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

SPONSOR Martinez, K.

ORIGINAL DATE

LAST UPDATED

1/30/06

2/07/06 HB 272/aHAFC

SHORT TITLE Transfer Money to Water Trust Fund

SB

ANALYST Kehoe

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(See Narrative)

See Narrative

General Fund

Water Trust Fund (See

Narrative)

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to House Bill 132, House Bill 134, House Bill 296, Senate Bill 93, Senate Bill 194,

Senate Bill 224, House Joint Resolution 6, House Joint Memorial 21, and the 2006 General Ap-

propriation Act.

SOURCES OF INFORMATION

LFC Files

New Mexico Finance Authority (NMFA)

New Mexico Environment Department (NMED)

New Mexico Department of Agriculture (NMDA)

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amendment strikes the $100 million appro-

priation transfer from the general fund to the water trust fund and inserts in lieu thereof “any

amount” from the general fund shall be transferred to the water trust fund. The amendment fur-

ther provides that if the water trust fund is not established as a “permanent fund” in the Constitu-

tion of New Mexico, the “any amount” in the water trust fund shall not revert to the general fund.

The 2006 General Appropriation Act passed by the House of Representatives, but not yet acted

upon by the Senate, currently contains a $40 million appropriation to the water trust fund in Sec-

tion 12 of the bill.

House Bill 272/aHAFC – Page

2

Synopsis of Original Bill

House Bill 272 transfers $100 million from the general fund to the water trust fund under certain

conditions for distribution according to provisions of the Water Finance Act.

FISCAL IMPLICATIONS

House Bill 272 provides for the transfer of $100 million from the general fund to the water trust

fund upon the effective date of this provision in fiscal year 2006. However, no distribution or

expenditure of the transferred general funds may be made until on or after January 1, 2007.

The bill requires that the voters adopt an amendment to the New Mexico Constitution establish-

ing the water trust fund at the 2006 General Election. If establishment of the water trust fund is

not ratified by the voters, the $100 million must be transferred from the water trust fund back to

the general fund. The $100 million appropriation contained in this bill is a non-recurring ex-

pense to the general fund. Any unexpended or unencumbered balance remaining at the end of a

fiscal year shall not revert to the general fund.

The Water Project Finance Act, Chapter 164, Laws of 2001, created a water trust fund program,

a water project fund and a water trust board. The water trust fund is intended to provide a per-

manent revenue source to provide grants and loans to political subdivisions and to provide for

long-range planning and financing of regional and statewide water supply projects. To date, the

water trust fund has never been capitalized to establish the permanent corpus of the fund.

According to the Act, the $100 million appropriation to the water trust fund proposed in this bill

would be invested by the State Investment Officer in the same manner that the land grant perma-

nent funds are invested. Earnings from the investment of the trust funds are to be credited to the

water trust fund and shall be used only for an annual distribution to the water project fund. Sec-

tion 72-4A-8 of the Act provides that on July 1 of each fiscal year, an annual distribution will be

made from the water trust fund to the water project fund in the amount of $4 million until the

amount is less than an amount equal to 4.7 percent of the average of the year-end market values

of the water trust fund for the immediate preceding five calendar years.

SIGNIFICANT ISSUES

Eligible water projects funded from the water project fund are defined as those involving: 1) the

storage, conveyance or delivery of water to end-users; 2) the implementation of federal Endan-

gered Species Act collaborative programs; 3) the restoration of watersheds; 4) flood prevention;

5) conservation; or 6) for recycling, treatment or reuse of water. In 2005, the Act was amended

to add the category of “water rights adjudication” to provide automatic fund in an amount equal

to 10 percent of the annual distribution to the water project fund. Following the 2005 Legislative

Session, prior to the sale of severance tax bonds, it was determined the severance tax bonds

could not be used for administrative purposes. Therefore, the Office of State Engineer and Ad-

ministrative Office of the Courts did not receive money for adjudication purposes from the water

project fund in 2005.

Although the water trust fund was not funded, the water project fund is capitalized with 10 per-

cent of the severance tax bonding capacity each year as provided by Laws of 2003, Chapter 134.

House Bill 272/aHAFC – Page

3

The 10 percent set-aside of severance tax bond capacity for FY06-07 is approximately $28.5 mil-

lion for allocation by the water trust board for eligible water projects authorized by the Legisla-

ture. Money from the severance tax bonds may not be used to pay indirect project costs, and any

unexpended balance from proceeds of severance tax bonds issued for a water project shall revert

to the severance tax bonding fund within six months of completion of the water project. NMFA

is responsible for monitoring and ensuring proper reversions.

According to NMFA, over $2 billion in water-related needs have been identified throughout the

state. The water trust board in FY05 received over $129 in requests for water-related projects.

To date, the water trust board has recommended $47 million of grant funding for 47 projects for

29 local entities statewide. The state has leveraged more than $50 million of local and/or federal

funding.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Joint Resolution 6 proposes an amendment to the New Mexico Constitutional amendment

to establish a water trust fund in the 2006 General Election.

House Bill 132 amends the Water Project Finance Act to provide that money in the water trust

fund shall not revert at any time.

Senate Bill 194 duplicates the intent of House Bill 134, House Bill 296 and Senate Bill 93 pro-

viding that $100 million of the nonrecurring revenue of the general fund remaining at the end of

fiscal year 2006 be transferred to the water trust fund.

Senate Bill 93 and House Bill 134 appropriate $100 million from the general fund to the water

trust fund for the purpose of caring out the provisions of the Water Project Finance Act.

Senate Bill 224 deletes a provision within the Water Project Finance Act which would allowed

10 percent of the total amount allocated to the water project fund to be used for water rights ad-

judication.

House Joint Memorial 21 requests the Legislative Council to appoint a task force to assess op-

tions for creating a permanent funding mechanism for the water trust fund.

LMK/mt