway fund- cials and Koch Industries main 9/1 through 9/23/97 — Highway ing for major road projects, includ- office in Wichita, Kan. 6/4/97 — Highway department ing N.M. 44, by adding a 2-cent-a- sends letter to Attorney General officials and legislative leaders gallon gasoline tax. 5/9/97 — Highway department Tom Udall asking for review of the negotiate an agreement to allow floats internal proposal on innova- department’s proposal for financing project to proceed. Legislators get 4/10/97 — Gov. Gary Johnson tive financing plan for N.M. 44 Cor- the widening N.M. 44. concession that New Mexico vetoes HB-1059 and orders Rahn ridor. Proposal calls for private con- Finance Authority will be an alterna- to find another way to widen N.M. tractor to finance bonds to be paid 6/20/97 — Highway department tive to private financing of the pro- 44 to four lanes. back from federal funds, and war- submits to Federal Highway ject. Amended Request for Propos- ranty the project work. Administration its innovative als issued. 4/21/97 — Koch submits detailed financing proposal for N.M. 44 12/1/97 — Koch’s subsidiary, proposal to finance, design, build 5/13-5/14/97 — Rahn and Corridor. Mesa Developers, later changed to and warranty N.M. 44 expansion adjunct secretary John Fenner trav- Mesa PDC, submits only proposal project. el to Wichita to meet with Koch offi- 7/3/97 — Johnson holds three for N.M. 44 project. 4/28/97 — Telephone conference cials. news conferences along N.M. 44 between highway department offi- Corridor to announce plans to 12/29/97 — Contract negotia- 5/19/97 — Highway Department widen N.M. 44. tions begin. cials and Koch Industries. officials meet to discuss obtaining 4/29/97 — Telephone calls to federal approval by June for innova- 7/23/97 — Legislators hold hear- 7/22/98 — Johnson signs con- Koch from highway department. tive financing proposal for N.M. 44 ing; concerns are raised about the tract with Koch for N.M. 44 Corridor widening. Koch Industries proposal funding mechanism for widening Project at public ceremony in Farm- 5/1/97 — Highway officials meet is discussed. Rahn calls Koch’s N.M. 44. ington. Four-Lane Politics A Journal Special Report Reprint 7 Continued from Page 6 New Mexico Law Limits major discussions whether we were even going to propose on it,” he said. More than 70 people attended a Involvement of Potential Bidders mandatory pre-bid conference in BY MIKE GALLAGHER in what we’ve done,” Rahn said in an mid-October 1997. More than a interview. dozen were federal or state AND COLLEEN HEILD Journal Investigative Reporters One such “nugget” was the long-term highway officials. warranty first proposed by Koch and then Another 23 represented Koch or ew Mexico’s Governmental included in the state’s proposal request. companies that ultimately became Conduct Act prohibits agencies The 20-year warranty eventually agreed its subcontractors on the project. from accepting bids on a project on by Koch and the state, at a cost of Only Koch and Canadian from anyone who had direct or $62 million, is the first of its kind on a Nindirect involvement in developing the Highways International submitted major road project in the United States. written questions. specifications. The warranty is one of Koch’s selling “High quality proposals of the Koch Industries Inc. in April 1997 points. A 1998 Montana State University kind required take months to submitted a detailed proposal for the study could find no other private company develop,” wrote Steve Skelton, of design, construction, financing and in the U.S. proposing a long-term warranty. Canadian Highways, in an Oct. 14, warranty of N.M. 44. Another major similarity between Koch’s 1997, fax to the highway The Koch proposal, which the company original proposal and the RFP was a department. “Is an extension of the says the state solicited, provided the controversial proposal for private submission date anticipated?” blueprint for the $420 million project the financing, which highway officials later At the time, prospective bidders state put out to bid four months later. abandoned under pressure from legislators had five weeks to submit a State highway officials and Koch who favored issuing tax-free government proposal. The deadline was representatives had met before Koch bonds. extended by one week to Dec. 1. submitted the proposal in April. Art Waskey, the highway department’s Canadian Highway officials said After the state had the Koch document in general counsel, said Koch Industries they chose not to submit a proposal hand, there were at least three telephone wasn’t involved in developing the RFP. because the nature of the project conversations and one meeting between “I don’t see any problem in taking had changed. Koch representatives and highway concepts from a vendor and developing officials before the state issued its formal Another company opted not to them into the RFP,” Waskey said. Request for Proposals. compete because it preferred to bid on various segments of According to notes taken during the first ‘Broad questions’ telephone conference, Koch and state construction. Rahn said the department checked with officials discussed how to get federal the state Attorney General’s Office on all Heitmann said he was surprised financing for the road project; how to his company submitted the only facets of the project. He said he assumed privately issue bonds for the work; and proposal. the Attorney General’s Office was aware of arranged a meeting at Koch’s Wichita, the prior Koch proposal and private “When we turned in our Kan., headquarters for more discussions on discussions because his department was proposal, we fully expected there N.M. 44. very open with the agency. would be two other bids coming Highway and Transportation Secretary in,” Heitmann said. But Sondra Frank, an assistant attorney Pete Rahn, who was present at the meeting general who reviewed the contract Koch’s proposal was submitted with Koch officials at their Wichita ultimately awarded to Koch, said in an in the name of Mesa Developers headquarters in May 1977, said the interview with the Journal that she was LLC, which at the time was department was careful not to violate the never told the highway department had explained as a partnership Governmental Conduct Act. been in contact with Koch Industries prior consisting of Koch Industries; The Act puts responsibility for following CH2MHill, a national engineering to the RFP being issued. the law on state agencies and employees. She said her office was not involved in firm; and Flatiron Structures, a The law doesn’t define what constitutes construction company. developing the RFP. direct or indirect involvement by a Among the hundreds of highway After Mesa’s proposal was potential bidder. department documents reviewed by the accepted for negotiation, Rahn said Koch didn’t contribute to the Journal, there were no memoranda, CH2MHill and Flatiron Structures department’s Request For Proposals, or opinions or other documents that show the dropped out and became RFP. department considered the Governmental subcontractors. Rather, he said, the highway department Conduct Act as an issue in its dealings with Rahn said the department wasn’t borrowed “concepts” from Koch to write Koch Industries. concerned about the change. the RFP and that doesn’t amount to Koch’s Rahn said department lawyers talked to “This was a Koch project all being involved in developing highway officials about how to comply with along,” Rahn said. “We knew we specifications. the Governmental Conduct Act in dealing were always dealing with Koch “Our proposal — I guess that there’s the during the negotiations.” ◆ nuggets of the Koch proposal that remain Continued on Page 8 Four-Lane Politics 8 A Journal Special Report Reprint

Continued from Page 7 with Koch representatives. He said a written advisory wasn’t needed. “I think the key to it was we couldn’t talk specifics. We needed to understand concepts,” he said. “And we were to gain as much as we could without telling them what our intentions were.” Rahn said highway officials didn’t “allow Koch to give us specifications. We didn’t tell them where we were going. We would ask very broad questions. I mean we were careful about this.” Koch officials interviewed at the company headquarters said the department “cut off” communications after their initial discussions in the spring of 1997. Bob Heitmann, vice president of Koch’s Performance Roads Division, said highway officials were tough. “We couldn’t get anything for information — what it (the RFP) was going to look like, when it was coming out. We couldn’t get anything.” While department officials say they took only concepts from Koch, some of the language in the state’s Request For Proposals tracks the company’s April proposal. JIM THOMPSON/JOURNAL MOVING THE EARTH: Earlier this summer, road crews prepared portions of new For example: roadbed for the widening of N.M. 44. The Koch proposal stated: “A California profiliograph shall be furnished by the protests, although state law generally prohibited from entering bids because of Contractor for determination of limits protests to companies that submit the state’s Governmental Conduct Act. pavement and bridge floor smoothness.” bids. “Insofar as the preliminary design An appendix to the state’s Request For Rahn said the department fulfilled the consultants are actually preparing 30 Proposals states: “The PDC (Project intent of the state Procurement Code. percent of the design of the Corridor 44 Development Company) shall supply a “If you look at the two main themes that project, this constitutes, at minimum, profiliometer for the project to measure run throughout all these various laws, the indirect preparation of specifications,” pavement roughness and rutting.” Governmental Conduct Act and the assistant general counsel Kendall Fischer Each document states the device will Procurement Act, it talks about fairness wrote on July 16, 1997. become the property of the highway and it talks about good value for the public Fischer rejected an argument that the department. dollar, and I think we did that.” statute refers only to “sealed bids” and not “sealed proposals.” ‘Open process’ Firms disqualified “We believe that when the Legislature employed the term ‘competitive bidding’ Critics of the N.M. 44 project say the While the department didn’t feel the … it meant to include, generically, bidding state’s RFP was beyond the scope of many Governmental Conduct Act was a problem by all methods, including competitive potential bidders. for Koch, department attorneys cited the sealed bids and competitive sealed “The way the RFP was put together act in barring two local engineering firms proposals.” eliminated every construction firm in the from bidding on the N.M. 44 project. Andres Aragon, a principal in AVID, state,” said Sen. John Arthur Smith, D- In the summer of 1997, two engineering said his company’s attorneys reached the Deming. firms that had been doing preliminary same conclusion. Rahn said procurement for the N.M. 44 design work on N.M. 44 were approached “I think it was good legal advice because project was open, fair and followed state by a number of contractors about the you have to be careful of any perceived laws. possibility of forming joint ventures to conflicts of interest,” he said. “We had a very open process, even submit proposals on the overall project. “They (the engineering firms) were though there was only one bidder. But the highway department legal knocked out because they were doing Everyone had access to this,” Rahn said. division decided that AVID Engineering design work for us already,” Rahn said. He pointed out that there were no and Andrews, Ashbury & Roberts were “That’s direct involvement.” ◆ Four-Lane Politics A Journal Special Report Reprint 9

ADOLPHE PIERRE-LOUIS/JOURNAL LOOKING BEYOND TWO-WAY: This section of N.M. 44, after being widened to four lanes, will be under a 20-year road surface warranty. A 20-Year Warranty Some Lawmakers Question $62 Million Price Tag

ighway and Transportation Sec- A Montana study says it’s too soon to What the N.M. 44 warranty really retary Pete Rahn insists the tell whether road project warranties are amounts to is the state paying Koch $62 million price tag for the 20- a good deal for taxpayers. The ongoing $62 million up front to make sure the year performance warranty on study has found that information about road is properly maintained for the next HN.M. 44 is a good deal for New road warranties so far has been 20 years. Mexico taxpayers. “subjective in nature rather than based Koch Industries officials will decide “I’m absolutely convinced this is on demonstrable fact.” when the repair work is needed. going to reap a benefit to the Most states asking for road The state will award repair contracts, taxpayers,” he said. warranties have opted for terms of five which must meet Koch specifications. Koch will then reimburse the state for The warranty is the first of its kind in years or less, with the cost included in the cost. the United States, and critics say the basic bid. $62 million seems like a lot of money to “The longest I’ve seen is five years,” The company will keep whatever isn’t maintain a road that was touted for its said Richard Harris of the Associated spent on repairs, along with any interest high-quality “Euro-design.” General Contractors of New Mexico. or income generated. Koch also is required to post a Koch Industries Inc. told the state in “It’s never been used on anything this $50 million surety bond with the state in its formal proposal in December 1997 large. This boggled the mind. case of a major design problem. that while initial construction costs “These short-term warranties have would be higher, the improved road little effect on price; there is little or no Rahn claims the warranty will save would require “minimum maintenance.” cost increase.” Continued on Page 10 Four-Lane Politics 10 A Journal Special Report Reprint

Continued from Page 9 the state $89 million — a figure Koch says it doesn’t use without attributing it to the highway department. Rahn arrives at his savings total by using department estimates that it would cost $151 million to maintain a four-lane N.M. 44 in almost perfect condition for 20 years. He also concedes no state road is currently maintained at that level. Highway department records show that more than 4,500 miles of road in the state are in need of repair. Rahn’s estimated savings also assumes the asphalt surface will have to be stripped and redone at least twice in the next 20 years. But the state has never maintained a road designed to last 20 years. Most state roads are 10-year design, with a 6-inch layer of asphalt on top of the “base course.” Koch’s design calls for a 9-inch asphalt layer. “If this road design is so good, why are we paying $62 million for a warranty,” asked New Mexico House Speaker Rep. Raymond Sanchez, D- Albuquerque. Sen. Billy McKibben, R-Hobbs, who has spent 20 years in the New Mexico Legislature, predicted there would be disputes if the state demands certain maintenance and Koch refuses. “My God, you can’t even get your car warranty serviced right,” he said. A revised design of the project, which was done to cut costs, adds another potential warranty issue. Under the latest plan, more than 20 miles of existing roadway will stay in place. The pavement will be refurbished, and two new lanes added. Koch officials said they expect to be responsible only for those parts of the road on which they actually managed the construction. If problems such as rutting or cracking are caused by something beneath the surface of the existing roadway — such as the base course or soil compaction that Koch didn’t oversee — the company says it wouldn’t be responsible. Rahn told the state Highway Commission he expects changes will have to be made in the warranty to address that problem. No other takers The long-term warranty on N.M. 44 could retain its “one-of-a-kind” status for some time. Rahn says New Mexico has no immediate plans for long-term warranties on other road projects. Koch Industries is pushing long-term warranties elsewhere, and appears to be the only company doing so. But it hasn’t met with much success. The company recently lost a bid to build a $232 million parkway in South Carolina. The contract was awarded to a group of firms offering a three-year warranty. AARON WILSON/JOURNAL “It (a warranty) was one of our selection criteria, JEMEZ FOOTHILLS: Legislators question the value of the $62 million war- but it wasn’t one of the heavier items that we ranty on the four-lane widening of N.M. 44 from San Ysidro to the Four Cor- Continued on Page 11 ners area. Four-Lane Politics A Journal Special Report Reprint 11

Continued from Page 10 awarded points to,” said Roy Tolson, N.M. Project Large-Scale spokesman for the South Carolina Department of Transportation. Koch officials recently traveled to Montana to push their road-building Test For ‘Euro-Design’ concept that includes a long-term warranty, but highway officials och Industries Inc. had never built a operations here, we knew we bought a lot didn’t bite on the proposal. major highway in the United States of good assets,” said Bob Heitmann, vice “Up here it (a long-term warranty) Kat the time it proposed to design, president of Koch’s Performance Roads is already politically and build, finance and provide a warranty for Division. “What we didn’t realize is the economically sensitive,” said Jerry the widening of N.M. 44. quality of the people who were coming Stephens, of the civil engineering The so-called “Euro-design” pavement with those assets.” department at Montana State the company plans for the project hasn’t Koch’s purchase brought people into the University. been used on any other road in the United company with road experience in Europe, “I think we’re all waiting for the States. In fact, Koch designed it where the Democratic Socialist New Mexico thing … to see how that specifically for this project. governments sponsor a less-competitive turns out,” said Stephens, one of the Koch had been a supplier of asphalt since and more cooperative relationship with authors of the Montana study on 1993, and its entry into the road-building road builders. warranties. market coincided with a big increase in European road builders also use Until 1995, the Federal Highway federal funding for state road projects. different techniques to test and design Administration frowned on The company formed its Performance asphalts for specific roads. warranties because it didn’t want Roads Division in the fall of 1996 to break What made Koch unique in its bid to get states to use federal funds to into the road-building industry and initially into the highway construction business was maintain roads. contacted New Mexico highway officials its long-term warranty pitch. That changed when federal about possible maintenance contracts in officials decided warranties might the northwest part of the state. “We had experience with warranties improve quality. “A lot of companies saw road building as within the company,” Heitmann said. “We But Rahn said short warranties a new profit center,” said Richard Harris, have a product that water-seals basements only protect against construction executive vice president of the Associated that has a 10-year warranty. We had defects that are obvious within a General Contractors of New Mexico. success with that concept.” year of completion. “They saw the available road-building Heitmann is responsible for Koch’s Typically, state highway dollars double, and they naturally wanted nationwide push on what the company departments haven’t considered in on that.” describes as its innovative design, build long-term warranties. By the time Koch made its formal and warranty package. Rahn says that’s because of their proposal for N.M. 44 in December 1997, the Rep. Dan Silva, D-Albuquerque, knew of mind-set. company said it had: Koch Industries from attending national “In my assessment, DOTs ■ Provided technical expertise and transportation meetings as chairman of the (highway departments) are materials for a five-mile, eight-lane section House Transportation Committee. extremely conservative, partly of Interstate 275 in Michigan. “I personally knew about them before because engineers are trained to ■ Provided technical expertise, testing this,” Silva said. “They were promoting avoid risk,” he said. “That’s their and materials for a 10-mile stretch of privatization” of road-building projects at mentality and their training. … Interstate 69 in Indiana. national legislative meetings on They’re very conservative, and you ■ Completed a design, build and transportation. don’t typically see a lot of warranty contract for roads in a Missouri New Mexico Highway and innovation.” subdivision. Transportation Secretary Pete Rahn said Rahn says he doesn’t believe the Koch also is a limited partner on a he thought Koch was a small asphalt N.M. 44 warranty is a risk. California toll road that has yet to be built supplier until he visited the company’s “In the worst-case scenario the and recently completed an eight-mile modern, black glass, high-rise state wins,” he said. “When you stretch of a county road in eastern Kansas. headquarters in Wichita, Kan. combine a new highway design with In seeking the New Mexico contract, Company officials acknowledged the a warranty, you’ve transferred that Koch attempted to shore up its portfolio by N.M. 44 project is the biggest test for its risk to the company.” bringing in a builder, Flatiron Structures road program. McKibben disagrees. Inc., and a national engineering firm, “Gary Johnson is a lame duck,” he CH2MHill. Rahn told prospective bidders in the fall said. “When he’s through with New Koch moved into the asphalt business in of 1997 that the national spotlight would be Mexico and it’s served him a big way when it bought asphalt plants focused on the project. personally well, he’ll ride off into the from Elf Aquataine, a French company, in The company or consortium selected as sunset and it will be left up to the 1993. Elf had 40 American asphalt plants the developer for the project, Rahn said, Legislature to pick up the pieces and and supplied about 6 percent of the U.S. “will be in a position of competitive salvage all the messes that have been asphalt market. advantage as this model is replicated made.” ◆ “When we purchased Elf’s asphalt around the rest of the United States.” ◆ Four-Lane Politics 12 A Journal Special Report Reprint Koch Is Nation’s 2nd Largest Privately Held Company

ICHITA — Koch Industries Inc. is a privately held com- pany whose 1998 revenues of $35 billion exceeded those of WMicrosoft, Disney and Merrill Lynch. Brothers Charles and David Koch own more than 80 percent of the conglomer- ate, which employs 16,000 people world- wide and sells everything from cattle feed to water purification filtration sys- tems. Charles and David are among the rich- est men in the United States, with Forbes Magazine estimating their personal for- tunes at more than $1 billion each. For many years, Koch was a commodi- ties-based company that bought oil, refined oil and sold refined oil products, including emulsions used in making asphalt. Koch owns 35,000 miles of oil and natural gas pipelines in the United States and Canada. The Wichita-based company in recent years expanded into other areas, includ-

ing road building. COURTESY OF KEN MANTYLA “We’re changing from a company that was just involved in commodities to a CONTRACTOR HEADQUARTERS: Charles and David Koch run their billion-dollar oil company that offers services and new and gas conglomerate out of Koch Industries Inc. corporate headquarters in Wichi- products and product concepts,” said ta, Kan. spokeswoman Mary Beth Jarvis. “The profit margins in commodities are just comed by the compa- William Koch tried to too thin. If you’re going to grow, you have ny. oust his older brother, to move into new markets and create new They include: Charles Koch, as chief markets.” ■ A series of bitterly executive officer. The company is made of up nine busi- fought lawsuits filed William opposed the ness groups, some of which include a by William Koch, the company’s policy of number of subsidiary companies. estranged brother of reinvesting 90 percent The major groups include Koch Petro- Charles and David, of profits back into the leum Group, Koch Capital Services including allegations company. Group, Koch Energy Group, Koch Gas that the company sys- Charles Koch won Liquids Group, Koch Chemicals Group, DAVID tematically short- CHARLES the boardroom battle, changed owners of oil and in 1983 Charles Koch Chemical Technology Group, Koch KOCH: One of KOCH: leases. Target and David Koch Agriculture Group and Koch Mineral richest men of ouster ■ Environmental bought the shares of Services Group. in U.S. attempt Despite being the second-largest pri- problems and govern- William, another broth- vately held company in the country, Koch ment fines at Koch’s er, Frederick, and sev- Industries isn’t particularly well known. two oil refineries. eral cousins for The company didn’t seek publicity and Over the past decade, William Koch put $1.1 billion. only in the past decade has it publicized Koch Industries on the front pages of William Koch subsequently filed suit its activities and responded to reporters’ national magazines and newspapers by claiming that he and other stockholders questions. filing more than 20 lawsuits in federal were cheated in the 1983 buyout. He The controversies that have put Koch and state courts. alleged that Charles and David misrepre- Industries in the limelight were not wel- The family fight started in 1980 when Continued on Page 13 Four-Lane Politics A Journal Special Report Reprint 13

Continued from Page 12 sented the value of the company and said the for- Widening of N.M. 44 mer minority shareholders were owed about $2 billion. A jury rejected William Koch’s claims, finding there were no significant misrepresentations or Jumped to Top of List omissions. He wasn’t awarded any money and vowed to appeal. ■ Critics say highway not the most heavily traveled or William Koch has brought another lawsuit in Oklahoma claiming the company systematically the most dangerous in the state misled oil producers when measuring the amount of oil taken from their wells. he widening of N.M. 44 from Mexico much, much better. Again, The case is being tried in Tulsa and is expected San Ysidro to Bloomfield there’s some deep politics there.” to conclude this month. Koch Industries responds vaulted to the top of New Johnson said he just wants a safer that the producers agreed to adjustments in order Mexico’s road-building pri- road. to sell low-grade oil and to compensate for sedi- Tority list because Gov. Gary John- “I remember as a family driving ment buildup in oil holding tanks. son wanted the job done. up to the Four Corners area, and we The road project initially wasn’t had our series of near head-ons — Environmental issues included in the list of transportation everybody does. I was told then as a 13-year-old or 14-year-old that Like many companies in the oil business, Koch priorities submitted by the state to federal officials for 1997-2002. ‘Don’t worry, this is going to be Industries has had its share of battles with state four-laned shortly,’ ’’ Johnson said. and federal environmental agencies. And N.M. 44 wasn’t the most heavily traveled road in the state, State officials added construction ■ The state of Minnesota assessed a $6.9 million nor was it the most dangerous, of N.M. 44 to the State pollution penalty against Koch’s Rosemount refin- according to a 1997 highway Transportation Improvement ery south of Minneapolis in 1998 for gasoline spills department study of a dozen two- Program, or STIP, after private and leakage from underground storage tanks that lane roads. The study showed N.M. discussions in early 1997 with Koch polluted the Mississippi River. The leaks and spills 44 ranked seventh in the number of (pronounced “coke”) Industries Inc. occurred over several years. fatalities per 100 million vehicle — the Kansas-based company that ■ A Koch pipeline spill at Corpus Christi, Texas, miles traveled and sixth in offered to finance, design and in 1994 led to a $10.5 million class-action settle- accidents. warranty the project. Koch ment for people in the fishing industry. But there were other ultimately won the state contract in ■ In 1989, the company was hit with a $2 million considerations. 1998 as the sole bidder on the penalty for dumping waste water into the Missis- Johnson made widening N.M. 44 a project. sippi River from the Rosemount, Minn., plant. high priority during his first term, A project must be included in the ■ The federal government has a pending lawsuit but vetoed a funding bill twice STIP plan to be eligible for federal against the company for failing to report pipeline because it relied on a gasoline tax funds. Until it was added in the spills in Texas and Oklahoma. A civil case arising increase. After the second veto in summer of 1997, only the from the Corpus Christi spill is pending. early 1997, Johnson directed preliminary engineering for the Koch Industries has fought the civil cases in highway officials to find some other project had been included. court and has a long record of supporting changes way of financing the project. The state Highway Commission in federal laws and regulations that environmen- The Farmington area, served by agreed to add construction of N.M. talists oppose. N.M. 44, is a Republican stronghold 44 to the STIP plan in June 1997 and where Johnson defeated Democrat approved a Request for Proposal But the company also has been recognized by Bruce King by 8,000 votes in 1994 two months later. the Environmental Protection Agency for some of and Martin Chávez by 12,000 votes Highway officials said the project its programs. in 1998. would increase safety and promote “On the compliance side there has been an evo- Sen. Billy McKibben, R-Hobbs, economic development in the Four lution,” Jarvis said. “That is, we’re very strong said that moving the N.M. 44 Corners area. believers in environmental compliance… . project to the top of the list was They presented the state “We have always paid a lot of attention to the “deep politics.” Highway Commission with an results. I think in the last number of years we McKibben noted highway analysis showing the road as the top have become better at the compliance. Early to statistics that show the stretch of priority for widening among 12 two- mid-’90s we fought it. In the last few years we N.M. 44 to be widened serves an lane roads studied. have communicated better.” average of 3,000 drivers a day. Traffic volumes, population Jarvis said the company also has seen techno- “Is that incredible? Is that not served, accident rates and future logical advances that make it easier to comply ‘politics before people,’ ’’ he said, projections were considered. with clean air and water standards at its refineries referring to Johnson’s “people U.S. 550 between Aztec and the and pipelines. before politics” campaign slogan. Colorado state line ranked first in “The one part that has been unchanged is that “You know you could spend that fatalities and accidents; N.M. 68 we have a very strong sense of stewardship — (money) on one of the main arteries between Española and Taos had the that’s always been there,” Jarvis said. ◆ in Albuquerque and serve New Continued on Page 14 Four-Lane Politics 14 A Journal Special Report Reprint

Continued from Page 13

second-highest rates. Neither road was included in the STIP plan, and neither is slated to be expanded to four lanes in the near future. According to the analysis, average daily traffic on N.M. 44 was fifth highest of the 12 roads. That ranking wasn’t expected to change by 2016. The analysis for N.M. 44 included traffic counts and accidents in the Bernalillo area — by far the most congested portion of the entire stretch of the roadway. But that 20-mile stretch had already been approved for widening — a project that was paid for by state money and completed in 1998. The San Ysidro-to-Bloomfield portion did rank first in heavy commercial traffic with more than 1,000 trucks a day, but that ranking was expected to drop to fourth by 2016. Another N.M. 44 analysis conducted by the highway department in 1995 looked at cost, safety and economic factors. “While it appears that (accident) rates in general are moderate to high on this route, it is not clear to what extent construction of four lanes will improve accident rates,” oversight staff engineer Bob Bass said in the report. The 1995 study said that providing two more lanes would reduce the potential for head-on crashes caused by vehicles attempting to pass. It stated that adding a median could reduce accidents caused by vehicles drifting across the center lane. But a large number of accidents on the road have occurred at junctions and other access points where vehicles enter and leave traffic. Those would still be present with a four-lane N.M. 44, Bass said, so “it is likely that four-lane construction will not create the safety benefits people anticipate.” RICHARD PIPES/JOURNAL Public comment SAFETY ISSUE: A 1995 highway department report says widening N.M. 44 to four lanes won’t necessarily make road junctions that much safer. This junction is the State highway officials have come turnoff to Chaco Canyon. under fire for the way the N.M. 44 construction project was added to the transportation plan. before adding it to the plan. Meeting agendas didn’t refer to N.M. Federal regulations stress public The public had opportunities to hear 44 by name, and minutes reflect little access to key decisions on road projects about the project during state Highway discussion about the project among and require public hearings on major Commission meetings during the highway commissioners. revisions to the STIP. summer of 1997, but the agendas don’t Highway and Transportation State highway officials held no public show any time set aside for public Secretary Pete Rahn said the hearings on the road proposal in 1997 comment. Continued on Page 15 Four-Lane Politics A Journal Special Report Reprint 15

Continued from Page 14 commission did talk about the issue in committee meetings, but minutes of those discussions aren’t routinely kept. The Rio Grande chapter of the Sierra Club protested the lack of public involvement in a January 1998 letter to the Federal Highway Administration. “The proposed action … denies the public required opportunity for early and continuing involvement in identifying the social, economic and environmental impacts of the project,” wrote chapter chairman John R. Buchser. The Sierra Club also alleged the Federal Highway Administration failed to allow a required 30-day public review after finding that the project would cause no significant environmental impact. Records show highway officials launched the contracting process a few RICHARD PIPES/JOURNAL days after the environmental impact HIGHWAY TOLL: Roadside crosses along N.M. 44 mark the sites of past tragedies. finding. State highway officials hope widening the road to four lanes will make it safer.

The Sierra Club said the “closed nature “Four-laning N.M. 44 has been in the Federal Highway Administration, told of the process prevented objection and long-range plan of (the highway the Sierra Club in a February 1998 letter comment by officials and the public” in department’s) for over 20 years,” Rahn that “appropriate planning procedures” other areas of the state that needed road said in a September 1997 letter to U.S. had been followed. improvements. Transportation Secretary Rodney Slater. State highway officials, Thomas wrote, State and federal officials said there had provided for “early, continuing and had been ample discussion in prior Reuben S. Thomas, the New Mexico- proactive public involvement.” He cited ◆ years. based division administrator of the public meetings held in 1994 and 1995. Koch Supports Many Candidates, Causes

■ example, received at least a quarter of a ple who believe in free markets, open Campaigns of Gov. million dollars in national Republican soft markets.” Johnson, Rep. Heather money in his two successful runs for Johnson and Wilson both say they don’t Wilson among the recipients office. know the Koch brothers personally. The Koch brothers and their company “I wouldn’t recognize them if they were also have contributed hundreds of thou- in the room,” Johnson said. harles and David Koch are bil- sands of dollars directly to candidates lionaire businessmen with a pen- running for state and federal offices — The Koch brothers control several phil- chant for politics and conserva- most of them Republicans. anthropic foundations that support acade- tive causes. mic and policy organizations promoting C Johnson and Rep. Heather Wilson, R- smaller government, privatization, regu- Since 1993, David Koch and Koch N.M., were among the recipients of latory reform, school choice, private Industries have contributed more than Koch’s direct largess in 1998. Koch gave property rights and reduced military $1 million in so-called “soft money” to the Johnson’s re-election campaign $5,000 spending. national Republican Party and its various and contributed $10,000 to Wilson committees. through a political action committee. The family has a history of political activism. Soft money at the national level finds Koch spokeswoman Mary Beth Jarvis its way to state candidates for both major said the philosophy behind the company’s Fred Koch, the father of Charles and political parties. Gov. Gary Johnson, for political contributions “is to support peo- Continued on Page 16 Four-Lane Politics 16 A Journal Special Report Reprint

Continued from Page 15 For the past six years, the Kochs also paign $160,000 in 1998 and $75,000 in have contributed small amounts to mod- 1994. erate and conservative Democrats David, was an avowed anti-communist The state Republican Party also through the Democratic Leadership who served on the board of advisers of received more than $535,000 in 1997-98 the John Birch Society. Charles was on Council. from the same Republican national com- the board until the late 1960s, when he The Kochs over the years have moved mittee. quit because of his opposition to the Viet- toward many mainstream Republican nam War. He actively supported term positions, supporting free trade with Chi- “Soft money is unlimited and unregu- limits with a $300,000 na, NAFTA and other initiatives to open lated,” said Sheila Krumholz, a donation. foreign markets. researcher with the Center For Respon- David Koch was the David Koch was finance committee sive Politics. Libertarian Party’s vice chairman of former Kansas Sen. Critics such as Common Cause consid- vice-presidential Bob Dole’s presidential bid in 1996. The er “soft money” donations as a way to nominee in 1980. Kochs are listed among Gov. George W. get around the full disclosure of who is The Koch family Bush’s financial supporters. supporting candidates for political also helped found and Johnson campaign office. finance the Libertari- Congressional probes an Washington-based The $5,000 contribution by Koch Indus- tries Inc. to Johnson’s 1998 campaign think tank, the Cato The Koch name also surfaced in the C. KOCH: was made more than a month after the Institute. 1997 debate over the financing of con- Actively November election. gressional campaigns. The institute has supported Johnson’s campaign applauded Johnson term limits committee at the Democrats on the Senate Governmen- for cutting taxes, time reported no tal Affairs Committee believed the reducing the size of debts and a cash bal- Kochs were responsible for more than government and, most recently, for his ance of $13,000. $1.2 million spent by a nonprofit group to stand on legalization of drugs. The N.M. 44 con- support Republican congressional candi- Johnson recently was a keynote speak- tract between Koch dates in the last weeks of the 1996 cam- er at a Cato forum in Washington, D.C., Industries and the paign. on drug policy and spoke at a Cato semi- state highway depart- The Kochs won’t answer questions nar in 1998 in Albuquerque on Social ment was signed six about it. Security reform. months earlier. JARVIS: Firm “Get over it,” Jarvis said in an inter- The Cato Institute released a study pri- Doug Turner, John- supports “free son’s campaign man- view with the Journal. “It happened in or to the 1998 gubernatorial election that markets, open ager, said campaign 1996.” praised Johnson for markets” his positions on tax staff solicited busi- The Senate committee at the time was reductions and small- nesses and individu- investigating alleged fund-raising irreg- er government. als after the election to help sponsor ularities by the Democratic National Johnson’s inauguration. But Turner said David Koch serves Committee — including contributions he didn’t believe Koch Industries was on the board of direc- made in return for overnight stays at the among those contacted. tors of the Cato Insti- White House. tute. “We’ve been very, very careful not to But Democrats on the committee want- solicit in areas where it could be con- Johnson said in an ed an investigation into funding of a last- strued to be a conflict of interest,” Turn- minute television campaign. The cam- interview earlier this er said. month that he might paign was designed to aid Republican He said the Koch contribution might have met the Koch candidates who were short of money and D. KOCH: On have been solicited by the Republican brothers, but didn’t to offset a similar campaign for Democ- Libertarian Governors Association. have any specific rec- ticket in 1980 rats paid for by organized labor. A big part of the Kochs’ political con- ollection of such a The listed sponsor for the Republican tributions are in “soft” money, which is meeting. television ads was a group called Citi- supposed to be used for “party building” zens for the Republic Education. The governor said he was familiar with efforts but not to help specific candi- the Koch name in the context of the N.M. dates for federal office. But that group allegedly was 44 Corridor Project. However, soft money from national bankrolled by another organization Wilson said she never met the Kochs political parties can be disbursed to sup- called the Economic Education Trust, and doesn’t recollect the contribution. port candidates for state offices. according to the Washington Post. “It probably was made at one of the Koch Industries and David Koch con- The Post also reported that investiga- fund-raisers in Washington,” she said in tributed $677,000 to the Republican tors for Senate Democrats believed “but a telephone interview. “I assume they National State Elections Committee from can’t definitively prove” that the Eco- supported pro- business candidates, and 1994 through March of this year. nomic Education Trust is funded by I am definitely pro-business.” That committee gave Johnson’s cam- Charles and David Koch. ◆ Four-Lane Politics A Journal Special Report Reprint 17

RICHARD PIPES/JOURNAL ONE STEEP ROAD: The price of aggregate hauled to the asphalt batch plant on N.M. 44 has increased the cost of widening N.M. 44. Gov. Defends Going Into Debt for N.M. 44

ew Mexico will be paying the never going to make improvements with legislative leaders. $420 million bill for widening cash.” Unlike the other states that have issued N.M. 44 long after Gov. Gary Some legislators are concerned that a the bonds, New Mexico hasn’t articulated Johnson leaves office. shortfall in future federal highway funds how it will pay them off if future federal NThe next five administrations are locked will affect other New Mexico road funding falls off. Other states, such as into using more than $20 million a year projects because the N.M. 44 bonds have Mississippi, have pledged state revenues from New Mexico’s anticipated federal first priority on federal money — which if that happens. highway funding to pay off bonds sold to accounts for nearly half the state’s Historically, New Mexico has built roads finance the 118-mile project. $608 million highway budget this year. on a pay-as-you-go basis. The Johnson administration is leaving Critics fear that Johnson and his “New Mexico hasn’t borrowed money to this legacy without submitting the plan to highway secretary, Pete Rahn, are in build roads,” Rahn said. “And that’s gotten voters or winning formal legislative effect trading future road projects for a us to where we are, with 25 percent of our approval. gold-plated N.M. 44. system in deficient status (not being “Members of the Legislature are going Only a few states so far have used this repaired in a timely manner).” to be left trying to explain it,” said Sen. method of borrowing against future State Sen. Raymond Kysar, R- John Arthur Smith, D-Deming. federal revenue to accelerate road Farmington, is a longtime supporter of “I think that we (legislators) are going to projects. New Mexico was among the first widening N.M. 44 to the Four Corners area be back here, replaying and rehashing to issue the so-called Garvee bonds under he represents. this, when everybody is retired from the a program Congress approved in 1995. “If you took all the tax money we (the highway department.” Arkansas, Colorado, Massachusetts, Farmington area) send to the state, we Johnson said he believes the state Mississippi and Ohio are funding road would have the money to four-lane N.M. 44 needed to go into debt to get the project projects with the bonds. All obtained in one year,” Kysar said. completed. either legislative or voter approval first. He supports Rahn’s efforts to get the “I would just argue that if you don’t go State highway officials said they weren’t project completed quickly. into debt to build highways that it’s not required to get legislative or voter “Pete’s the type of guy who once he gets going to happen,” Johnson said. “We’re approval. Ultimately, they did consult with Continued on Page 18 Four-Lane Politics 18 A Journal Special Report Reprint

Continued from Page 17 STAGES OF CONSTRUCTION going on something, he gets it done no Completion of construction is planned for matter what it takes,” said Kysar, who the fall of 2001 when the road designation will once employed Rahn as a salesman in his Farmington insurance company. become U.S. 550. But Democrats in the Legislature see 550 things differently. Legislative Finance Committee vice 64 28 chairman Rep. Max Coll, D-Santa Fe, Bloomfield Bids to be let miles said, “If we were paying as we go, that in 2000 $100 million (in interest) would be going Phase (initial bids rejected to our state for other projects, instead of #8 in July 1999) us putting it in some investment banker’s Phase Bids to be let December pocket back East.” #7 Phase 50 14, 1999 miles Figuring costs #6 Phase #5 Of the $420 million tab for the project, Nageezi Phase only $180 million has been set aside for #4 construction, to be performed by 9.7 companies that bid on various segments map miles of the road. Cuba Phase A review of state records by the area #3 Journal found the $180 million for 40 Under 30.1 construction to be overly optimistic. The construction, Phase miles state this summer rejected most of the $25 million 44 #2 initial construction bids as too high. Phase 25 Further, highway department budget Bids let in #1 estimates didn’t include either a November contingency fund or a projected (initial bids $17.4 million in gross-receipts taxes. rejected in San But Rahn insists $180 million is July 1999) Ysidro enough. And he says if the road can’t be built for that amount, it won’t be $52.7 25 million completed. Bernalillo “I want to build this road. I want this to move forward,” he said. “We’ve made improvements (on the cost). We’ve gone Albuquerque from a $230-to-$250 million range to under $200 million, and there are still 40 areas we want to address that can bring this cost down.” After construction costs, interest payments on the bonds take the next biggest piece of the pie: $124 million. RUSS BALL / JOURNAL Koch (pronounced “coke”) Industries of Wichita, Kan., will be paid $62 million Legislature for money. road in tip-top condition after 20 years. for the warranty and $46 million to All that wrangling, along with the deal The warranty is backed by a 20-year design the road and oversee Rahn cut with Koch Industries, may have $50 million performance bond. construction. About $8 million was spent left the state short of money for actual Rahn also acknowledges the amount on preliminary studies and design. road building. the state is paying for design and The state is in the process of issuing construction management is high — 25 After the first round of construction $296 million in bonds to pay for the percent of construction costs. But he bids exceeded the engineers’ estimates project — the limit the Federal Highway says the state is buying Koch’s road by millions of dollars, highway officials Administration would allow. design and Koch will take on the state’s and Koch redesigned major portions of And that was after the state convinced inspection duties in overseeing the road the project. federal highway officials to accept the construction. already-completed widening of N.M. 44 Rahn told the state Highway Koch will conduct more inspections from Bernalillo to San Ysidro as the Commission recently that the redesigns than the state normally would in order to required 20 percent in state matching may require the state and Koch to protect its warranty, Rahn said. And that money. renegotiate the warranty. means a higher-quality road. That allowed Johnson administration Rahn defends the high cost of the officials to avoid going back to the warranty by saying the state will get a Continued on Page 19 Four-Lane Politics A Journal Special Report Reprint 19

Continued from Page 18 Necessary trims Koch told the department in its formal proposal submitted in December 1997 that its “design alternative is slightly more expensive than a traditional approach.” It is difficult to say how much more expensive it will be. In 1998, the state widened the first segment of N.M. 44 between Bernalillo and San Ysidro at a cost of $16.4 million. That project simply added two lanes on either side of that 20-mile stretch, costing about $800,000 per mile.

For the Koch project on the remaining PAUL BEARCE/JOURNAL 118 miles of the road, the highway department budgeted about $1.5 million SLICE OF WORK: A cross section of asphalt base course from the N.M. 44 widening per mile. project. That is because the Koch plan called for the project won’t be completely rebuilt. construction is the aggregate used in total four-lane reconstruction of the road. Those sections, approximately 22 miles, making the asphalt and the base course. But bids from construction companies will be widened but the existing road will New Mexico highways have a 6-inch were coming in higher than the budgeted be used as a base. layer of asphalt. Koch N.M. 44 design $1.5 million per mile. The state also has agreed the shoulders calls for a 9-inch asphalt layer requiring In November, the department opened will be narrower than planned and not more aggregate. bids on two sections north of San Ysidro. covered by the warranty. Retaining walls Highway officials told legislators this Those bids came in at between have been removed from portions of the summer that bids on aggregate were $1.75 million a mile and more than road. coming in at $28 a ton — 40 percent $2 million a mile. “I don’t know that we’re at $180 million higher than in the past. The low bid, of $52.7 million to build 30 yet, but we’re getting there,” Rahn said. There are few developed sources of miles of road, was more than 10 percent But he wonders if the first round of aggregate along N.M. 44 north of San lower than the engineer’s estimates of rejected bids were high because Ysidro and south of Bloomfield, which $61.8 million. contractors weren’t “hungry enough” to means the rock has to be hauled in to the Officials are scheduled to open the give the state a good price. asphalt plants. third round of bids on sections of N.M. 44 “Highway construction projects have The amount of other material, asphalt north of Cuba later this month. If those seen significantly higher inflation this oil and additives also increases with the bids come in higher than $2 million a year above the entire economy’s inflation Koch design. mile, the project could be in trouble. rate,” Rahn said. “That goes back to the Also, contractors were warned there The department budgeted $180 million fact that we are increasing spending on would be more inspections to make sure for construction without knowing what highways in this country by 45 percent. I the aggregate and the asphalt mix met Koch’s Euro-pavement design — which don’t see a lot of hungry contractors out specifications. involves a thicker layer of asphalt — there.” “I think the contractors are aware would look like or cost. Koch officials agree. there’s going to be an exceptional level of The department also ignored its own “We’re seeing inflation rates of 16 inspection,” Rahn said. “I think that 1995 engineer’s report that said it would percent each of the last two years,” said scared some contractors.” cost $1.65 million per mile to build four Bob Heitmann, vice president of Koch’s The highway department also required new lanes. lump-sum bids, moving away from the Performance Roads Division. Instead, it based its cost estimates on a normal procedure in which the But Richard Harris, executive vice study done in April 1997 that came up department would pay extra for materials president of the Associated General with the $1.5 million per mile to if its estimates were too low. Contractors of New Mexico, said rehabilitate two lanes and build two new “A lump sum (bid) gives us a lot more contractors are simply “pricing the cost ones. comfort because there’s no opportunity of their risk.” In interviews with the Journal, Rahn for multimillion (dollar) change orders,” Harris said contractors believe their defended the department’s estimates as Rahn said. “That’s why lump-sum (bids) risk is greater on N.M. 44 than other the best available. are appealing to us and not to projects because there is a greater But some low bids this summer came in contractors.” possibility of work being rejected by as high as $2.5 million per mile. Bids on This increased the risks to the warranty-conscious Koch. all but one section were rejected, and contractors, so they factored that risk Rahn admits the state can’t build the road into their bids, according to Harris. at those prices. Cost of rock Despite the problems, Rahn says he To cut projected cost overruns, one Why was the department so far off in believes the project will succeed. major change the department made in the its cost estimates? “I haven’t given up on Koch here,” Rahn design is that the northern two sections of The largest single cost item in road said. ◆ Four-Lane Politics 20 A Journal Special Report Reprint Financing Project Through Koch Would Have Cost State More

t could have been worse. the idea of using the NMFA to issue met with the Legislature’s leadership, The state would have paid mil- bonds, and pushed ahead with the pri- Senate President Pro Tem Manny lions of dollars more in interest pay- vate-financing option. Aragon and House Speaker Raymond Sanchez, both Albuquerque Democrats. ments on the N.M. 44 project under Highway legal department notes of an Ithe original financing plan proposed by internal meeting dated May 1997 listed New Mexico highway officials. possible N.M. 44 funding mechanisms Pollard said in a recent interview that The highway department’s original and showed “NMFA” with a line drawn highway officials never made a formal Request for Proposals called for a pri- through it. request for state financing prior to the meetings with Aragon and Sanchez. He vate developer to finance the project as Rahn said in a well as design it, manage construction said he couldn’t recall any informal con- recent interview versations. and provide a warranty. that he wasn’t sure The only company that submitted a why his agency bid was Koch Industries of Wichita, decided against Although the highway department’s Kan., which suggested the idea of pri- going through the original RFP called for private financ- vate financing to the highway depart- state Finance ing, Rahn said his agency was working ment in the first place. Authority. on the idea of public financing when leg- islators intervened. In April 1997 Koch offered to provide “We didn’t know the up-front money for the project but we could use the Legislative leaders scoff at that claim, didn’t suggest how it would be repaid. Finance Authority,” ARAGON: Won- he said. saying they first proposed the idea. The private-financing idea hit a snag dered about Rahn said the bond rates in September when legislative leaders Aragon said legislative leaders asked, pleaded with federal officials to put the department consid- ered the Koch proposal for financing “How can a private company get better brakes on what some lawmakers consid- rates (on bonds) than the state?” ered to be a runaway project. because “we had no other way to pay for this if the company didn’t come forward Legislative leaders ultimately agreed with dollars to loan the state.” “It had never been discussed until we to support the project if the highway asked them to do this,” Aragon recalled. Rep. Max Coll, D-Santa Fe and vice department compared the private “They agreed to hold it (the award of chairman of the Legislative Finance financing with that offered by New the contract) up until the comparison Committee, asked U.S. Transportation Mexico Finance Authority. was done.” Secretary Rodney Slater to intervene in The state rate turned out to be more July 1997. cost-effective. Legislative leaders and Rahn had sev- Legislators also contacted members of eral meetings over a three-week period. The agreement between Highway and New Mexico’s congressional delegation. Transportation Secretary Pete Rahn and Jeff attended the first meeting Sept. 3. legislators also accelerated four other Among other concerns, lawmakers road projects, including the Big I recon- questioned the lack of public input on A subsequent letter from legislative struction in Albuquerque and U.S. 70 the financing plan. leaders to Slater said Jeff “expressed between Alamogordo and Las Cruces. Highway officials said they didn’t concern about the lack of public partici- pation and involvement by all stakehold- Tom Pollard, director of the Finance need to consult with the Legislature ers in the N.M. 44 corridor project and Authority, said in an August 1998 memo because no state funds were being said a unilateral ‘decide, announce, that NMFA’s involvement on the N.M. 44 tapped. defend’ approach for innovative financ- project “saved New Mexico well over But Reuben Thomas, a federal high- ing and contracting of highway projects $100 million in interest over the eigh- way official based in Santa Fe, said in an is not acceptable to the Federal High- teen years financing.” e-mail obtained by the Journal that act- way Administration.” Pollard said the NMFA’s ability to ing Federal Highway Administrator Gloria Jeff indicated “she would not offer tax-exempt financing and to Rahn responded that there had been secure a AAA rating lowered the inter- approve the project until the two parties reached an agreement.” more than adequate public notification est rate by about 2.75 percentage points. and acceptance of the plan after it was Highway officials earlier had rejected At Jeff’s request, Rahn in September announced months earlier. ◆ Four-Lane Politics A Journal Special Report Reprint 21 Officials Defend N.M. 44 Project

tate highway officials told a leg- investigate the N.M. 44 contract. Roybal, then-highway deputy secretary of islative committee hearing on Instead, legislators have asked staff to highway operations, after Roybal men- Thursday they acted within the look into ways the Legislature could tioned “that the State was interested in law in hiring Koch Industries of increase oversight of highway depart- rebuilding NM-44 and expanding it to SWichita, Kan., for the 118-mile widening ment procurements. four lanes.” of N.M. 44. Waskey said during the committee “He asked if I had any ideas on how Highway and Transportation Secretary hearing that Koch had no involvement in NMSHTD might approach this kind of Pete Rahn also gave legislators attending writing the specifications and that it project,” Heitmann’s letter said. the Legislative Finance Committee meet- wouldn’t have been “fair to them to elimi- Heitmann said in his letter that the doc- ing a handout containing criticisms of a nate them” as bidders. ument sent to Roybal was previously giv- recent Albuquerque Journal series on the “At some point in your professional en to the Pennsylvania Department of N.M. 44 project. judgment you have to draw the line,” Transportation “and was not written to Koch will be paid $108 million to design Waskey told committee members. “I take apply specifically to NM 44 or any partic- the project, manage construction and pro- responsibility. I draw the line.” ular New Mexico road.” vide a 20-year warranty on the road sur- The Journal reported in the series that But in reviewing highway documents, face. Other companies will perform the highway officials were meeting privately the Journal found an April 21, 1997, cover actual construction. with Koch officials about the project six letter from Heitmann to Roybal that had Koch was the sole bidder for the pro- months before the state solicited competi- been attached to the “draft discussion ject, which highway officials say is the tive proposals for the contract. document.” first of its kind in the country. Koch officials in April 1997 sent the In that letter, Heitmann referred to the Art Waskey, the highway department’s highway agency a 27-page “draft discus- possible cost of the N.M. 44 project and top lawyer, told committee members that sion document” outlining how Koch would stated that the “special provisions” of the he advised agency officials in 1997 that privately finance, design, build and war- discussion draft “will become the docu- Koch shouldn’t be barred from bidding ranty the road job. ment that the state (of New Mexico) will simply because it provided “ideas and There were follow-up conversations, use to put the project out for bid.” concepts” for the project. and highway officials visited Koch head- The state Governmental Conduct Act quarters in Wichita to find out more infor- Heitmann, in the letter presented to bars state agencies from accepting bids mation. Both the agency and company say lawmakers, also disputed that some of the from private firms that had direct or indi- the private communications then ended. language in that discussion draft ended rect involvement in preparing the bid Rahn presented lawmakers with a Dec. up in the bid specifications. specifications. 15 letter from Bob Heitmann, Koch vice Rahn said Thursday that he had not The committee had already decided pri- president for Performance Roads. seen the cover letter to Roybal or the or to Thursday’s public hearing not to ask Heitmann’s letter states the “draft dis- financial proposal that Koch had sent Attorney General Patricia Madrid to cussion document” was sent to Benny Roybal for discussion purposes. ◆ Highway Department Criticizes Journal Series

ighway and Transportation Sec- project costs by requiring a comparison of recalled the discussion being “real gener- retary Pete Rahn’s handout criti- private financing to that provided by the al.” cizing the Journal series pub- New Mexico Finance Authority. Pollard was out of the office Thursday lished Dec. 4-7 said the newspa- Lawmakers said public financing was and couldn’t be reached for comment. Hper incorrectly reported that widening of their idea. Rahn said he didn’t tell legislators at the N.M. 550 north of Farmington wasn’t Rahn was quoted in the series as saying time they raised the public financing issue scheduled. Rahn said that construction is the highway department came up with the that his agency had met with NMFA offi- under way. idea of public financing. Executive direc- cials. After Thursday’s hearing, Rahn said he Rahn also said Koch will post a $114 mil- tor Tom Pollard of the finance authority felt the series implied that he lied when he lion performance bond for the life of the had said he couldn’t recall any informal said he wasn’t aware of any communica- warranty — not $50 million as the Journal meetings with highway officials about tion about the project between his staff reported in its series. N.M. 44. On Thursday, Rahn said he has since and Koch prior to the arrival of Koch’s The bond posted so far is $50 million. checked with his staff and that they met “unsolicited” proposal on April 21, 1997. Rahn said the company will be required to with Pollard and finance authority’s bond Rahn said he has since checked with post the larger bond when the project is counsel nearly three weeks before legisla- members of his staff and hasn’t found any- completed. tive leaders raised the issue. one who may have asked Koch to send the He also criticized the series for credit- Duane Brown, the bond attorney, said department the April 1997 proposal. ing legislative leaders with helping to Thursday there was a meeting about possi- He said he would continue to look into shave off more than $100 million from ble public financing of N.M. 44. He the matter. ◆ Four-Lane Politics 22 A Journal Special Report Reprint

EDITORIAL, DEC. 9, 1999 N.M. 44 Road Deal Needs Scrutiny

he administration of Gov. Gary would be built to deluxe quality standards dissected in a four-part series by Journal Johnson has danced a massive, never before required in New Mexico, investigative reporters Mike Gallagher privatized project to four-lane perhaps in the whole country -- while the and Colleen Heild. N.M. 44 from San Ysidro to the Big I rebuild at the crossroads of Albu- By its terms, New Mexico is to get TFarmington area past state law's public querque and the entire state goes begging about $180 million of actual road con- bidding restrictions with virtually no for funds to round out a bare-bones struction, with the balance of the $420 feedback or participation from any other design. These are the political priorities million package going for design, bond branch or agency of state government. of the Johnson administration. interest -- and the $62 million warranty. Koch Industries, of Wichita, Kan., has The deal is rife with indications that the This deal has major problems: been awarded a contract for the project, contractor was the tail wagging the state ■ N.M. 44 wasn't even on the Highway one that will give Koch about $108 million dog in putting the package together. Koch and Transportation Department's priority to design, manage construction and pro- Industries brought a design-build- list until Johnson decided it should be the vide an unprecedented 20-year warranty finance-warranty idea to the state. It was priority four-laning project. It probably on the road. Another $180 million is bud- modified by the state to design/supervise didn't hurt that the Farmington area gave geted for construction -- though early bid to comply with state law, then -- surprise - Johnson substantial majorities in his first openings suggest that sum might prove - a subsidiary of Koch emerged as the race and could help in his 1998 re-election inadequate. only bidder. bid. The 20-year term of the bonds, to be The Bernalillo-to-Bloomfield highway The tangled history of the project was Continued on Page 23 Four-Lane Politics A Journal Special Report Reprint 23

Editorial continued from Page 22 nent conservative political financiers who has been in the driver's seat. The Johnson contributed $5,000 directly to Gov. John- administration acted alone in setting the paid with a portion of New Mexico's fed- son's campaign and $677,000 to the Repub- priority and hocking a significant seg- eral highway funding, takes away from lican National State Elections Committee ment of the state's roadbuilding assets for future governors and Highway and from 1994 through March of this year. 20 years into the future. Transportation Commissions discretion in That committee, in turn, gave the Johnson This is no way to run a state supposedly the spending of state funds. campaign $160,000 in 1998 and $75,000 in governed by the checks and balances of a ■ It is a privatization of the function of 1994. state constitution and statutes. The Attor- the state Highway and Transportation ■ The Koch family helps finance the ney General's Office should launch an Department on a scale never before Cato Institute, the Libertarian think tank investigation to determine whether this attempted, done without voter approval or that has een an enthusiastic supporter of deal was done in compliance with law. meaningful participation by the Legisla- Johnson's continuing drug legalization The Legislature should exercise its ture or the Attorney General's Office. crusade. responsibility to make certain that the ■ The Highway Department persuaded ■ Sondra Frank, an assistant attorney true priorities of the state are being car- federal officials to accept already com- general who reviewed the contract, told ried out in the manner prescribed by law. pleted portions of four-laning N.M. 44 as the Journal that she was never told the the state's required match in the project. highway department had been in contact The early construction bids suggest that ■ A subsidiary of Koch Industries was with Koch ndustries prior to the request the state may not be able to build the road the sole bidder on it -- despite state law for proposals being issued. She said the to Koch's design specifications for the that prohibits anybody who had a direct or AG was not involved in developing the $180 million currently allocated to con- indirect part in preparing bid specifica- RFP. struction. Not a dime of additional money tions from bidding on that project. ■ Legislative leaders became involved should be siphoned into this deal until it ■ Koch is responsible for the warranty by objecting to the plan to have Koch has been examined by state officials out- on the road -- but Koch also designed it, arrange the financing for the 20-year side the closed circle of the Johnson meaning it can protect its repair cost bonds, insisting tax-free, state-issued administration. prospects through the construction speci- bonds be used if they were cheaper. They Finally, even if the Attorney General's fications. Highway and Transportation packaged the project with several others Office and the Legislature ultimately Secretary Pete Rahn defends the cost of and approved the project list -- but not the determine that this deal got pushed the warranty with highly questionable details of the Koch Industries deal. through without running afoul of any state maintenance cost figures -- figures Koch ■ The deal was assembled and pushed law or constitutional provision, the Legis- never uses without attributing them to the through in a manner such that only Koch lature should enact new restrictions on state. had the time and background to submit a the discretion of the executive branch. A ■ Though Rahn said he was totally responsive bid. constitutional amendment requiring prior unaware of it, the brothers who own the The clear conclusion from all of this is voter approval for long-term road bond closely held Koch Industries are promi- that Koch, not the state of New Mexico, issues would be a good start. ◆ Bids on N.M. 44 Meet Expectations The new road design eliminated con- Contracts for widening 40 miles of Ariz. Paving Firm crete retaining walls; allowed contrac- road south of Cuba have been approved. tors to use recycled asphalt pavement But the budget is still tight for the final Sends in Lowest Total from the existing road for base course, a stretch of road. Based on the $180 mil- layer below the asphalt; eliminated base lion construction budget the state will course along some stretches of road; and BY MIKE GALLAGHER have $26.2 million for the last 28 miles. Journal Investigative Reporter changed specifications on the aggregate The highway department has decided to allow the use of rock found closer to to use the final 23 miles of existing road t appears efforts by the state High- N.M. 44. in its design. The state used existing way Department and Koch Indus- Wichita, Kan.-based Koch was awarded roadways in previous widening projects tries Inc. to cut the cost of widening a $46 million contract to design the road that have cost less than $1 million a mile. N.M. 44 have paid off. and manage construction. It also is being IBased on bids opened Tuesday, high- The project has been under legislative paid $62 million for a first-of-its-kind 20- way officials said they considered the scrutiny, and there have been concerns year warranty. $180 million set aside for construction to the work couldn’t be done for the money be enough. It hasn’t been determined how the set aside. “It looks very good,” Deputy Highway design changes will affect the warranty. The project is being paid for with Secretary Charlie Trujillo said after bids An Arizona paving company, FNF Con- $296 million in bonds issued by the state were opened. “We’re ready to roll.” struction, submitted the low bid of that will be repaid by highway money Highway officials and Koch represen- $75.7 million to build 50.2 miles of N.M. provided in the future by the federal tatives recruited contractors to increase 44 north of Cuba. The bid is on target government. The state will pay $124 mil- competition and spent months redesign- with the department’s budget breakdown lion in interest on the bonds over 20 ing the project to reduce costs. of $1.5 million per mile. years. ◆ Four-Lane Politics 24 A Journal Special Report Reprint N.M. 44 Deal Gets 2nd Look AG Orders Review Of Widening Contract

BY MIKE GALLAGHER “We’re most interested in the warranty. It’s very Journal Investigative Reporter The state Attorney General’s Office is unique, and we’re very concerned about it. We’re looking into a $108 million contract between the state highway department also concerned about a contract this size having and a Kansas company for design, con- only one bidder, that bidder having contact with the struction, management and a warranty for widening N.M. 44 from San Ysidro to department prior to the Request for Proposal, and the Four Corners area. Attorney General Patricia Madrid said, the short time potential bidders had to develop their “Given the size of the contract and the novelty of it, we have a great many con- proposals.” cerns.” PATRICIA MADRID She said she asked staff lawyers from ATTORNEY GENERAL several divisions in her office to begin reviewing the contract. “I wouldn’t call it an investigation at this time. Due to the holidays we’re just Industries Inc., a Kansas-based oil and construction of the road and $62 million beginning to look at it. I would call it an gas conglomerate. for its 20-year warranty. Under the war- inquiry right now,” Madrid said. “We have assembled a team of people ranty, Koch agreed to pay for repairs and She said she asked her staff specifical- to look into various issues raised in the maintenance to keep the road surface at ly to review the $62 million, 20-year war- newspaper series,” Bluestone said. “We standards established by the highway ranty and issues surrounding the award- are examining what options the attorney department. ing of the contract. general will have to pursue this.” The highway department has begun “We’re most interested in the warranty. Madrid said, “I have to be careful in putting out bids on the construction con- It’s very unique, and we’re very con- discussing this because of potential liti- tracts, budgeted at $180 million. cerned about it,” Madrid said. “We’re also gation, but I am most concerned with Highway department officials criti- concerned about a contract this size hav- what remedies the state has under the cized the Journal series at a Legislative ing only one bidder, that bidder having law.” Finance Committee hearing on the contact with the department prior to the Koch (pronounced Coke) Industries department’s budget in mid-December. Request for Proposal, and the short time sent highway officials a proposal in April Koch officials said in a letter that they potential bidders had to develop their 1997 for widening N.M. 44 to four lanes believe the department followed pro- proposals.” from San Ysidro to the Four Corners. curement laws. Highway Secretary Pete Rahn said he Koch’s proposal outlined how it could Highway officials said at the hearing believes the attorney general’s inquiry finance, design, build and warranty the they didn’t violate state procurement will find the highway department did project. laws or the state’s Governmental Con- nothing wrong. At the time, Koch was the only compa- duct Act, which prohibits anyone with “Our general counsel, Art Waskey, ny promoting a long-term warranty to “direct or indirect” involvement in the called the Deputy Attorney General Stu- highway departments around the coun- development of specifications from bid- art Bluestone and told him that anything try. ding on that project. we have is available to them,” Rahn said. After receiving the proposal, depart- Highway officials said they borrowed “They said they would take us up on that ment officials were in contact with Koch “concepts” from Koch in preparing the offer.” representatives in the spring of 1997 — Request for Proposals but that Koch had Bluestone said he had been in “infor- months before the department issued a no involvement in preparing the specifi- mal” contact with the highway depart- public Request for Proposals to finance, cations. ment’s lawyer. design, manage construction and warran- The committee decided in private ses- Madrid said she asked her staff to read ty the ride quality of 118 miles of road sion not to request a formal investigation a four-part series of stories published last work on N.M. 44. by the Attorney General’s Office. month by the Albuquerque Journal on the Koch Industries, owned by Charles and Madrid said legislators have discussed contract. David Koch, large Republican National the contract with her informally and that The series on N.M. 44 examined the Party contributors, was the sole bidder. she fully expects to receive formal New Mexico Highway and Transporta- Under the contract, Koch gets paid requests from them for her office to tion Department’s contract with Koch $46 million for designing and overseeing review the legality of the contract. ◆