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F I S C A L I M P A C T R E P O R T

SPONSOR Begaye

DATE TYPED 1/25/05

HB 14

SHORT TITLE Gallup-Navajo Pipeline

SB

ANALYST Baca

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$8,400.0

Non-Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 126, Indian Water Rights Settlement Fund

Relates to Appropriation in the General Appropriation Act

SOURCES OF INFORMATION

LFC Files

Responses Received From

Office of the State Engineer/ISC (OSE/SIC)

New Mexico Environment Department (NMED)

SUMMARY

Synopsis of Bill

House Bill 14 appropriates $8.4 million from the general fund to the Interstate Stream Commis-

sion for expenditure in FY06 to initiate the Gallup-Navajo pipeline project. The appropriation in

the bill is contingent on matching money being made available from the federal government.

Significant Issues

The OSE\ISC writes that:

“This Project has been proposed as the Navajo-Gallup Water Supply Project in the San

Juan River Basin in New Mexico Navajo Nation Water Rights Settlement Agreement re-

cently approved by the Navajo Nation Council and the New Mexico Interstate Stream

Commission. It is not clear whether the purpose of this Bill is to provide a required state

or local cost-share toward Federal expenditures relating to the Settlement Agreement.

House Bill 14 -- Page 2

The total cost of New Mexico’s share of the Project would be $25 million, indexed to

2004 dollars, contingent upon Congressional approval of the settlement as currently con-

stituted. Federal budgets for fiscal year 2006 have been in process for some time. It is

not likely that federal appropriations will be made this year. In addition, the Project will

take twelve years to construct, and New Mexico may want to extend its cost-share funds

over the construction period. Appropriations of funds for the project at this time, would

indicate legislature support for the Settlement Agreement”

The NMED reports that funding for this project has been made from the Water Trust Fund

through the Water Trust Fund Board. This bill would be a departure from the past practice of

funding the project. The NMED further points out that the deadline for is the end of FY06, a

very short deadline considering the complexity of the project and suggests it is likely more time

will be needed to encumber the funds.

FISCAL IMPLICATIONS

The appropriation of $8.4 million contained in this bill is a Non-Recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of FY06 shall revert to the

general fund.

The OSE/ISC notes that additional appropriations will be needed to complete the project and im-

plement the cost-share requirements of the Settlement Agreement. The project would be con-

structed over a period of at least twelve years, beginning as early as 2007 or 2008. The total

construction cost of the project in 2004 dollars is estimated at about $590 million, which under

the Settlement Agreement would be funded primarily from Federal appropriations. The cost es-

timate includes about $35 million to be paid in state and local gross receipt taxes.\

ADMINISTRATIVE IMPLICATIONS

Administration of the project can be accomplished with minimal impact to the OSE/ISC.

RELATIONSHIP

HB 14 relates to HB 126, Indian Water Rights Settlement Fund, which would establish a fund

administered by the ISC to expend funds to implement terms approved Indian water rights set-

tlements.

OTHER SUBSTANTIVE ISSUES

New Mexico, the Navajo Nation and the federal government must complete the required steps

prior to beginning construction of the Navajo-Gallup Water Supply Project. Consequently, the

OSE/ISC state s, New Mexico’s cost-share funding would not be required until the Bureau of

Reclamation is ready to begin construction of the project making it likely the state’s cost-share

would be no be required until 2007 at the earliest.

ALTERNATIVES

The OSE/ISC suggests the date for reversion be changed from the end of FY06 to some later

date up to the end of FY20. Further, the OSE/ISC suggests that, if it is intended that this appro-

House Bill 14 -- Page 3

priation provide the cost share of the state relating to the Navajo Settlement, the appropriation

could be made to the Indian Water Rights Settlement Fund.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The OSE/ISC writes that:

“State funding of a portion of the Navajo-Gallup Water Supply Project costs will be re-

quired to implement the San Juan River Basin in New Mexico Navajo Nation Water

Rights Settlement Agreement. The Settlement Agreement provides many important

benefits to the Navajo Nation and non-Navajo water users in New Mexico. If implemen-

tation of the Settlement Agreement fails because New Mexico does not provide its re-

quired cost-share, years of litigation would result and Gallup and Navajo communities in

New Mexico will continue to be without a dependable, renewable water supply. Again,

this project and cost-share funding requirements remain predicated on Congress approv-

ing the Settlement Agreement and authorizing the project. The Settlement Agreement

requires that such Congressional action occur and be signed into law no later than De-

cember 31, 2006.”

AMENDMENTS

The OSE/ISC proposes the following amendments:

P.1, line 17, Add: “or the Indian Water Rights Settlement Fund, if established, after “commis-

sion.”

P.1, line 18, Amend “year” to read “years.”

P.1, line 18, Add: “and subsequent fiscal years” after “2006”.

P.1, line 19, Add: “expenditure of the” after “The”.

P.1, line 22, Add “a” after “of”.

P.1, line 22, Delete “2006”.

P.1, line 22, Add “not” after “shall”.

LB/yr