On July 12, 2011, Lynn Degenhart resigned from his post as a member of the New Mexico Passenger Transportation Association board with a message titled “Ethical Concern.”
“I have a real dilemma,” his email begins. “I feel I have a moral and ethical duty to let it be known that some members of the association (including some board members), and the new business member are involved in a pay to play scheme.”
Degenhart had recently owned Albuquerque-based Zia Bus Sales but explained in the email that his allegations had nothing to do with his company. NMPTA’s members, who include transit employees and players across the state, had elected Degenhart to the NMPTA board in 2009. He sent his email to all board members, including employees of the New Mexico Department of Transportation and a salesman from Georgia-based National Bus Sales. Degenhart continued: “The company involved is an out of state company that pays for NMPTA member’s [sic] personal trips, golf outings, and other perks in consideration for bus sales.”
It almost seemed like a direct reference to National Bus Sales—an out-of-state company with which nearly everyone who received Degenhart’s email had done business. Two months earlier, the NMPTA board had elected one new business member—Brent Roy, a business director with National Bus Sales—and two new board members, then-North Central Regional Transit District Public Transit Manager Jack Valencia and Las Cruces Roadrunner Transit Administrator Mike Bartholomew.
Bartholomew says he’s never gone on trips with National Bus Sales and that he doesn’t know whether Degenhart’s allegations are accurate. Neither Roy nor Valencia returned repeated phone messages for this story.
A day after Degenhart’s email went out, recently elected board president Jon Bulthuis responded.
“The allegation made is a serious one,” Bulthuis replied via email, “and needs to be addressed in a serious and forthright matter.”
Bulthuis added that the allegations were being forwarded to NMDOT’s inspector general and suggested that Degenhart contact the federal Department of Transportation because the transactions to which Degenhart referred likely involved federal money.
Two days later, Degenhart received a letter from John Watkins, a lawyer representing National Bus Sales, explaining that Watkins’ law firm was conducting an investigation into Degenhart’s claims.
“Your email makes serious allegations regarding a ‘pay for play’ scheme,” Watkins wrote. “Although NBS is not named in your email, it was clearly sent in reference to NBS.”
Watkins asked Degenhart to send him all documentation and names of witnesses by “no later than 5:00pm tomorrow, July 15.”
“In the event that you fail to respond to this letter or do not produce the requested information, we will assume that there is no evidence to support the allegations in your email,” Watkins wrote.
Degenhart did not respond.
Although nothing public came of Degenhart’s allegations, they hint at a deeper set of problems surrounding New Mexico’s transit purchases and National Bus Sales’ business practices.
For years, New Mexico’s procurement laws have allowed public agencies to sidestep the standard sealed bidding process and purchase buses through out-of-state arrangements. In particular, a Texas-based cooperative bidding agreement has allowed National Bus Sales to dominate much of the state’s transit market without even opening a full office in New Mexico. Now, as regional transit districts expand across the state, National Bus Sales is poised to do even more business here, despite its questionable past.
The spike in state business with National Bus Sales over the past few years is mostly tied to an ambitious state effort: bringing public transportation to rural New Mexico. Both the Rio Metro Regional Transit District, which serves the greater Albuquerque area, and the North Central Regional Transit District, which encompasses Santa Fe and northern New Mexico, date back to 2003, when then-Gov. Bill Richardson signed the Regional Transit Districts Act. Its goal was to link rural and urban areas using transit districts that could provide interconnecting bus service.
That idea has been relatively successful. Jay Armijo, executive director of the New Mexico South Central Council of Governments, says the growth of regional transit districts is part of a larger, statewide trend.
Rural residents are aging, Armijo says, and are looking for alternative ways to get to the doctor’s office or the grocery store.
“A lot of people realize they shouldn’t be on the road. Or maybe they can’t [afford to] fill up a tank of gas,” he says.
Rio Metro and NCRTD are northern New Mexico’s predominant transit districts. While Rio Metro was created to oversee the operations of the New Mexico Rail Runner Express, which now transports roughly 4,500 passengers each day but has faced seemingly endless financial problems [cover story, Nov. 9, 2011: “Train in Vain?”], NCRTD has become best known for its trademark blue buses, which last year provided approximately 374,000 rides. Nearly two dozen blue bus routes provide free transportation throughout four counties.
Despite NCRTD’s importance to northern New Mexico, most of its buses come from outside the state, using Texas’ Houston-Galveston Area Council cooperative price agreement.
Dale Couturier, a general manager with Arizona Bus Sales, says the Houston-Galveston agreement works like a prepared menu. Instead of writing specifications for each vehicle and waiting for the best offer, buyers can simply choose buses from a list that offers fixed prices that were previously negotiated. The agreement, established in 1973, enables transit districts to bypass a lengthy bidding process and, instead, purchase buses for a set price. Over the past few years, cities and transit districts across the western US have used the agreement to buy buses, funneling hundreds of thousands of dollars to NBS.
Proponents of such cooperative agreements tout them as an effective alternative for smaller agencies that might not have the resources or time to write the specifications for a vehicle.
“For small agencies, [cooperative bidding] is efficient in terms of our time and sometimes in terms of our cost,” Bartholomew tells SFR. The Houston-Galveston agreement provided a quicker, more efficient way for New Mexico transit districts to get the buses they needed.
“A lot of times, when entities are in a rush to get started, to just push it out in a straight [request for proposal] can slow the process tremendously,” Gino Rinaldi, who served as a program manager with the Rio Metro Regional Transit District through 2011, tells SFR.
When the new transit districts were created, they needed smaller, more durable, van-sized buses, which Rinaldi says NBS could provide.
“Bigger purchases happened, and out-of-state vendors came into the mix,” he explains. In time, the Houston-Galveston agreement became a go-to mechanism for New Mexico bus purchases—and NBS became the state’s go-to contractor.
To pinpoint the extent of NBS’ business in New Mexico, SFR requested public records of bus purchases from several cities and districts since 2009. In each case, NBS was awarded the majority—and in some cases all—of the purchases.
NEW MEXICO TRANSIT FUNDS PAID TO GEORGIA-BASED NATIONAL BUS SALES, 2009-PRESENT
Taos, for instance, has bought all of its buses from NBS since 2009, sending more than $400,000 to the company’s Georgia headquarters. Las Cruces signed purchase contracts totaling $660,000 with NBS during the same period, accounting for more than half of its purchases. Albuquerque recently signed purchase orders for nearly $3.1 million from NBS, its only vendor since 2009. In northern New Mexico, NCTRD has paid out $1.6 million—93 percent of its bus purchases—to NBS since 2009.
In total, NBS made more than $6.8 million in purchases and contracts in New Mexico during over the past three years, according to the records.
But it’s not just the volume of New Mexico dollars flowing to NBS that has critics up in arms. The company has also been associated with allegations of inappropriate purchases and selling buses without proper licenses.
NBS’ southeast Albuquerque office consists of a couple of desks in the back corner of a garage occupied by Highland Conversions LLC, a company that makes equipment for the physically challenged.
Highland Conversions owner Bryan Arndt says NBS has been renting the space for about six months now.
“They needed a physical address, and we supplied them with that,” Arndt tells SFR.
Arndt says he rarely sees Roy, who’s there about once every two or three months.
The cramped scene starkly contrasts the bustling Albuquerque office of Roberts Truck Center, an Amarillo, Texas-based contractor that has done some business with NCRTD. Roberts operates in two large buildings situated in a giant parking lot with seemingly endless garage space. It bought Degenhart’s company, which was struggling financially, last year.
Cooperative bidding programs have also often left local vendors out of the picture. Moriarty-based Tillery Chevrolet, for instance, hasn’t been invited to bid with NCRTD during the past few years. Albuquerque-based New Mexico Bus Sales is the only in-state bus vendor to make deals with Rio Metro since 2009, and even NMBS landed only 17 percent of Rio Metro’s purchase orders.
Along with landing NBS contracts, the Houston-Galveston agreement has also resulted in some questionable purchases.
In 2009, for example, NCRTD staffers didn’t follow their own rules, and half of the NBS purchases likely violated the district’s bylaws.
The sloppy accounting occurred under the leadership of Valencia and former NCRTD Executive Director Josette Lucero, both of whom have since left the district. Valencia, who also served as executive director of NMPTA and remained on its board through December 2011, has previously maintained that proper rules were followed under his watch. But NCRTD’s own records don’t support his statements (see sidebar, page 23).
The potential bylaw violations aren’t the only problems that have plagued NCRTD in recent years. The district’s 2008 and 2009 audits, both filed a year late, found the same 13 problems, including internal control weaknesses and missing disbursement documentation. In 2010, the district’s administrative costs, which came at a price of 78 cents for every dollar spent, were some of the highest for any state agency. In 2011, another audit still found five problems.
As NCRTD’s ineptitude filled headlines, the district resisted local media’s efforts to cover the story. In April 2011, the Santa Fe New Mexican caught Lucero instructing her public information officer to ignore the press and wait the maximum allowed time of 15 days before handing records requests over to the public.
But some NCRTD staff and board members say the district, which was established in 2005, simply suffered from growing pains.
“As a young, brand-new organization with inexperienced staff, it didn’t have expertise to do complicated procedures,” Rosemary Romero, former Santa Fe city councilor and NCRTD board chair, tells SFR.
Romero says the district’s leadership wasn’t always strong, but adds that it was in better shape when she left in March. “Now, it has the right accounting system, right database and right level of skill set,” she says.
But others involved say NCRTD’s infancy isn’t an adequate excuse for the bad audits. Española City Councilor Robert Seeds, who served on the NCRTD board until last March, says he was often concerned with the way money was being spent.
“I raised concerns, and [they] fell on deaf ears,” Seeds tells SFR.
NMDOT, which is required to evaluate most bus purchases that use federal money, approved the district’s 2009 purchases before they went out, but NMDOT spokeswoman Manon Arnett says the district is to blame for not following its own rules.
“NMDOT did not review NCRTD’s compliance with their own bylaws, which is their responsibility, not NMDOT’s,” Arnett writes in an email to SFR.
The trouble associated with the NBS purchases doesn’t end there. In fact, the Houston-Galveston model has been so problematic that federal authorities have barred transit districts from engaging in similar types of price agreements.
Last fall, Federal Transit Administrator Robert Patrick sent a letter to a colleague in the region encompassing New Mexico. In it, Patrick wrote that some cooperative purchasing agreements might be too open-ended to meet federal standards of “full and open competition.” The Federal Transit Administration also questioned the validity of Houston-Galveston in responding to a question from Tennessee’s Department of Transportation about whether it was legitimate to buy buses using the agreement.
“HGAC did not advertise for a finite number of vehicles,” FTA’s response reads. “The vendors’ pricing…appears to be based on an indefinite quantity of vehicles.”
In other words, it was FTA’s view that, because the agreement allowed for an open-ended number of vehicle purchases, it wasn’t fair to other vendors. If the agreement continues indefinitely, NBS’ competitors may never have a full chance to compete for transit districts’ business.
In response to FTA’s letter, transit agencies across New Mexico have stopped using the Houston-Galveston agreement to buy buses. “In the state of New Mexico, there aren’t any purchases being made off [Houston-Galveston] at this time,” Los Alamos Transit Manager Mike Davis tells SFR. Arnett writes that no transit district has reached out to NMDOT for help with the new FTA guidelines yet.
But for some, the FTA has simply muddied the water. Both Bartholomew and Davis say the FTA’s guidance isn’t always completely clear. The agency has OKed Houston-Galveston purchases in years past, Bartholomew says—but even so, he’s waiting from clarification on what exactly is allowed by FTA before he goes ahead with further bus purchases.
“I think we’re definitely going to have to ask questions,” Bartholomew tells SFR. “We need to at least ask FTA what’s going on.”
That uncertainty extends far beyond New Mexico.
“I think a lot of the confusion lies with FTA,” Denise Soderholm, who runs Honolulu-based Soderholm Bus Sales and Leasing, tells SFR. “They’re putting out a guideline that attempts to interpret the law. That’s not what their job is.”
The FTA, which is part of the US Department of Transportation, primarily compiles statistics for and gives financial support to local transportation districts. But Soderholm’s company has also locked horns with NBS.
Last November, her company filed a lawsuit against NBS for selling buses in Hawaii without a proper state license. NBS settled with Soderholm in February for an undisclosed sum.
State licenses are required in both Hawaii and New Mexico, but comparatively, Hawaii’s are much stricter—in part an outgrowth of the island’s remoteness, which limits out-of-state companies’ ability to manage operations from a neighboring state. Hawaii, for instance, specifies the amount of space a bus sales office must have, whereas New Mexico only requires a space “large enough to accommodate the dealer’s office.” Hawaii’s licenses also set regulations in areas such as vehicle warranties, and Hawaiian transit districts don’t join cooperative bidding agreements like Houston-Galveston.
“All of our contracts have been sealed bids,” Soderholm says.
While New Mexico may be moving in that direction, NBS has already reaped the benefits of the Houston-Galveston agreement. The company has a hefty foothold here—and, as new districts arise, it’s poised for further expansion.
In southern New Mexico, another regional transit district is preparing to take off after years of delay. Similar to its counterparts up north, the South Central Regional Transit District is charged with the task of providing bus routes connecting Las Cruces to its rural outskirts. The economic downturn prevented the creation of any new bus routes, but the spiking price of gasoline and a slow but steady economic recovery recently led to the hiring of a consultant charged with finally getting things moving.
The winner of the bid is a familiar face in the New Mexico transit arena: Jack Valencia. Despite NCRTD’s less than stellar financial record under Valencia’s watch, Armijo, whose agency oversees SCRTD’s financials, says he isn’t concerned “at this time.”
“We monitor his activities. He invoices us for his activities,” Armijo says. “As long as they follow the scope of contract, everything’s fine.”
Valencia’s new role at SCRTD could mean more business for NBS. At the moment, it’s unclear where Degenhart’s allegations against the company stand.
After he saw Degenhart’s email, Bulthuis says he tried to point him in the right direction “so that we could either take action against board members if there were findings” or “put the issue behind us.”
“At that point, the ball was pretty much passed directly to [Degenhart],” Bulthuis tells SFR, “and to some extent the [NM]DOT.”
But since then, Arnett says no formal complaints about the matter have been filed with the inspector general. She adds that NMDOT asked Degenhart to follow up with specific allegations and names of the people and companies involved, but he didn’t comply.
David Wonnenberg, a public affairs officer with the USDOT Office of Inspector General, says he can’t confirm or deny whether complaints were filed or investigations were begun from within the federal office.
Rinaldi, who says he was shocked by Degenhart’s allegations, speculates that Degenhart’s email could have been motivated by the business his company lost when the state developed regional transit districts.
“For the longest time, I think [Degenhart’s] company had that corner of the market,” Rinaldi says. “But for me, competition is good. It brings the customer in.”
If Degenhart laid low, it might have something to do with the letter he received from NBS’ lawyer.
“The only people I know who can say, ‘Hand over your documents by tomorrow’ [are] judges,” OC Ferrell, a business ethics professor at the University of New Mexico, tells SFR. “It’s a little strange.”
People or companies will rarely hand over documents if they’re not legally required to, Ferrell says. He adds that bribery in business is common and complex. It’s hard to judge what’s a kickback versus what’s allowed.
“It’s a slippery slope,” he says. “First, it’s buying someone beer in the bar, and in few months, they’re up at your ski lodge.”
Kickbacks could also simply be labeled as “entertainment” on a company’s budget, which makes it hard for companies to distinguish between legitimate and illegal expenses.
“Sometimes bad things happen,” Ferrell says. “It’s pretty much impossible for one CEO or financial manager to know everything that’s going on.”
Still, that shouldn’t stop a company from conducting an outside audit when allegations of the sort arise, Ferrell says. It’s unclear whether NBS did that. Multiple voicemails left at its Georgia office by SFR weren’t returned before press time. Degenhart, who also didn’t respond to repeated phone calls from SFR for this story, is currently in retirement.
The nature of some of the North Central Regional Transit District’s purchases go beyond federal regulatory concerns.
NCRTD bylaws require its board of directors to approve any purchase totaling $100,000 or more. In 2009, NCRTD staff made three purchases, each ranging between approximately $100,000 and $370,000—nearly half of all purchases made that year. NCRTD board minutes from 2009, obtained by SFR through a public records request, contain no mention of the procurements [news, April 18: “Bus Money”].
What’s more, multiple then-board members can’t recall having the opportunity to vet the purchases.
“That is a concern,” Jon Barrone, a Taos County Commissioner and new NCRTD board chair, told SFR last month. “They don’t have that authority without board action.”
Since then, though, things have changed. Current NCRTD Executive Director Anthony Mortillaro can account for the bus purchases made since he assumed his role in 2011.
One possible explanation for NCRTD staffers’ failure to bring the purchases before the board, Mortillaro says, is that they may have interpreted the board’s approval of NCRTD’s overall budget as a go-ahead to make additional National Bus Sales purchases without bringing each one before the board. But Mortillaro says he wouldn’t have made such an assumption because “the bylaws are clear.”
“Although we get authorized to have grant funds, I always bring [them] back to the board,” Mortillaro tells SFR.