A "ghost town" project that the state has agreed to help develop was previously rejected under former Gov. Bill Richardson's administration because of outrageously high demands for financial support from the state, SFR has learned.
On Sept. 6, after trying to reach an agreement for 18 months, Washington, DC-based Pegasus Global LLC—a federal Department of Defense contractor—announced a partnership with the state Economic Development Department to develop a high-tech "ghost town" to test experimental technologies. On Aug. 16, the EDD signed a Memorandum of Understanding with Pegasus to cooperatively perform a feasibility study for the ambitious $200 million project.
The venture, called the Center for Innovation, Testing and Evaluation, would be a 20-square-mile "town" built in New Mexico, either in the "Santa Fe-Albuquerque corridor" or near Las Cruces. It would be designed as a town of 35,000 people, but would be uninhabited, serving as a place for Pegasus partners or contractors to test new energy, security, transportation and infrastructure technologies, including nuclear technology.
Groundbreaking for the center is projected for 2014.
The agreement between Pegasus and EDD says the state has no financial obligation to Pegasus, but will help it with the same economic development incentives available to any company creating jobs in New Mexico.
But former EDD Secretary Fred Mondragon tells SFR that, when Pegasus originally approached EDD about the center in 2009, Pegasus wanted $5 million from the state for the feasibility study.
"It just seemed outrageously high, No. 1, and secondly, we did not invest in feasibility studies—we had some capital outlay money that was to be used for actual projects and for job creation," Mondragon says. "So I have to say we did not exactly lay out a welcome mat, because we were very skeptical of the entire plan."
The current agreement does state that EDD representatives will belong to a "Government Team" that will perform a feasibility study for the center—in effect, requiring EDD to spend time and staff resources on the study. EDD spokeswoman Angela Heisel says that would be no different from what EDD does for many companies, and emphasizes that the state will not be "paying for anything, now or in the future."
Pegasus CEO Robert H Brumley tells SFR that Pegasus was never interested in money from the state—that only its investors were.
"Our view was that it should always be a privately owned and operated facility,"
Brumley says. "But the potential investors in the state wanted to see if the state would fund the feasibility study."
Mondragon says his impression was that Pegasus didn't have the backing from investors, nor potential partnerships with contractors that would supposedly test driverless cars and other "pie in the sky" projects.
"How do I say this gently—we were not particularly impressed that they had the financial resources to be able to accomplish what they said they were going to…" Mondragon says. "There didn't seem to, quite frankly, be any evidence that they had contracts with car companies or with power companies or research entities or federal government that wanted the use of the facility."
Brumley wouldn't disclose anything about investors or vendors because Pegasus is not a publicly traded company. But the MOU states that Pegasus will create an Academic Team and a National Labs team comprising six New Mexico universities and labs, which will direct and advise Pegasus on the center's design and operations.
A spokesman for one proposed Academic Team member, the New Mexico Institute of Mining and Technology, confirms that NMIMT has been "in discussions" with Pegasus. Four of the other five indicated no existing arrangement with Pegasus, and the fifth, New Mexico State University, did not return multiple calls.
University of New Mexico spokesman William Sparks says there have been no discussions between Pegasus and UNM. Sandia National Laboratories spokeswoman Heather Clark says Sandia "would be happy to look at" a proposal from Pegasus, and White Sands Missile Range spokeswoman Monte Marlin says White Sands and Pegasus have had "no official discussions." Los Alamos National Laboratory spokesman Kevin Roark says LANL "would be happy to help" EDD and Pegasus develop the project, but that it's "very doubtful" that nuclear work would be done there.
Brumley says nuclear energy was just included in the MOU "as an example."
"So if the federal labs choose they don't want to test that for whatever reason, that's not our decision," Brumley says.
Brumley tells SFR that the reason Pegasus hasn't reached out to the potential partners is because it was doing "due diligence" research to learn how such a project might be received. Pegasus plans to invite the potential partners to a kickoff meeting soon and officially brief them on the project for the first time, he says.
Mondragon says that, when Pegasus originally pitched the center to the EDD, it expected the state itself to be a major contractor with the center—and to commit to paying Pegasus $20 million per year for 20 years to lease space from the project and conduct experiments there. Brumley says he can't comment on that except to say it's inaccurate.
"Business models all have a tendency to change with what all the parties involved are interested in," Brumley says. "Investors were interested in the state possibly participating. The state at one point was interested in possibly participating. And we in turn were not interested [in state money], but we participated in the discussion, and at the end of the day we felt, as we did originally, that privately owned and privately operated was the way to go."
Darwin Bond-Graham with the Los Alamos Study Group says that, based on the MOU, it's clear that the feasibility study is being publicly subsidized.
"If NMEDD staff are working on the feasibility study, which is what this MOU says is happening, that's still a government subsidy to the project, just as a straight cash grant to pay someone else to do the study would be," Bond-Graham says.
Pegasus CEO Robert Brumley says part of the inspiration for the “ghost town” project came from Pegasus’ difficulty in securing test sites for its own testing of defense projects. Brumley, who was general counsel to the US Department of Commerce under former President Ronald Reagan, says Pegasus went to Iceland to test unspecified defense projects after being unable to secure US government testing space. Pegasus holds a Department of Defense contract through 2014 to support devices called Jukeboxes that interfere with electronic warfare detonation signals. As to whether Pegasus would test any of its own projects at the center, Pegasus spokeswoman Alarie Ray-Garcia says, “It’s too premature to make a determination.”