Monday, March 28, 2005

LETTER TO SANDOVAL COUNTY RE ATTORNEY FEE CONTRACTS

Dear County Commissioners of Sandoval County. We submit a few suggestions regarding the PROFESSIONAL SERVICES AGREEMENT between the County of Sandoval and bond counsel. These come from a resident of the far Southeast corner of the County. The contract was entered into in February, 2003, to cover a four-year period. As we understand it, the contract can be amended by agreement of the parties, or can be terminated by either party on 60 days written notice.

Our remarks are regarding the compensation of bond counsel, the lawyers who are engaged by contract (after a request for proposals, or bid) to provide services to the County in connection with the drafting of ordinances authorizing bond issues, and the issuance of the bonds. Your contract has a compensation clause for the payment of the bond counsel, which clause reads as follows:

Exhibit A
Fee Schedule


A. General Obligation Bonds $1.00 per $1,000 face amount
of bonds with a minimum fee of $10,000 per issue;
B. Revenue Bonds $1.25 per $1,000 . . . minimum . . . $10,000 . . .
C. County Improvement Districts $6.00 per $1,000 . . . $10,000 . . .
D. Lease-Purchase Financing $1.25 per $1,000 . . . $10,000 . . . and
D.[sic] Conduit Financings, $3.00 per $1,000 face amount of bonds up
to $15,000,000 of bonds with a minimum fee of $25,000, plus
$1.00 per $1,000 face amount of bonds over $15,000,000 up to
$50,000,000, thereafter, $.40 per $1,000 face amount. All fees and
expenses to be paid by the developer.

Out-of-pocket expenses, including photocopies, long-distance telephone calls, courier services, mailings, travel expenses (with prior approval), gross receipts taxes, and other similar expenses will be paid by the County in addition to the amount billed for fees.

An hourly rate of $150 will be billed by the Firm for any additional legal
services provided not specified within this Agreement.


The Intel bonds of 2004 were not general obligation bonds. The question is whether they were "revenue bonds," or "Conduit Financings." If they were revenue bonds, the fee would be $20,000,000; if they were conduit financing, the fee would be $6,448,000. The actual fee was negotiated down to $400,000. Intel paid the lawyers' fees directly.

In this deal, Intel agreed to pay over $80 million to the County (presumably to make up for Intel's savings in ad valorem taxes, which savings will be approximately $150 million each year for 30 years). Question: who actually paid the $400,000 lawyer fees? It could be argued that the taxpayers of Sandoval County paid the fees. Presumably Intel is interested in the money, and would not care whether it paid the $400,000 to the City of Rio Rancho, to Sandoval County, or to bond counsel employed by the County (not to be confused with the regular, hard working County Attorney).

So the case can be made that we taxpayers of Sandoval County have authorized our County Commissioners, including Chairman Jack C. Thomas, to agree with bond counsel (after a request for proposals) that counsel will be paid on the basis of a percentage of the bonds issued and sold. Why do we do that? Why do we enter into such a contract?

Suggestion. Next time the matter comes around (February, 2007), let us change the contract. We could also do it now, without breaching our present agreement, by consent of bond counsel and the Commission, or by giving 60 days notice. Let us consider a new contract, one in which we pay bond counsel by the hour for the services. The hourly rate could be increased as the amount involved increases, but there is no reason to be contracting to pay out such large amounts, on a percentage basis.

The work is complex, yes. Malpractice could be disastrous, yes. If need be, the County could provide the malpractice insurance, so that would not be a factor relied upon to justify astronomical fees. What if we said in no event shall a fee be paid by the County, nor by the developer, in excess of $600 per hour? Would that be enough to obtain proposals from competent bond counsel? If so, all excess is a waste (giveaway) of the taxpayer's money. If you cannot get lawyers to bid for the work at $600 per hour or less, we will be shocked and publish the result.

We will not know at what price bond counsel will do the work, unless we put out a request for proposals that states that we want an hourly rate fixed for each lawyer involved. Similar to the contract for risk management counsel for the State.

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