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

SPONSOR HJC

ORIGINAL DATE

LAST UPDATED

3/16/07

HB CS/1032/aHJC

SHORT TITLE Water and Sanitation District Authority

SB

ANALYST Propst/Baca

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB 962

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Office of the State Engineer (OSE)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary amendment deletes Subsection D on page 2 and 3. Subsection D dealt with

class B counties with a population greater than 29,000 but less than 33,000 and with a net taxable

income of more than $850,000,000 but less than $1,000,000,000 and allowed the water and

sanitation district to request the county to impose a water and sanitation gross receipts tax and

call an election on the tax. Eligibility provisions of the bill would apply only to Taos County.

As amended, the bill applies to all Water and Sanitation districts.

Synopsis of Original Bill

House Judiciary Committee Substitute for House Bill 1032 proposes to change the Water and

Sanitation District Act. A new section will create authority to impose a gross receipts excise tax

of up to twenty five hundredths percent. As described by DFA, this new section of the Water and

Sanitation District Act will create authority to impose a gross receipts excise tax of up to twenty

five hundredths percent. This is a positive referendum and must be approved by a majority of the

voters of each WSD. The referendum must be approved by a majority of voters residing within

the boundaries of the district. The bill allows water and sanitation districts to petition their

CS/House Bill 1032/aHJC – Page

2

districts to create representation analogous to municipalities that have districts represented by

city counselors. The county rather than the WSD board will be responsible for imposing and

administering the gross receipts tax. The gross receipts tax imposed will be in accord with the

existing County Local Option Gross Receipts Taxes Act. As introduced, CS/HB1032 applies

only to Taos County.

FISCAL IMPLICATIONS

DFA reports that CS/HB 1032 allows water and sanitation districts to impose up to twenty five

hundredths percent a gross receipts tax levy after an affirmative vote in an election in the water

and sanitation district. The bill allows water and sanitation districts to impose up to twenty five

hundredths percent a gross receipts tax levy after an affirmative vote in an election in the water

and sanitation district. HB-1032 allows water and sanitation districts to impose up to twenty five

hundredths percent a gross receipts tax levy after an affirmative vote in an election in the water

and sanitation district. The earliest the .25% WSD tax could be implemented is Jan, 2008. The

amount of tax imposed depends on the number of WSDs that petition the County for enactment

and the amount of gross receipts tax base within the district. Apparently, only the El Prado Water

and Sanitation District in Taos County is seriously interested in this bill.

DFA notes that, based on Taxation and Revenue Department RP-80 reports, total Taxable Gross

Receipts for FY06 in Taos County – outside of the city of Taos – are $288,677,792.37 which is

potentially $721,694.48 in revenue.

The El Prado Water and Sanitation district is an area of Taos County that joins the border of the

Village of Taos and covers approximately 1/100th of the land area of Taos County. In the district

there is a liquor store, about ten restaurants, three gas stations, one health spa and a few other

businesses generating gross receipts taxes. Assuming a growth rate of 2.5% over the next three

fiscal years the following represents gross receipts tax revenues resulting from a tax increment of

.25% which has been successfully implemented.

Fiscal Year 2008: $3,791

Fiscal Year 2009: $7,772

Fiscal Year 2010: $7,966

TRD will deduct a 3% administrative fee from these amounts prior to remitting the money to the

El Prado WSD.

SIGNIFICANT ISSUES

DFA notes that CS/HB 1032 is an attempt to resolve issues – primarily in the El Prado Water and

Sanitation district – between residents within the district that want water and sanitation services

and non-resident property owners who may not want to pay for services they will not benefit

from.

CS/HB 1032 provides that the district commission would fund capital improvements by

imposing a gross receipts tax, loosely modeled after the State and Local Government gross

receipts taxes. However, only residents of the district would be qualified to vote in the election.

CS/House Bill 1032/aHJC – Page

3

DFA notes that this may be a fair resolution. The non-resident, non-business property owners

that do not want to pay for benefits they do not consume would not pay or bear the burden of the

gross receipts tax. Business owners within the district would be able to pass the gross receipts tax

to their customers. For this group, this is an administrative burden more than a financial burden.

These businesses would likely be beneficiaries of the additional water and sanitation services

provided in the district.

Currently, a resident of one municipality such as Albuquerque who owns land in the El Prado

Water and Sanitation district can vote in the El Prado Water and Sanitation District and in

Albuquerque. This allows for more than one vote for that person in New Mexico.

CS/HB 1032 adds to the Act the power of the water and sanitation district to initiate an

annexation. A mutual domestic water consumer association will be able to transfer their

operation to a water and sanitation district. The bill defines service areas for water and sanitation

districts and municipalities in order to avoid boundary disputes. A cutoff of July 1, 2007 will

establish where certain residents reside for existing disputes so if a resident in a water and

sanitation district is paying a municipality that resident will be able to continue to pay that

municipality as part of that municipality's service area after July 1, 2007.

ADMINISTRATIVE IMPLICATIONS

CS/HB 1032 authorizes the Taxation and Revenue Department to collect and distribute the gross

receipt tax revenues. It is unclear what TRD’s position is on accepting that responsibility. The

proposed gross receipts tax base differs markedly from the normal gross receipts tax. Even small

differences between the State and local bases can cause significant difficulties according to DFA.

RELATIONSHIP

Relates to SB 962.

TECHNICAL ISSUES

In its analysis to the original bill, DFA suggests that if the sponsors want a gross receipts tax, it

should be exactly patterned on the State and Local gross receipts taxes or should be self-

administered and collected by the Water and Sanitation District.

The Water and Sanitation Gross Receipts tax would be subject to the regular state and local gross

receipts tax. If this is not the desired result, then it is necessary to add “Water and Sanitation

District Gross Receipts Tax" to the list at 7-9-3.5 A (3) – probably as a new item “(e)".

OTHER SUBSTANTIVE ISSUES

Taos County expected to elect this Gross Receipts Tax will hardly pay for the cost of conducting

an election. The costs imposed on TRD to program computers are probably equal to the amount

of revenue raised annually.

CS/House Bill 1032/aHJC – Page

4

AMENDMENTS

DFA suggests that HB 1032 amend the Water and Sanitation District gross receipts tax to exactly

mirror the state and local gross receipts taxes or provide administrative authority to the local

district which would administer and collect the tax directly.

If the sponsors do not want the tax to be subject to the regular gross receipts tax, then that should

be amended into 7-9-3.5 A (3) NMSA 1978.

WEP/LRB/nt:csd