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

SPONSOR Ingle

DATE TYPED 1/26/05

HB

SHORT TITLE Environmental Civil Penalties Limits

SB 221

ANALYST Hadwiger

APPROPRIATION

(in $000s)

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Department of Environment (NMED)

Energy, Minerals and Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

Senate Bill 221 would enact a new section of the Environmental Improvement Act that would

cap civil penalties from orders issued by the secretary of the New Mexico Department of Envi-

ronment (NMED) under the Environmental Improvement Act, Air Quality Control Act, Hazard-

ous Waste Act, Radiation Protection Act and Solid Waste Act at $250,000 and would prohibit

imposition of any penalty for violations that occurred more than 24 months prior to the initiation

of the administrative action. The same limitations would be imposed on compliance orders is-

sued by a constituent agency under the Water Quality Act.

Significant Issues

The penalties that would be capped by SB221 have been particularly critical in NMED’s efforts

to enforce environmental quality standards against federal facilities such as Los Alamos National

Laboratory, Sandia National Laboratories, and the Waste Isolation Pilot Project. Beyond these

venues, the higher penalties have been imposed relatively infrequently and only against flagrant

violators of environmental standards. This bill would likely undercut NMED’s enforcement ef-

forts with regard to these violators.

Senate Bill 221 -- Page 2

NMED indicated three major concerns with SB221. First, NMED indicated that penalties should

be proportionate to the violation. When penalties are capped, the most egregious polluters might

fight it cost-beneficial to pay the penalty rather than remediate the pollution. A crucial compo-

nent of any deterrence program is ensuring that penalties are commensurate with the impact of a

violator’s actions and his economic or other gain. The penalty caps in SB221 would be benefi-

cial only to the worst violators of environmental standards in the state.

Second, NMED indicated concern that the two-year statute of limitations would encourage the

worst polluters – those who repeatedly defy the law and damage resources – to continue to pol-

lute with near impunity, as their past sins would be forgiven after two years. SB221 could pro-

vide an incentive for polluters to conceal the incident for at least two years until NMED would

be prohibited from penalized them. NMED was concerned that this statute of limitations might

also create an unlevel playing field, whereby businesses that comply with environmental regula-

tions would suffer a competitive disadvantage against violators. EMNRD shared this concern,

indicating the limitation period provided in the bill apparently would run from the occurrence of

the violation, not from its discovery by the agency. This would provide for operators an incen-

tive not to report releases in hopes of delaying discovery until after the two-year limitation pe-

riod.

Finally, NMED was concerned that passage of SB221 would cause the federal government to

assume control of environmental enforcement in some areas, due to inconsistency between fed-

eral regulations and state laws. Many New Mexico environmental enforcement programs are

delegated from the federal government, contingent upon the state enforcing standards compara-

ble to federal laws and regulations. The agency indicated that weakening these penalties might

result in the federal government reassuming administration of the programs due to state noncom-

pliance with federal regulations.

NMED indicates that agency seldom levies penalties in excess of $250,000. NMED’s penalty

assessments are governed by policies that define the ways penalties are calculated, and are in

concert with policies adopted by the U.S. Environmental Protection Agency (EPA). These poli-

cies also require the State to consider repeat offenders, even when a past violation is more than 2

years old. Some entities – particularly federal facilities – are found to have the same violations

year after year. In the case of the federal government – an entity with virtually limitless means

(and lawyers) – a $250,000 penalty barely registers, hardly serving as a deterrent to bureaucrats

in Washington, D.C. For the federal government, SB221 is nothing less than a bailout.

PERFORMANCE IMPLICATIONS

NMED indicates that numerous performance measures would be negatively affected by adoption

of SB221, because the agency would not be able to conduct timely and appropriate enforcement.

For example, one of the Air Quality Bureau’s (AQB) performance measures for the upcoming

fiscal year targets corrective action to mitigate violations. The AQB’s goal is to have 95% of in-

spected facilities take prompt action to correct violations. SB221 would likely reduce the effec-

tiveness of this measure by inhibiting NMED’s ability to assess substantial civil penalties to “bad

actors” and repeat or egregious violators. Similarly, the Hazardous Waste Bureau tracks a per-

formance measure (percent of deliverables under executed consent orders that were acted upon

in a timely manner) to assess the pace of cleanup activities conducted at New Mexico’s national

laboratories. Enforcement of the consent orders that govern these cleanups relies on a robust

statutory framework. SB221 removes the primary incentive for the U.S. Department of Energy

and its contractors to conduct their field activities in a timely manner.

Senate Bill 221 -- Page 3

FISCAL IMPLICATIONS

SB221 would potentially have a significant impact on general fund revenues. According to

NMED, the Air Quality Bureau collected $1 million per year in over the last three years from

penalties that would be capped under this proposal. NMED was not able to identify the amount

of penalties that exceeded the threshold proposed in this bill.

TECHNICAL ISSUES

EMNRD indicated the phrase “initiation of administrative action” is not defined. An agency

would have to assume that it means the time of issuance of formal proceedings to assess a pen-

alty, not the time of initiation of investigation. Hence the bill would make it necessary in some

instance for an agency to issue a compliance order or application for penalties without full inves-

tigation, in order to avoid being precluded by the two-year limitation provision.

EMNRD also noted it is not clear to what the $250,000 limit applies. As written, it is a limit on

the amount of penalty that can be assessed in any one order. The intention presumably is to limit

the total amount of the penalty for any one continuing violation, and perhaps for multiple viola-

tions arising from a particular incident. As the bill is written, however, this intent could arguably

be avoided by issuance of multiple orders.

DH/yr