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

SPONSOR Stewart

DATE TYPED 03/01/05 HB 462/aHENRC

SHORT TITLE Water Efficient Technology Act

SB

ANALYST Kehoe

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(See Fiscal Im-

pact Narrative)

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

See Narrative

Water Efficient Technology

Project Fund

(Parenthesis ( ) Indicate Revenue Decreases

Duplicates Senate Bill 444; relates to Senate Bill 54, Senate Bill 123, Senate Bill 132, Senate

Bill 139, Senate Bill 140, Senate Bill 152, Senate Bill 186, Senate Bill 239, House Bill 14,

House Bill 95, House Bill 123, House Bill 195, House Bill 271, House Bill 294, House Bill 304

and House Bill 403.

SOURCES OF INFORMATION

Responses Received From

Office of the State Engineer (OSE)

New Mexico Environment Department (NMED)

Energy, Minerals & Natural Resources Department (EMNRD)

New Mexico Department of Agriculture

New Mexico Finance Authority (NMFA)

House Bill 462/aHENRC -- Page 2

SUMMARY

Synopsis of HENRC Amendment

The House Energy and Natural Resources Committee amendments provide for the following:

Item 1, expands the definition of “domestic well” to require a well be permitted by current law or

by other law by the state engineer for irrigation of up to one acre of non-commercial trees, lawn

or garden or for household or other domestic use.

Item 2, requires persons diverting or withdrawing public water to provide additional reporting

specifically required by the state engineer.

Item 3, requires NMFA to consult with the Department of Environment, the State Engineer, the

Interstate Stream Commission, the water infrastructure evaluation technical team or other water

infrastructure evaluation technical group administratively attached to the Department of Finance

and Administration when evaluating and prioritizing qualifying projects financed by the water

efficient technology fund.

The amendment further requires the following criteria be used for evaluating projects: 1) urgency

of need; 2) estimated water savings and depletions; 3) short- and long-term benefits and impacts,

including environmental benefits and impacts; 4) capital costs, matching contributions from fed-

eral or local funding sources and financial capability of the qualifying entity to ensure sufficient

revenues to operate and maintain the project for its useful life and to repay financial assistance if

applying for a loan; 5) engineering reports; 6) compliance with the federal Safe Drinking Water

Act of 1974, if applicable; 7) demonstration of adequate technical and managerial capability to

operate the project; 8) consistency with an approved regional water plan and possibility of re-

gional or clustered water systems; 9) consideration of alternatives to the proposed qualifying wa-

ter project for meeting water demand and the comparative benefits of the proposed project; 10)

equitable distribution of the water efficient technology project fund grants and loans across the

state’s river basins as measured by the amount of water efficiency fees collected from and ex-

pended within each river basin; and 11) other relevant criteria as needed.

Items 4 and 5, caps at 5 percent the administrative fee TRD is allowed to withhold from receipts

pursuant to the Water Efficiency Technology Act for administrative costs, of which 60 percent

may be used by TRD and 40 percent distributed to the Office of the State Engineer for adminis-

trative costs.

Item 6, provides temporary applicability dates for the imposition of water efficiency fees—July

1, 2007 for public water supply system operators; and effective July 1, 2011 for persons owning

domestic wells..

Synopsis of Bill

House Bill 462, introduced for the New Mexico Finance Authority Oversight Committee, enacts

the Water Efficient Technology Act, amends the New Mexico Finance Authority Act, amends

the Tax Administration Act, authorizes NMFA to issue bonds, imposes a water efficiency fee for

certain public waters, and creates a fund.

House Bill 462/aHENRC -- Page 3

Significant Issues

House Bill 462 enacts the Water Efficiency Technology Act for the purpose of imposing a water

efficiency fee on those persons wishing to exercise the right to divert or withdraw the public wa-

ters of the state. The bill contains a provision making it clear that payment of the proposed fee

does not confirm or provide evidence of any right to appropriate the public waters of the state.

The proposed efficiency fee would be imposed on the following persons:

1)

persons operating a public water supply system, $25.00 per acre-foot per year paid annu-

ally;

2)

persons supplying water for a commercial, industrial, mining or power production con-

cern and for which the fees imposed by this subsection have not otherwise been imposed

or paid, $25.00 per acre-foot per year paid annually; and

3)

persons owning a domestic well, a fixed annual fee of $12.50 per well paid annually.

House Bill 462 requires that owners of domestic wells be assessed a fixed annual fee. In all

other cases, water efficiency fees would be based on the actual diversion or withdrawal of water

if measured by a metering system approved by the State Engineer; otherwise, fees would be

based on the amount of the permitted, licensed, declared or adjudicated water rights.

The bill requires the Taxation and Revenue Department (TRD) to provide by regulation for re-

porting requirements and the manner and form of collecting the water efficiency fees and to pro-

vide the State Engineer and the New Mexico Finance Authority with an annual report indicating

the amount of fees collected by river basin for each type of fee specified within the Act. The

State Engineer, Interstate Stream Commission, Department of Environment and Public Regula-

tion Commission are required to provide TRD with the necessary information and records

needed to assess the fees imposed by the Act that will be collected by TRD. The bill further pro-

vides that persons who are required to pay the fees and who measures the diversion or with-

drawal of public waters with a metering system approved by the state engineer must submit a

record of the amount of diversion to the State Engineer annually.

House Bill 462 creates the water efficient technology project fund within the New Mexico Fi-

nance Authority to consist of the net receipts attributable to the fees imposed by the Act, pay-

ments of principal of and interest on loans for approved water projects and net proceeds from the

sale of bonds, and other money appropriated, donated, or allocated for the purpose of supporting

water projects pursuant to the Act. The proceeds of the fund are appropriated to NMFA for the

purpose of making grants or loans to qualified entities for water projects that benefit persons that

have paid water efficiency fees and to pay the administrative costs of the water efficiency tech-

nology program. Qualifying water projects include:

•

restoration and management of watersheds;

•

state acquisition or lease of water rights from willing sellers or lessors; or

•

water conservation projects.

The bill requires NMFA to administer the program and fund and to develop the application pro-

cedures for loans and grants, adopt rules and procedures for administering the fund and to evalu-

ate and prioritize qualifying water projects and make funding recommendations to the legisla-

ture. NMFA is authorized to issue revenue bonds payable from the proceeds of loan repayments

made into the water efficient technology fund when NMFA determines issuance is necessary to

House Bill 462/aHENRC -- Page 4

replenish the principal balance of the fund.

FISCAL IMPLICATIONS

The fees imposed by this bill are considered a tax for purposes of the Tax Administration Act.

According to EMNRD, the bill creates a significant source of revenue for water projects in New

Mexico. It is estimated that 137,000-164,000 domestic wells of New Mexico homeowners

would be affected (State Engineer’s Report, December 2000); therefore, the fee would generate

substantial revenues in the amount of approximately $2 million from the residential sector. In

addition, the use-based fee of $25/acre-foot would be imposed on commercial, industrial, mining

and power companies. This fee structure will impact extensive water use operations such as the

Intel computer chip facility in Rio Rancho. For companies with sizable water consumption, the

fee would increase operating costs; yet this impact would likely be modest on a percentage basis

in comparison to their respective total operating costs. Any negative impact on an individual

company would have to be weighed against the positive environmental consequences of water

conservation. It is estimated that New Mexico has $2 billion in water project needs and water is

the number one resource and public policy issue in the state.

The following two tables from the Water Efficiency Technology Act Report by W.J. Miller En-

gineers, Inc. provide revenue projections by Water Sector and by Water Basin. As indicated in

the first table, it is estimated that the Water Efficiency Technology Act will generate approxi-

mately $14.5 million annually with 57.0% of the revenue ($8,297,550) paid by Public Water

Supply providers.

TABLE I

Water Efficient Technology Act

Projected Estimates of Revenue by Water Sector and by Basin:

Preliminary research indicates that the Water Efficient Technology Act would raise approxi-

mately $14.5 million dollars annually assuming 100% collection. Revenue estimates are based

on estimates of water rights and measured diversions based on data from the year 2000. (2004,

W. J. Miller Engineers, Inc., Water Efficiency Technology Act Technical Report, WWF Chihua-

huan Desert Program, Las Cruces, NM)

House Bill 462/aHENRC -- Page 5

Revenue Summary by Water Sector

Use

Withdrawal

(acre-feet)

% of Total

Withdrawal Estimated revenue

% of Total

Revenue

Rate per

ac-ft

Flat Fee

per well

Public Water Supply 331,902

57.8%

$8,297,550 57.0% $25.00

Commercial

25,166

4.4%

$629,150 4.3% $25.00

Industrial

11,707

2.0%

$292,675 2.0% $25.00

Power

63,157

11.0%

$1,578,925 10.9% $25.00

Mining

67,869

11.8%

$1,696,725 11.7% $25.00

Domestic Wells

(164,400 wells

@ 0.45 af per well)

73,980

12.9%

$2,055,000 14.1% $25.00 $12.50

Total =

573,781

$14,550,025

The second table indicates that the Rio Grande Basin will provide approximately $7,171,000 or

57% of the estimated annual revenue.

TABLE II

Revenue Summary by Basin

(Does not include domestic wells)

River Basin

Public Wa-

ter Supply Commercial Industrial Power Mining Total % of Total

Rio Grande $5,697,650 $433,750 $108,375 $189,950 $741,275 $7,171,000 57%

Upper

Colorado $496,100 $5,400 $47,850 $1,261,250 $1,975 $1,812,575 15%

Lower

Colorado $161,050 $21,025 $25,500

$0 $71,925 $279,500 2%

Pecos $1,145,725 $113,275 $91,075

$0 $452,300 $1,802,375 14%

Arkansas $164,925 $10,800

$0

$0 $14,250 $189,975 2%

Texas-Gulf $632,100 $44,900 $19,875 $127,725 $415,000 $1,239,600 10%

Totals: $8,297,550 $629,150 $292,675 $1,578,925 $1,696,725 $12,495,025 100%

ADMINISTRATIVE IMPLICATIONS

The cost of implementation of House Bill 462 would be paid through administrative fees and

charges authorized by the bill. The bill amends the Tax Administration Act to allow TRD to

House Bill 462/aHENRC -- Page 6

withhold an administrative fee equal to the cost of collection or of five percent of the receipts

collected from the water efficiency technology fees.

According to the OSE, House Bill 462 is likely to result in significant benefits to the water using

public, but its effectiveness requires that it be implemented as smoothly as achievable. To this

end, the sponsor might consider that an effective date that coincides with the OSE’s 5-year water

use report as well as consider whether doing so might provide the ancillary benefit of allowing

TRD, OSE, and the Public Regulation Commission the opportunity to produce the necessary

data, processes, and regulations necessary to promote this Act’s effectiveness upon implementa-

tion. The realities of imposing a new “fee” are such that the state engineer believes that moving

forward on this act might mean making it effective in 2011. The year 2011 is suggested as an

effective date based on the date of promulgation of the state engineer’s 5-year water use report.

In preparing the report, the state engineer can assure that the data generated will be as complete

and responsive as required to effectively implement this act, as well as allow him and his coun-

terparts at TRD and PRC to develop the processes to implement this act. Such an amendment is

suggested below.

Unless the effective date is timed to coincide with the state engineer’s five year water use report,

this bill will negatively impact upon the OSE’s ability to meet its performance measures because

the state engineer would be required to commit significant OSE staff to generate the data that is

required by this bill at this time. This bill does not provide any recurring monies to the OSE, so

these efforts would performed by existing staff.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

The statutory provisions and requirements for administration of the fund proposed by House Bill

462 are duplicative of the eligible projects of the public project revolving fund and the water pro-

ject fund. The projects authorized for funding in this bill include two of the five categories of

projects already authorized for funding within the Water Project Finance Act currently adminis-

tered by NMFA—restoration and management of watersheds and water conservation. Other

categories eligible for funding from the Public Project Revolving fund include storage, convey-

ance or delivery of water to end-users; flood control and implementation of the federal Endan-

gered Species Act.

HB462 duplicate SB444 in its entirety.

HB462 relates to SB54 and HB294 which appropriate $25 million and authorizes the NMFA to

make grants from the Water & Wastewater Grant Fund to qualified entities for 156 eligible pro-

jects.

HB462 relates to SB123 and HB195 establishing a Strategic Water Reserve and authorizes the

Interstate Stream Commission to purchase or lease water, water rights and water storage rights.

HB462 relates to SB132 which amends the duties and approval process of the Water Trust

Board.

HB462 relates to SB139 and HB403 which appropriate $100 million to the Water Trust Fund for

expenditures in FY05 and FY06 for projects funded under the Water Project Finance Act.

House Bill 462/aHENRC -- Page 7

HB462 relates to SB140 and HB123 which appropriate $4 million from the General Fund to the

Drinking Water State Revolving Loan Fund administered by the NMFA to provide a state match

for federal capitalization grants which fund low cost loans to qualified entities for water quality

projects.

HB462 relates to SB152 and HB95 which authorize NMFA to provide loans from the Public

Project Revolving Fund to state and local qualified entities for 108 eligible projects.

HB462 relates to SB186 and HB271 which authorize NMFA to make loans and grants from the

Water Project Fund to 16 qualified entities for eligible water projects.

HB462 relates to SB239 which makes technical changes to the membership of the WTB and

provides that: “Twenty-five percent of all water project funds shall be dedicated to forest and

watershed restoration projects.”

HB462 relates to HB14 appropriates $8.4 million from the general fund to the Interstate Stream

Commission for FY06 to initiate the Gallup-Navajo Pipeline Project.

HB462 relates to HB304 which makes changes to the Water and Wastewater Planning Fund

which is administered by the NMFA.

OTHER SUBSTANTIVE ISSUES

EMNRD indicates House Bill 462 will likely impact the energy industries that EMNRD regu-

lates. The larger coal and hard rock mines in New Mexico utilize anywhere from 400 to over

5,000 acre-feet of water per year for mining purposes. That would represent a $1.0 to $125.0 im-

pact per operation annually.

The Department of Agriculture questions whether enactment of this bill, in the absence of meter-

ing and measuring devices in place, further discourages water conservation as do the “use it or

lose it” aspects to state water law. If a water user is charged based upon adjudicated water rights

or declared water rights rather than on-site metering devices, they would have to pay the fee re-

gardless of whether they actually diverted or withdrew the water or not. The Department of Ag-

riculture further states, “agricultural producers are not exempted from this Act even though they

do not have the ability to raise their prices to recover fees placed upon them in the same way that

businesses and municipal, private, and industrial water suppliers do. Agriculture is still an im-

portant part of the socioeconomic welfare of the state of New Mexico, and many rural counties

and communities depend on this economic activity for existence. Dairy producers are considered

commercial water users in New Mexico, and thus would be subject to this tax.”

TECHNICAL ISSUES

According to EMNRD, no mechanism exists in the bill to control the ratio of grants to loans.

The mix of grant and loans needs to be carefully managed so there are enough revenues to pay

the debt service on bonds that may be issued. Also, no mechanism exists within this legislation

to provide direction to NMFA on the percentage of loans/grants that should be issued for water-

shed management and restoration, acquisition of water rights, and water conservation projects.

LMK/lg:yr