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

SPONSOR Trujillo

ORIGINAL DATE

LAST UPDATED

2/14/07

HB 802

SHORT TITLE Liquid Waste Disposal System Tax Credit

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(525.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

New Mexico Environment Department

SUMMARY

Synopsis of Bill

House Bill 802 enacts a credit against personal income tax liability for the purchase and

installation of advanced treatment on-site liquid waste disposal systems. The credit cannot

exceed $1,500 and can be carried forward for up to three years if the credit exceeds tax liability.

The system must comply with NM Department of Environment (NMED) regulations and be

installed by an NMED qualified contractor. The Taxation and Revenue Department (TRD) will

require a certificate issued by the NMED.

The effective date is January 1, 2008.

FISCAL IMPLICATIONS

Fiscal impacts were calculated by TRD:

Representatives of the NMED estimate that approximately 300 of the types of systems

affected by the proposed measure are purchased annually, but also state that 300 may be a

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2

conservative estimate. The $525,000 figure above assumes credits for 350 of the units are

claimed annually. NMED representatives also state that 1) the types of systems likely to

qualify for the proposed credits typically cost in the neighborhood of $8,000 to $10,000,

but sometimes cost as much as $20,000; 2) the units are usually installed on rural

residential lots that make use of leaching fields when disposing waste; and 3) systems are

often required by local regulations.

SIGNIFICANT ISSUES

NMED:

Septic systems are the leading source of groundwater pollution and have impaired 355

river miles in New Mexico. Advanced liquid waste treatment systems must be installed

in order to protect water quality and public health at sites that have limitations such as

inadequate lot size, set back to wells or streams and clearance to bedrock or ground

water. The purchase and installation costs for advanced treatment systems are

approximately two to three times more than conventional (septic tank) liquid waste

systems. NMED issues approximately 400 Liquid Waste Permits each year for advanced

treatment systems.

PERFORMANCE IMPLICATIONS

NMED reports that the credit should increase compliance with the Liquid Waste Regulations

which will protect the water supply in the state.

ADMINISTRATIVE IMPLICATIONS

NMED reports that there should be no significant administrative costs associated with certifying

the credits. TRD reports that they would need a quarter-FTE to create/modify the necessary

forms and instructions and collaborate with NMED on the certification process.

OTHER SUBSTANTIVE ISSUES

TRD has provided excellent background for the issues revolving around the provision of this

credit:

The proposed tax credit provides $1 in tax relief for every $1 spent – up to $1,500 -- on

wastewater treatment systems. This $1,500 is provided at no cost to the taxpayer. In

contrast, benefits of a tax deduction, which reduces taxable income and therefore reduces

liabilities only by an amount equal to the tax rate times the amount of the deduction. For

this reason, tax credits are usually set at a rate of less than 100 percent of the associated

expenditure. This approach requires the taxpayer to commit some portion of the costs,

which reflects the fact that most of the benefits will accrue to the taxpayer. Benefits to the

state are usually expected to be only a fraction of the benefits to the taxpayer.

Illustration: Sewer Treatment Systems

1

Preliminary Treatment:

Preliminary treatment to screen out, grind up, or separate debris is the first step in

1

Source: http://ohioline.osu.edu/aex-fact/0768.html

House Bill 802 – Page

3

wastewater treatment. Sticks, rags, large food particles, sand, gravel, toys, etc., are

removed at this stage to protect the pumping and other equipment in the treatment plant.

Treatment equipment such as bar screens, comminutors (a large version of a garbage

disposal), and grit chambers are used as the wastewater first enters a treatment plant. The

collected debris is usually disposed of in a landfill.

Primary Treatment: Primary treatment is the second step in treatment and separates

suspended solids and greases from wastewater. Wastewater is held in a quiet tank for

several hours allowing the particles to settle to the bottom and the greases to float to the

top. The solids drawn off the bottom and skimmed off the top receive further treatment as

sludge. The clarified wastewater flows on to the next stage of wastewater treatment.

Clarifiers and septic tanks are usually used to provide primary treatment.

Secondary Treatment: Secondary treatment is a biological treatment process to remove

dissolved organic matter from wastewater. Sewage microorganisms are cultivated and

added to the wastewater. The microorganisms absorb organic matter from sewage as their

food supply. Three approaches are used to accomplish secondary treatment, fixed film,

suspended film and lagoon systems.

Fixed Film Systems: Fixed film systems grow microorganisms on substrates such

as rocks, sand or plastic. The wastewater is spread over the substrate, allowing the

wastewater to flow past the film of microorganisms fixed to the substrate. As

organic matter and nutrients are absorbed from the wastewater, the film of

microorganisms grows and thickens. Trickling filters, rotating biological

contactors, and sand filters are examples of fixed film systems.

Suspended Film Systems: Suspended film systems stir and suspend

microorganisms in wastewater. As the microorganisms absorb organic matter and

nutrients from the wastewater they grow in size and number. After the

microorganisms have been suspended in the wastewater for several hours, they

are settled out as sludge. Some of the sludge is pumped back into the incoming

wastewater to provide "seed" microorganisms. The remainder is wasted and sent

on to a sludge treatment process. Activated sludge, extended aeration, oxidation

ditch, and sequential batch reactor systems are all examples of suspended film

systems.

Lagoon Systems: Lagoon systems are shallow basins that hold the wastewater for

several months to allow for the natural degradation of sewage. These systems take

advantage of natural aeration and microorganisms in the wastewater to renovate

sewage.

Final Treatment: Final treatment focuses on removal of disease-causing organisms from

wastewater. Treated wastewater can be disinfected by adding chlorine or by using

ultraviolet light. High levels of chlorine may be harmful to aquatic life in receiving

streams. Treatment systems often add a chlorine-neutralizing chemical to the treated

wastewater before stream discharge.

Advanced Treatment: Advanced treatment is necessary in some treatment systems to

remove nutrients from wastewater. Chemicals are sometimes added during the treatment

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4

process to help settle out or strip out phosphorus or nitrogen. Some examples of nutrient

removal systems include coagulant addition for phosphorus removal and air stripping for

ammonia removal.

NF/mt