Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

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

SPONSOR Begaye

ORIGINAL DATE

LAST UPDATED

2/26/07

3/15/07 HB 780/aHTRC

SHORT TITLE Water Project Severance Tax Bonds

SB

ANALYST Kehoe

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

Indeterminate

Recurring

Severance Tax Bond

Capacity

(See Fiscal Impact

Narrative)

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to Appropriation in the General Appropriation Act

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

Indeterminate

Indeterminate Recurring Water Project

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates,Relates to,Conflicts with, Companion to

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

Energy, Minerals & Natural Resources Department (EMNRD)

State Engineers Office (SEO)

New Mexico Environment Department (NMED)

House Bill 780/aHTRC– Page

2

Synopsis of HTRC amendment

The House Taxation and Revenue Committee amendment increases the annual severance tax

bond capacity dedicated to the Water Project Fund from the current 10 percent to 12 percent.

Synopsis of Original Bill

House Bill 780 amends the Severance Tax Bonds Proceeds Act to increase the percentage of

annual severance tax bond capacity dedicated to the Water Project Fund.

FISCAL IMPLICATIONS

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

percent 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

$32.8 million to the water project fund for eligible water projects.

House Bill 780, as amended, proposes to increase the percent of estimated bonding capacity

dedicated to the water project fund from 10 percent to 12 percent. The severance tax bond

capacity in FY08 is projected to be approximately $285.7 million. If Senate Bill 780 is passed as

amended, approximately $34.3 million would be deposited into the water project fund in FY08

and approximately $32.3 million would be deposited into the fund in FY09, or an increase of

$5.7 million in FY08 and $5.4 million in FY09.

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.

SIGNIFICANT ISSUES

Eligible water projects as defined in the Water Finance Act are those involving: 1) the storage,

conveyance or delivery of water to end-users; 2) the implementation of federal Endangered

Species Act collaborative programs; 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 distribution 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 distribution to the water project fund for use by the Office of the State

Engineer and the Administrative Office of the Courts.

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

application 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.

House Bill 780/aHTRC– Page

3

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.

OTHER SUBSTANTIVE ISSUES

According to the New Mexico Finance Authority, in FY06 the Water Trust Board received over

$106 million in requests for water-related projects. Since its inception, the board has

recommended $69 million of grant funding for 74 projects to 43 local entities statewide. The

funding has leveraged more than $50 million of local and/or federal funding.

LMK/mt:nt