Articles first appeared in the Albuquerque Journal on Dec ...Koch (pronounced “coke”)...

Four-Lane Politics

A Journal Special Report ReprintArticles first appeared in the Albuquerque Journalon Dec. 5-8, 12, 15, and 17, 1999 and Jan. 4, 2000.

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 PoliticsA Journal Special Report Reprint 1

Mike GallagherMike Gallagher, 45, became an

investigative reporter in 1986.Some of his investigative pro-

jects include stories on the deathsof patients at the state hospital forthe disabled, drug trafficking alongthe Southwest border, problems inthe state prison system, unsolvedmurders of prostitutes in Albu-querque, false charges of child sex-ual abuse, questionable invest-ments of public money, illegal gam-bling and the private businesspractices of certain state officials.

Last year, the Journal dispatchedMike on an unusual assignment:report and write on the problems inRussia.

Colleen HeildA 14-year veteran of the Journal

staff, Colleen joined the investiga-tive team in 1996.

After moving here from the ElPaso Times, she covered federalcourts in New Mexico. That led tomore in-depth reporting, such asthe fatal shooting in 1988 of aMountainair policeman.

Her work has included investiga-tive projects on problems in theAlbuquerque Police Departmentand the state foster care.

Her investigative stories led tochanges in the way the state han-dles vehicle dealer plates andhelped spur the city of Albuquerqueto try to recover money spent on atire shredder that didn’t work.

N.M. 44 on Fast Track 2

N.M. Law Limits Involvement of Potential Bidders 7

A 20-Year Warranty 9

N.M. Project Large-Scale Test For ‘Euro-Design’ 11

Koch Is Nation’s 2nd LargestPrivately Held Company 12

Widening of N.M. 44 Jumped to Top of List 13

Koch Supports Many Candidates, Causes 15

Gov. Defends Going Into Debt For N.M. 44 17

Financing Project Through Koch Would Have Cost State More 20

Officials Defend N.M. 44 Project 21

Highway Department Criticizes Series 21

N.M. 44 Road Deal Needs Scrutiny 22

Bids on N.M. 44 Meet Expectations 23

N.M. 44 Deal Gets 2nd Look 24

Why We Did The Series

The widening of 118 miles of N.M. 44 from San Ysidroto the Four Corners area is the biggest road project in NewMexico history. At a cost of $420 million, includingfinancing, it is also the most expensive. The Johnsonadministration says its plan is so innovative it couldchange the way states handle highway construction pro-jects. Critics call it a disaster in the making.

Journal investigative reporters found that highway offi-cials jumped the project ahead of other needed road workand entered into a questionable warranty deal at a cost of$62 million. They also found that the only company to bidon the project proposed it in the first place.

Contents

Four-Lane PoliticsA Journal Special Report Reprint2

Pete Rahn had a problem.

It was April 1997 and Gov.Gary Johnson had let his High-way and Transportation Depart-ment chief know in no uncertain

terms that he wanted N.M. 44 from SanYsidro to the Farmington area widened tofour lanes.

But Rahn didn’t have any way to do it.Johnson had just vetoed legislation thatwould have paid for N.M. 44 and otherroad projects by raising the gasoline tax.

There was virtually no chance theDemocrat-controlled Legislature wouldagree to shift the bulk of state road-

building money to N.M. 44 so Johnsoncould fulfill his desire to build the road tothe heavily Republican area of the state.

Rahn would have had a tough timeselling that kind of solution when N.M. 44wasn’t even his department’s top priority.

The project was going nowhere,barring some incredible stroke of goodfortune.

And that’s just what happened — or isit?

Less than two weeks after Johnsonordered Rahn to find a way to build N.M.44, what Rahn described as an“unsolicited” proposal showed up at the

highway department from Wichita-basedKoch (pronounced “coke”) Industries.

The multibillion-dollar conglomeratehad an answer for all Rahn’s problems. Itsaid it could design the road, build it,finance it and give the state a long-termmaintenance warranty.

“If we weren’t going to kill projects andwe weren’t going to take 27 years tocomplete the project, we had to findsomething different,” Rahn said. “So thesomething different that came up wasthis proposal that Koch had submitted.

N.M. 44 on Fast Track$420 Million State Project Raises Questions, Criticism

Continued on Page 3

RICHARD PIPES/JOURNAL

HOT WORK: Workers lay asphalt on a nine-mile section of N.M. 44 south of Cuba.

Stories by MIKE GALLAGHER AND COLLEEN HEILD ■ Journal Investigative Reporters


“Their (Koch) proposal was crucial tous. Without it we didn’t have an option onbuilding the road.”

Rahn emphasized that the proposal wasunsolicited, but Koch representatives toldthe Journal that state highway officialsasked the company to give them one.

What prompted Koch to send theproposal isn’t the only issue involved inthe project. Some of the others:

■ The department allowed Koch to bidon the project even though the Kochproposal formed the basis for the state’splans. Rahn contends this didn’t violatestate law because the state took only“concepts” from Koch, and not specifics.

■ Koch was the only bidder in a processcritics contend eliminated any potential

competition.■ At the time it was awarded the

contract, Koch had never built a majorhighway in the United States. And thedesign it proposed had never been used.

■ The state is paying Koch $62 million toprovide a 20-year “ride quality” warrantyfor the state — a sum critics say is way toomuch for a road design touted for itssuperior quality.

■ The state is financing the road bypledging future federal highway money —a move critics say may divert funds fromother projects.

■ Other states that have used thefinancing method have first submitted itto the Legislature or the voters. TheJohnson administration did neither.

■ Highway department officialsvaulted the N.M. 44 project to the top oftheir priority list even though it didn’trank first among other state two-laneroads in traffic or accidents.

Johnson said, “I’m just one of thoseNew Mexicans that’s grown up believing

that 44 arguably needs four-laning morethan any other road in the state.”

The state is committed to pay morethan $20 million a year for the next 20years for the N.M. 44 widening. Thatmoney comes out of about $300 million ayear the state receives from the Federal

Highway Administration.Rahn says the project is needed for

economic development and safety and isa good deal for taxpayers.

Legislative critics disagree.“This was a monumental mistake,” said

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EVOLVING PROPOSALS

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EVOLVING PROPOSALS

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“I’m just one ofthose NewMexicans that’sgrown up believingthat 44 arguablyneeds four-laning more thanany other road in the state.”

G O V . G A R Y J O H N S O N

Sen. Billy McKibben, R-Hobbs, afrequent critic of the governor.

“I’m an old salty conservative that’sbeen there for a long time and seen lotsand lots of things. And I’m telling youthere’s a disaster in the making in thatN.M. 44.”

The Koch proposal landed on thehighway department’s doorstep on April21, 1997, just 10 days after Johnson hadordered Rahn to come up with options forwidening N.M. 44.

“The governor called me and said Iwant N.M. 44 four-laned and I want aproposal for it,” Rahn said.

Rahn, who had lived in Farmington andwas head of Johnson’s 1994 campaignthere, was in a quandary.

He said that unless the departmentstopped $214 million worth of road workaround the state for three years andredirected the money to N.M. 44, therewas no way to pay for the project.

Johnson was one year away fromseeking re-election and had madewidening N.M. 44 a priority.

After his veto, the Farmington area wasin an uproar.

“I personally got a lot of pressure not tosustain a veto,” said Republican Sen.Raymond Kysar of Farmington.

Kysar said he transferred that pressureto Johnson.

“Every time I talked to him,” Kysarsaid, “I pushed widening N.M. 44.”

Early contactsOf hundreds of documents reviewed by

the Journal, the earliest mention of anycontact between Koch Industries andRahn was Jan. 17, 1997.

Rahn’s calendar indicates he was tomeet for more than an hour at theAlbuquerque office of Koch Materials, aKoch subsidiary that sells asphalt.

Rahn said he didn’t recall the meetingand is sure N.M. 44 wasn’t discussed.

He said the most likely reason for themeeting would have been to “drum uppolitical support” among privatecontractors and suppliers for thedepartment’s 1997 legislative package.

Rahn said in an interview that hewasn’t aware of any communication

about the N.M. 44 project between hisdepartment and Koch Industries prior tothe arrival of Koch’s proposal.

He said the unsolicited documentshowed Koch’s lobbyists were on top ofhighway issues in Santa Fe in 1997.

A check of records found no lobbyistregistered on behalf of Koch.

Koch officials said there had beenseveral meetings in the winter of 1996-97with state highway officials about thedepartment’s road maintenance problemsin northwest New Mexico.

The state ultimately rejected a Kochproposal for taking over the state’shighway maintenance in that area.

But according to Koch officials, asthose talks came to an end state officialstold company representatives they hadproblems meeting a “pledge” to widenN.M. 44.

The Koch officials said they wereasked by highway department officials tocome up with some options.

Bob Heitmann, vice president of Koch’sPerformance Roads Division, said his


Continued on Page 5



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


company and state officials had beentalking about topics such as higher-quality roads and warranties in thecontext of repair issues.

After some conversations with highwayofficials in Santa Fe, Heitmann said,“They said why can’t you just give ussomething written that kind of describeswhat you’re talking about.”

As a result, Koch Industries sent thestate what it called a “discussion draft”that outlined a plan to design, build,finance and warranty N.M. 44.

The April 21, 1997, cover letter thataccompanied the draft said, “The specialprovisions document will become thedocument that the state will use to put theproject out for bid.”

The letter was addressed to BennyRoybal, then-deputy secretary forhighway operations, with the salutation,“Dear Benny.”

Roybal, who retired this year, deniedasking for the proposal.

He said he might have spoken to Kochabout the maintenance concept, “but notin regards to necessarily 44.”

Rep. Dan Silva, D-Albuquerque,

chairman of the House TransportationCommittee, said he was unaware ofhighway department contacts with Kochbefore the project was announced.

“I think it raises a lot of questions,” hesaid. “No one likes a situation wherethere is only one bidder on any project.”

Senate President Pro Tem MannyAragon, D-Albuquerque, said he wasn’tsurprised.

“We’ve always suspected there was apre-selection of individuals,” he said.

Stepping carefullyRahn said politics played no role.He said he didn’t know that Koch’s

owners, brothers Charles and David

Koch, were huge financial backers ofRepublican Party candidates and causes.

Rahn said he thought Koch was a smallasphalt supplier, and his first reaction tothe Koch discussion draft was that hewondered how the company could fulfillthe financial promises contained in theproposal.

Rahn said that as far as he knows, noone in the highway department calledKoch about Johnson’s orders to widenN.M. 44.

Rahn said he mentioned Koch by nameduring a 10-minute meeting in May 1997when he presented Johnson with theoptions for building N.M. 44 — a 27-yeartimetable, diverting most other state roadmoney to the project or essentiallyfollowing the Koch proposal.

“It (Koch’s name) didn’t carry anyweight,” Rahn said.

Johnson gave the department the greenlight to proceed.

On May 13 and 14, Rahn and fivehighway officials traveled to Wichita tovisit Koch Industries headquarters.

“By that time we were obviouslyinterested in what we were hearing (fromKoch) and saw there were ways to makethis work,” Rahn said.

State highway officials said they werecareful not to violate any laws in theirdealings with Koch after the proposalarrived.

“We were well briefed by thedepartment attorneys not to discussdetails of the bid,” Rahn said.

Rahn said he and other officials touredKoch’s asphalt laboratory, received abriefing about the company and met withcompany officials.

Koch officials said that after Rahnvisited their headquarters, allcommunication between the departmentand the company was cut off.

Rahn said his agency took steps toensure fairness and didn’t discussspecifications with Koch representatives.

“We had a very open process, eventhough there was only one bidder.Everyone had access to this,” Rahn said.“Koch was the only one to step up to theplate.”

McKibben questions whether there wasarm’s-length dealing between thecompany and the state.

“You know how unbelievably stupid the(Indian) gaming compacts are,” he said.“You might compare this as the highwayconstruction compacts. Written, titledand finalized by the people that are goingto participate.”

Some questionsDepartment records show the Koch

proposal, with some modifications tomake it fit state law, became the keystone

of the state’s N.M. 44 plan.After the Koch proposal was delivered

and months before the project was let outto bid, highway department files show:

■ There was a series of telephoneconferences in late April and early May1997 between state highway and KochIndustries officials to discuss theproposal.

■ In early May 1997, departmentattorneys reviewed the proposal and

Continued from Page 4 NEW MEXICO 44

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“We’ve alwayssuspected therewas a pre-selection ofindividuals.”

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“We had a veryopen process,even though therewas only onebidder. Everyonehad access to this. Koch wasthe only one to step up to theplate.”

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advised Rahn it was sound but needed tobe reworked because state law prohibitsdesign-build contracts. The statedeveloped a design-constructionmanagement concept to avoid thatprohibition.

■ Highway officials traveled to KochIndustries headquarters in mid-May toreview Koch’s “European” road design.

Asked whether Koch had an advantageover other companies when the projectwas finally put out for bid, Rahn said, “Iguess any time you’re the first into amarket, you have an advantage.”

Sen. John Arthur Smith, D-Deming, hada different view.

“Whenever you have one bidder on aproject this size, it raises questions aboutthe process,” he said. “You have to wonderif it was a political deal.”

Legal issuesUpon receipt, Koch’s proposal was

immediately given to the highwaydepartment legal staff to review.

Notes from several meetings showrepeated references to “Koch.” They alsoshow the department was concerned the

state might have to pay Koch Industries afee for its proposal and was concernedabout copyright.

The notes and internal memoranda showthe legal staff had questions about thepossibility that Koch might be the onlybidder.

A May 4, 1997, memo directed to Rahn,reviewing Koch’s proposal fromdepartment General Counsel Arthur J.Waskey, refers to Koch as the contractorand parenthetically to “(whatevercompany was selected).”

Waskey in the same memo identifiedseveral potential problem areas and maderecommendations on how they might beavoided.

He acknowledged that procurementcode issues “may be tricky.”

A major hurdle was Koch’s proposal thatthe contract include designing andbuilding the road, which was prohibited bystate law.

Waskey suggested that be changed to adesign and construction managementcontract. That recommendation ultimatelywas included in the Request for Proposals.

The department on June 4 submitted aconcept paper to the state AttorneyGeneral’s Office for review. It didn’tmention Koch Industries.

The attorney general said in a letter thatthe project as outlined wasn’t prohibitedby state law.

A single bidderThe Request for Proposals, or RFP, that

emerged called for one private developerto perform five duties: design; overseeand manage construction; warranty thework; finance construction; and post a$50 million performance bond.

The highway department had neverbefore requested a warranty on a roadproject, had never sought privatefinancing and hadn’t rolled all theelements of a project into one RFP.

Only once before had the state leftconstruction management up to a privatefirm, and that was on a much smallerscale.

Koch had reservations about submittinga bid because it was no longer adesign/build project.

Koch wanted as much control overconstruction as possible to make sure thework would be good enough for thewarranty, Heitmann said.

“At one point in time because of the waythe RFP came out, we had some pretty

1/17/97 — New Mexico High-way and Transportation Secre-tary Pete Rahn meets with offi-cials of Koch Industries in Albu-querque. Rahn says N.M. 44wasn’t discussed.

3/20/97 — Legislature passesHB1059 to increase highway fund-ing for major road projects, includ-ing N.M. 44, by adding a 2-cent-a-gallon gasoline tax.

4/10/97 — Gov. Gary Johnsonvetoes HB-1059 and orders Rahnto find another way to widen N.M.44 to four lanes.

4/21/97 — Koch submits detailedproposal to finance, design, buildand warranty N.M. 44 expansionproject.

4/28/97 — Telephone conferencebetween highway department offi-cials and Koch Industries.

4/29/97 — Telephone calls toKoch from highway department.

5/1/97 — Highway officials meet

to discuss options for wideningN.M. 44 to present to Johnson.Koch Industries proposal is markedwith a star. Highway officials alsoreject public financing option.

5/2/97 — Conference callbetween Highway Department offi-cials and Koch Industries mainoffice in Wichita, Kan.

5/9/97 — Highway departmentfloats internal proposal on innova-tive financing plan for N.M. 44 Cor-ridor. Proposal calls for private con-tractor to finance bonds to be paidback from federal funds, and war-ranty the project work.

5/13-5/14/97 — Rahn andadjunct secretary John Fenner trav-el to Wichita to meet with Koch offi-cials.

5/19/97 — Highway Departmentofficials meet to discuss obtainingfederal approval by June for innova-tive financing proposal for N.M. 44widening. Koch Industries proposalis discussed. Rahn calls Koch’s

Wichita office.

5/26/97 — Highway departmentofficials meet and discuss requestfor federal funding, citing economicdevelopment and safety problemsas justification for fast-tracking fed-eral approval.

6/4/97 — Highway departmentsends letter to Attorney GeneralTom Udall asking for review of thedepartment’s proposal for financingthe widening N.M. 44.

6/20/97 — Highway departmentsubmits to Federal HighwayAdministration its innovativefinancing proposal for N.M. 44Corridor.

7/3/97 — Johnson holds threenews conferences along N.M. 44Corridor to announce plans towiden N.M. 44.

7/23/97 — Legislators hold hear-ing; concerns are raised about thefunding mechanism for wideningN.M. 44.

8/21/97 — Highway Commissionapproves releasing Request for Pro-posals to widen N.M. 44.

8/24/97 — Highway Departmentsubmits application to Federal High-way Administration for N.M. 44widening.

9/1 through 9/23/97 — Highwayofficials and legislative leadersnegotiate an agreement to allowproject to proceed. Legislators getconcession that New MexicoFinance Authority will be an alterna-tive to private financing of the pro-ject. Amended Request for Propos-als issued.

12/1/97 — Koch’s subsidiary,Mesa Developers, later changed toMesa PDC, submits only proposalfor N.M. 44 project.

12/29/97 — Contract negotia-tions begin.

7/22/98 — Johnson signs con-tract with Koch for N.M. 44 CorridorProject at public ceremony in Farm-ington.



CHRONOLOGY OF N.M. 44 PROJECT

Continued on Page 7

major discussions whether wewere even going to propose on it,”he said.

More than 70 people attended amandatory pre-bid conference inmid-October 1997. More than adozen were federal or statehighway officials.

Another 23 represented Koch orcompanies that ultimately becameits subcontractors on the project.

Only Koch and CanadianHighways International submittedwritten questions.

“High quality proposals of thekind required take months todevelop,” wrote Steve Skelton, ofCanadian Highways, in an Oct. 14,1997, fax to the highwaydepartment. “Is an extension of thesubmission date anticipated?”

At the time, prospective biddershad five weeks to submit aproposal. The deadline wasextended by one week to Dec. 1.

Canadian Highway officials saidthey chose not to submit a proposalbecause the nature of the projecthad changed.

Another company opted not tocompete because it preferred tobid on various segments ofconstruction.

Heitmann said he was surprisedhis company submitted the onlyproposal.

“When we turned in ourproposal, we fully expected therewould be two other bids comingin,” Heitmann said.

Koch’s proposal was submittedin the name of Mesa DevelopersLLC, which at the time wasexplained as a partnershipconsisting of Koch Industries;CH2MHill, a national engineeringfirm; and Flatiron Structures, aconstruction company.

After Mesa’s proposal wasaccepted for negotiation,CH2MHill and Flatiron Structuresdropped out and becamesubcontractors.

Rahn said the department wasn’tconcerned about the change.

“This was a Koch project allalong,” Rahn said. “We knew wewere always dealing with Kochduring the negotiations.” ◆



BY MIKE GALLAGHER

AND COLLEEN HEILD

Journal Investigative Reporters

New Mexico’s GovernmentalConduct Act prohibits agenciesfrom accepting bids on a projectfrom anyone who had direct or

indirect involvement in developing thespecifications.

Koch Industries Inc. in April 1997submitted a detailed proposal for thedesign, construction, financing andwarranty of N.M. 44.

The Koch proposal, which the companysays the state solicited, provided theblueprint for the $420 million project thestate put out to bid four months later.

State highway officials and Kochrepresentatives had met before Kochsubmitted the proposal in April.

After the state had the Koch document inhand, there were at least three telephoneconversations and one meeting betweenKoch representatives and highwayofficials before the state issued its formalRequest for Proposals.

According to notes taken during the firsttelephone conference, Koch and stateofficials discussed how to get federalfinancing for the road project; how toprivately issue bonds for the work; andarranged a meeting at Koch’s Wichita,Kan., headquarters for more discussions onN.M. 44.

Highway and Transportation SecretaryPete Rahn, who was present at the meetingwith Koch officials at their Wichitaheadquarters in May 1977, said thedepartment was careful not to violate theGovernmental Conduct Act.

The Act puts responsibility for followingthe law on state agencies and employees.The law doesn’t define what constitutesdirect or indirect involvement by apotential bidder.

Rahn said Koch didn’t contribute to thedepartment’s Request For Proposals, orRFP.

Rather, he said, the highway departmentborrowed “concepts” from Koch to writethe RFP and that doesn’t amount to Koch’sbeing involved in developingspecifications.

“Our proposal — I guess that there’s thenuggets of the Koch proposal that remain

in what we’ve done,” Rahn said in aninterview.

One such “nugget” was the long-termwarranty first proposed by Koch and thenincluded in the state’s proposal request.

The 20-year warranty eventually agreedon by Koch and the state, at a cost of$62 million, is the first of its kind on amajor road project in the United States.

The warranty is one of Koch’s sellingpoints. A 1998 Montana State Universitystudy could find no other private companyin the U.S. proposing a long-term warranty.

Another major similarity between Koch’soriginal proposal and the RFP was acontroversial proposal for privatefinancing, which highway officials laterabandoned under pressure from legislatorswho favored issuing tax-free governmentbonds.

Art Waskey, the highway department’sgeneral counsel, said Koch Industrieswasn’t involved in developing the RFP.

“I don’t see any problem in takingconcepts from a vendor and developingthem into the RFP,” Waskey said.

‘Broad questions’Rahn said the department checked with

the state Attorney General’s Office on allfacets of the project. He said he assumedthe Attorney General’s Office was aware ofthe prior Koch proposal and privatediscussions because his department wasvery open with the agency.

But Sondra Frank, an assistant attorneygeneral who reviewed the contractultimately awarded to Koch, said in aninterview with the Journal that she wasnever told the highway department hadbeen in contact with Koch Industries priorto the RFP being issued.

She said her office was not involved indeveloping the RFP.

Among the hundreds of highwaydepartment documents reviewed by theJournal, there were no memoranda,opinions or other documents that show thedepartment considered the GovernmentalConduct Act as an issue in its dealings withKoch Industries.

Rahn said department lawyers talked tohighway officials about how to comply withthe Governmental Conduct Act in dealing

New Mexico Law LimitsInvolvement of Potential Bidders

Continued on Page 8

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 understandconcepts,” he said. “And we were to gainas much as we could without telling themwhat our intentions were.”

Rahn said highway officials didn’t“allow Koch to give us specifications. Wedidn’t tell them where we were going. Wewould ask very broad questions. I meanwe were careful about this.”

Koch officials interviewed at thecompany headquarters said thedepartment “cut off” communicationsafter their initial discussions in thespring of 1997.

Bob Heitmann, vice president of Koch’sPerformance Roads Division, saidhighway officials were tough.

“We couldn’t get anything forinformation — what it (the RFP) wasgoing to look like, when it was comingout. We couldn’t get anything.”

While department officials say theytook only concepts from Koch, some ofthe language in the state’s Request ForProposals tracks the company’s Aprilproposal.

For example:

The Koch proposal stated: “A Californiaprofiliograph shall be furnished by theContractor for determination ofpavement and bridge floor smoothness.”

An appendix to the state’s Request ForProposals states: “The PDC (ProjectDevelopment Company) shall supply aprofiliometer for the project to measurepavement roughness and rutting.”

Each document states the device willbecome the property of the highwaydepartment.

‘Open process’Critics of the N.M. 44 project say the

state’s RFP was beyond the scope of manypotential bidders.

“The way the RFP was put togethereliminated every construction firm in thestate,” said Sen. John Arthur Smith, D-Deming.

Rahn said procurement for the N.M. 44project was open, fair and followed statelaws.

“We had a very open process, eventhough there was only one bidder.Everyone had access to this,” Rahn said.

He pointed out that there were no

protests, although state law generallylimits protests to companies that submitbids.

Rahn said the department fulfilled theintent of the state Procurement Code.

“If you look at the two main themes thatrun throughout all these various laws, theGovernmental Conduct Act and theProcurement Act, it talks about fairnessand it talks about good value for the publicdollar, and I think we did that.”

Firms disqualifiedWhile the department didn’t feel the

Governmental Conduct Act was a problemfor Koch, department attorneys cited theact in barring two local engineering firmsfrom bidding on the N.M. 44 project.

In the summer of 1997, two engineeringfirms that had been doing preliminarydesign work on N.M. 44 were approachedby a number of contractors about thepossibility of forming joint ventures tosubmit proposals on the overall project.

But the highway department legaldivision decided that AVID Engineeringand Andrews, Ashbury & Roberts were

prohibited from entering bids because ofthe state’s Governmental Conduct Act.

“Insofar as the preliminary designconsultants are actually preparing 30percent of the design of the Corridor 44project, this constitutes, at minimum,indirect preparation of specifications,”assistant general counsel Kendall Fischerwrote on July 16, 1997.

Fischer rejected an argument that thestatute refers only to “sealed bids” and not“sealed proposals.”

“We believe that when the Legislatureemployed the term ‘competitive bidding’… it meant to include, generically, biddingby all methods, including competitivesealed bids and competitive sealedproposals.”

Andres Aragon, a principal in AVID,said his company’s attorneys reached thesame conclusion.

“I think it was good legal advice becauseyou have to be careful of any perceivedconflicts of interest,” he said.

“They (the engineering firms) wereknocked out because they were doingdesign work for us already,” Rahn said.“That’s direct involvement.” ◆



JIM THOMPSON/JOURNAL

MOVING THE EARTH: Earlier this summer, road crews prepared portions of newroadbed for the widening of N.M. 44.


Highway and Transportation Sec-retary Pete Rahn insists the$62 million price tag for the 20-year performance warranty onN.M. 44 is a good deal for New

Mexico taxpayers.“I’m absolutely convinced this is

going to reap a benefit to thetaxpayers,” he said.

The warranty is the first of its kind inthe United States, and critics say$62 million seems like a lot of money tomaintain a road that was touted for itshigh-quality “Euro-design.”

Koch Industries Inc. told the state inits formal proposal in December 1997that while initial construction costswould be higher, the improved roadwould require “minimum maintenance.”

A Montana study says it’s too soon totell whether road project warranties area good deal for taxpayers. The ongoingstudy has found that information aboutroad warranties so far has been“subjective in nature rather than basedon demonstrable fact.”

Most states asking for roadwarranties have opted for terms of fiveyears or less, with the cost included inthe basic bid.

“The longest I’ve seen is five years,”said Richard Harris of the AssociatedGeneral Contractors of New Mexico.“It’s never been used on anything thislarge. This boggled the mind.

“These short-term warranties havelittle effect on price; there is little or nocost increase.”

What the N.M. 44 warranty reallyamounts to is the state paying Koch$62 million up front to make sure theroad is properly maintained for the next20 years.

Koch Industries officials will decidewhen the repair work is needed.

The state will award repair contracts,which must meet Koch specifications.Koch will then reimburse the state forthe cost.

The company will keep whatever isn’tspent on repairs, along with any interestor income generated.

Koch also is required to post a$50 million surety bond with the state incase of a major design problem.

Rahn claims the warranty will save

A 20-Year Warranty

Continued on Page 10

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.

Some Lawmakers Question $62 Million Price Tag

the state $89 million — a figure Koch says itdoesn’t use without attributing it to the highwaydepartment.

Rahn arrives at his savings total by usingdepartment estimates that it would cost$151 million to maintain a four-lane N.M. 44 inalmost perfect condition for 20 years.

He also concedes no state road is currentlymaintained at that level. Highway departmentrecords show that more than 4,500 miles of road inthe state are in need of repair.

Rahn’s estimated savings also assumes theasphalt surface will have to be stripped and redoneat least twice in the next 20 years.

But the state has never maintained a roaddesigned to last 20 years.

Most state roads are 10-year design, with a 6-inchlayer of asphalt on top of the “base course.” Koch’sdesign 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 MexicoHouse Speaker Rep. Raymond Sanchez, D-Albuquerque.

Sen. Billy McKibben, R-Hobbs, who has spent 20years in the New Mexico Legislature, predictedthere would be disputes if the state demandscertain maintenance and Koch refuses.

“My God, you can’t even get your car warrantyserviced right,” he said.

A revised design of the project, which was doneto cut costs, adds another potential warranty issue.

Under the latest plan, more than 20 miles ofexisting roadway will stay in place. The pavementwill be refurbished, and two new lanes added.

Koch officials said they expect to be responsibleonly for those parts of the road on which theyactually managed the construction.

If problems such as rutting or cracking arecaused by something beneath the surface of theexisting roadway — such as the base course or soilcompaction that Koch didn’t oversee — thecompany says it wouldn’t be responsible.

Rahn told the state Highway Commission heexpects changes will have to be made in thewarranty to address that problem.

No other takersThe 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 companydoing so. But it hasn’t met with much success.

The company recently lost a bid to build a$232 million parkway in South Carolina. Thecontract was awarded to a group of firms offeringa three-year warranty.

“It (a warranty) was one of our selection criteria,but it wasn’t one of the heavier items that we




AARON WILSON/JOURNAL

JEMEZ FOOTHILLS: Legislators question the value of the $62 million war-ranty on the four-lane widening of N.M. 44 from San Ysidro to the Four Cor-ners area.

awarded points to,” said Roy Tolson,spokesman for the South CarolinaDepartment of Transportation.

Koch officials recently traveled toMontana to push their road-buildingconcept that includes a long-termwarranty, but highway officialsdidn’t bite on the proposal.

“Up here it (a long-term warranty)is already politically andeconomically sensitive,” said JerryStephens, of the civil engineeringdepartment at Montana StateUniversity.

“I think we’re all waiting for theNew Mexico thing … to see how thatturns out,” said Stephens, one of theauthors of the Montana study onwarranties.

Until 1995, the Federal HighwayAdministration frowned onwarranties because it didn’t wantstates to use federal funds tomaintain roads.

That changed when federalofficials decided warranties mightimprove quality.

But Rahn said short warrantiesonly protect against constructiondefects that are obvious within ayear of completion.

Typically, state highwaydepartments haven’t consideredlong-term warranties.

Rahn says that’s because of theirmind-set.

“In my assessment, DOTs(highway departments) areextremely conservative, partlybecause engineers are trained toavoid risk,” he said. “That’s theirmentality and their training. …They’re very conservative, and youdon’t typically see a lot ofinnovation.”

Rahn says he doesn’t believe theN.M. 44 warranty is a risk.

“In the worst-case scenario thestate wins,” he said. “When youcombine a new highway design witha warranty, you’ve transferred thatrisk to the company.”

McKibben disagrees.“Gary Johnson is a lame duck,” he

said. “When he’s through with NewMexico and it’s served himpersonally well, he’ll ride off into thesunset and it will be left up to theLegislature to pick up the pieces andsalvage all the messes that have beenmade.” ◆


Continued from Page 10 N.M. Project Large-ScaleTest For ‘Euro-Design’Koch Industries Inc. had never built a

major highway in the United Statesat the time it proposed to design,

build, finance and provide a warranty forthe widening of N.M. 44.

The so-called “Euro-design” pavementthe company plans for the project hasn’tbeen used on any other road in the UnitedStates. In fact, Koch designed itspecifically for this project.

Koch had been a supplier of asphalt since1993, and its entry into the road-buildingmarket coincided with a big increase infederal funding for state road projects.

The company formed its PerformanceRoads Division in the fall of 1996 to breakinto the road-building industry and initiallycontacted New Mexico highway officialsabout possible maintenance contracts inthe northwest part of the state.

“A lot of companies saw road building asa new profit center,” said Richard Harris,executive vice president of the AssociatedGeneral Contractors of New Mexico.

“They saw the available road-buildingdollars double, and they naturally wantedin on that.”

By the time Koch made its formalproposal for N.M. 44 in December 1997, thecompany said it had:

■ Provided technical expertise andmaterials for a five-mile, eight-lane sectionof Interstate 275 in Michigan.

■ Provided technical expertise, testingand materials for a 10-mile stretch ofInterstate 69 in Indiana.

■ Completed a design, build andwarranty contract for roads in a Missourisubdivision.

Koch also is a limited partner on aCalifornia toll road that has yet to be builtand recently completed an eight-milestretch of a county road in eastern Kansas.

In seeking the New Mexico contract,Koch attempted to shore up its portfolio bybringing in a builder, Flatiron StructuresInc., and a national engineering firm,CH2MHill.

Koch moved into the asphalt business ina big way when it bought asphalt plantsfrom Elf Aquataine, a French company, in1993. Elf had 40 American asphalt plantsand supplied about 6 percent of the U.S.asphalt market.

“When we purchased Elf’s asphalt

operations here, we knew we bought a lotof good assets,” said Bob Heitmann, vicepresident of Koch’s Performance RoadsDivision. “What we didn’t realize is thequality of the people who were comingwith those assets.”

Koch’s purchase brought people into thecompany with road experience in Europe,where the Democratic Socialistgovernments sponsor a less-competitiveand more cooperative relationship withroad builders.

European road builders also usedifferent techniques to test and designasphalts for specific roads.

What made Koch unique in its bid to getinto the highway construction business wasits long-term warranty pitch.

“We had experience with warrantieswithin the company,” Heitmann said. “Wehave a product that water-seals basementsthat has a 10-year warranty. We hadsuccess with that concept.”

Heitmann is responsible for Koch’snationwide push on what the companydescribes as its innovative design, buildand warranty package.

Rep. Dan Silva, D-Albuquerque, knew ofKoch Industries from attending nationaltransportation meetings as chairman of theHouse Transportation Committee.

“I personally knew about them beforethis,” Silva said. “They were promotingprivatization” of road-building projects atnational legislative meetings ontransportation.

New Mexico Highway andTransportation Secretary Pete Rahn saidhe thought Koch was a small asphaltsupplier until he visited the company’smodern, black glass, high-riseheadquarters in Wichita, Kan.

Company officials acknowledged theN.M. 44 project is the biggest test for itsroad program.

Rahn told prospective bidders in the fallof 1997 that the national spotlight would befocused on the project.

The company or consortium selected asthe developer for the project, Rahn said,“will be in a position of competitiveadvantage as this model is replicatedaround the rest of the United States.” ◆


WICHITA — Koch IndustriesInc. is a privately held com-pany whose 1998 revenues of$35 billion exceeded those of

Microsoft, 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 cattlefeed to water purification filtration sys-tems.

Charles and David are among the rich-est men in the United States, with ForbesMagazine 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 makingasphalt. Koch owns 35,000 miles of oiland natural gas pipelines in the UnitedStates and Canada.

The Wichita-based company in recentyears expanded into other areas, includ-ing road building.

“We’re changing from a company thatwas just involved in commodities to acompany that offers services and newproducts and product concepts,” saidspokeswoman Mary Beth Jarvis. “Theprofit margins in commodities are justtoo thin. If you’re going to grow, you haveto move into new markets and create newmarkets.”

The company is made of up nine busi-ness groups, some of which include anumber of subsidiary companies.

The major groups include Koch Petro-leum Group, Koch Capital ServicesGroup, Koch Energy Group, Koch GasLiquids Group, Koch Chemicals Group,Koch Chemical Technology Group, KochAgriculture Group and Koch MineralServices Group.

Despite being the second-largest pri-vately held company in the country, KochIndustries isn’t particularly well known.

The company didn’t seek publicity andonly in the past decade has it publicizedits activities and responded to reporters’questions.

The controversies that have put KochIndustries in the limelight were not wel-

comed by the compa-ny.

They include:■ A series of bitterly

fought lawsuits filedby William Koch, theestranged brother ofCharles and David,including allegationsthat the company sys-tematically short-changed owners of oilleases.

■ Environmentalproblems and govern-ment fines at Koch’s

two oil refineries.Over the past decade, William Koch put

Koch Industries on the front pages ofnational magazines and newspapers byfiling more than 20 lawsuits in federaland state courts.

The family fight started in 1980 when

William Koch tried tooust his older brother,Charles Koch, as chiefexecutive officer.William opposed thecompany’s policy ofreinvesting 90 percentof profits back into thecompany.

Charles Koch wonthe boardroom battle,and in 1983 Charlesand David Kochbought the shares ofWilliam, another broth-er, Frederick, and sev-eral cousins for

$1.1 billion.William Koch subsequently filed suit

claiming that he and other stockholderswere cheated in the 1983 buyout. Healleged that Charles and David misrepre-

Koch Is Nation’s 2nd LargestPrivately Held Company

COURTESY OF KEN MANTYLA

CONTRACTOR HEADQUARTERS: Charles and David Koch run their billion-dollar oiland gas conglomerate out of Koch Industries Inc. corporate headquarters in Wichi-ta, Kan.

CHARLESKOCH: Targetof ousterattempt

DAVID KOCH: One ofrichest men in U.S.



sented the value of the company and said the for-mer minority shareholders were owed about$2 billion.

A jury rejected William Koch’s claims, findingthere were no significant misrepresentations oromissions. He wasn’t awarded any money andvowed to appeal.

William Koch has brought another lawsuit inOklahoma claiming the company systematicallymisled oil producers when measuring the amountof oil taken from their wells.

The case is being tried in Tulsa and is expectedto conclude this month. Koch Industries respondsthat the producers agreed to adjustments in orderto sell low-grade oil and to compensate for sedi-ment buildup in oil holding tanks.

Environmental issuesLike many companies in the oil business, Koch

Industries has had its share of battles with stateand federal environmental agencies.

■ The state of Minnesota assessed a $6.9 millionpollution penalty against Koch’s Rosemount refin-ery south of Minneapolis in 1998 for gasoline spillsand leakage from underground storage tanks thatpolluted the Mississippi River. The leaks and spillsoccurred over several years.

■ A Koch pipeline spill at Corpus Christi, Texas,in 1994 led to a $10.5 million class-action settle-ment for people in the fishing industry.

■ In 1989, the company was hit with a $2 millionpenalty for dumping waste water into the Missis-sippi River from the Rosemount, Minn., plant.

■ The federal government has a pending lawsuitagainst the company for failing to report pipelinespills in Texas and Oklahoma. A civil case arisingfrom the Corpus Christi spill is pending.

Koch Industries has fought the civil cases incourt and has a long record of supporting changesin federal laws and regulations that environmen-talists oppose.

But the company also has been recognized bythe Environmental Protection Agency for some ofits programs.

“On the compliance side there has been an evo-lution,” Jarvis said. “That is, we’re very strongbelievers in environmental compliance… .

“We have always paid a lot of attention to theresults. I think in the last number of years wehave become better at the compliance. Early tomid-’90s we fought it. In the last few years wehave communicated better.”

Jarvis said the company also has seen techno-logical advances that make it easier to complywith clean air and water standards at its refineriesand pipelines.

“The one part that has been unchanged is thatwe have a very strong sense of stewardship —that’s always been there,” Jarvis said. ◆


The widening of N.M. 44 fromSan Ysidro to Bloomfieldvaulted to the top of NewMexico’s road-building pri-

ority list because Gov. Gary John-son wanted the job done.

The road project initially wasn’tincluded in the list of transportationpriorities submitted by the state tofederal officials for 1997-2002.

And N.M. 44 wasn’t the mostheavily traveled road in the state,nor was it the most dangerous,according to a 1997 highwaydepartment study of a dozen two-lane roads. The study showed N.M.44 ranked seventh in the number offatalities per 100 million vehiclemiles traveled and sixth inaccidents.

But there were otherconsiderations.

Johnson made widening N.M. 44 ahigh priority during his first term,but vetoed a funding bill twicebecause it relied on a gasoline taxincrease. After the second veto inearly 1997, Johnson directedhighway officials to find some otherway of financing the project.

The Farmington area, served byN.M. 44, is a Republican strongholdwhere Johnson defeated DemocratBruce King by 8,000 votes in 1994and Martin Chávez by 12,000 votesin 1998.

Sen. Billy McKibben, R-Hobbs,said that moving the N.M. 44project to the top of the list was“deep politics.”

McKibben noted highwaystatistics that show the stretch ofN.M. 44 to be widened serves anaverage of 3,000 drivers a day.

“Is that incredible? Is that not‘politics before people,’ ’’ he said,referring to Johnson’s “peoplebefore politics” campaign slogan.

“You know you could spend that(money) on one of the main arteriesin Albuquerque and serve New

Mexico much, much better. Again,there’s some deep politics there.”

Johnson said he just wants a saferroad.

“I remember as a family drivingup to the Four Corners area, and wehad our series of near head-ons —everybody does. I was told then as a13-year-old or 14-year-old that‘Don’t worry, this is going to befour-laned shortly,’ ’’ Johnson said.

State officials added constructionof N.M. 44 to the StateTransportation ImprovementProgram, or STIP, after privatediscussions in early 1997 with Koch(pronounced “coke”) Industries Inc.— the Kansas-based company thatoffered to finance, design andwarranty the project. Kochultimately won the state contract in1998 as the sole bidder on theproject.

A project must be included in theSTIP plan to be eligible for federalfunds. Until it was added in thesummer of 1997, only thepreliminary engineering for theproject had been included.

The state Highway Commissionagreed to add construction of N.M.44 to the STIP plan in June 1997 andapproved a Request for Proposaltwo months later.

Highway officials said the projectwould increase safety and promoteeconomic development in the FourCorners area.

They presented the stateHighway Commission with ananalysis showing the road as the toppriority for widening among 12 two-lane roads studied.

Traffic volumes, populationserved, accident rates and futureprojections were considered.

U.S. 550 between Aztec and theColorado state line ranked first infatalities and accidents; N.M. 68between Española and Taos had the

Widening of N.M. 44Jumped to Top of List■ Critics say highway not the most heavily traveled orthe most dangerous in the state



second-highest rates.Neither road was included in the STIP

plan, and neither is slated to beexpanded to four lanes in the nearfuture.

According to the analysis, averagedaily traffic on N.M. 44 was fifthhighest of the 12 roads. That rankingwasn’t expected to change by 2016.

The analysis for N.M. 44 includedtraffic counts and accidents in theBernalillo area — by far the mostcongested portion of the entire stretchof the roadway.

But that 20-mile stretch had alreadybeen approved for widening — a projectthat was paid for by state money andcompleted in 1998.

The San Ysidro-to-Bloomfield portiondid rank first in heavy commercialtraffic with more than 1,000 trucks aday, but that ranking was expected todrop to fourth by 2016.

Another N.M. 44 analysis conductedby the highway department in 1995looked at cost, safety and economicfactors.

“While it appears that (accident) ratesin general are moderate to high on thisroute, it is not clear to what extentconstruction of four lanes will improveaccident rates,” oversight staff engineerBob Bass said in the report.

The 1995 study said that providingtwo more lanes would reduce thepotential for head-on crashes caused byvehicles attempting to pass. It statedthat adding a median could reduceaccidents caused by vehicles driftingacross the center lane.

But a large number of accidents onthe road have occurred at junctions andother access points where vehiclesenter and leave traffic.

Those would still be present with afour-lane N.M. 44, Bass said, so “it islikely that four-lane construction willnot create the safety benefits peopleanticipate.”

Public commentState highway officials have come

under fire for the way the N.M. 44construction project was added to thetransportation plan.

Federal regulations stress publicaccess to key decisions on road projectsand require public hearings on majorrevisions to the STIP.

State highway officials held no publichearings on the road proposal in 1997

before adding it to the plan.The public had opportunities to hear

about the project during state HighwayCommission meetings during thesummer of 1997, but the agendas don’tshow any time set aside for publiccomment.

Meeting agendas didn’t refer to N.M.44 by name, and minutes reflect littlediscussion about the project amonghighway commissioners.

Highway and TransportationSecretary Pete Rahn said the




SAFETY ISSUE: A 1995 highway department report says widening N.M. 44 to fourlanes won’t necessarily make road junctions that much safer. This junction is theturnoff to Chaco Canyon.

commission did talk about the issue incommittee meetings, but minutes ofthose discussions aren’t routinely kept.

The Rio Grande chapter of the SierraClub protested the lack of publicinvolvement in a January 1998 letter tothe Federal Highway Administration.

“The proposed action … denies thepublic required opportunity for earlyand continuing involvement inidentifying the social, economic andenvironmental impacts of the project,”wrote chapter chairman John R.Buchser.

The Sierra Club also alleged theFederal Highway Administration failedto allow a required 30-day public reviewafter finding that the project wouldcause no significant environmentalimpact.

Records show highway officialslaunched the contracting process a fewdays after the environmental impactfinding.

The Sierra Club said the “closed natureof the process prevented objection andcomment by officials and the public” inother areas of the state that needed roadimprovements.

State and federal officials said therehad been ample discussion in prioryears.

“Four-laning N.M. 44 has been in thelong-range plan of (the highwaydepartment’s) for over 20 years,” Rahnsaid in a September 1997 letter to U.S.Transportation Secretary Rodney Slater.

Reuben S. Thomas, the New Mexico-based division administrator of the

Federal Highway Administration, toldthe Sierra Club in a February 1998 letterthat “appropriate planning procedures”had been followed.

State highway officials, Thomas wrote,had provided for “early, continuing andproactive public involvement.” He citedpublic meetings held in 1994 and 1995. ◆




HIGHWAY TOLL: Roadside crosses along N.M. 44 mark the sites of past tragedies.State highway officials hope widening the road to four lanes will make it safer.

Charles and David Koch are bil-lionaire businessmen with a pen-chant for politics and conserva-tive causes.

Since 1993, David Koch and KochIndustries have contributed more than$1 million in so-called “soft money” to thenational Republican Party and its variouscommittees.

Soft money at the national level findsits way to state candidates for both majorpolitical parties. Gov. Gary Johnson, for

example, received at least a quarter of amillion dollars in national Republican softmoney in his two successful runs foroffice.

The Koch brothers and their companyalso have contributed hundreds of thou-sands of dollars directly to candidatesrunning for state and federal offices —most of them Republicans.

Johnson and Rep. Heather Wilson, R-N.M., were among the recipients ofKoch’s direct largess in 1998. Koch gaveJohnson’s re-election campaign $5,000and contributed $10,000 to Wilsonthrough a political action committee.

Koch spokeswoman Mary Beth Jarvissaid the philosophy behind the company’spolitical contributions “is to support peo-

ple who believe in free markets, openmarkets.”

Johnson and Wilson both say they don’tknow the Koch brothers personally.

“I wouldn’t recognize them if they werein the room,” Johnson said.

The Koch brothers control several phil-anthropic foundations that support acade-mic and policy organizations promotingsmaller government, privatization, regu-latory reform, school choice, privateproperty rights and reduced militaryspending.

The family has a history of politicalactivism.

Fred Koch, the father of Charles and

Koch Supports Many Candidates, Causes■ Campaigns of Gov.Johnson, Rep. HeatherWilson among the recipients



David, was an avowed anti-communistwho served on the board of advisers ofthe John Birch Society. Charles was onthe board until the late 1960s, when hequit because of his opposition to the Viet-nam War. He actively supported termlimits with a $300,000donation.

David Koch was theLibertarian Party’svice-presidentialnominee in 1980.

The Koch familyalso helped found andfinance the Libertari-an Washington-basedthink tank, the CatoInstitute.

The institute hasapplauded Johnsonfor cutting taxes,reducing the size ofgovernment and, most recently, for hisstand on legalization of drugs.

Johnson recently was a keynote speak-er at a Cato forum in Washington, D.C.,on drug policy and spoke at a Cato semi-nar in 1998 in Albuquerque on SocialSecurity reform.

The Cato Institute released a study pri-or to the 1998 gubernatorial election thatpraised Johnson forhis positions on taxreductions and small-er government.

David Koch serveson the board of direc-tors of the Cato Insti-tute.

Johnson said in aninterview earlier thismonth that he mighthave met the Kochbrothers, but didn’thave any specific rec-ollection of such ameeting.

The governor said he was familiar withthe Koch name in the context of the N.M.44 Corridor Project.

Wilson said she never met the Kochsand doesn’t recollect the contribution.

“It probably was made at one of thefund-raisers in Washington,” she said ina telephone interview. “I assume theysupported pro- business candidates, andI am definitely pro-business.”

For the past six years, the Kochs alsohave contributed small amounts to mod-erate and conservative Democratsthrough the Democratic LeadershipCouncil.

The Kochs over the years have movedtoward many mainstream Republicanpositions, supporting free trade with Chi-na, NAFTA and other initiatives to openforeign markets.

David Koch was finance committeevice chairman of former Kansas Sen.Bob Dole’s presidential bid in 1996. TheKochs are listed among Gov. George W.Bush’s financial supporters.

Johnson campaignThe $5,000 contribution by Koch Indus-

tries Inc. to Johnson’s 1998 campaignwas made more than a month after theNovember election.Johnson’s campaigncommittee at thetime reported nodebts and a cash bal-ance of $13,000.

The N.M. 44 con-tract between KochIndustries and thestate highway depart-ment was signed sixmonths earlier.

Doug Turner, John-son’s campaign man-ager, said campaignstaff solicited busi-nesses and individu-als after the election to help sponsorJohnson’s inauguration. But Turner saidhe didn’t believe Koch Industries wasamong those contacted.

“We’ve been very, very careful not tosolicit in areas where it could be con-strued to be a conflict of interest,” Turn-er said.

He said the Koch contribution mighthave been solicited by the RepublicanGovernors Association.

A big part of the Kochs’ political con-tributions are in “soft” money, which issupposed to be used for “party building”efforts but not to help specific candi-dates for federal office.

However, soft money from nationalpolitical parties can be disbursed to sup-port candidates for state offices.

Koch Industries and David Koch con-tributed $677,000 to the RepublicanNational State Elections Committee from1994 through March of this year.

That committee gave Johnson’s cam-

paign $160,000 in 1998 and $75,000 in1994.

The state Republican Party alsoreceived more than $535,000 in 1997-98from the same Republican national com-mittee.

“Soft money is unlimited and unregu-lated,” said Sheila Krumholz, aresearcher with the Center For Respon-sive Politics.

Critics such as Common Cause consid-er “soft money” donations as a way toget around the full disclosure of who issupporting candidates for politicaloffice.

Congressional probesThe Koch name also surfaced in the

1997 debate over the financing of con-gressional campaigns.

Democrats on the Senate Governmen-tal Affairs Committee believed theKochs were responsible for more than$1.2 million spent by a nonprofit group tosupport Republican congressional candi-dates in the last weeks of the 1996 cam-paign.

The Kochs won’t answer questionsabout it.

“Get over it,” Jarvis said in an inter-view with the Journal. “It happened in1996.”

The Senate committee at the time wasinvestigating alleged fund-raising irreg-ularities by the Democratic NationalCommittee — including contributionsmade in return for overnight stays at theWhite House.

But Democrats on the committee want-ed an investigation into funding of a last-minute television campaign. The cam-paign was designed to aid Republicancandidates who were short of money andto offset a similar campaign for Democ-rats paid for by organized labor.

The listed sponsor for the Republicantelevision ads was a group called Citi-zens for the Republic Education.

But that group allegedly wasbankrolled by another organizationcalled the Economic Education Trust,according to the Washington Post.

The Post also reported that investiga-tors for Senate Democrats believed “butcan’t definitively prove” that the Eco-nomic Education Trust is funded byCharles and David Koch. ◆

JARVIS: Firmsupports “freemarkets, openmarkets”

C. KOCH:Actively supported term limits

D. KOCH: OnLibertarian ticket in 1980


New Mexico will be paying the$420 million bill for wideningN.M. 44 long after Gov. GaryJohnson leaves office.

The next five administrations are lockedinto using more than $20 million a yearfrom New Mexico’s anticipated federalhighway funding to pay off bonds sold tofinance the 118-mile project.

The Johnson administration is leavingthis legacy without submitting the plan tovoters or winning formal legislativeapproval.

“Members of the Legislature are goingto be left trying to explain it,” said Sen.John Arthur Smith, D-Deming.

“I think that we (legislators) are going tobe back here, replaying and rehashingthis, when everybody is retired from thehighway department.”

Johnson said he believes the stateneeded to go into debt to get the projectcompleted.

“I would just argue that if you don’t gointo debt to build highways that it’s notgoing to happen,” Johnson said. “We’re

never going to make improvements withcash.”

Some legislators are concerned that ashortfall in future federal highway fundswill affect other New Mexico roadprojects because the N.M. 44 bonds havefirst priority on federal money — whichaccounts for nearly half the state’s$608 million highway budget this year.

Critics fear that Johnson and hishighway secretary, Pete Rahn, are ineffect trading future road projects for agold-plated N.M. 44.

Only a few states so far have used thismethod of borrowing against futurefederal revenue to accelerate roadprojects. New Mexico was among the firstto issue the so-called Garvee bonds undera program Congress approved in 1995.

Arkansas, Colorado, Massachusetts,Mississippi and Ohio are funding roadprojects with the bonds. All obtainedeither legislative or voter approval first.

State highway officials said they weren’trequired to get legislative or voterapproval. Ultimately, they did consult with

legislative leaders.Unlike the other states that have issued

the bonds, New Mexico hasn’t articulatedhow it will pay them off if future federalfunding falls off. Other states, such asMississippi, have pledged state revenuesif that happens.

Historically, New Mexico has built roadson a pay-as-you-go basis.

“New Mexico hasn’t borrowed money tobuild roads,” Rahn said. “And that’s gottenus to where we are, with 25 percent of oursystem in deficient status (not beingrepaired in a timely manner).”

State Sen. Raymond Kysar, R-Farmington, is a longtime supporter ofwidening N.M. 44 to the Four Corners areahe represents.

“If you took all the tax money we (theFarmington area) send to the state, wewould have the money to four-lane N.M. 44in one year,” Kysar said.

He supports Rahn’s efforts to get theproject completed quickly.

“Pete’s the type of guy who once he gets



Gov. Defends Going Into Debt for N.M. 44


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.


going on something, he gets it done nomatter what it takes,” said Kysar, whoonce employed Rahn as a salesman in hisinsurance company.

But Democrats in the Legislature seethings differently.

Legislative Finance Committee vicechairman Rep. Max Coll, D-Santa Fe,said, “If we were paying as we go, that$100 million (in interest) would be goingto our state for other projects, instead ofus putting it in some investment banker’spocket back East.”

Figuring costsOf the $420 million tab for the project,

only $180 million has been set aside forconstruction, to be performed bycompanies that bid on various segmentsof the road.

A review of state records by theJournal found the $180 million forconstruction to be overly optimistic. Thestate this summer rejected most of theinitial construction bids as too high.

Further, highway department budgetestimates didn’t include either acontingency fund or a projected$17.4 million in gross-receipts taxes.

But Rahn insists $180 million isenough. And he says if the road can’t bebuilt for that amount, it won’t becompleted.

“I want to build this road. I want this tomove forward,” he said. “We’ve madeimprovements (on the cost). We’ve gonefrom a $230-to-$250 million range tounder $200 million, and there are stillareas we want to address that can bringthis cost down.”

After construction costs, interestpayments on the bonds take the nextbiggest piece of the pie: $124 million.

Koch (pronounced “coke”) Industriesof Wichita, Kan., will be paid $62 millionfor the warranty and $46 million todesign the road and overseeconstruction. About $8 million was spenton preliminary studies and design.

The state is in the process of issuing$296 million in bonds to pay for theproject — the limit the Federal HighwayAdministration would allow.

And that was after the state convincedfederal highway officials to accept thealready-completed widening of N.M. 44from Bernalillo to San Ysidro as therequired 20 percent in state matchingmoney.

That allowed Johnson administrationofficials to avoid going back to the

Legislature for money.All that wrangling, along with the deal

Rahn cut with Koch Industries, may haveleft the state short of money for actualroad building.

After the first round of constructionbids exceeded the engineers’ estimatesby millions of dollars, highway officialsand Koch redesigned major portions ofthe project.

Rahn told the state HighwayCommission recently that the redesignsmay require the state and Koch torenegotiate the warranty.

Rahn defends the high cost of thewarranty by saying the state will get a

road in tip-top condition after 20 years.The warranty is backed by a 20-year$50 million performance bond.

Rahn also acknowledges the amountthe state is paying for design andconstruction management is high — 25percent of construction costs. But hesays the state is buying Koch’s roaddesign and Koch will take on the state’sinspection duties in overseeing the roadconstruction.

Koch will conduct more inspectionsthan the state normally would in order toprotect its warranty, Rahn said. And thatmeans a higher-quality road.

Continued from Page 17STAGES OF CONSTRUCTION

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Cuba

SanYsidro

Bernalillo

Albuquerque

Nageezi

Bloomfield

Farmington

550

Phase

#3Phase

#2Phase

#1

Phase

#4

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#5

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Completion of construction is planned forthe fall of 2001 when the road designation willbecome U.S. 550.

Bids to be letin 2000(initial bids rejectedin July 1999)

Bids to be letDecember14, 1999

RUSS BALL / JOURNAL

50miles

9.7miles

30.1miles

28miles

Underconstruction,$25 million

Bids let inNovember(initial bidsrejected inJuly 1999)$52.7million


Necessary trimsKoch told the department in its formal

proposal submitted in December 1997that its “design alternative is slightlymore expensive than a traditionalapproach.”

It is difficult to say how much moreexpensive it will be.

In 1998, the state widened the firstsegment of N.M. 44 between Bernalilloand San Ysidro at a cost of $16.4 million.

That project simply added two lanes oneither side of that 20-mile stretch, costingabout $800,000 per mile.

For the Koch project on the remaining118 miles of the road, the highwaydepartment budgeted about $1.5 millionper mile.

That is because the Koch plan called fortotal four-lane reconstruction of the road.

But bids from construction companieswere coming in higher than the budgeted$1.5 million per mile.

In November, the department openedbids on two sections north of San Ysidro.Those bids came in at between$1.75 million a mile and more than$2 million a mile.

The low bid, of $52.7 million to build 30miles of road, was more than 10 percentlower than the engineer’s estimates of$61.8 million.

Officials are scheduled to open thethird round of bids on sections of N.M. 44north of Cuba later this month. If thosebids come in higher than $2 million amile, the project could be in trouble.

The department budgeted $180 millionfor construction without knowing whatKoch’s Euro-pavement design — whichinvolves a thicker layer of asphalt —would look like or cost.

The department also ignored its own1995 engineer’s report that said it wouldcost $1.65 million per mile to build fournew lanes.

Instead, it based its cost estimates on astudy done in April 1997 that came upwith the $1.5 million per mile torehabilitate two lanes and build two newones.

In interviews with the Journal, Rahndefended the department’s estimates asthe best available.

But some low bids this summer came inas high as $2.5 million per mile. Bids onall but one section were rejected, andRahn admits the state can’t build the roadat those prices.

To cut projected cost overruns, onemajor change the department made in thedesign is that the northern two sections of

the project won’t be completely rebuilt.Those sections, approximately 22 miles,will be widened but the existing road willbe used as a base.

The state also has agreed the shoulderswill be narrower than planned and notcovered by the warranty. Retaining wallshave been removed from portions of theroad.

“I don’t know that we’re at $180 millionyet, but we’re getting there,” Rahn said.

But he wonders if the first round ofrejected bids were high becausecontractors weren’t “hungry enough” togive the state a good price.

“Highway construction projects haveseen significantly higher inflation thisyear above the entire economy’s inflationrate,” Rahn said. “That goes back to thefact that we are increasing spending onhighways in this country by 45 percent. Idon’t see a lot of hungry contractors outthere.”

Koch officials agree.“We’re seeing inflation rates of 16

percent each of the last two years,” saidBob Heitmann, vice president of Koch’sPerformance Roads Division.

But Richard Harris, executive vicepresident of the Associated GeneralContractors of New Mexico, saidcontractors are simply “pricing the costof their risk.”

Harris said contractors believe theirrisk is greater on N.M. 44 than otherprojects because there is a greaterpossibility of work being rejected bywarranty-conscious Koch.

Cost of rockWhy was the department so far off in

its cost estimates?The largest single cost item in road

construction is the aggregate used inmaking the asphalt and the base course.

New Mexico highways have a 6-inchlayer of asphalt. Koch N.M. 44 designcalls for a 9-inch asphalt layer requiringmore aggregate.

Highway officials told legislators thissummer that bids on aggregate werecoming in at $28 a ton — 40 percenthigher than in the past.

There are few developed sources ofaggregate along N.M. 44 north of SanYsidro and south of Bloomfield, whichmeans the rock has to be hauled in to theasphalt plants.

The amount of other material, asphaltoil and additives also increases with theKoch design.

Also, contractors were warned therewould be more inspections to make surethe aggregate and the asphalt mix metspecifications.

“I think the contractors are awarethere’s going to be an exceptional level ofinspection,” Rahn said. “I think thatscared some contractors.”

The highway department also requiredlump-sum bids, moving away from thenormal procedure in which thedepartment would pay extra for materialsif its estimates were too low.

“A lump sum (bid) gives us a lot morecomfort because there’s no opportunityfor multimillion (dollar) change orders,”Rahn said. “That’s why lump-sum (bids)are appealing to us and not tocontractors.”

This increased the risks to thecontractors, so they factored that riskinto their bids, according to Harris.

Despite the problems, Rahn says hebelieves the project will succeed.

“I haven’t given up on Koch here,” Rahnsaid. ◆



PAUL BEARCE/JOURNAL

SLICE OF WORK: A cross section of asphalt base course from the N.M. 44 wideningproject.


It could have been worse.The state would have paid mil-

lions of dollars more in interest pay-ments on the N.M. 44 project under

the original financing plan proposed byNew Mexico highway officials.

The highway department’s originalRequest for Proposals called for a pri-vate developer to finance the project aswell as design it, manage constructionand provide a warranty.

The only company that submitted abid was Koch Industries of Wichita,Kan., which suggested the idea of pri-vate financing to the highway depart-ment in the first place.

In April 1997 Koch offered to providethe up-front money for the project butdidn’t suggest how it would be repaid.

The private-financing idea hit a snagin September when legislative leaderspleaded with federal officials to put thebrakes on what some lawmakers consid-ered to be a runaway project.

Legislative leaders ultimately agreedto support the project if the highwaydepartment compared the privatefinancing with that offered by NewMexico Finance Authority.

The state rate turned out to be morecost-effective.

The agreement between Highway andTransportation Secretary Pete Rahn andlegislators also accelerated four otherroad projects, including the Big I recon-struction in Albuquerque and U.S. 70between Alamogordo and Las Cruces.

Tom Pollard, director of the FinanceAuthority, said in an August 1998 memothat NMFA’s involvement on the N.M. 44project “saved New Mexico well over$100 million in interest over the eigh-teen years financing.”

Pollard said the NMFA’s ability tooffer tax-exempt financing and tosecure a AAA rating lowered the inter-est rate by about 2.75 percentage points.

Highway officials earlier had rejected

the idea of using the NMFA to issuebonds, and pushed ahead with the pri-vate-financing option.

Highway legal department notes of aninternal meeting dated May 1997 listedpossible N.M. 44 funding mechanismsand showed “NMFA” with a line drawnthrough it.

Rahn said in arecent interviewthat he wasn’t surewhy his agencydecided againstgoing through thestate FinanceAuthority.

“We didn’t knowwe could use theFinance Authority,”he said.

Rahn said thedepartment consid-ered the Koch proposal for financingbecause “we had no other way to pay forthis if the company didn’t come forwardwith dollars to loan the state.”

Rep. Max Coll, D-Santa Fe and vicechairman of the Legislative FinanceCommittee, asked U.S. TransportationSecretary Rodney Slater to intervene inJuly 1997.

Legislators also contacted members ofNew Mexico’s congressional delegation.

Among other concerns, lawmakersquestioned the lack of public input onthe financing plan.

Highway officials said they didn’tneed to consult with the Legislaturebecause no state funds were beingtapped.

But Reuben Thomas, a federal high-way official based in Santa Fe, said in ane-mail obtained by the Journal that act-ing Federal Highway AdministratorGloria Jeff indicated “she would notapprove the project until the two partiesreached an agreement.”

At Jeff’s request, Rahn in September

met with the Legislature’s leadership,Senate President Pro Tem MannyAragon and House Speaker RaymondSanchez, both Albuquerque Democrats.

Pollard said in a recent interview thathighway officials never made a formalrequest for state financing prior to themeetings with Aragon and Sanchez. Hesaid he couldn’t recall any informal con-versations.

Although the highway department’soriginal RFP called for private financ-ing, Rahn said his agency was workingon the idea of public financing when leg-islators intervened.

Legislative leaders scoff at that claim,saying they first proposed the idea.

Aragon said legislative leaders asked,“How can a private company get betterrates (on bonds) than the state?”

“It had never been discussed until weasked them to do this,” Aragon recalled.“They agreed to hold it (the award ofthe contract) up until the comparisonwas done.”

Legislative leaders and Rahn had sev-eral meetings over a three-week period.Jeff attended the first meeting Sept. 3.

A subsequent letter from legislativeleaders to Slater said Jeff “expressedconcern about the lack of public partici-pation and involvement by all stakehold-ers in the N.M. 44 corridor project andsaid a unilateral ‘decide, announce,defend’ approach for innovative financ-ing and contracting of highway projectsis not acceptable to the Federal High-way Administration.”

Rahn responded that there had beenmore than adequate public notificationand acceptance of the plan after it wasannounced months earlier. ◆

Financing Project Through KochWould Have Cost State More

ARAGON: Won-dered aboutbond rates


Highway and Transportation Sec-retary Pete Rahn’s handout criti-cizing the Journal series pub-lished Dec. 4-7 said the newspa-

per incorrectly reported that widening ofN.M. 550 north of Farmington wasn’tscheduled. Rahn said that construction isunder way.

Rahn also said Koch will post a $114 mil-lion performance bond for the life of thewarranty — not $50 million as the Journalreported in its series.

The bond posted so far is $50 million.Rahn said the company will be required topost the larger bond when the project iscompleted.

He also criticized the series for credit-ing legislative leaders with helping toshave off more than $100 million from

project costs by requiring a comparison ofprivate financing to that provided by theNew Mexico Finance Authority.

Lawmakers said public financing wastheir idea.

Rahn was quoted in the series as sayingthe highway department came up with theidea of public financing. Executive direc-tor Tom Pollard of the finance authorityhad said he couldn’t recall any informalmeetings with highway officials aboutN.M. 44.

On Thursday, Rahn said he has sincechecked with his staff and that they metwith Pollard and finance authority’s bondcounsel nearly three weeks before legisla-tive leaders raised the issue.

Duane Brown, the bond attorney, saidThursday there was a meeting about possi-ble public financing of N.M. 44. He

recalled the discussion being “real gener-al.”

Pollard was out of the office Thursdayand couldn’t be reached for comment.

Rahn said he didn’t tell legislators at thetime they raised the public financing issuethat his agency had met with NMFA offi-cials.

After Thursday’s hearing, Rahn said hefelt the series implied that he lied when hesaid he wasn’t aware of any communica-tion about the project between his staffand Koch prior to the arrival of Koch’s“unsolicited” proposal on April 21, 1997.

Rahn said he has since checked withmembers of his staff and hasn’t found any-one who may have asked Koch to send thedepartment the April 1997 proposal.

He said he would continue to look intothe matter. ◆

Highway Department Criticizes Journal Series

State highway officials told a leg-islative committee hearing onThursday they acted within thelaw in hiring Koch Industries of

Wichita, Kan., for the 118-mile wideningof N.M. 44.

Highway and Transportation SecretaryPete Rahn also gave legislators attendingthe Legislative Finance Committee meet-ing a handout containing criticisms of arecent Albuquerque Journal series on theN.M. 44 project.

Koch will be paid $108 million to designthe project, manage construction and pro-vide a 20-year warranty on the road sur-face. Other companies will perform theactual construction.

Koch was the sole bidder for the pro-ject, which highway officials say is thefirst of its kind in the country.

Art Waskey, the highway department’stop lawyer, told committee members thathe advised agency officials in 1997 thatKoch shouldn’t be barred from biddingsimply because it provided “ideas andconcepts” for the project.

The state Governmental Conduct Actbars state agencies from accepting bidsfrom private firms that had direct or indi-rect involvement in preparing the bidspecifications.

The committee had already decided pri-or to Thursday’s public hearing not to askAttorney General Patricia Madrid to

investigate the N.M. 44 contract.Instead, legislators have asked staff to

look into ways the Legislature couldincrease oversight of highway depart-ment procurements.

Waskey said during the committeehearing that Koch had no involvement inwriting the specifications and that itwouldn’t have been “fair to them to elimi-nate them” as bidders.

“At some point in your professionaljudgment you have to draw the line,”Waskey told committee members. “I takeresponsibility. I draw the line.”

The Journal reported in the series thathighway officials were meeting privatelywith Koch officials about the project sixmonths before the state solicited competi-tive proposals for the contract.

Koch officials in April 1997 sent thehighway agency a 27-page “draft discus-sion document” outlining how Koch wouldprivately finance, design, build and war-ranty the road job.

There were follow-up conversations,and highway officials visited Koch head-quarters in Wichita to find out more infor-mation. Both the agency and company saythe private communications then ended.

Rahn presented lawmakers with a Dec.15 letter from Bob Heitmann, Koch vicepresident for Performance Roads.

Heitmann’s letter states the “draft dis-cussion document” was sent to Benny

Roybal, then-highway deputy secretary ofhighway operations, after Roybal men-tioned “that the State was interested inrebuilding NM-44 and expanding it tofour lanes.”

“He asked if I had any ideas on howNMSHTD might approach this kind ofproject,” Heitmann’s letter said.

Heitmann said in his letter that the doc-ument sent to Roybal was previously giv-en to the Pennsylvania Department ofTransportation “and was not written toapply specifically to NM 44 or any partic-ular New Mexico road.”

But in reviewing highway documents,the Journal found an April 21, 1997, coverletter from Heitmann to Roybal that hadbeen attached to the “draft discussiondocument.”

In that letter, Heitmann referred to thepossible cost of the N.M. 44 project andstated that the “special provisions” of thediscussion draft “will become the docu-ment that the state (of New Mexico) willuse to put the project out for bid.”

Heitmann, in the letter presented tolawmakers, also disputed that some of thelanguage in that discussion draft endedup in the bid specifications.

Rahn said Thursday that he had notseen the cover letter to Roybal or thefinancial proposal that Koch had sentRoybal for discussion purposes. ◆

Officials Defend N.M. 44 Project


The administration of Gov. GaryJohnson has danced a massive,privatized project to four-laneN.M. 44 from San Ysidro to the

Farmington area past state law's publicbidding restrictions with virtually nofeedback or participation from any otherbranch or agency of state government.

Koch Industries, of Wichita, Kan., hasbeen awarded a contract for the project,one that will give Koch about $108 millionto design, manage construction and pro-vide an unprecedented 20-year warrantyon the road. Another $180 million is bud-geted for construction -- though early bidopenings suggest that sum might proveinadequate.

The Bernalillo-to-Bloomfield highway

would be built to deluxe quality standardsnever before required in New Mexico,perhaps in the whole country -- while theBig I rebuild at the crossroads of Albu-querque and the entire state goes beggingfor funds to round out a bare-bonesdesign. These are the political prioritiesof the Johnson administration.

The deal is rife with indications that thecontractor was the tail wagging the statedog in putting the package together. KochIndustries brought a design-build-finance-warranty idea to the state. It wasmodified by the state to design/superviseto comply with state law, then -- surprise -- a subsidiary of Koch emerged as theonly bidder.

The tangled history of the project was

dissected in a four-part series by Journalinvestigative reporters Mike Gallagherand Colleen Heild.

By its terms, New Mexico is to getabout $180 million of actual road con-struction, with the balance of the $420million package going for design, bondinterest -- and the $62 million warranty.

This deal has major problems: ■ N.M. 44 wasn't even on the Highway

and Transportation Department's prioritylist until Johnson decided it should be thepriority four-laning project. It probablydidn't hurt that the Farmington area gaveJohnson substantial majorities in his firstrace and could help in his 1998 re-electionbid. The 20-year term of the bonds, to be

EDITORIAL, DEC. 9, 1999

N.M. 44 Road Deal Needs Scrutiny


paid with a portion of New Mexico's fed-eral highway funding, takes away fromfuture governors and Highway andTransportation Commissions discretion inthe spending of state funds.

■ It is a privatization of the function ofthe state Highway and TransportationDepartment on a scale never beforeattempted, done without voter approval ormeaningful participation by the Legisla-ture or the Attorney General's Office.

■ The Highway Department persuadedfederal officials to accept already com-pleted portions of four-laning N.M. 44 asthe state's required match in the project.

■ A subsidiary of Koch Industries wasthe sole bidder on it -- despite state lawthat prohibits anybody who had a direct orindirect part in preparing bid specifica-tions from bidding on that project.

■ Koch is responsible for the warrantyon the road -- but Koch also designed it,meaning it can protect its repair costprospects through the construction speci-fications. Highway and TransportationSecretary Pete Rahn defends the cost ofthe warranty with highly questionablemaintenance cost figures -- figures Kochnever uses without attributing them to thestate.

■ Though Rahn said he was totallyunaware of it, the brothers who own theclosely held Koch Industries are promi-

nent conservative political financiers whocontributed $5,000 directly to Gov. John-son's campaign and $677,000 to the Repub-lican National State Elections Committeefrom 1994 through March of this year.That committee, in turn, gave the Johnsoncampaign $160,000 in 1998 and $75,000 in1994.

■ The Koch family helps finance theCato Institute, the Libertarian think tankthat has een an enthusiastic supporter ofJohnson's continuing drug legalizationcrusade.

■ Sondra Frank, an assistant attorneygeneral who reviewed the contract, toldthe Journal that she was never told thehighway department had been in contactwith Koch ndustries prior to the requestfor proposals being issued. She said theAG was not involved in developing theRFP.

■ Legislative leaders became involvedby objecting to the plan to have Kocharrange the financing for the 20-yearbonds, insisting tax-free, state-issuedbonds be used if they were cheaper. Theypackaged the project with several othersand approved the project list -- but not thedetails of the Koch Industries deal.

■ The deal was assembled and pushedthrough in a manner such that only Kochhad the time and background to submit aresponsive bid.

The clear conclusion from all of this isthat Koch, not the state of New Mexico,

has been in the driver's seat. The Johnsonadministration acted alone in setting thepriority and hocking a significant seg-ment of the state's roadbuilding assets for20 years into the future.

This is no way to run a state supposedlygoverned by the checks and balances of astate constitution and statutes. The Attor-ney General's Office should launch aninvestigation to determine whether thisdeal was done in compliance with law.

The Legislature should exercise itsresponsibility to make certain that thetrue priorities of the state are being car-ried out in the manner prescribed by law.

The early construction bids suggest thatthe state may not be able to build the roadto Koch's design specifications for the$180 million currently allocated to con-struction. Not a dime of additional moneyshould be siphoned into this deal until ithas been examined by state officials out-side the closed circle of the Johnsonadministration.

Finally, even if the Attorney General'sOffice and the Legislature ultimatelydetermine that this deal got pushedthrough without running afoul of any statelaw or constitutional provision, the Legis-lature should enact new restrictions onthe discretion of the executive branch. Aconstitutional amendment requiring priorvoter approval for long-term road bondissues would be a good start. ◆

Editorial continued from Page 22


BY MIKE GALLAGHER

Journal Investigative Reporter

It appears efforts by the state High-way Department and Koch Indus-tries Inc. to cut the cost of wideningN.M. 44 have paid off.

Based on bids opened Tuesday, high-way officials said they considered the$180 million set aside for construction tobe enough.

“It looks very good,” Deputy HighwaySecretary Charlie Trujillo said after bidswere opened. “We’re ready to roll.”

Highway officials and Koch represen-tatives recruited contractors to increasecompetition and spent months redesign-ing the project to reduce costs.

The new road design eliminated con-crete retaining walls; allowed contrac-tors to use recycled asphalt pavementfrom the existing road for base course, alayer below the asphalt; eliminated basecourse along some stretches of road; andchanged specifications on the aggregateto allow the use of rock found closer toN.M. 44.

Wichita, Kan.-based Koch was awardeda $46 million contract to design the roadand manage construction. It also is beingpaid $62 million for a first-of-its-kind 20-year warranty.

It hasn’t been determined how thedesign changes will affect the warranty.

An Arizona paving company, FNF Con-struction, submitted the low bid of$75.7 million to build 50.2 miles of N.M.44 north of Cuba. The bid is on targetwith the department’s budget breakdownof $1.5 million per mile.

Contracts for widening 40 miles ofroad south of Cuba have been approved.

But the budget is still tight for the finalstretch of road. Based on the $180 mil-lion construction budget the state willhave $26.2 million for the last 28 miles.

The highway department has decidedto use the final 23 miles of existing roadin its design. The state used existingroadways in previous widening projectsthat have cost less than $1 million a mile.

The project has been under legislativescrutiny, and there have been concernsthe work couldn’t be done for the moneyset aside.

The project is being paid for with$296 million in bonds issued by the statethat will be repaid by highway moneyprovided in the future by the federalgovernment. The state will pay $124 mil-lion in interest on the bonds over 20years. ◆

Bids on N.M. 44 Meet ExpectationsAriz. Paving FirmSends in Lowest Total


BY MIKE GALLAGHER

Journal Investigative Reporter

The state Attorney General’s Office islooking into a $108 million contractbetween the state highway departmentand a Kansas company for design, con-struction, management and a warrantyfor widening N.M. 44 from San Ysidro tothe Four Corners area.

Attorney General Patricia Madrid said,“Given the size of the contract and thenovelty of it, we have a great many con-cerns.”

She said she asked staff lawyers fromseveral divisions in her office to beginreviewing the contract.

“I wouldn’t call it an investigation atthis time. Due to the holidays we’re justbeginning to look at it. I would call it aninquiry right now,” Madrid said.

She said she asked her staff specifical-ly to review the $62 million, 20-year war-ranty and issues surrounding the award-ing of the contract.

“We’re most interested in the warranty.It’s very unique, and we’re very con-cerned about it,” Madrid said. “We’re alsoconcerned about a contract this size hav-ing only one bidder, that bidder havingcontact with the department prior to theRequest for Proposal, and the short timepotential bidders had to develop theirproposals.”

Highway Secretary Pete Rahn said hebelieves the attorney general’s inquirywill find the highway department didnothing wrong.

“Our general counsel, Art Waskey,called the Deputy Attorney General Stu-art Bluestone and told him that anythingwe have is available to them,” Rahn said.“They said they would take us up on thatoffer.”

Bluestone said he had been in “infor-mal” contact with the highway depart-ment’s lawyer.

Madrid said she asked her staff to reada four-part series of stories published lastmonth by the Albuquerque Journal on thecontract.

The series on N.M. 44 examined theNew Mexico Highway and Transporta-tion Department’s contract with Koch

Industries Inc., a Kansas-based oil andgas conglomerate.

“We have assembled a team of peopleto look into various issues raised in thenewspaper series,” Bluestone said. “Weare examining what options the attorneygeneral will have to pursue this.”

Madrid said, “I have to be careful indiscussing this because of potential liti-gation, but I am most concerned withwhat remedies the state has under thelaw.”

Koch (pronounced Coke) Industriessent highway officials a proposal in April1997 for widening N.M. 44 to four lanesfrom San Ysidro to the Four Corners.Koch’s proposal outlined how it couldfinance, design, build and warranty theproject.

At the time, Koch was the only compa-ny promoting a long-term warranty tohighway departments around the coun-try.

After receiving the proposal, depart-ment officials were in contact with Kochrepresentatives in the spring of 1997 —months before the department issued apublic Request for Proposals to finance,design, manage construction and warran-ty the ride quality of 118 miles of roadwork on N.M. 44.

Koch Industries, owned by Charles andDavid Koch, large Republican NationalParty contributors, was the sole bidder.

Under the contract, Koch gets paid$46 million for designing and overseeing

construction of the road and $62 millionfor its 20-year warranty. Under the war-ranty, Koch agreed to pay for repairs andmaintenance to keep the road surface atstandards established by the highwaydepartment.

The highway department has begunputting out bids on the construction con-tracts, budgeted at $180 million.

Highway department officials criti-cized the Journal series at a LegislativeFinance Committee hearing on thedepartment’s budget in mid-December.Koch officials said in a letter that theybelieve the department followed pro-curement laws.

Highway officials said at the hearingthey didn’t violate state procurementlaws or the state’s Governmental Con-duct Act, which prohibits anyone with“direct or indirect” involvement in thedevelopment of specifications from bid-ding on that project.

Highway officials said they borrowed“concepts” from Koch in preparing theRequest for Proposals but that Koch hadno involvement in preparing the specifi-cations.

The committee decided in private ses-sion not to request a formal investigationby the Attorney General’s Office.

Madrid said legislators have discussedthe contract with her informally and thatshe fully expects to receive formalrequests from them for her office toreview the legality of the contract. ◆

N.M. 44 Deal Gets 2nd LookAG Orders Review Of Widening Contract

“We’re most interested in the warranty. It’s veryunique, and we’re very concerned about it. We’realso concerned about a contract this size havingonly one bidder, that bidder having contact with thedepartment prior to the Request for Proposal, andthe short time potential bidders had to develop theirproposals.”

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