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

SPONSOR Altamirano

DATE TYPED 2-28-2005 HB

SHORT TITLE State Property Purchase Gross Receipts

SB 986

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Environment Department

Energy, Minerals and Natural Resources Department

SUMMARY

Synopsis of Bill

Senate Bill 986 provides a gross receipts tax deduction for receipts from the sale of property or

services purchased on behalf of the state from funds from financial forfeiture assurance pursuant

to the New Mexico Mining Act or the forfeiture of financial responsibility pursuant to the Water

Quality Act.

Significant Issues

These funds pay for environmental reclamation work.

FISCAL IMPLICATIONS

There is no immediate fiscal impact associated with this bill. According to the Environment De-

partment, it has the effect of eliminating the requirement that mining companies include gross

receipts tax in their payments into financial assurance that covers the estimated cost to the state

of reclamation work using a third party contractor in the event the company fails to conduct the

reclamation work.

In the event that the mining company actually failed to conduct the work, and the state had to

Senate Bill 985 -- Page 2

pay for the work using third party contractors, there would be a financial impact. The Environ-

ment Department’s analysis notes that this has never happened in the brief history of financial

assurance requirements. Their comments are replicated in the Significant Issues section of this

report.

ADMINISTRATIVE IMPLICATIONS

The Environment Department and the Energy, Minerals and Natural Resources Department re-

ported that the enactment of this bill would require them to recalculate the financial assurance

requirements to remove gross receipts taxes.

OTHER SUBSTANTIVE ISSUES

The Environment Department’s report flagged these issues:

This bill will not hamper the ability of New Mexico Environment Department (NMED) to

fund the reclamation of mines where a bond forfeiture has occurred. Currently, NMED ob-

tains financial assurance from mine operators calculated on the estimated cost of the state to

complete the reclamation using a third party contractor. Gross receipts taxes are included in

the calculation. If this bill passes, the State would no longer need to collect financial assur-

ance for gross receipts taxes.

In the brief history of the financial assurance requirements under the Water Quality Act and

Mining Act there have been no bond forfeitures. There are no current impacts on the collec-

tion of gross receipts taxes. NMED is not currently funding any reclamation work through

funds obtained from the forfeiture of financial assurance under the Water Quality Act.

There is a possibility that future collections of gross receipts taxes will be diminished.

NMED currently holds over $520,000,000 in financial assurance under the Water Quality

Act (Much of the financial assurance is held jointly with Mining and Minerals Division of

the Energy, Minerals and Natural Resources Department and also covers obligations under

the Mining Act). Each mining operation has an approved reclamation plan that provides for

the operator to complete the reclamation and the financial assurance to be released. How-

ever, if the operator fails to conduct the reclamation, the State can forfeit the financial assur-

ance and complete the work. Under that scenario, the State would no longer collect gross re-

ceipts taxes from the State’s reclamation contractors.

There will be a slight benefit to mine operators whose financial assurance obligation will be

reduced.

The Energy and Minerals Department issued the same comments except that they reported that

they hold $650 million in financial assurance under the Mining Act, but that much of this is held

jointly with the Environment Department.

BT/lg