Otero County Government Could Teeter on Financial Brink Amid Lawsuits, Lost Revenues, and New State Laws

ALAMOGORDO, N.M. — Otero County Commission and County Executive Officials are grappling with a potential financial crisis as a series of costly settlements, ongoing litigation, and recent policy shifts threaten to drain millions from the county’s coffers. Experts and local leaders warn that these pressures could lead to budget shortfalls, service cuts, and even bond defaults if not addressed swiftly.

The troubles began mounting with a recent $2 million-plus settlement stemming from a suicide at the Otero County Detention Center. In February 2026, the county agreed to pay over $2 million to the family of Jacob Gutierrez, a 26-year-old inmate who took his own life in 2023 after multiple suicide attempts that allegedly went unaddressed by jail staff and the facility’s healthcare provider, Vital Core. The wrongful death lawsuit highlighted claims of constitutional violations, with attorneys noting the settlement’s size reflected the severity of the oversight. This payout adds significant strain to the county’s budget, which is already under pressure from other fronts.

Compounding the issue is pending litigation over the 2024 death of 17-year-old Elijah Hadley, who was fatally shot by Otero County Sheriff’s Deputy Jacob Diaz-Austin during a welfare check. Hadley’s family filed a federal wrongful death lawsuit in June 2025 against the deputy and county commissioners, alleging excessive force and civil rights violations. Dashcam footage showed Hadley discarding what turned out to be an airsoft gun before being shot, fueling public outrage and legal scrutiny. Diaz-Austin faces first-degree murder charges, with a trial ongoing, but the civil suit seeks unspecified damages for pain, suffering, and the value of Hadley’s life. Legal observers point to a recent $20 million settlement in a similar Las Cruces officer-involved shooting as a benchmark, estimating potential costs for Otero County between $5 million and $10 million if the case doesn’t favor the county.

Further financial hits come from the dissolution of key partnerships.

The City of Alamogordo’s withdrawal from the Tularosa Basin Regional Dispatch Authority (TBRDA) — a joint powers agreement involving Otero County — has led to the loss of expected revenues exceeding $2 million, according to JPA documentation. The move, announced amid controversy over proper notice and operational disputes, has prompted reactions from the Otero County Commission and could disrupt emergency dispatch services while slashing shared funding streams. Additionally, disgruntled former staff associated with the TBRDA have hinted at potential lawsuits, which could result in further settlements if grievances over management or employment practices escalate. A sign that the county has finally taken the situation seriously is with the announcement of departure of the Executive Director Barney that has been at the center of controversy. ATN has a pending IPRA request awaiting fulfillment by the county with more details specific to this ongoing saga and financial albatross for the county.

Perhaps the most looming threat is the impact of New Mexico’s newly enacted Immigrant Safety Act (House Bill 9), signed into law by Gov. Michelle Lujan Grisham on February 5, 2026. The legislation prohibits local governments from contracting with U.S. Immigration and Customs Enforcement (ICE) for civil immigration detention, effectively forcing the closure of the county-owned Otero County Processing Center (OCPC) when its contract expires in May 2026. The facility, which houses ICE detainees and generates substantial income, supports annual rent payments of around $475,000 to $500,000 and contributes approximately $3 million in gross receipts taxes. Its shutdown could eliminate 284 jobs with a $20.8 million payroll and trigger a default on outstanding revenue bonds totaling $21 million to $45 million, potentially leading to foreclosure and auction of the $68 million asset. While state lawmakers are debating a $10.5 million relief package, including $2 million specifically for Otero County’s bond obligations, critics argue it falls short of covering the full economic fallout.

County Manager Pamela Heltner has expressed concerns that without adequate state support, Otero County could face severe budget constraints, impacting infrastructure investments and public services. Other officials have echoed these warnings, emphasizing the bonds’ reliance on facility revenues and the limited taxpayer liability in a default scenario, though the credit implications remain debated.

As Otero County navigates these challenges, local leaders are calling for urgent state intervention to mitigate the “financial cliff.”

With the legislative session ongoing, the coming weeks could determine whether relief measures stabilize the county’s finances or exacerbate the crisis

Otero County Government Operational Finances have been on the states radar for the last 4 years due to audit concerns and concerns with control and oversight.

Otero County’s financial management has come under increasing examination from state officials, with recent audits revealing persistent issues in internal controls, financial reporting, and oversight that raise concerns about the county’s ability to safeguard public funds. The New Mexico Office of the State Auditor (OSA) and other oversight bodies have highlighted material weaknesses and deficiencies that point to systemic problems, including staff turnover, inadequate procedures, and noncompliance with state laws.

The most recent independent audit for Fiscal Year 2023-2024, covering the period ended June 30, 2024, issued an unmodified opinion on the county’s financial statements but identified multiple material weaknesses in internal control over financial reporting. Auditors from Hinkle + Landers, PC noted significant adjustments were required during the financial close process, including corrections to investments, receivables from the Otero County Prison Facility and ICE Processing Center, grants, payables, and unearned revenue, totaling a net credit of over $1.9 million.

These errors stemmed from a lack of internal review procedures for accruals, staffing shortages, and over-reliance on auditors to prepare year-end entries.

Capital asset management was another area of concern, with inaccuracies in beginning balances, unrecorded disposals leading to a $3.3 million discrepancy, depreciation errors, and unreported additions exceeding $5.5 million combined. The audit attributed these issues to inadequate system controls, poor reconciliation processes, insufficient documentation, and ongoing staff turnover. Similarly, investments were not properly segregated from cash or adjusted to fair market value per GAAP standards, requiring auditor intervention.

A significant deficiency was reported in the handling of revenues and expenses for the county’s prison and ICE facilities, where reliance on reports from operator Management & Training Corporation (MTC) lacked sufficient detail, leading to cash-based recognition, restatements, and unreconciled disbursements of nearly $1.5 million. Despite requests for improved procedures from MTC, implementation has been slow, exacerbating risks of undetected errors.

Other noncompliance issues included payroll miscalculations for Public Employees Retirement Association (PERA) contributions in 29 out of 40 tested cases, a net impact of over $5,500; failure to disclose and track potential conduit debt obligations totaling nearly $885,000; and an undercollateralized bank account by $2.8 million at year-end, violating state statutes

These findings underscore broader oversight lapses, with auditors recommending enhanced training, real-time monitoring, and better contract management to mitigate risks.

Echoing these concerns, the FY 2021-2022 audit by Kriegel/Gray/Shaw & Co., P.C. identified a significant deficiency in contract oversight for detention facilities, noting discrepancies in MTC invoices that resulted in overpayments ranging from $470,000 to $2.5 million due to cash flow issues and revisions. The audit also cited noncompliance with late submission of the report, attributing delays to new accounting standards and staffing challenges.

State-level scrutiny extends beyond financial audits. In 2022, the OSA issued a Letter of Concern regarding Otero County’s expenditure of nearly $50,000 on a controversial election audit, questioning potential misspending of public funds and ineffective contract compliance management. The audit, conducted amid election misinformation claims, drew criticism from state officials for possibly undermining public trust without yielding evidence of fraud.

A broader evaluation by the New Mexico Legislative Finance Committee (LFC) on local government finances noted that Otero County’s general fund balances grew by only 11% from FY 2018 to FY 2024, the lowest among counties, highlighting potential constraints in financial resilience amid statewide trends of increasing reserves. The report emphasized common county issues like inadequate internal controls (21% of findings), state law noncompliance (12%), and financial reporting deficiencies (11%), which align with Otero’s audit patterns.

County officials have acknowledged these challenges, citing staff turnover and external dependencies as contributing factors, and have committed to corrective actions such as improved training and procedural updates. However, repeated findings across audits suggest ongoing vulnerabilities that could impact taxpayer confidence and the county’s financial stability, especially as it faces other pressures like litigation settlements and revenue losses.

As of early 2026, the FY 2024-2025 audit has not yet been released, but state officials continue to monitor Otero County’s progress in addressing these deficiencies. With New Mexico’s accountant shortage risking broader oversight gaps, experts urge swift reforms to prevent escalation and with the recent pressures within view state oversight is expected to increase.

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