S&P gives negative outlook to New Mexico county over deficit, ICE controversy

Bloomberg News

S&P Global Ratings revised the outlook on New Mexico's Otero County to negative from stable on Tuesday, citing large general fund deficits that could be exacerbated by the loss of a federal contract for a bond-financed immigration processing facility.  

The outlook revision for the A-minus underlying rating on insured gross tax receipts revenue bonds sold in 2014 comes in the wake of concerns about a New Mexico law that would impair an intergovernmental service agreement (IGSA) with U.S. Immigration and Customs Enforcement that is the sole source of revenue to pay off unrated jail project revenue bonds the county sold in 2007 to build a 1,096-bed facility.

The Immigrant Safety Act signed into law by Gov. Michelle Lujan Grisham in February requires the state and local governments to terminate existing agreements involving the detention of individuals for federal civil immigration violations and prohibits new, extended or renewed agreements.

With the law not taking effect until May 20, Otero County commissioners last week reapproved a five-year, $283 million ICE agreement after the state's justice department determined March 13 commission action on the contract was invalid due to a state Open Meetings Act violation. The move to replace a prior ICE agreement that expired on March 15 was aimed at avoiding a default on a nearly $5.26 million debt service payment due on Wednesday.

"Should the county's ability to extend its ISGA with ICE, find a different operator, or make debt service payments be impaired and the facility closes, the county's current budgetary imbalance could be exacerbated by the loss of about $500,000 in annual rental income and any additional expenses needed for facility upkeep," S&P said in a rating report.

The county's general fund deficits, which reached $3.7 million in fiscal 2025, "could lead to a downgrade if the county does not make meaningful progress toward achieving balanced operations," according to the report. 

"Although the county is budgeting for a smaller $392,747 general fund deficit in fiscal 2026, management has not articulated a plan to restore balanced operations," it added, noting the negative outlook reflects a one-in-three chance of a rating downgrade within two years should S&P's view of the county's general creditworthiness worsen.

In response to the negative outlook, Otero County Attorney R.B. Nichols said state lawmakers dismissed credit rating concerns the county and others raised when the Immigrant Safety Act bill worked its way through the legislature. 

"The S&P outlook revision puts the real-life consequences of that decision on paper for investors and the public to see clearly," he said in an email. "Otero County will continue to work to meet its legal obligations to its bondholders and to protect the interests of the county and its investors."

Commissioners have authorized the the procurement of outside litigation counsel to defend the ICE contract and the jail bonds. Nichols previously pointed out constitutional prohibitions against contract impairment and a New Mexico statute that specifically prohibits any laws that would impair existing revenue bonds.

Otero County last sold bonds in 2020: a $8.355 million subordinate lien county gross receipts tax revenue issue insured by BAM Mutual. Moody's Ratings gave the bonds an underlying A2 rating. An AA rating from S&P was based on the insurance.