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AN ACT

RELATING TO SANITARY PROJECTS; AMENDING THE SANITARY PROJECTS

ACT WITH REGARD TO ASSOCIATIONS; AMENDING, REPEALING AND

ENACTING SECTIONS OF THE NMSA 1978 RELATING TO FUNDING

SANITARY PROJECTS; DECLARING AN EMERGENCY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 3-29-2 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-2, as amended) is amended to read:

"3-29-2. DEFINITIONS.--As used in the Sanitary Projects

Act:

A. "community" means a rural unincorporated

community and includes a combination of two or more rural

unincorporated communities when they have been combined for

the purposes set forth in the Sanitary Projects Act;

B. "association" includes an association or mutual

domestic water consumers association organized under Laws

1947, Chapter 206, Laws 1949, Chapter 79 or Laws 1951, Chapter

52, as well as any association organized under the provisions

of the Sanitary Projects Act;

C. "department" means the department of

environment;

D. "member" or "membership" means a person who has

paid the appropriate fees and has been issued a certificate as

required by association bylaws;

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E. "person" means a single residence or property

owner, as determined by the rules adopted by the association's

board of directors; and

F. "project" means a water supply or reuse, storm

drainage or wastewater facility owned, constructed or operated

by an association."

Section 2. Section 3-29-3 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-3, as amended) is amended to read:

"3-29-3. PURPOSE OF ACT.--The purpose of the Sanitary

Projects Act is to improve the public health of rural

communities in New Mexico by providing for the establishment

and maintenance of a political subdivision of the state that

is empowered by the state to receive public funds for

acquisition, construction and improvement of water supply,

reuse, storm drainage and wastewater facilities in

communities, and to operate and maintain such facilities for

the public good."

Section 3. Section 3-29-4 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-4, as amended) is amended to read:

"3-29-4. PROJECTS.-- Plans, specifications and

contracts for each project, as appropriate, shall be prepared

by a practicing professional engineer licensed under the

Engineering and Surveying Practice Act and selected by the

association in accordance with the provisions of the

Procurement Code."

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Section 4. Section 3-29-5 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-5, as amended) is amended to read:

"3-29-5. RESTRICTIONS ON FORMING AN ASSOCIATION.--

A. A new association shall not be formed under the

Sanitary Projects Act by original incorporation after January

1, 2000, and a new association shall not be formed by

reorganization after January 1, 2000, unless the preceding

entity was in existence on January 1, 2000, if the service

area of either association includes property contiguous to an

incorporated municipality or an unincorporated area currently

served by a municipality or by a water and sanitation

district. The restrictions on forming an association set

forth in this subsection shall not apply if the contiguous

incorporated municipality or water and sanitation district

does not provide the services or cannot provide the services

to be provided by the association at or below the cost

proposed by the association.

B. An association shall not construct with state

funds a project required in order to allow creation of a

subdivision under the provisions of the Land Subdivision Act,

the New Mexico Subdivision Act or Section 47-5-9 NMSA 1978;

however, an association may construct a project serving a

previously approved subdivision in the service area of the

association.

C. After July 1, 2006, a new association shall not

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be formed as a capital stock corporation."

Section 5. Section 3-29-6 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-6, as amended) is amended to read:

"3-29-6. BOARD OF DIRECTORS--POWERS AND DUTIES.--

A. The board of directors of each association

shall be responsible for the acquisition or purchase of all

property, rights of way, equipment and materials as may be

necessary for the completion of a project. The directors

shall act on behalf of the association and as its agents. The

association, acting through its board of directors, may

exercise the right of eminent domain to take and acquire the

necessary property or rights of way for the construction,

maintenance and operation of water and sewer lines and related

facilities, but such property and rights of way shall in all

cases be so located as to do the least damage to private and

public property consistent with proper use and economical

construction. Such property or rights of way shall be

acquired in the manner provided by the Eminent Domain Code.

In accordance with Sections 42A-1-8 through 42A-1-12 NMSA

1978, engineers, surveyors and other persons under contract

with the board for the purposes of the project shall have the

right to enter upon property of the state, its political

subdivisions, private persons and private and public

corporations for the purpose of making necessary surveys and

examinations for selecting and locating suitable routes for

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water and sewer lines and facilities.

B. The board of directors of the association may

set and, from time to time, increase or adjust assessments,

water and sewer rates, tolls or charges for services or

facilities furnished or made available by the association.

The assessments, tolls and charges may include:

(1) membership fees;

(2) a base monthly service fee for each

active connection delivering water;

(3) a base monthly service fee for each

inactive connection;

(4) a standby charge for the privilege of

connecting into the association's water service at some date

in the future;

(5) assessments based on the volume of water

delivered;

(6) a connection charge; and

(7) an assessment necessary to cover the

cost of extending either water or sewer service.

C. The board of directors of the association may

place a lien on property to which services have been extended

in the amount of all outstanding assessments, charges and fees

associated with the services. The board of directors may

enforce the lien in a manner provided by the laws of the

state. In the event the board of directors is forced to

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enforce the lien in a court of competent jurisdiction in New

Mexico, the board of directors shall be entitled to recover

all costs and attorney fees.

D. After notice is given, the board of directors

of the association shall shut off unauthorized connections,

illegal connections or a connection for which charges are

delinquent in payment. The board of directors may file suit

in a court of competent jurisdiction to recover costs

associated with an unauthorized or illegal connection or

delinquent connection, including the cost of water delivered,

charges for facility connection and disconnection, damages and

attorney fees.

E. The board of directors of the association shall

prescribe and enforce rules for the connection to and

disconnection from properties of facilities of the

association.

F. Each member of the board of directors of the

association shall complete training, as determined by rules of

the department."

Section 6. Section 3-29-7 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-7, as amended) is amended to read:

"3-29-7. DEPARTMENT POWERS.--

A. Insofar as the department deems it necessary

for the purpose of the Sanitary Projects Act, the department

may recommend agreements, covenants or rules in regard to

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operation, maintenance and permanent use of water supply,

reclamation, storm drainage and wastewater facilities.

B. The department may:

(1) conduct periodic reviews of the

operation of the association;

(2) require the association to submit

information to the department;

(3) require submittal of financial reports

required pursuant to the Audit Act;

(4) review and require changes to the rate-

setting analysis described in Section 3-29-12 NMSA 1978;

(5) after a hearing, intervene in the

operation and management with full powers, including the power

to set and collect assessments from members of the

association, to set and collect service charges and use the

same for the proper operation and management of the

association; and

(6) appoint and delegate authority to a

representative to oversee operation of the association for a

specified period.

C. The department may in its discretion or shall,

upon a petition of twenty-five percent of the members of the

association, conduct investigations as it deems necessary to

determine if the association is being operated and managed in

the best interests of all the members of the association.

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D. Whenever the department determines that an

association violated or is violating the Sanitary Projects Act

or a rule adopted pursuant to that act, the department may:

(1) issue a compliance order requiring

compliance immediately or within a specified time period, or

both; or

(2) commence a civil action in district

court for appropriate relief, including injunctive relief.

E. A compliance order shall state with reasonable

specificity the nature of the violation.

F. If an association fails to take corrective

actions within the time specified in a compliance order, the

department may assess a civil penalty of not more than two

hundred fifty dollars ($250) for each day of continued

noncompliance with the compliance order.

G. Any compliance order issued by the department

pursuant to this section shall become final unless, no later

than thirty days after the compliance order is served, any

association named in the compliance order submits a written

request to the department for a public hearing. The

department shall conduct a public hearing within ninety days

after receipt of a request.

H. The department may appoint an independent

hearing officer to preside over any public hearing held

pursuant to Subsection G of this section. The hearing officer

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shall:

(1) make and preserve a complete record of

the proceedings; and

(2) forward to the department a report that

includes recommendations, if recommendations are requested by

the department.

I. The department shall consider the findings of

the independent hearing officer and, based on the evidence

presented at the hearing, the department shall make a final

decision regarding the compliance order.

J. In connection with any proceeding under this

section, the department may:

(1) adopt rules for discovery and hearing

procedures; and

(2) issue subpoenas for the attendance and

testimony of witnesses and for relevant papers, books and

documents.

K. Penalties collected pursuant to this section

shall be deposited in the general fund."

Section 7. Section 3-29-9 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-9) is amended to read:

"3-29-9. RULES.--For the purposes of the Sanitary

Projects Act, the department may perform such acts and

prescribe such rules as are deemed necessary to carry out its

provisions. Rules shall be drafted in consultation with

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representatives of the associations."

Section 8. Section 3-29-12 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-12, as amended) is amended to read:

"3-29-12. LOCAL ADMINISTRATION OF ASSOCIATION--BOARD OF

DIRECTORS.--

A. The local administration of the association and

the operation and maintenance of the project shall be carried

out in each community by a board of directors composed of an

odd number of at least three members. Members of the board of

directors shall:

(1) be elected annually or as specified in

the bylaws of the association;

(2) be members in good standing of the

association; and

(3) serve staggered terms of up to four

years to ensure that terms will end in different election

years.

B. The board of directors shall choose among its

members a president, a vice president and a secretary-

treasurer or a secretary and a treasurer.

C. Funds sufficient to provide for proper

operation and maintenance of the association shall be

identified through a rate-setting analysis that will ensure

enough revenue to cover yearly expenses and emergencies, a

reserve fund for non-major capital items and equitable pay for

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staff. The rate-setting analysis may be reviewed and changed

if necessary on a yearly basis, and the funds shall be

obtained by the association by a monthly assessment against

the users of the facilities, the assessment to be determined

by the board of directors.

D. The board of directors of the association shall

have power to do all things necessary in the local

administration of any project subject to the provisions of the

Sanitary Projects Act."

Section 9. Section 3-29-13 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-13) is amended to read:

"3-29-13. EXISTING ASSOCIATIONS.--Associations

organized under the provisions of Laws 1947, Chapter 206, Laws

1949, Chapter 79 or Laws 1951, Chapter 52 shall have the same

powers and duties as associations organized under the

provisions of the Sanitary Projects Act; provided that the

articles of incorporation shall be amended in accordance with

the provisions of Section 3-29-19 NMSA 1978."

Section 10. Section 3-29-15 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-15, as amended) is amended to read:

"3-29-15. ASSOCIATION CONSTITUTES A PUBLIC BODY

CORPORATE.--Upon the filing of each certificate and copy

thereof as provided in Section 3-29-17 NMSA 1978, the persons

so associating, their successors and those who may thereafter

become members of the association constitute a public body

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corporate by the name set forth in the certificate and by such

name may sue and be sued, have capacity to make contracts,

acquire, hold, enjoy, dispose of and convey property real and

personal, accept grants and donations, borrow money, incur

indebtedness, impose fees and assessments and do any other act

or thing necessary or proper for carrying out the purposes of

their organization."

Section 11. Section 3-29-16 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-16, as amended) is amended to read:

"3-29-16. CERTIFICATE OF ASSOCIATION.--

A. The members of an association shall execute a

certificate setting forth:

(1) the name of the association;

(2) the name of the individuals organizing

the association;

(3) the location of the principal office of

the association in this state;

(4) the objects and purposes of the

association;

(5) the address of the initial registered

office of the association and the name of the initial

registered agent at that address;

(6) the plan and manner of acquiring

membership and of providing funds or means for the

acquisition, construction, improvement and maintenance of its

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work and for its necessary expenses;

(7) the duration of existence of the

association, which may be perpetual;

(8) the number and manner of electing the

board of directors of the association and the length of the

terms that the directors will serve;

(9) the definition of a member of the

association and the voting rights associated with the

membership; and

(10) the manner of dissolution of the

association as a public body.

B. Pursuant to the registered agent requirement of

Paragraph (5) of Subsection A of this section, there shall be

attached to the certificate a statement executed by the

registered agent in which the agent acknowledges acceptance of

the appointment by the filing association, if the agent is an

individual, or a statement executed by an authorized officer

of a corporation in which the officer acknowledges the

corporation's acceptance of the appointment by the filing

association as its registered agent, if the agent is a

corporation.

C. The certificate or any amendment thereof made

as provided in Section 3-29-19 NMSA 1978 may also contain

provisions not inconsistent with the Sanitary Projects Act or

other law of this state that the organizers may choose to

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insert for the regulation and conduct of the business and

affairs of the association. There shall accompany each

certificate a list to show the total number of members of the

association and the total number of dwelling units served by

the association at the time of filing."

Section 12. Section 3-29-17 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-17, as amended) is amended to read:

"3-29-17. FILING OF CERTIFICATE AND BYLAWS.--The

certificate of association and bylaws shall be acknowledged as

required for deeds of real estate and shall be filed in the

office of the public regulation commission. A copy of the

certificate, duly certified by the commission or county clerk,

shall be evidence in all courts and places."

Section 13. Section 3-29-17.4 NMSA 1978 (being Laws

2001, Chapter 200, Section 7) is amended to read:

"3-29-17.4. ANNUAL REPORT.--

A. An association shall file, within the time

prescribed by the Sanitary Projects Act, on forms prescribed

and furnished by the public regulation commission to the

association not less than thirty days prior to the date the

report is due, an annual report setting forth:

(1) the name of the association;

(2) the address of the registered office of

the association in the state and the name of its registered

agent in this state at that address;

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(3) a brief statement of the character of

the affairs that the association is actually conducting; and

(4) the names and respective addresses of

the directors and officers of the association.

B. The report shall be signed and sworn to by two

of the members of the association. If the association is in

the hands of a receiver or trustee, the report shall be

executed on behalf of the association by the receiver or

trustee. A copy of the report shall be maintained at the

association's principal place of business as contained in the

report and shall be made available to the general public for

inspection during regular business hours."

Section 14. Section 3-29-17.5 NMSA 1978 (being Laws

2001, Chapter 200, Section 8) is amended to read:

"3-29-17.5. FILING OF ANNUAL REPORT--SUPPLEMENTAL

REPORT--EXTENSION OF TIME--PENALTY.--

A. The annual report of the association shall be

delivered to the public regulation commission on or before the

fifteenth day of the fifth month following the end of its

fiscal year.

B. A supplemental report shall be filed by the

association with the public regulation commission, if, within

thirty days after the filing of the annual report required

under the Sanitary Projects Act, a change is made in:

(1) the name of the association;

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(2) the mailing address, street address or

the geographical location of the association's registered

office in this state and the name of the agent upon whom

process against the association may be served; or

(3) the character of the association's

business and its principal place of business within the state.

C. Proof to the satisfaction of the public

regulation commission that, prior to the due date of a report

required by this section, the report was deposited in the

United States mail in a sealed envelope, properly addressed,

with postage prepaid, shall be deemed compliance with the

requirements of this section. If the commission finds that

the report conforms to the requirements of the Sanitary

Projects Act, it shall file the report. If the commission

finds that it does not conform, it shall promptly return the

report to the association for necessary corrections. The

penalties prescribed for failure to file the report within the

time provided shall not apply if the report is corrected to

conform to the requirements of the Sanitary Projects Act and

returned to the commission within thirty days from the date on

which it was mailed to the association by the commission.

D. The public regulation commission may, upon

application by the association and for good cause shown,

extend, for no more than a total of twelve months, the date on

which an annual report required by the provisions of the

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Sanitary Projects Act must be filed or the date on which the

payment of a fee is required. The commission shall, when an

extension of time has been granted an association under the

federal Internal Revenue Code of 1986 for the time in which to

file a return, grant the association the same extension of

time to file the required annual report and to pay the

required fees, provided that a copy of the approved federal

extension of time is attached to the association's report, and

provided further that no such extension shall prevent the

accrual of interest as otherwise provided by law.

E. Nothing contained in this section prevents the

collection of a fee or penalty due upon the failure of an

association to submit the required report.

F. An annual or supplemental report required to be

filed under this section shall not be deemed to have been

filed if the fees accompanying the report have been paid by

check and the check is dishonored upon presentation.

G. An association that fails or refuses to file a

report for a year within the time prescribed by the Sanitary

Projects Act is subject to a penalty of ten dollars ($10.00)

to be assessed by the public regulation commission.

H. An association shall file with the department a

member accountability report that shall include:

(1) a financial statement prepared in

accordance with generally accepted accounting principles; and

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(2) a copy of the Open Meetings Act

resolution stating what notice for a public meeting is

reasonable. The report shall be signed and sworn to as to

accuracy and completeness by all members of the board of

directors of the association. A statement shall be included

in the consumer confidence report required for water systems

that the member accountability report is available to the

public upon request. The member accountability report shall

be filed with the department with the consumer confidence

report no later than July 1 of each year."

Section 15. Section 3-29-19 NMSA 1978 (being Laws 1965,

Chapter 300, Section 14-28-19) is amended to read:

"3-29-19. AMENDMENT OF CERTIFICATE OF ASSOCIATION AND

BYLAWS--METHOD.--Every association may make such amendment,

change or alteration to its certificate of association or

bylaws as may be desired not inconsistent with the Sanitary

Projects Act or other law of this state by a resolution

adopted by a vote of a majority of the members present at any

regular or special meeting duly held upon such notice as the

bylaws provide. A certified copy of such resolution with the

affidavit of the president and secretary that the resolution

was duly adopted by a majority vote of the members at a

meeting held in accordance with the provisions of this section

shall be filed and recorded as provided for filing and

recording the original certificate of association and bylaws,

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and thereupon the certificate of association and bylaws shall

be deemed to be amended accordingly, and a copy of such

certificate of amendment certified by the public regulation

commission or the county clerk shall be accepted as evidence

of each change or amendment in all courts and places."

Section 16. Section 3-29-20 NMSA 1978 (being Laws 2000,

Chapter 56, Section 4) is amended to read:

"3-29-20. REORGANIZATION OF COOPERATIVE ASSOCIATIONS

AND NONPROFIT CORPORATIONS PURSUANT TO THE SANITARY PROJECTS

ACT.--

A. Cooperative associations formed pursuant to

Sections 53-4-1 through 53-4-45 NMSA 1978 and nonprofit

corporations formed under the Nonprofit Corporation Act may

reorganize under the Sanitary Projects Act upon approval of

the reorganization by a majority vote of a quorum of the

members of a cooperative association or nonprofit corporation.

Notice of the meeting to consider the reorganization and a

copy of the proposed certificate of association shall be sent

at least fifteen days prior to such meeting by the cooperative

association to each member at the member's last known address

and by the nonprofit corporation to each member, if any, at

the member's last known address. Upon approval of the

reorganization by the majority vote of a quorum of the

members, the cooperative association or the nonprofit

corporation shall execute a certificate of association

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pursuant to Sections 3-29-16 and 3-29-17 NMSA 1978. The

certificate of association shall state that it supersedes the

articles of incorporation and all amendments to the articles

of incorporation of the cooperative association or the

nonprofit corporation.

B. Duplicate originals of the certificate of

association shall be filed with the public regulation

commission. One duplicate original of the certificate of

association shall be returned to the association.

C. The certificate of association is effective

upon filing and supersedes the articles of incorporation and

all amendments to the articles of incorporation of the prior

cooperative association or nonprofit corporation. The

association shall:

(1) be the surviving entity, and the

separate existence of the prior cooperative association or

nonprofit corporation shall cease;

(2) have all of the rights, privileges,

immunities and powers and shall be subject to all the duties

and liabilities of an association organized pursuant to the

Sanitary Projects Act;

(3) possess all the rights, privileges,

immunities and franchises of the prior cooperative association

or nonprofit corporation. All property, real, personal and

mixed; all debts due on whatever account; all other choses in

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action; and all and every other interest of or belonging to or

due to the prior cooperative association or nonprofit

corporation shall be taken and deemed to be transferred to and

vested in the association without further act or deed. The

title to any real estate, or any interest therein, vested in

the prior cooperative association or nonprofit corporation

shall not revert or be in any way impaired by reason of the

reorganization; and

(4) be liable for all the liabilities and

obligations of the prior cooperative association or nonprofit

corporation, and any claim existing or action or proceeding

pending by or against the cooperative association or nonprofit

corporation may be prosecuted as if the reorganization had not

taken place or the new association may be substituted in its

place. Neither the rights of creditors nor any liens upon the

property of the cooperative association or nonprofit

corporation shall be impaired by the reorganization.

D. A cooperative association formed pursuant to

the Cooperative Association Act or nonprofit corporation

formed pursuant to the Nonprofit Corporation Act that

reorganized under Subsection A of this section prior to June

30, 2006 may, within three years of the effective date of this

2006 act, reorganize pursuant to the act under which it had

previously been organized upon approval of the reorganization

by a two-thirds' vote of the directors of the association or

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corporation. Notice of the meeting to consider the

reorganization and a copy of the proposed articles of

incorporation shall be sent by the association or the

corporation at least fifteen days prior to the meeting to each

member at the member's last known address. Upon approval of

the reorganization, the association or corporation shall

execute articles of incorporation pursuant to Sections 53-4-5

and 53-4-6 or 53-8-31 and 53-8-32 NMSA 1978. The articles of

incorporation shall state that they supersede the certificate

of association or incorporation and all amendments thereto of

the association or corporation and shall follow the filing

procedures of Subsections B and C of this section."

Section 17. A new section of the Sanitary Projects Act

is enacted to read:

"BYLAWS.--

A. Members shall adopt bylaws by no less than a

majority vote of a quorum of the membership of the association

setting forth:

(1) the name of the association;

(2) the requirement of an association seal;

(3) the fiscal year of the association;

(4) guidelines for membership, which shall

include the sentence "Membership shall not be denied because

of the applicant's race, color, creed, national origin or

sex.";

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(5) guidelines for meetings of the

membership, which shall include the date or time period of a

membership meeting, required notice of a meeting,

establishment of a quorum and the order of business to be

conducted at a meeting of the membership;

(6) the functions of the board of directors,

including a conflict of interest policy for the board;

(7) the duties of officers of the board of

directors; and

(8) provisions for the board of directors to

establish rules to govern the day-to-day operations of the

project, including a code of conduct for staff and provisions

to establish an annual budget, rate structure, assessments and

reserve funds.

B. The bylaws, or any amendment thereof made as

provided in Section 3-29-19 NMSA 1978, may also contain

provisions not inconsistent with the Sanitary Projects Act or

other law of this state that the organizers may choose to

insert for the regulation and conduct of the business and

affairs of the association.

C. The department may prescribe by rule guidelines

for bylaws and rules of an association."

Section 18. A new section of the Sanitary Projects Act

is enacted to read:

"EXEMPTIONS FROM SPECIAL DISTRICT PROCEDURES ACT

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PROVISIONS.--An association formed pursuant to the provisions

of the Sanitary Projects Act may be formed exclusively as

provided in that act, and formation of the association shall

be exempt from all review and requirements set forth in the

Special District Procedures Act."

Section 19. A new section of the Sanitary Projects Act

is enacted to read:

"MERGER OF TWO OR MORE ASSOCIATIONS INTO ONE

ASSOCIATION.--Upon approval by vote of a majority of a quorum

of each membership, two or more associations may merge into

one association pursuant to a plan of merger approved in the

manner provided by this section. The board of directors of

each association shall, by resolution adopted by each board,

approve a plan of merger setting forth:

A. the names of the associations proposing to

merge, and the association into which they propose to merge,

which is hereinafter designated as the "surviving

association";

B. the terms and conditions of the proposed

merger, including transfer of assets and liabilities;

C. the manner and basis of converting each

association's obligations or other securities into the

surviving association;

D. a statement of any changes in the certificate

of association of the surviving association to be affected by

the merger; and

E. other provisions with respect to the proposed

merger as deemed necessary or desirable."

Section 20. REPEAL.--Sections 3-29-8, 3-29-10 and

3-29-18 NMSA 1978 (being Laws 1965, Chapter 300, Sections

14-28-8, 14-28-10 and 14-28-18, as amended) are repealed.

Section 21. EMERGENCY.--It is necessary for the public

peace, health and safety that this act take effect

immediately. HB 438

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