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

SPONSOR Nunez

ORIGINAL DATE

LAST UPDATED

1-30-06

2-10-06 HB 438/aHENRC/aHFL#1/aSCONC

SHORT TITLE Sanitary Projects Funding Amendments

SB

ANALYST Hadwiger

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

None

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06

FY07

FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$100.0

$200.0 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB128 as amended.

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Department of Environment (NMED)

Department of Finance and Administration (DFA)

Office of the State Engineer (OSE)

SUMMARY

Synopsis of SCONC Amendment

The Senate Conservation Committee amendment deletes the previous amendments and combines

them into a single amendment.

Synopsis of HFL#1 Amendment

The House Floor amendment to House Bill 438 clarifies that enforcement actions taken by the

New Mexico Department of Environment (NMED) will affect mutual domestic water consumers

House Bill 438/aHENRC/aHFL#1/aSCONC– Page

2

associations (MDWCA) rather than individual officials or staff of the associations. In this case,

it places the onus of replying to a compliance order on the association rather than on an individ-

ual person.

Synopsis of HENRC Amendment

The House Energy and Natural Resource Committee amendment makes three changes. First, it

substitutes reuse for reclamation with regard to the types of projects covered by the act. Second,

it restricts formation of new MDWCAs such that new associations will not be allowed to form on

the boundary or within the service area of municipalities and water and sanitation districts

(WSDs) unless the association can show that services cannot be provided by the municipality or

WSD at or below the cost proposed by the association. The previous language did not include

water and sanitation districts. Finally, it clarifies that enforcement actions taken by the New

Mexico Department of Environment will affect the associations rather than individual persons.

Synopsis of Original Bill

House Bill 438 updates and overhauls the Sanitary Projects Act including:

•

Deletion of language regarding the defunct Sanitary Projects Fund,

•

Clarifying rate-setting and enforcement powers of MDWCAs and other associations

formed under the Sanitary Projects Act,

•

Clarifying composition and operations of these associations,

•

Empowering NMED to provide oversight of the associations and to issue compliance or-

ders, as well as prescribing other enforcement mechanisms, including civil penalties not

more than $250.00 per day for noncompliance with a compliance order. Penalties would

be deposited in the general fund.

FISCAL IMPLICATIONS

Although the civil penalties would be deposited in the general fund, it is unlikely that significant

revenues will result. NMED indicates that HB438 requires the agency to undertake additional

responsibilities that will require sufficient funding to assure adequate oversight, records man-

agement, and compliance with the required actions established by this bill. Specifically, the as-

sociations’ filing of the member accountability report and the statement of public availability of

this report in the consumer confidence report may require additional oversight and responsibili-

ties of the Department.

The New Mexico Finance Authority indicated the additional financial requirements, especially

establishment of the reserve fund and implementation of GAAP procedures, should enhance the

stability of the operations and the long-term sustainability of the water systems. These condi-

tions would enhance the security of NMFA loans to the associations.

SIGNIFICANT ISSUES

DFA reported that the Sanitary Projects Fund was created in 1947 and amended in 1956. It tradi-

tionally carried a small appropriation for water projects associated with mutual domestic associa-

tions around the state. The fund balance was depleted over forty years ago and has been inactive

since then. HB438 eliminates the Sanitary Projects Fund. The bill also amends outdated lan-

guage in the Sanitary Projects Act that clouds NMED enforcement authority over mutual domes-

House Bill 438/aHENRC/aHFL#1/aSCONC– Page

3

tic associations. According to DFA, the bill strengthens NMED's authority over associations in

the technical designs, operating standards and quality standards for water supply, remediation

and wastewater treatment facilities in New Mexico. The bill provides NMED with a hearing

process for associations that are out-of-compliance with water quality standards. It allows the

Department to assess a civil penalty of not more than $250 per day for failure to take corrective

action beyond the time specified in a compliance order.

NMED indicated that more than 200 mutual domestic associations have been formed under the

Sanitary Projects Act. NMED has sole oversight authority over these organizations but this au-

thority is clouded by archaic language tied to the Sanitary Project Fund, which no longer exists.

The most frequent complaints regarding these associations received by NMED concern unfair or

preferential practices, such as providing more water to certain users than other users and poor

financial accounting. The proposed revisions eliminate archaic language and provide for more

accountability from the associations to ensure the operation of a safe and sound water system.

The revisions include clarification of NMED’s enforcement authority and authorize the collec-

tion of a penalty for violation of a compliance order. NMED notes that the changes proposed

were developed with significant cooperation from the associations and have a broad base of local

support.

NMED explained the HENRC amendments as follows: The first amendment to HB438 concerns

restrictions on forming a new mutual domestic association. The original bill was amended to

include water and sanitation districts at the suggestion of the water and sanitation districts. Un-

der this amendment, new associations will not be allowed to form on the boundary or within the

service area of municipalities and water and sanitation districts unless they can show the ser-

vices cannot be provided by the municipality or WSD at or below the cost proposed by the asso-

ciation. 2) The second amendment clarifies enforcement action by NMED to remove the term

"person" and replace with "association." Concern was expressed that the use of the term “per-

son,” given the definition of “person” in the beginning of the law, would subject individuals to

enforcement action. The intent of NMED was to initiate actions against the association, not in-

dividuals, so the amendment clarifies and makes plain how this would happen. The third

amendment replaces the term "reclamation" with "reuse." The concern was “reclamation” could

mean a variety of things. By replacing “reclamation” with “reuse,” the bill recognizes the need

to reuse wastewater and encourage reuse with less ambiguous language. NMED concurs and

supports the bill as amended.

The House Floor amendment further clarifies the second HENRC amendment by placing the

onus of replying to a compliance order on the association rather than on an individual person.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

The original version of HB438 duplicates SB128.

OTHER SUBSTANTIVE ISSUES

NMED indicated the department’s strong support for these revisions to the Sanitary Projects Act

to clarify and update archaic language. NMED stated the revisions more clearly define associa-

tions as political subdivisions of the State, even though past attorney general’s opinions have

consistently found them to be so. New associations could not be formed next to areas served by

municipalities, whether within the boundaries of incorporation or not and preclude new organiza-

House Bill 438/aHENRC/aHFL#1/aSCONC– Page

4

tions forming as capital stock corporations. The powers of the board of directors would be clari-

fied, addressing problems encountered with setting and collecting service charges. The interven-

tion of NMED would be clarified by providing for issuance of a compliance order and allowing

NMED to appoint a representative to oversee operations, and allowing for periodic reviews of

the association management. Funds to operate the association must be derived from a rate-

setting analysis that includes a reserve fund for maintenance and future replacement of equip-

ment. Elements that must be included in articles of incorporation would be expanded to include

the definition and voting rights of members and provide clear requirements of board powers to

require compliance tolls and charges. A new section would provide guidelines for associations

to merge, encouraging sharing of resources or regionalization.

DH/mt:nt