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

SPONSOR Gonzales

ORIGINAL DATE

LAST UPDATED

1/29/08

2/8/08 HB 308/aHTRC/aHAFC

SHORT TITLE NMFA Water Project Fund Projects

SB

ANALYST Kehoe, L.

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

($32,300.0)

($30,700.0)

($30,100.0) Recurring Severance Tax

Bond Capacity

$32,300.0

$30,700.0

$30,100.0 Recurring Water Project

Fund

($4,000.0)

($4,000.0) Recurring Water Trust

Fund

$4,000.0

$4,000.0 Recurring Water Project

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

SUMMARY

Synopsis of House Appropriations and Finance Committee Amendments

HAFC amendment item 1 strikes HTRC technical amendments and item 2 provides further

technical revisions. Item 3 authorizes NMFA to make a loan or grant from the water project

fund to Cibola County to acquire water rights for public use and to the City of Rio Rancho in

Sandoval County for a flood prevention project.

Synopsis of House Taxation and Revenue Committee Amendments

HTRC amendments 1 through 5 provide technical revisions to the bill. Item 6 authorizes NMFA

to make a loan or grant to Cibola County to acquire water rights for public use.

House Bill 308/aHTRC/aHAFC – Page

2

Synopsis of Original Bill

House Bill 308 authorizes the New Mexico Finance Authority (NMFA) to make loans or grants

from the water project fund for 48 qualifying projects on terms and conditions established by the

water trust board (WTB) and NMFA.

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 FY08 will provide approximately

$32.3 million to the water project fund for eligible water projects. The forecast in future years

for 10 percent of severance tax bond capacity will be approximately $30.7 million in FY09 and

approximately $30.1 million in FY10. 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. The value of the 10 percent of severance tax bond capacity can

change from year to year depending on oil and gas revenues.

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 creating the water trust fund approved in November

2006 and in accordance with state law, on July 1, 2008 for FY09 and each fiscal year thereafter,

an annual distribution shall be made from the water trust fund to the water project fund pursuant

to state law, and that distribution 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.

Section 72-4A-8 of the Water Finance 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 percent of the average of the year-

end market values of the water trust fund for the immediate preceding five calendar years.

Laws 2005 (Chapter 293) certifies 10 percent of all funds in the water project fund

(approximately $3.2 million) may be allocated to the Office of State Engineer (OSE) to be used

for adjudication. Of the OSE 10 percent, 20 percent (approximately $600,000) will go to the

Administrative Office of the Courts for adjudication purposes.

SIGNIFICANT ISSUES

The water project fund and water trust board were created by the Water Finance Act. According

to the Act, once authorized by the Legislature, the water trust board reviews all projects and

determines qualifying entities and projects for consideration of loans or grants from the water

project fund.

Soon after the 2008 legislative session adjourns, the WTB will review all projects authorized by

the Legislature for funding from the 2008 distribution to the WPF. Eligible water projects

pursuant to the Water Finance Act are defined as those involving: 1) the storage, conveyance or

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

House Bill 308/aHTRC/aHAFC – Page

3

collaborative programs; 3) the restoration of watersheds; 4) flood prevention; 5) conservation; or

6) for recycling, treatment or reuse of water.

According to NMFA, the WTB received 52 applications requesting financial assistance from the

WPF. After reviewing and evaluating the applications, the WTB recommended 48 qualified

entities to request legislative authorization for financial assistance. The total amount requested

for the projects contained in this bill is approximately $75.1 million.

ADMINISTRATIVE IMPLICATIONS

The NMFA is responsible for administering the WPF and for monitoring and ensuring proper

reversions.

LMK/mt:bb