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

SPONSOR Nunez

ORIGINAL DATE

LAST UPDATED

01/20/07 HB 55

SHORT TITLE Water Trust Fund Appropriation

SB

ANALYST Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$60,000.0

Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to House Bill 53.

Relates to Appropriation in the General Appropriation Act.

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$60,000.0

Non-Recurring

Water Trust

Fund (See Fiscal

Implications)

$4,000.0

Recurring Water Project

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

SUMMARY

House Bill 55 appropriates $60 million from the general fund to the water trust fund for the pur-

pose of carrying out the Water Project Finance Act.

House Bill 55 – Page

2

FISCAL IMPLICATIONS

The electorate in November 2006, by 60 percent of the vote cast, approved an amendment to Ar-

ticle 16 of the Constitution of New Mexico to create a water trust fund whose purpose is to se-

cure a supply of clean and safe water for New Mexico residents. The fund shall consist of

money appropriated, donated or otherwise accrued to the fund. Money in the fund shall be in-

vested by the State Investment Council as land grant permanent funds are invested, and requires

strict accountability and oversight measures as provided by the State Investment council to en-

sure appropriate safety of and return on investments. Earning from investment of fund shall be

credited to the fund and shall not revert or be expended for any purpose.

Laws 2006, Chapter 109, provided for the transfer of $40 million from the general fund at the

beginning of fiscal year 2007 to the water trust fund created by the Water Finance Act.

According to the constitutional provision, on July 1, 2008 and each fiscal year thereafter, an an-

nual distribution shall be made from the water trust fund pursuant to state law, and that distribu-

tion shall then be appropriated by the legislature only for water projects consistent with a state

water plan and as otherwise provided by law to support critically needed projects that preserve

and protect New Mexico’s water supply.

According to the Water Finance Act, the $60 million appropriation to the water trust fund pro-

posed in House Bill 55 would be invested by the State Investment Officer in the same manner

that the land grant permanent funds are invested. Section 72-4A-8 of the Act provides that on

July 1 of each fiscal year, annual distribution will be made from the water trust fund to the water

project fund in the amount of $4 million until the amount is less than an amount equal to 4.7 per-

cent of the average of the year-end market values of the water trust fund for the immediate pre-

ceding five calendar years.

Laws 2003 (Chapter 134) requires the Board of Finance to authorize and issue bonds for 10 per-

cent of the severance tax bonding capacity each year for deposit in the water project fund. The

10 percent set-aside of severance tax bond capacity for FY07-08 will provide approximately

$30.2 million to the water project fund for eligible water projects. Money from the severance tax

bonds may not be used to pay indirect project costs, and any unexpended balance from proceeds

of severance tax bonds issued for a water project shall revert to the severance tax bonding fund

within six months of completion of the water project. NMFA is responsible for monitoring and

ensuring proper reversions.

Eligible water projects are defined as those involving: 1) the storage, conveyance or delivery of

water to end-users; 2) the implementation of federal Endangered Species Act collaborative pro-

grams; 3) the restoration of watersheds; 4) flood prevention; 5) conservation; or 6) for recycling,

treatment or reuse of water. In 2005, the Act was amended to add the category of “water rights

adjudication" to provide automatic fund in an amount equal to 10 percent of the annual distribu-

tion to the water project fund. In 2005, the Act was amended to add the category of “water rights

adjudication" to provide automatic funding in an amount equal to 10 percent of the annual distri-

bution to the water project fund for use by the Office of the State Engineer and the Administra-

tive Office of the Courts.

The appropriation of $60 million contained in this bill is a non-recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of a fiscal year shall not

House Bill 55 – Page

3

revert to the general fund.

SIGNIFICANT ISSUES

The water trust board has adopted rules governing the terms and conditions of grants or loans

recommended by the board for appropriation by the Legislature from the water project fund.

Conforming with statutory obligations, the rules give priority to projects that have urgent needs,

that have been identified for implementation of a completed regional water plan that is accepted

by the Interstate Stream Commission, and that have matching contributions from federal or local

sources.

As per the Water Finance Act, NMFA provides staff support for the board, develops ap-

plication procedures and forms for political subdivisions to apply for grants and loans from the

water project fund, and make loans or grants for water projects authorized by the Legislature.

Other actions taken by the water trust board have included adoption of bylaws, approval of an

open meeting resolution, and a per diem and mileage policy.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 7 proposes to transfer $50 million to the Water Trust Fund in fiscal year 2008. The

executive capital outlay budget for 2007 recommends a $25 million appropriation to the Water

Trust Fund.

House Bill 53 increases the membership of the Water Trust Board from fifteen to sixteen mem-

bers by adding the secretary of the Department of Finance and Administration, and requires that

the chair be elected a majority of the board members. The State Engineer is the current chair.

LMK/sb