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

SPONSOR Nunez

DATE TYPED 02/17/05 HB 838/aHJC

SHORT TITLE Sanitary Projects Act Project Funding

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates

SB 286

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

New Mexico Environment Department (NMED)

New Mexico Finance Authority (NMFA)

Office of the State Engineer (OSE)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee amendment makes clarifying grammatical changes.

Synopsis of Original Bill

House Bill 838 revises and updates the Sanitary Projects Act regarding the creation and opera-

tion of private, nonprofit water system associations. It deletes language referring to the sanitary

projects fund which no longer exists.

The bill removes obsolete language and clarifies some of the remaining provisions. The bill im-

poses new requirements on associations intended to strengthen the associations and make them

more accountable to their membership and to the NMED.

House Bill 838 -- Page 2

Most significantly, the bill:

•

Stipulates explicitly that associations formed under the Act are “political subdivisions

of the State” and that they are subject to the provisions of the State Procurement

Code.

•

Prohibits formation of a new association if the service area is an unincorporated area

currently served by a municipality.

•

Prohibits formation of any new capital stock corporations under the Act after July 1,

2005.

•

Clarifies some of the financial requirements for the associations and adds a provision

requiring the associations to maintain “a reserve fund for non-major capital items.”

•

Adds a new section to the Act which provides for the merger of two or more associa-

tions into one association.

•

Adds a requirement that each association must annually file a member accountability

report with the NMED. The report must include a financial statement prepared in ac-

cordance with generally accepted accounting principles and a copy of the Open Meet-

ings Act resolution adopted by the association’s board of directors.

•

Allows the NMED to conduct periodic reviews of associations and intervene when an

association is not being operated for the benefits of its membership

Significant Issues

According to NMED, the authority for oversight over the roughly 200 mutual domestic associa-

tions formed under the Sanitary Projects Act is clouded by archaic language. NMED frequently

receives complaints that associations are using unfair or preferential practices that may include

providing more water to certain users than other users and having poor or no financial account-

ing.

NMFA writes that the additional financial requirements, especially the establishment of the re-

serve fund and implementation of generally accept accounting principles, will enhance the stabil-

ity of the operations and the security of NMFA loans to the associations.

OSE writes that, while the bill does not have a direct effect on the OSE, it is not uncommon for

these associations to have incomplete or even no water rights on file with OSE. Associations

may also be registered under an individual name or a previous name. OSE argues that, as re-

cords of these associations are updated by NMED, it is important that records also be updated

with OSE so that water rights declarations and changes of ownership are accurately portrayed in

OSE records. Establishing a record with OSE will protect the associations’ water rights in an

adjudication or in the event of a water rights protest proceeding.

House Bill 838 -- Page 3

FISCAL IMPLICATIONS

The bill may result in increased costs to NMED to meet additional responsibilities related to

oversight, records management, and compliance.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

With the exception of one difference, this bill duplicates Senate Bill 286. The exception is that

Senate Bill 286 states that project engineers must be approved by the environmental improve-

ment division of the NMED in accordance with the Procurement Code. House Bill 838 includes

the same requirement for compliance with the Procurement Code but does not require that the

project engineers be approved by the environmental improvement division. NMED notes that

this approval reference is antiquated.

TECHNICAL ISSUES

NMED notes that the bill requires each member of a board of directors to complete a minimum

of 8 hours of training as determined by the department (Section 5, subsection F). NMED rec-

ommends making this requirement permissive and giving NMED the authority to determine who

may require training.

EF/yr