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

SPONSOR Garcia, MJ

ORIGINAL DATE

LAST UPDATED

1-30-06

2-10-06 HB

SHORT TITLE Sanitary Projects Funding Amendments

SB 128/aSCONC

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 $100.0

$200.0 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB438 as amended.

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Department of Environment (NMED)

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of SCONC Amendment

The Senate Conservation Committee amendment to Senate Bill 128 makes three changes. First,

it substitutes reuse for reclamation with regard to the types of projects covered by the act. Sec-

ond, 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 dis-

tricts (WSDs) unless the association can show that services cannot be provided by the municipal-

ity or WSD at or below the cost proposed by the association. The previous language did not in-

clude water and sanitation districts.

Senate Bill 128/aSCONC – Page

2

Finally, it clarifies that enforcement actions taken by the New Mexico Department of Environ-

ment will affect the associations rather than individual persons.

Synopsis of Original Bill

Senate Bill 128 updates and overhauls the Sanitary Projects Act including:

•

Deletion of language regarding the defunct Sanitary Projects Fund,

•

Clarifying rate-setting and enforcement powers of mutual domestic water consumers as-

sociations 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 SB128 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.

SIGNIFICANT ISSUES

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 the Department concern

unfair and/or preferential practices that may include providing more water to certain users than

other users and poor or no financial accounting. The proposed revisions seek to eliminate ar-

chaic language and provide for more accountability on the part of the associations to better serve

and meet the associations’ capacity development requirements to ensure the operation of a safe

and sound water system. The revisions include clarification of the Department’s enforcement

authority and authorize the collection of a penalty for violation of a compliance order. NMED

notes that the changes proposed were developed with significant cooperation from the associa-

tions and have a broad base of local support.

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. SB128 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-

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

Senate Bill 128/aSCONC – Page

3

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 explained the SCONC amendments as follows: First, the amendments concerns restric-

tions 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. Under 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 services cannot

be provided by the municipality or WSD at or below the cost proposed by the association. Sec-

ond, the amendments clarify enforcement action by NMED to remove the term "person" and re-

place with "association." Concern was expressed that the use of the term “person,” given the

definition of “person” in the beginning of the law, would subject individuals to enforcement ac-

tion. The intent of NMED was to initiate actions against the association, not individuals, so the

amendment clarifies and makes plain how this would happen. Finally, the amendments replace

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 wastewa-

ter and encourage reuse with less ambiguous language. NMED concurs and supports the bill as

amended.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 128 duplicates House Bill 438.

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-

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 the Department would be clarified by providing for issuance of a compliance order and

allowing the Department to appoint a representative to oversee operations, and allowing for peri-

odic 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 equipment. 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/nt