I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
A primer on New Mexico’s housing authority scandal
Not sure what led to last week’s indictments in the investigation into the misuse of bond money in the state’s regional housing authority system? Wondering what the housing authorities even do?
You’ve come to the right place.
The state’s housing authority law creates quasi-governmental agencies charged with helping provide affordable housing for people who qualify under federal law for such assistance. Until recent reforms changed the system, the state was divided into seven regions, each with its own housing authority. (The seven regions have since been consolidated into three, but we’ll get to that later).
Each authority is governed by a board whose members are appointed by the governor. Those boards hire directors for their respective regions. State law gives the housing authorities power to “prepare, carry out, acquire, purchase, lease, construct, reconstruct, improve, alter, extend or repair any housing project and operate and maintain the housing project.”
Some local governments and nonprofits also provide affordable housing to low-income people in New Mexico, but those agencies are separate from the state’s regional housing authority system.
The state’s housing authorities, prior to recent reforms, were given bonding capacity but no funding for operating expenses. Even before the scandal began to unfold in 2006, only two of the seven regions consistently provided affordable housing in the communities they serve. In fact, some of the housing authorities were not operational when Gov. Bill Richardson took office in 2003.
Early in Richardson’s tenure, Vincent “Smiley” Gallegos, then the director of the Albuquerque-based Region III authority, began to expand his control over several of the other regional housing authorities. Some say he did that by spreading the belief that the governor had charged him with running the entire state system, which the governor’s office has never commented on.
In addition, Gallegos created another company, Housing Enterprises Inc. (HEI), to be the construction arm of all seven regional housing authorities.
Soon thereafter, the housing authority system — with the exception of the two effective housing authorities — began to crumble.
The 2006 collapse
Early in 2006, Frances Williams, a board member for the Las Cruces-based Region VII authority, began complaining about financial problems. She pointed the finger at Gallegos, saying he was preventing Region VII from providing low-income housing and was instead inappropriately selling homes to an investor. About the same time, the attorney general’s office began investigating whether HEI was fraudulently representing itself as a nonprofit without first obtaining such a designation from the IRS.
As the controversies grew, Gallegos slapped Williams with a libel and defamation lawsuit. When the Las Cruces City Council called a meeting to discuss the growing controversy, members of the Region III board traveled to Las Cruces to tell them the allegations were baseless.
Within months, the lawsuit against Williams was dismissed and Region III defaulted on $5 million in bonds it owed the state. Regions III and VII were among those that had spent the bond money, and they shut down as most of the system collapsed.
How it all happened is still not entirely clear. Investigations by the State Investment Council (SIC), state auditor, attorney general and others were hampered by the large volume of missing documentation.
Regardless, months after the collapse, the SIC released a report that found gross mismanagement of bond money that was supposed to be spent on housing but instead went to salaries and other expenses. One of the most intriguing transactions was a $300,000 loan HEI made to a company owned by Gallegos under the guise of purchasing land in Las Cruces that the authority already owned. Gallegos repaid the loan, with interest, the day before he resigned in 2006.
Some of the bond money has not been accounted for by the housing authorities or investigators.
Reform of the system
Before last week’s indictments, some other action had been taken in the case. The AG obtained court orders to boot three tenants from homes owned by Region III because they didn’t qualify for affordable housing — two employees of the authority and a board member. A judge was disciplined for a conflict of interest related to the scandal. The SIC is suing Gallegos and Albuquerque bond attorney Robert Strumor in an attempt to recover the bond money.
And the system has been reformed. There was resistance in 2007 when some lawmakers proposed an overhaul. Gallegos, a former state representative from Clovis, became a lobbyist after he left office in 1996 and spent a lot of time with House Speaker Ben Lujan during legislative sessions. The speaker was tied to the scandal in late 2006 when it was revealed that one of his top aides had been living, rent-free, in a home owned by Region III even though she was earning more than $71,000 per year.
Following political maneuvering by the lieutenant governor and a number of lawmakers, the Legislature in 2007 temporarily stripped the housing authorities of bonding authority, gave the Department of Finance and Administration and state treasurer roles in administering the agencies’ finances and funded the state auditor’s investigation.
Earlier this year, the Legislature approved sweeping reforms that included the consolidation of the seven regional authorities into three, the designation of an oversight agency to oversee operations, the strengthening of conflict-of-interest language, the permanent elimination of the authorities’ ability to issue bonds and the requirement that transactions over $100,000 be reviewed and approved by the mortgage finance authority.
After the reform was approved earlier this year, many turned their attention to the drawn-out investigation by the AG and the fact that no one had been held criminally liable. Because of that, last week’s indictments were lauded by those who had been involved in reforming the system.
Gallegos, Strumor and former Region III accountant Dennis M. Kennedy are facing felony charges including fraud and money laundering, with some of the charges relating to the spending of bond money on operations and some relating to the $300,000 loan to Gallegos’ company.
The fourth defendant, former Region III attorney David N. Hernandez, is charged with tampering with evidence.
None have yet entered pleas in the case, but attorneys for the defendants have said their clients are innocent.