State auditors are raising questions about a multimillion-dollar settlement agreement in 2016 between the New Mexico Environment Department and the U.S. Energy Department, a deal that allowed the federal government to fund roadwork and other environmental projects in lieu of paying fines for nuclear waste management violations and missed deadlines.

At issue is $54 million in civil penalties assessed against the federal agency by the state Environment Department in response to a radiological release at the Waste Isolation Pilot Plant in Carlsbad in 2014 — a costly incident caused by a drum of mispackaged waste from Los Alamos National Laboratory.

The State Auditor’s Office also is questioning fines for missed environmental cleanup deadlines at the lab.

Under the terms of last year’s settlement, the Department of Energy agreed to invest a higher sum, $74 million, in “special environmental projects,” including road repairs, stormwater system improvements and water monitoring around Los Alamos, as well as training and construction of an emergency response center in Carlsbad.

The agreement has faced criticism from advocacy groups and nuclear watchdogs.

In April, the Santa Fe-based New Mexico Environmental Law Center asked then-State Auditor Tim Keller — who resigned from the job Thursday ahead of his first day as Albuquerque’s mayor — to look into whether the agreement violated the terms for special environmental projects. The group argued that the settlement allowed the Department of Energy to avoid large fines and instead put money toward some projects the agency was already obligated to complete, including road and water system repairs.

In effect, the group said, millions of dollars were lost from state coffers.

The nonprofit law center, in a 30-page letter to the State Auditor’s Office, called the settlement bad public and fiscal policy, saying, “the Environment Department has abused its enforcement discretion in entering into the LANL and WIPP Settlement Agreements.”

In response, former Deputy State Auditor Sanjay Bhakta wrote to Environment Secretary Butch Tongate earlier this month, saying the department should review its settlement policies.

Concerns were raised, he said in the Nov. 21 letter, about whether “the Department unnecessarily forgave tens of millions of dollars in civil penalties related to various waste management violations and repeated missed cleanup deadlines by the Department of Energy and its contractors.

“The Department should evaluate whether its current approach, as exemplified by these recent agreements, is consistent with the State’s fiscal and enforcement objectives as well as existing state and federal penalty policies,” the letter continued.

“While it is common for penalties to be reduced in negotiated settlements,” Bhakta said, “… it appears highly unusual that the Department would not collect any penalties under these circumstances.”

A civil penalty for violations “plays a critical role in deterring future noncompliance,” he added.

Allison Majure, a spokeswoman for the Environment Department, disagreed with Bhakta’s assessment. If the Department of Energy had paid the $54 million in penalties to the state, she said, it would have come out of the federal funds allocated annually for critical environmental cleanup projects.

The Department of Energy in 2015 said it would pull funding to cover the fine from the roughly $185 million allocated for environmental cleanup of nuclear weapons waste in the state in fiscal year 2016.

“There would have been a net zero environmental benefit to the state,” Majure said in an email. “… It is unfortunate that the State Auditor’s office was unable to look beyond the headlines to understand that the largest DOE/State settlement in the history of the United States of $74 million is a win for all of New Mexico.”

Former Environment Department Secretary Ryan Flynn, who now works as executive director of the New Mexico Oil & Gas Association, agreed with Majure. “The final agreement reached with the Department of Energy makes the most sense and resulted in more money for New Mexico,” he said in an email. “I’m baffled that the Auditor’s office appears incapable of doing simple math.”

The settlement stems from a Feb. 14, 2014, incident at WIPP, where a drum containing a volatile mix of Los Alamos waste burst and released radiation, exposing 21 workers to alpha particles.

The Environment Department issued $36.6 million in civil penalties to Los Alamos for failing to notify the state of the incident and for improperly packaging the hazardous waste. A separate $17.7 million penalty was issued to WIPP for also failing to notify the department, failing to immediately implement a facility contingency plan and failing to minimize the release of radioactive materials.

The Department of Energy contested the fines and called for a public hearing. Instead, the two parties reached the settlement.

But penalties for environmental harm are established under contractual agreements between the lab, the state and federal entities, and the U.S. has said it “expressly waives any impunity” under the hazardous waste policies.

The New Mexico Environmental Law Center also alleged that many of the projects covered by the settlement money were already the responsibility of the lab and Department of Energy.

According to a 2013 Environment Department document on WIPP, U.S. 62/180 and N.M. 128, for which money was allocated, are both “owned and maintained by the Department of Energy.”

The groups argued that the water projects covered under the settlement are unrelated to the issues that caused the violations, so they are not viable projects to supplement enforcement fines.

The lab is required to ensure it does not violate state and federal laws on discharge of contaminants through regular monitoring.

Civil penalties go to the state’s Hazardous Waste Emergency Fund, which the Legislature may reallocate, when necessary, to the general fund.

State Sen. John Arthur Smith, a Deming Democrat and vice chairman of the Legislative Finance Committee, said that by agreeing to the settlement rather than imposing penalties, the Environment Department, in essence, was removing funds from public schools at a time when the state was facing a massive budget deficit.

“It’s taking it out of the pockets of our kids and young people when they do something like that,” he said.

In his letter, Bhakta also addressed unenforced penalties against the lab and the Department of Energy under a 2005 consent order, or agreement with the state, that laid out specific deadlines for cleanup of hazardous waste generated through nuclear weapons production. Under the order, each missed deadline was tied to a financial penalty.

Instead of imposing the fines, however, the state Environment Department issued a new consent order in 2016 that creates milestones for future cleanup but does not stipulate deadlines or penalties.

Jay Coghlan, director of the nonprofit Nuclear Watch New Mexico and a critic of the Environment Department, filed a lawsuit against the state for failing to enforce lab cleanup penalties.

In a statement this week, he said Tongate “and others are positioning the state’s Environment Department to ‘cooperate’ with the lab. Nuke Watch views it as ‘collaborating’ with the lab, in the pejorative sense of the word.

“We want a New Mexico Environment Department that actively, aggressively protects the environment,” Coghlan said.

Contact Rebecca Moss at 505-986-3011 or rmoss@sfnewmexican.com.