NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

Energy, Minerals and Natural Resources Department (ENMRD)

Legislative Finance Committee files

SUMMARY

Synopsis of the House Agriculture and Water Resources Committee Amendments

The House Agriculture and Water Resources Committee amendments change the bill by requiring that the state engineer develop the rules and regulations for implementing the program rather than the agriculture department.

The amendments will not change the fiscal impact estimates of the bill.

Synopsis of the House Agriculture and Water Resources Committee Substitute for HB 105

HAGC/HB105 proposes a tax credit for the purchase and installation of water conservation equipment as a means to promote water conservation in drought stricken areas of the state. The credit, which could be applied against corporate or personal income taxes, would be equal to 75 percent of the costs of the project up to a maximum of $50 thousand per year. In cases where the credit is higher than taxes due or the taxpayer owes no taxes, the credit may be carried forward to offset income taxes. The carry forward provision is limited to five consecutive years.

The New Mexico department of agriculture is charged with developing rules and regulations to implement the program and to establish guidelines that would determine which projects would qualify for the credit. The provisions of the bill would apply to taxable years beginning on or after January 1, 2000.

Significant Issues

1. TRD suggested that given the uncertainty as to the level of participation this credit might attract, consideration should be given to capping it at some level and awarding the credits to the best projects.

1.  TRD noted that while the aim of the credit is water conservation, it helps pay for water conservation equipment and not water conservation. The water conservation systems, by lowering the cost of water, could result in expanded water use.

FISCAL IMPLICATIONS

TRD reported that the program would cost $5.5 million in FY99 and $22 million in FY 2000. The estimate is based on the assumption that there would be 500 projects per year, each costing $50 thousand. However, they say that they are unsure as to how many projects would actually result from the credit, and thus the estimate is employed to illustrate the potential cost to the General Fund.

ADMINISTRATIVE IMPLICATIONS

The state engineer reported that based on their experience, developing regulation and guideline for tax credits is a lengthy, complicated process. They said they will need $50 thousand per year to hire a full time person. They will need the position for one and half years. They would also need $10 thousand for advertising rules and regulations. The state engineer suggests that the Taxation and Revenue Department would be better positioned to administer the program because it is a tax credit program.

TRD suggested that administering the program's tax credit would be labor intensive, requiring verification of at least 25 percent of claims. They say they will need one full time equivalent (FTE), which will cost $35 thousand. This estimate did not assume that they would be responsible for implementing the program.

BT/njw