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F I S C A L I M P A C T R E P O R T
SPONSOR HAFC
ORIGINAL DATE
LAST UPDATED
2/2/08
2/8/08 HB 342/HAFCS
SHORT TITLE Uranium Legacy Cleanup Act
SB
ANALYST Wilson
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
Unknown
Unknown
Recurring
Uranium
Legacy Cleanup
Fund
(Parenthesis ( ) Indicate Revenue Decreases)
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
FY08 FY09 Recurring or Non-Rec Fund Affected
ED $125.0* $125.0*
Recurring
Uranium Legacy Cleanup Fund
EMNRD $125.0* $125.0*
Recurring
Uranium Legacy Cleanup Fund
TRD Unknown Unknown
Recurring
Uranium Legacy Cleanup Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
*one FTE with benefits, estimate
Relates to SB 273, HJM 2 & HB 22
SOURCES OF INFORMATION
LFC Files
Responses Received From*
Energy Minerals and Natural Resources Department (EMNRD)
Environment Department (ED)
Department of Finance & Administration (DFA)
Department of Health (DOH)
Indian Affairs Department (IAD)
Taxation & Revenue Department (TRD)
*responses were received on original bill and as applicable is used in this FIR
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House Bill 342/HAFCS– Page
2
SUMMARY
Synopsis of Bill
The House Appropriations and Finance Committee Substitute for House Bill 342 creates a new
Uranium Legacy Cleanup Act. The purpose of this fund is to clean up sites contaminated by past
historical uranium mining and milling activities.
The Secretary of EMNRD shall adopt rules for applying for financial assistance from the UCLF
and for establishing priorities for qualified projects.
Priorities for approving qualified projects shall be based upon:
•
the protection of public health, safety and welfare;
•
the protection of the environment from existing or potential contamination;
•
the ability to leverage funds available from other sources to implement qualified projects
•
the degree to which a qualified project can be completed with the requested funding;
•
the size of the area to be included with the qualified project;
•
the number of persons affected or potentially affected by contamination at the site of the
qualified project
•
the level of actual or potential radiation exposure at the site of the qualified project;
•
the potential for an increase of the area contaminated or potential exposure to persons if
the site of a qualified project is not cleaned up;
•
the lack of any potentially responsible party obligated to conduct a cleanup pursuant to
any federal, state or tribal law; and
•
the legal authority of the applicant to conduct cleanup activities on the proposed site.
•
the potential uses for the site following completion of the qualified project; and
In addition, the Secretary of EMNRD will be required to report to the appropriate interim
legislative committee by October 1 of each year for the previous fiscal year regarding total
expenditures from the fund for previous fiscal year, the purposes for which expenditures were
made, an analysis of the progress of the projects funded and proposals for legislative action in
the subsequent legislative session..
For the privilege of severing, or the related
processing of uranium, there is imposed “uranium
legacy cleanup surtax on any severer or related
processor of uranium in New Mexico. A severer
of uranium shall not be subject to the uranium legacy cleanup surtax with respect to severed
uranium if the surtax on that severed uranium is paid by a processor. The uranium legacy
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House Bill 342/HAFCS– Page
3
cleanup surtax shall be imposed at an amount of $.50 per pound of the content of U308 contained
in uranium severed or processed after such severing, regardless of the form in which the product
is actually disposed of.
FISCAL IMPLICATIONS
The Uranium Legacy Cleanup Fund is created as a fund in the state treasury and shall be
administered by EMNRD. Any unexpended funds remaining at the end of a fiscal year shall not
revert to the general fund.
The ULCF is created and shall be administered by EMNRD The fund shall consist of money
from distributions of the uranium legacy cleanup surtax pursuant to Section 7-1-6.59 NMSA
1978; money that is repaid from loans approved by the EMND secretary; and money that is
appropriated or donated or that otherwise accrues to the fund. Money in the fund shall be
invested by the state investment officer in the manner that land grant permanent funds are
invested pursuant to Chapter 6, Article 8 NMSA 1978. Income from investment of the fund shall
be credited to the fund.
EMNRD shall establish procedures and adopt rules as required to administer the fund and to
originate grants or loans for qualified projects approved by the secretary.
Money in the fund is appropriated to EMNRD to carry out the purposes of the ULCF by
providing financial assistance for qualified projects.
This bill creates a new fund and provides for continuing appropriations. The LFC has concerns
with including continuing appropriation language in the statutory provisions for newly created
funds, as earmarking reduces the ability of the legislature to establish spending priorities.
Under the Water Quality Act and Water Quality Control Commission (WQCC) regulations, ED
is one of the regulatory agencies responsible for assessing and overseeing the cleanup of all sites
in New Mexico potentially contaminated by uranium mining. This bill will require that ED
review all abandoned uranium site cleanup plans and work products for approval and consistency
with existing applicable statutes, rules, and regulations for cleanup of uranium contamination,
and to ensure protection of public health, water quality, and the environment. The task will
require significant funding and staff resources. At least one additional full time employee will be
needed to manage this effort. The appropriation of funds that will allow ED to implement the
tasks required related to this bill is not included. Those tasks will be new duties for ED, which
does not have existing resources to accomplish unless additional funding is provided.
SIGNIFICANT ISSUES
Uranium mining and processing was extensive in New Mexico from the 1950s to the 1970s.
Those operations were conducted primarily prior to the enactment of state and federal
regulations that protect human health and the environment. Therefore, many of those operations
resulted in significant environmental impacts, including water pollution. In 2005, the Navajo
Nation banned uranium mining on Tribal lands.
Current state water quality regulations are designed to prevent future water pollution at any new
uranium mining and processing facilities that fall under the state’s jurisdiction. Since 1978,
pg_0004
House Bill 342/HAFCS– Page
4
pursuant to the Water Quality Act, operators have been required to obtain groundwater discharge
permits under WQCC regulations to prevent groundwater contamination. Requirements for
financial assurance are also in place to ensure mine sites are adequately closed following the
cessation of operations and to abate any soil, groundwater, or surface water contamination that
may occur. ED recently evaluated the adequacy of the uranium standard for groundwater to
protect public health. ED hired a toxicologist in 1999 to study the effects of uranium in
groundwater on public health. As a result of that assessment, the standard for uranium changed
from 5.0 mg/l to 0.03 mg/l and the state level of groundwater and public health protection from
uranium sites.
Since the late 1970s, a number of large sites with water pollution and human health impacts have
been cleaned up or are currently being remediated under WQCC regulations or federal laws such
as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).
However, there are abandoned uranium mines or so-called uranium legacy mines without viable
responsible parties in the northwestern portion of the state that could pose a variety of health
concerns including threats to public health from public exposure to windblown uranium soils
onto neighboring residential properties, and threats to groundwater quality from leaching of
uranium contaminated soils into underlying underground sources of drinking water. Abandoned
uranium mines have caused soil and groundwater contamination at a number of sites in New
Mexico. Funding the cleanup of those sites will help eliminate impacts to public health from
past uranium mining and milling activities, enhance overall environmental conditions in those
areas and protect water quality and prevent future threats to public health.
TRD is currently undertaking review of the cumulative tax burden on uranium production and
processing from various direct taxes in New Mexico, and comparing with taxes on other natural
resource production such as coal, oil and natural gas. They plan to provide comparisons with
taxes in selected other states as well.
In this regard, and considering the intent of this bill, TRD has provided the following comments
and observations:
•
The uranium production and processing industry suffered precipitous decline in New
Mexico, starting about 25 years ago, and the industry has been essentially dormant in
recent years. Thus, recent actual revenue experience is not a reliable predictor of future
activity and industry plans are uncertain.
•
When the uranium industry in New Mexico experienced its last boom during the mid-
and late 1970s, the states severance related revenues were initially at a low level
compared to taxes on coal, oil and natural gas. Laws 1977, Chapter 102, was a major
effort “ … to impose a unified system of severance taxes upon the severance of energy
resources in the form of oil, gas, coal and uranium, taking into account the quantity of
energy producible, in addition to the value of the product or natural resource, in a
manner consistent with a unified system." In its purpose section, the act states: “The
legislature finds that certain interferences with the market and certain existing contracts
have from time to time imposed restrictions which require variances from the stated
purpose of the act. Until such time as these restrictions are removed, the achievement of
its goal is not possible, but this act achieves as much of that goal as is currently
possible."
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House Bill 342/HAFCS– Page
5
•
The “unified system" goal was not fully achieved, and the various energy resource
severance related taxes have undergone numerous revisions over the years reacting to
changing domestic and world energy markets.
TRD further provided the following:
•
During the 1977 Legislature, a great deal of industry testimony concerned the existence
of long term, low priced contracts for U3O8 (yellowcake). As a result, a two part tax
system was developed, with certain low priced contracts registered to pay tax at a much
lower rate than non-registered contracts.
•
For estimating purposes, and based on industry input, anticipated sales were split into old
registered contracts, new contracts (non-registered) and spot sales, with average prices
estimated for each category. Estimates missed the mark, considerably!
•
While the old registered contracts system died long ago, that experience may provide
some cautions for the future
: First, the ability to shift sales to fill spot vs. new long term
vs. old registered contracts in any one year was greater by far than was anticipated. For
the future, as production ramps up, we may anticipate the industry’s ability to shift
between contract sales and spot sales (at higher prices) will continue to cause risk to
revenue estimation. Second, the ability to sell from inventories or to accumulate
inventories in a year may again become significant, which adds to the volatility of
reported sales and related revenues. Third, issues of pricing decisions within new, long
term contracts, compared to spot prices in world markets will once again raise questions
as to the value of the depletable uranium resource in New Mexico.
•
Considering the preceding discussion, and in view of the intent of this bill to provide for
cleanup projects related to historic contamination that may have resulted from uranium
mining or milling activities that occurred prior to July 1, 2008, the sponsor may wish to
consider pegging the value for uranium legacy cleanup surtax purposes to an index of
domestic or world prices (using a monthly or annual average thereof), to generate a more
stable revenue flow. Using a benchmark market price (such as that provided in NYMEX
pricing publications) will tend to reduce compliance burdens on the industry, and reduce
administrative costs for TRD.
•
A related issue deserves review as the state prepares for the anticipated renewal of
uranium production and processing in New Mexico. The taxable value of uranium for
severance tax purposes is derived from the sales price per pound of the content of U3O8
(yellowcake) contained in the severed and saved or processed uranium, regardless of the
form in which the product is actually disposed of. The taxable value of uranium for
resources excise tax purposes, prior to specified deductions, is presumed, in the absence
of preponderant evidence of another value, to mean the total amount of money or the
reasonable value of other consideration received for the severed or processed natural
resource (however, no specific mention is made of the value of U3O8 content). It might
be useful to clarify that within the resources excise tax definitions.
pg_0006
House Bill 342/HAFCS– Page
6
ADMINISTRATIVE IMPLICATIONS
This bill will create a significant extra burden on EMNRD staff in the especially in the beginning
stages of implementation of this act. EMNRD is required to administer the fund, establish
procedures and to hold and disburse funds. The bill does not allow the fund to be used for
administrative costs.
ED also notes that there is no funding mechanism included in this bill to pay for the addition of
staff and other costs necessary to implement tasks that will be required of ED. At least one
additional full time employee will be needed to manage that effort to ensure cleanups are
conducted in accordance with applicable statutes, rules and regulations to protect public health,
water quality, and the environment.
TRD sees impact on changing resource excise tax return form, on manual key entry staff for
resource and severance tax forms, and on related programming changes in the GENTAX system
for tax processing of the uranium legacy cleanup surtax:
1.
The current Resource Excise Tax form contains a significant amount of information,
since it covers three different types of taxes, with varying tax rates depending on the
mineral type and taxable event.
2.
To properly administer the proposed uranium legacy cleanup surtax, it may be best to
develop a separate form, specific to the surtax, which will contain a limited number of
data entry fields. It will still require manual key entry.
3.
With any new form, or significant form revision, GENTAX personnel and programmers
will need to be involved in the design and programming of such, and only they can
determine the time and effort that will be required to fit within the GENTAX system.
4.
In this regard, the current Revenue Accounting project to upgrade GENTAX
programming is targeted to be completed by June 30, 2008. With this bill’s effective date
of January 1, 2009, there should be sufficient time to design, develop, test and properly
implement the forms, procedures and systems changes required.
Also, the above considerations will impact the time and personnel requirements for manual key
entry for the new uranium legacy cleanup surtax, and related budgetary support.
RELATIONSHIP
This bill is related to and similar to Senate Bill 273 which also creates a new Uranium Legacy
Act and a Uranium Legacy Cleanup Fund, all for the purpose of providing funding to clean up
sites contaminated by past historical uranium mining and milling activities.
This bill also relates to HJM 2,
Superfund For Uranium-Contaminated Sites & HB 22,
Uranium
Related Health Study
TECHNICAL ISSUES
ED provided the following:
In Section 2.D. on page 2, the definition of “qualified project" should be expanded to
clarify that the project is to be cleaned up in accordance with applicable state or federal
standards and in accordance with a cleanup work plan approved by the appropriate
pg_0007
House Bill 342/HAFCS– Page
7
regulatory agency responsible for environmental oversight. Those cleanups should be
done in a manner that protects public health, surface use, and groundwater and surface
water resources, and is consistent with standards applied to other state and federal
uranium cleanup sites. The agency with the technical expertise and regulatory authority
to approve work plans and actual cleanup actions needs to oversee that work. The ED is
the state regulatory authority responsible for those actions related to cleanups at uranium
sites pursuant to the Water Quality Act and WQCC regulations. ED is also responsible
for technical oversight of federal uranium cleanups, and ensures that state requirements
are met at uranium cleanup sites under federal laws such as the CERCLA, and Atomic
Energy Act. Therefore, ED will need to review and approve the uranium legacy cleanup
actions for consistency with state and federal rules, regulations, standards and
requirements applied at other uranium cleanup sites.
This bill should explicitly exempt viable responsible parties from the definition of
qualified projects that can receive funding for cleanup. Some former uranium mining
sites may be found to have viable responsible parties that are subject to state or federal
laws and/or regulations for cleanup actions. This bill should not allow viable responsible
parties to receive a financial bail out for cleaning up a contaminated site. Parties
responsible for those sites should be required to clean them up at their own cost.
Section 3.E.1&2 on page 3 mandates that two EPA Regions participate on the Uranium
Legacy Cleanup Committee. State legislation probably cannot mandate participation on
the committee by a federal agency.
TRD notes that on page 8, line 23, the bill adds “and 7-1-6.59;" but it does not add it to similar
language on page 9, line 14. It should be confirmed whether the intent was to add it here, as well.
OTHER SUBSTANTIVE ISSUES
From 1944-1986, nearly 4,000,000 tons of uranium ore were mined in and around the Navajo
Nation for energy and nuclear weapons production. When these mines ceased operation, many
of them were left abandoned and often left poorly contained without reclamation. Today, the
abandoned uranium mines are proving to present a variety of health and environmental risks to
New Mexico’s citizens and environment.
Over the years, scientists have scientifically linked uranium and other chemicals produced during
the process of uranium milling with serious health risks. These chemicals, including radon,
radium, and arsenic, have been associated with cancer, kidney disease, birth defects,
neurotoxicity, neuropathy, hyper pigmentation and hyperkeratosis of the skin. In animals,
exposures to these substances through water contamination have been documented to cause birth
and genetic defects.
TRD provided the following additional data:
Potential Revenues from Hypothetical Production and Pricing of Uranium:
[As discussed previously in the Fiscal Impact section of this bill analysis, the potential
revenue increase under the proposed Uranium Legacy Cleanup Surtax is currently
indeterminate. TRD staff is not aware of any uranium mining currently occurring within
pg_0008
House Bill 342/HAFCS– Page
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New Mexico; the uranium production and processing industry in New Mexico has been
essentially dormant for many years.]
Hypothetical Illustration for Calendar Year 2009:
•
Assume price per pound of Uranium yellowcake (U3O8) ---------- $95.00
•
Assume production/sales of U3O8 in pounds --------------------- 1,000,000 >
(New) Uranium Legacy Cleanup Surtax:
•
Taxable Value = $95 x 1,000,000 pounds = $95,000,000
•
Revenue @ rate of 2% = .02 x $95.000,000 = $1,900,000
Resources Excise (Processors) Tax:
•
Taxable Value = $95 x 1,000,000 pounds = $95,000,000
•
Revenue @ rate of 0.75% = .0075 x $95,000,000 = $712,500
Severance Tax:
•
A flat 50% reduction of sales price is provided for: .5 x $95 = $47.50 per pound
•
Taxable Value = $47.50 x 1,000,000 pounds = $47,500,000
•
Revenue @ rate of 3.5% = .035 x $47,500,000 = $1,662,500
Revenue Summary for three severance/processing related taxes:
Uranium Legacy Cleanup Surtax ---------- $1,900,000
Resources Excise (Processors) Tax ------- 712,500
Severance Tax -------------------------------- 1,662,500
Total of three taxes ----------------------- $4,275,000
Item
: Three taxes as percent of Resources Excise Taxable Value
= 4,275,000 / 95,000,000 = 0.045 = 4.5% effective tax rate
During 2006, month-end spot price varied from low of $37.50 per pound of U3O8 in January
with steady increase up to $72.00 in December. During 2007, month-end spot price varied
from $75.00 in January up to $135.00 in June back down to $75.00 in September 2007.
Total World Production in thousand pounds of U3O8 was 102,840 in 2006; USA production
was 4,122 in 2006; in 2006, calculating USA as percent of World Production = 4.008%.
[None of this product was from New Mexico.]
Deductions for Resources Excise Tax Purposes
: Under Section 7-25-3 (I) NMSA 1978, in
determining taxable value, deductions will be allowed for: Any royalty or similar interest,
whether payable in cash or in kind, paid to: the United States or any agency or
instrumentality thereof; the state of New Mexico or any political subdivision thereof; or any
Indian tribe, Indian pueblo or Indian that is a ward of the United States. In addition, in
computing taxable value, any owner of natural resources may deduct any service charge on
which the service tax imposed by 7-25-6 NMSA 1978 is payable.
For purposes of this Hypothetical Illustration, such deductions are ignored, but they will
certainly act to reduce potential revenue under the Uranium Legacy Cleanup Surtax and the
Resources Excise (Processors) Tax, depending upon where future production of uranium ore
is mined in New Mexico.
pg_0009
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Note on Historical Comparison of Uranium Price and Production in New Mexico:
By way of historic comparison with the boom in uranium production during the mid- to late
1970s, the following information is excerpted from information published (10/2/78) by the
Tax Research & Statistics office of the Taxation and Revenue Department.
Calendar Year 1977:
•
Quantity of U3O8 reported for Resources Excise (Processors) Tax purposes was
approximately 13,827,000 n pounds.
•
Weighted Average Price was $25.00 per pound.
•
Gross Value was approximately $345,676,000
•
Deductions taken: for Royalties Paid totaled approximately $1.505 million; and for Service
Charge totaled approximately $1,009,000.
•
Taxable Value was approximately $343,162,000.
Tax Due totaled approximately $2,574,000.
DW/bb