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

SPONSOR Heaton

ORIGINAL DATE

LAST UPDATED

1-26-06

HB 314

SHORT TITLE

UNIFORM ENVIRONMENTAL COVENANTS

ACT

SB

ANALYST Hadwiger

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$20.0

Recurring

General Fund

(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)

State Land Office (SLO)

SUMMARY

Synopsis of Bill

House Bill 314 would enact the Uniform Environmental Covenants Act to provide for enforce-

ment of use limitations on real property due to adverse environmental conditions. The limita-

tions would be codified in a deed restriction that runs with the land. HB314 provides that an en-

tity may not restrict the use of groundwater “in exchange for” cleaning it up to state water quality

standards. HB314 also establishes a state registry for contaminated sites to which environmental

covenants have been attached. The bill makes a $20 thousand appropriation from the general

fund to the Department of Environment (NMED) in FY07 to establish and maintain a database of

all environmental covenants.

FISCAL IMPLICATIONS

The appropriation of $20 thousand contained in this bill is a recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of FY07 would revert to

the general fund. Maintenance of the database of environmental covenants is likely to have a

House Bill 314 – Page

2

recurring cost, the amount of which would depend on the size of the database. Also, it is possi-

ble that NMED will require additional legal support to participate in development of environ-

mental covenants. NMED does not anticipate any recurring budget impact.

SIGNIFICANT ISSUES

HB314 follows a model statute developed by the National Conference of Commissioners on Uni-

form State Laws (NCCUSL) to provide a legal mechanism (a valid real property servitude) to

allow restricted use of properties that cannot be economically remediated for unrestricted use.

The model statute is amended to reflect changes proposed when this bill was presented to the

legislature last year (HB889). The NCCUSL explains the benefits of the model ordinance as fol-

lows:

Environmental covenants…are increasingly being used as part of the environ-

mental remediation process for contaminated real property. An environmental covenant

typically is used when the real property is to be cleaned up to a level determined by the

potential environmental risks posed by a particular use, rather than to unrestricted use

standards. Such risk-based remediation is both environmentally and economically pref-

erable in many circumstances, although it will often allow the parties to leave residual

contamination in the real property. An environmental covenant is then used to implement

this risk-based cleanup by controlling the potential risks presented by that residual con-

tamination.

Two principal policies are served by confirming the validity of environmental

covenants. One is to ensure that land use restrictions, mandated environmental monitor-

ing requirements, and a wide range of common engineering controls designed to control

the potential environmental risk of residual contamination will be reflected on the land

records and effectively enforced over time as a valid real property servitude. This Act

addresses a variety of common law doctrines… that cast doubt on such enforceability.

A second important policy served by this Act is the return of previously contami-

nated property, often located in urban areas, to the stream of commerce. The environ-

mental and real property legal communities have often been unable to identify a common

set of principles applicable to such properties. The frequent result has been that these

properties do not attract interested purchasers and therefore remain vacant, blighted and

unproductive. This is an undesirable outcome for communities seeking to return once im-

portant commercial sites to productive use.

Large numbers of contaminated sites are unlikely to be successfully recycled until

regulators, potentially responsible parties, affected communities, prospective purchasers

and their lenders become confident that environmental covenants will be properly

drafted, implemented, monitored and enforced for so long as needed. This Act should en-

courage transfer of ownership and property re-use by offering a clear and objective

process for creating, modifying or terminating environmental covenants and for re-

cording these actions in recorded instruments which will be reflected in the title abstract

of the property in question.

NMED indicated that, in many cases, returning polluted sites to a less than pristine condition, or

to a condition that requires owners or operators to restrict the use of the property, may be desir-

able from an economic standpoint. In other cases, it may be technically infeasible to clean up a

site due to the nature of the contaminant, the subsurface, or other site characteristics. Even to-

day, not all environmental clean ups of polluted properties result in the property being returned

House Bill 314 – Page

3

to unrestricted use. For example, an owner of a contaminated site may retain ownership of a

parcel after clean up, and choose to return the site only to an industrial use. In this scenario po-

tential exposure to humans would be less than that for, say, a residential or recreational scenario.

In New Mexico, there is no authority to enforce such a land-use restriction. In any event, if ex-

posure (i.e., land use) is controlled, human and environmental health and safety would not be

likely to be compromised. These are the basic underpinnings of HB314.

.

NMED noted that HB889 could have a significant and positive impact on economic development

in New Mexico. If all parties to the covenant are confident that site-appropriate activity and use

limitations in the covenant will be enforced, it is more likely that environmental regulators and

the owners of contaminated real property will allow those properties to be developed and used

with appropriate controls, rather than be abandoned. Development of the property, particularly in

current and former industrial areas, could help revitalize those areas and serve the economic and

social interests of their residents. Such redevelopment need rely only on restricted use of the sur-

face and soils. Redevelopment can and does occur during active ground water remediation.

NMED noted that the primary difference between HB314 and the model statute is that the

NCCUSL had membership from across the country, resulting in legislative language with a slant

toward eastern states that use more surface waters and that have more redevelopment issues.

HB314 prohibits agencies would be prohibited from approving any covenant on the use of

groundwater unless state standards will be achieved through an approved clean-up plan. If state

standards cannot be achieved, entities seeking such covenants may apply to the Water Quality

Control Commission for alternative standards under the Water Quality Act. HB314 also includes

a provision for a state registry for environmental covenants filed with the state. Such a system

would serve New Mexicans well by providing for a “one-stop” for information on all polluted

sites with some kind of environmentally-driven land-use restriction. NMED does not believe

such a registry, once established, would be an onerous burden to maintain.

EMNRD anticipated no negative impact from the bill. On the contrary, EMNRD indicated that

the proposed environmental covenants may offer a vehicle whereby a covenant may be placed on

mine-impacted land to prevent certain activity from occurring on that land that could present a

hazard to humans. For example, a covenant could be placed on mine tailings to prevent a resi-

dential development on the site in the future if such development would be hazardous to humans.

The State Land Office expressed concerns about the impact of the bill on that agency.

1.

The most apparent issues presented by the UECA for the Land Office relate to the pecu-

liar jurisdiction and authority of this agency. Since the Commissioner represents a feder-

ally created trust with plenary jurisdiction over the trust lands, there is some question as

to whether this statute could effectively limit his ability to manage and control the trust.

More specifically, since one commissioner cannot usually bind a subsequent commis-

sioner with his or her administrative decisions, the question arises as to whether the im-

position of environmental covenants by one commissioner could properly limit a subse-

quent commissioner’s use of trust lands, particularly if the covenants were subsequently

determined not to be in the best interests of the trust. Finally, since the statute specifi-

cally defines the covenants as an interest in real property, and since the Enabling Act pro-

scribes against the disposition of such interests without advertisement, public auction,

and compensation for true value, it is likely that the granting of an environmental cove-

nant without meeting these constitutional requirements would void the covenant.

2.

Non-fiscal impact issues for the Land Office include: Section 6B would place some limits

House Bill 314 – Page

4

on how we remediate trust lands, but these are probably reasonable; Section 8A will im-

pose some additional minimal duties on our Records Division; Section 9B would subject

the Land Office to the APA in the event of an enforcement action; and Section 11A pre-

sumably waives any sovereign immunity the SLO would have in an enforcement action.

PERFORMANCE IMPLICATIONS

NMED noted the Hazardous Waste Bureau tracks performance measures related to remediation

at national laboratories. HB314 could help accelerate land transfers as wastes are remediated.

ADMINISTRATIVE IMPLICATIONS

NMED would develop systems for tracking contaminated parcels, deed restrictions placed with

counties and land ownership.

TECHNICAL ISSUES

According to NMED, the bill requires that an environmental covenant be recorded with the

county in which the subject property is located. Many of New Mexico’s worst contaminated

sites are on federal facilities or are federally-owned. The federal government does not generally

register deeds, much less use restrictions, for its properties with New Mexico county offices.

ALTERNATIVES

SLO suggested that the bill should exempt trust lands.

QUESTIONS

1.

What are some examples of properties in New Mexico that would be benefited from

adoption of this bill. What are prospective uses for these properties.

DH/mt:nt