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

SPONSOR SCONC

ORIGINAL DATE

LAST UPDATED

1/30/06

2/12/06 HB

SHORT TITLE Land, Wildlife & Clean Energy Act

SB CS/407/aSFC

ANALYST Lewis/Earp

APPROPRIATION (dollars in thousands)

Appropriation

FY06

FY07

Recurring

or Non-Recurring

Fund

Affected

Indeterminate

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 188/HBICS

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy, Minerals and Natural Resources Department (EMNRD)

Taxation and Revenue Department (TRD)

New Mexico Finance Authority (NMFA)

New Mexico Environment Department (NMED)

Office of the State Engineer (OSE)

New Mexico Department of Agriculture (NMDA)

SUMMARY

Synopsis of SFC Amendments

The Senate Finance Committee amendments to SCONCS/SB 407:

•

Delete Section 12 of the bill which provided for transfers of oil and gas conserva-

tion tax for revenues for the following purposes:

o

One-half of net proceeds to the Conservation and Clean Energy Bonding

Fund

o

One-thirty eighth of net proceeds to fund inspection and enforcement activi-

ties of the Oil Conservation Division.

CS/Senate Bill 407/aSFC – Page

2

Deletion of Section 12 removes the revenue redistribution impact of this bill as

identified in the original FIR and, as a result, removes the fiscal year 2007 appro-

priations to the Land, Wildlife and Clean Energy Board for projects and administra-

tive expenses. As amended, the near-term fiscal impact of the bill appears to be

limited to the administrative expenses that the Energy, Minerals and Natural Re-

sources Department would incur relative to support of the board and its activities.

•

Define the duties of the Land Wildlife and Clean Energy Board to include reporting to an

appropriate legislative interim committee on or before November 30 of each year.

Synopsis of Substitute Bill

The Senate Conservation Committee substitute for Senate Bill 407 enacts the Land, Wildlife and

Clean Energy Act. The act:

creates the Land, Wildlife and Clean Energy Board;

establishes the Conservation and Clean Energy Bonding Fund;

establishes the Land, Wildlife and Clean Energy Fund;

provides for distributions to the Conservation and Clean Energy Bonding Fund equal to

one half of the net receipts attributable to the oil and gas conservation tax;

provides for distributions to the Oil Conservation Division of the Energy, Minerals and

Natural Resources Department (EMNRD) equal to one thirty-eighth of the net receipts

attributable to the oil and gas conservation tax; and`

authorizes the New Mexico Finance Authority (NMFA) to issue and sell tax-exempt

Conservation Bonds and Clean Energy Bonds.

The Land, Wildlife and Clean Energy Board is administratively attached to the Energy, Minerals

and Natural Resources Department (EMNRD) and consists of 14 members, including the Secre-

tary of Energy, Minerals and Natural Resources; the Director of the New Mexico Department of

Agriculture; the Director of the Department of Game and Fish; the State Engineer; and 10 public

members appointed by the governor, with the advice and consent of the senate, for staggered

four-year terms.

The board may fund conservation and clean energy development projects; administer the Land,

Wildlife and Clean Energy Fund and make grants and loans from the fund; acquire and manage

whole or partial interests in land and water; and request that the NMFA issue Conservation

Bonds or Clean Energy Bonds to finance eligible projects.

“Conservation project” means preservation, rehabilitation, restoration or management activities

directed at natural areas, working farms or ranches, wildlife or its habitats, outdoor recreation

areas and trails, forests or watersheds or other ecologically damaged lands.

“Clean energy project” is defined as

a project that increases:

1)

energy efficiency;

2)

the conservation of energy; or

3)

the production of energy using biomass, geothermal, hydrogen, solar or wind power.

The act’s provisions describing projects that the board may fund emphasize protection of private

ownership interests, including:

support for the maintenance of private ownership of working farms and ranches;

CS/Senate Bill 407/aSFC – Page

3

assistance for private landowners in conservation of land and wildlife; and a preference for leav-

ing land and water in private ownership subject to easements that will ensure proper project

management or public use while protecting private property rights.

The Land, Wildlife and Clean Energy Fund is created in the State Treasury and administered by

the Energy, Minerals and Natural Resources Department. The fund shall consist of distributions

made to the fund from the Conservation and Clean Energy Bonding Fund; gifts, grants and dona-

tions; other revenue credited to the fund; and income from investment of the fund. Balances in

the fund at the end of a fiscal year shall not revert to the general fund.

Money in the Land, Wildlife and Clean Energy Fund is appropriated to the board to make loans

or grants to, or otherwise contract with, qualified entities for conservation projects and clean

energy development projects as authorized by the act and for expenses necessary to carry out the

provisions of that act.

Of the net receipts attributable to the tax imposed by the Oil and Gas Conservation Tax Act,

one half shall be distributed to the Conservation and Clean Energy Bonding Fund; and

one thirty-eighth shall be distributed to the

Oil Conservation Division of the Energy, Miner-

als and Natural Resources Department to fund the inspection and enforcement activities of

the division.

The Conservation and Clean Energy Bonding Fund is created as a special fund within the

NMFA. It shall consist of oil and gas conservation tax revenues distributed to the fund by law;

legislative appropriations; and any other public or private money dedicated to the fund. Money in

the fund is appropriated to the NMFA for the purpose of paying debt service on Conservation

Bonds and Clean Energy Bonds and the expenses incurred in their issuance and administration.

On the last day of January and July of each year, the NMFA shall estimate the amount needed to

make debt service payments on Conservation and Clean Energy Bonds, plus the amount that may

be needed during the next 12 months for any required reserves, administrative expenses or obli-

gations coming due, and distribute to the Land, Wildlife and Clean Energy Fund any balance in

the Conservation and Clean Energy Bonding Fund above the estimated amounts.

The NMFA is authorized to issue and sell tax-exempt Conservation Bonds and Clean Energy

Bonds, for the purpose of financing conservation or clean energy development projects, at the

request of the Land, Wildlife and Clean Energy Board and when the board has certified the need

for the bonds.

FISCAL IMPLICATIONS

According to the Taxation and Revenue Department (TRD), The Oil and Gas Conservation Tax

is imposed on the taxable value of crude oil, natural gas, uranium, coal, geothermal energy, car-

bon dioxide, helium or a non-hydrocarbon gas produced in the state. Approximately 95% of the

revenue is attributable to crude oil and natural gas. The rate of tax fluctuates from 0.18% to

0.19% depending on the balance in the oil and gas reclamation fund. One-eighteenth of the net

revenue is distributed to the oil and gas reclamation fund when the tax rate is 0.18%; two-

nineteenths when the tax rate is 0.19%; with the remainder to the general fund.

CS/Senate Bill 407/aSFC – Page

4

Under House Bill 188, distributions of the net revenue attributable to the Oil and Gas Conserva-

tion Tax are modified as shown in the table below.

Tax Rate = 0.19%

Tax Rate = 0.18%

Beneficiary

Present Law: Proposed Law: Present Law: Proposed Law:

O&G Reclamation Fund

10.5%

10.5%

5.6%

5.6%

General Fund

89.5%

36.9%

94.4%

41.8%

Conservation and Clean En-

ergy Bonding Fund

None

50%

None

50%

Oil Conservation Division

None

2.6%

None

2.6%

Based on price and production forecasts by the Consensus Revenue Estimating Group, net reve-

nue attributable to the O&G Conservation Tax is projected to be approximately $21,800,000 in

FY 2007 and $20,300,000 in FY 2008.

Money in the Conservation and Clean Energy Bonding Fund is appropriated to the NMFA for

the purpose of paying debt service on Conservation Bonds and Clean Energy Bonds and the ex-

penses incurred in their issuance and administration, with any unneeded funds transferred twice a

year to the Land, Wildlife and Clean Energy Fund.

Money in the Land, Wildlife and Clean Energy Fund is appropriated to the board. Balances re-

maining in the LWCE fund at the end of a fiscal year at the end of a fiscal year shall not revert to

the general fund.

Continuing Appropriations

This bill creates new funds and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

SIGNIFICANT ISSUES

According to the Energy, Minerals and Natural Resources Department (EMNRD), unlike many

other states, New Mexico has never created dedicated funding streams for conservation or clean

energy projects.

In 2004 HJM 37 directed EMNRD and the Department of Game and Fish (DGF) to explore op-

tions for sustainable funding for conservation in New Mexico. The resulting December, 2004

study, “ Funding Conservation for New Mexico, Providing for Future Generations,” identified

annual unfunded conservation needs in New Mexico in the range of $37 to $48 million. The

study

identified $20 million in non-state funds lost to New Mexico each year for conservation

projects because of the unavailability of matching state funds; and

estimated additional annual leveraging capacity of just over $21 million in the areas of

agricultural lands and open space conservation, forest and watershed restoration, habitat

conservation, species conservation and outdoor recreation.

These are funds lost for the benefit of cities, counties and private landowners, not merely to state

agencies. The bill authorizes the board to seek fund leveraging opportunities for both conserva-

CS/Senate Bill 407/aSFC – Page

5

tion and clean energy.

EMNRD notes that the Land, Wildlife and Clean Energy Act will create an extremely powerful

tool for addressing some of the most important and pressing issues facing New Mexico in ways

that are strategic and fiscally accountable. Conservation projects are broadly defined to allow the

Land, Wildlife and Clean Energy Board to prioritize and address in a proper policy context ex-

tremely significant needs attributable to drought, as well as the need for:

watersheds restoration;

mitigation of catastrophic wildfire risks;

rural jobs from the development of a biomass industry; and

recreational opportunities and access.

The Act commits the state to addressing issues, from urban sprawl to endangered species issues,

that are barriers to maintaining working farms and ranches in private ownership.

Further, according to EMNRD, the legislature has created the public policy framework that will

give guidance to the Board. In addition to the Funding Conservation study noted above, two

first-ever state-wide strategic plans, the Forest and Watershed Health Plan and the Non-Native

Phreatophyte Watershed Management Plan, have both been adopted and are now state policy.

With regard to clean energy, EMNRD notes that New Mexico is leading the way among all

states in its commitment to improving environmental quality and reducing our dependence on

fossil fuels by championing renewable energy, energy efficiencies and alternative fuels.

New Mexico Environment Department (NMED) notes that the state’s coal-fired power plants are

major sources of air pollution, such as oxides of nitrogen, sulfur dioxide, particulates, mercury

and carbon dioxide; that these air pollutants adversely impact public health, visibility, and the

global climate; and that HB 188 would provide an opportunity and funding for energy conserva-

tion and clean energy projects such as those using biomass, geothermal, hydrogen, solar or wind

power. According to NMED these projects could delay or obviate the need for the construction

of new dirtier sources of power, such as conventional coal-fired power plants.

The Office of the State Engineer (OSE) expresses some concern that no overarching purpose is

provided for the act and that the Land, Wildlife and Clean Energy Board appears to have a great

deal of discretion. For example, the definitions of qualified projects provided in the bill are very

broad, as are the board’s duties and responsibilities. OSE further expresses concern that acquisi-

tion by the board of land and water rights may lead to litigation and landowner liability for the

state. However, EMNRD points out that the act’s accountability and reporting provisions are

carefully designed to guide the board and to ensure accountability and opportunity for legislative

oversight.

The New Mexico Department of Agriculture (NMDA) notes that the department has recently

participated in discussions regarding this bill, but expresses concern that the agriculture commu-

nity/industry as a whole, however, has not participated significantly in the bill’s design and draft-

ing. Since the bill does attempt to recognize the importance of agriculture and opportunities to

preserve farming and ranching, it would be both prudent and beneficial to solicit substantive in-

put from those sectors. Issues surrounding the acquisition of water rights, particularly surface

water rights, are extremely important to the agriculture constituency for a number of reasons.

Agricultural interests, by most estimates, hold 80-90 percent of surface water rights, and the

bill’s proponents would benefit from a discussion regarding the practicalities that may affect

CS/Senate Bill 407/aSFC – Page

6

those interests regardless of the willing buyer/seller issues. It would also be prudent to survey the

agriculture community regarding its preferences for conservation options.

NMDA further suggests that the Non-Native Phreatophyte Plan, finalized and signed in August

2005, and the Forest and Watershed Health Plan, finalized and signed in December 2004, deline-

ate important conservation concepts, practices and policies that could be beneficially coordinated

with this bill’s purposes.

PERFORMANCE IMPLICATIONS

NMED states that, by promoting clean energy and energy efficiency programs, HB 188 can as-

sist the Air Quality Bureau in meeting its improved visibility and improved air quality perform-

ance measures. Two Governor priority goals would be enhanced by this bill: Goal 3, to make

New Mexico “The Clean Energy State” and Goal 4, to “Combat Climate Change.”

Funding clean

energy and energy efficiency projects will help the state meet the greenhouse gas emission re-

duction targets established by the Governor in Executive Order 05-033.

ADMINISTRATIVE IMPLICATIONS

According to ENMRD, the new Land, Wildlife and Clean Energy Board will need to arrange for

space needs and hire personnel, including the director, legal counsel, an outreach officer for

grant and loan and program review, and administrative support staff. In addition, there will be

normal costs of title work, surveys and appraisals in connection with the real property and water

rights transactions authorized by the act as well as substantial contract documents to be negoti-

ated for projects, and per diem and mileage costs of the public board members. Any administra-

tive services provided by EMNRD and the NMFA will require reimbursement by the board to

avoid unfunded mandates on the agencies.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

According to EMNRD, conservation and clean energy projects will be funded annually on a case

by case basis. General fund monies will not be leveraged through bonding for these purposes.

New Mexico will continue to forfeit available non-state funds for lack of predictable state gen-

eral fund revenues.

ML/yr:nt