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.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Jennings

ORIGINAL DATE

LAST UPDATED

2-20-07

HB

SHORT TITLE Gas Storage Facility Low-Interest Loans

SB 1083

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$.01*

Recurring

Corrective Action

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

*See Fiscal Impact

Relates to Appropriation in the General Appropriation Act

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($568.0)

($568.0) Recurring Corrective

Action Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to Appropriation in the General Appropriation Act

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$100.0 $100.0

$200.0 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Environment Department (NMED)

Department of Finance Administration (DFA)

Energy, Minerals and Natural Resources Department (EMNRD)

Senate Bill 1083 – Page

2

SUMMARY

Synopsis of Bill

Senate Bill 1083 amends the Ground Water Protection Act (Section 74-6B-7 NMSA 1978) to

authorize low interest loans for improving gasoline storage facilities from the Corrective Action

Fund (CAF).

FISCAL IMPLICATIONS

Revenues into the CAF are primarily based upon fees. The level of fees is triggered by the

determined level of the un-obligated fund balance at the end of the fiscal year, which has

consistently been low enough in the last several years to keep fees at the highest possible level.

Thus, while adding loan expenditures to the mix of fund expenditures could potentially

positively impact revenues by reducing the level of un-obligated fund balance (and therefore

increase the fees), it is not likely that it would change the fund's revenues in the near term.

Beyond that expectation, specific revenue or appropriation impacts are indeterminable due to the

fact that money in the fund is not automatically available to NMED but is appropriated annually

by the Legislature through the budget process. Thus, appropriations to pay for a loan program

would appear to be dependent on additional legislative authority.

The Environmental Improvement Board (EIB) has adopted a regulatory requirement for a $1

million cash reserve in the Fund to be used for emergency purposes. This emergency reserve

and all existing obligations are deducted from the fund cash balance to result in the un-obligated

balance. Typically this un-obligated balance fluctuates in the range of $3 million to $4 million.

The House Appropriations Finance Committee recommendation for NMED includes a total of

$19.1 thousand in direct and indirect expenditures out of the CAF and does not include amounts

for the loans proposed by this bill. To maintain both the EIB emergency cash reserve of $1

million and fund solvency, it is conceivable that setting aside available amounts from the fund

for "loans to improve gasoline storage facilities," would mean less money would be available for

funding the original CAF mandates.

NMED notes that SB 1083 would provide for an additional use of the CAF not directly related to

remediation of environmental contamination. The fund functions as the federally-required

financial assurance mechanism as specified in Subtitle I of the federal Resource Conservation

and Recovery Act (RCRA, 42 USC 6991). The 2005 Federal Energy Policy Act (Public Law

109-58) prohibits diversions from a state’s federally-required financial assurance mechanism for

purposes other than environmental remediation

. NMED contends that any such diversion will

result in the loss of the federal Leaking Underground Storage Tank (LUST) grant, which

currently amounts to $568.0 thousand annually.

NMED maintains that implementing a loan program as contemplated by SB 1083 would require

up two administrative full time employees (FTEs) at an approximate cost of $100.0 thousand for

personal services and benefits because the bureau responsible for the CAF does not currently

have that expertise available. SB 1083 makes no provision for increased recurring operating

budget resources for this added expense.

Senate Bill 1083 – Page

3

CAF Revenue and Expenditure Trends

0

5

10

15

20

25

FY06 FY05 FY04 FY03 FY02 FY01 FY00 FY99 FY98 FY97 FY96

Revenues

Ex penditures

SIGNIFICANT ISSUES

Backgound of Existing Statute for the Corrective Action Fund

NMSA 1978, Section 74-6B-7 creates a Fund that is used by the Environment Department

(“Department"), to the extent funds are available, to: (1) take corrective action in response to a

release; (2) pay for the costs of a minimum site assessment in excess of $10,000; (3) pay the

state’s share of federal leaking underground storage tank trust fund cleanup costs, as required by

the federal Resource Conservation and Recovery Act; and (4) make payments on behalf of

owners and operators for corrective action taken in accordance with Section 74-6B-13 NMSA.

These “direct" expenditures for cleanups have averaged approximately $11.5 million annually

over the last 10 years, leaving between $3 million and $4 million in un-obligated funds.

By Legislative appropriation, up to 30 percent of the CAF’s annual distribution may be used to

match federal funds for underground contamination cleanup and to address water needs. The

indirect disbursements for “addressing water needs" include disbursements to support water-

related activities throughout the department.

Background on Underground Storage Tanks (UST) Regulations

Federally-mandated upgrade requirements for underground storage tank (UST) facilities were

promulgated with ten-year phased upgrade requirements that became effective in 1998. In 2001,

the New Mexico Legislature recognized the need to protect New Mexico’s limited groundwater

resources by addressing USTs and accordingly amended the Ground Water Protection Act and

the Hazardous Waste Act.

Senate Bill 1083 – Page

4

The economic impact of those required upgrades was carefully analyzed during the development

and adoption of the current Petroleum Storage Tank regulations (NMAC 20.5), which NMED

relates as follows:

The regulations that specify the required upgrades for ASTs were developed following an

extensive public participation process. The effective dates of these upgrade requirements

are phased in over a ten-year period, with final upgrades not required until 2011. At the

hearing on those regulations before the EIB, the executive director of the Petroleum

Marketers Association testified in favor of the ten-year upgrade compromise. The

executive director told the EIB that the Association had worked closely with NMED’s

Petroleum Storage Tank Bureau to arrive at the compromise and that the compromise

was fair to stakeholders and AST owners. Additional testimony at the regulation hearing

demonstrated the following:

1.

The ten-year phased approach deadline gives AST owners the same period of time

to upgrade that UST owners had for federal/state requirements;

2.

The upgrade requirement with the greatest environmental benefit is secondary

containment, which is the most effective technical system for preventing releases;

secondary containment is usually also the most expensive upgrade requirement;

3.

The Corrective Action Fund became available to AST owners for releases starting

in June 2002; NMED sought to require secondary containment as soon as possible

to reduce claims against the CAF resulting from petroleum leaks into the

environment from AST systems, noting that the Petroleum Products Loading Fee,

which funds the Corrective Action Fund, was not increased although an entirely

new class of tanks gained access to it; and

4.

The 10-year deadline balanced the need for effective release prevention with the

cost of secondary containment, giving AST owners a 10 year time period to

amortize the cost of upgrades.

PERFORMANCE IMPLICATIONS

According to NEMD, loss of the federal LUST grant and increased administrative costs for a

loan program would significantly reduce the rate at which environmental remediation is

accomplished, resulting in an increased potential for ongoing environmental contamination. A

reduced un-obligated balance in the Fund may also reduce the rate of environmental remediation

related to water needs.

ADMINISTRATIVE IMPLICATIONS

DFA believes that SB 1083 would potentially add a significant administrative and staffing

burden on NMED. Department staff overseeing the fund does not currently have processes in

place for acceptance and review of loan applications, nor does it have processes in place to

manage and collect loan repayments. The bureau that does handle loans may be transferred to

DFA pursuant to HB 781 if enacted.

Senate Bill 1083 – Page

5

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to HB 781, which would transfer the Construction Programs Bureau to an Office of

Water Infrastructure Department administratively-attached to DFA.

TECHNICAL ISSUES

As stated above, SB 1083 will amend the statute to allow the fund to be used for low interest

loans to improve gasoline storage facilities. It is assumed that this includes the repair or

replacement of storage tanks and equipment.

EMNRD notes that the bill creates an internal conflict with Subparagraph E of the existing

Statute that prohibits the use of Fund money to repair or replace storage tanks or equipment.

Subparagraph E reads: “[n]othing in this section authorizes payments for the repair or

replacement of a storage tank or equipment." This clause was added to ensure compliance with

the federal requirements noted under Fiscal Impact.

DFA points out that it is questionable whether the current fund statutes would allow loan

repayments to be deposited into the CAF.

OTHER SUBSTANTIVE ISSUES

According to NMED, many petroleum storage tank facility owners statewide have either already

undertaken the required upgrades of their AST systems or are in the process of upgrading them.

Establishing a low-cost loan program would result in an uneven playing field between those

owners who have already born the expense to upgrade their facilities and those owners who have

not yet started the required upgrades.

ALTERNATIVES

The concept of fixing older facilities before they start leaking is an important one and could be

considered under a direct appropriation rather than through the CAF. Such a bill could specify

which entities that would be eligible to receive these loans; specify purposes, terms, conditions

and oversight of loans (possibly through NMFA); and specify the preventative nature of the

loans.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The Corrective Action Fund will continue to be used to remediate environment contamination

from leaking petroleum storage tanks and address water need through indirect funding.

MA/csd