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

SPONSOR HENRC

ORIGINAL DATE

LAST UPDATED

2-15-07

3-12-07 HB CS/48/aSCONC

SHORT TITLE Uniform Covenants Act

SB

ANALYST Aubel

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$20.0

$20.0

$40.0 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

No longer duplicates SB279/SCONCS

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)

Economic Development Department (EDD)

SUMMARY

Synopsis of SCONC Amendment

The Senate Conservation Committee Amendment consists of five primary changes:

1.

Simplifies the definition of “environmental covenant" to emphasize that an entity cannot

place a covenant restriction on groundwater in the anticipation of being excused from

cleaning groundwater to current standards;

2.

Defines “State agency" as one under the executive branch of state government and not

any other government or quasi-government agency;

3.

Clarifies that the NMED approves any environmental response project implemented by a

federal agency or its contractors;

4.

Clarifies that the Act does not affect the Water Quality Control Commission’s (WQCC)

authority under the Water Quality Act, including any authority the WQCC may have to

CS/House Bill 48/aSCONC– Page

2

require a covenant: and

5.

Ensures that any disclosures made by a holder of an environmental covenant would

include recorded

copies of the covenant.

The HENRC Substitute for HB 48 now differs from SB 279/aSCONC by these amendments.

Synopsis of Original Bill

The House Energy and Natural Resources Committee Substitute for House Bill 48 establishes a

new state law known as the Uniform Environmental Covenants Act (Act). Its purpose is to allow

stakeholders in abandoned, polluted realty to return the land to productive capacity, while

providing an enforceable mechanism for the environmental regulatory agency to restrict future

use of property that is subject to an environmental cleanup. The Act defines an environmental

covenant, provides for its creation, enforcement and amendment, and provides for harmonization

with prior, existing, or conflicting laws and property rights. The limitations would be codified in

a deed restriction that runs with the land. HB 48/HENRCS establishes a state registry for

contaminated sites with attached environmental covenants, and provides for civil and criminal

penalties for noncompliance with the Act. The bill does not allow an entity to restrict the use of

groundwater “in exchange for" cleaning it up to state water quality standards.

FISCAL IMPLICATIONS

HB 48/HENRCS contains no appropriation. It does, however, require the state to establish and

maintain a registry of all the environmental covenants in the state, which would be available to

the public. While NMED anticipates that creation and maintenance of this registry will not

require additional personnel, some recurring fiscal impact is likely, the amount of which would

depend on the size of the database. Also, it is possible that NMED will require additional legal

support to participate in the development of environmental covenants.

SIGNIFICANT ISSUES

HB 48/HENRCS follows a model statute developed by the National Conference of

Commissioners on Uniform 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 in 2005 (HB889) and 2006 (HB314). The NCCUSL explains the

benefits of the model ordinance as follows:

Environmental covenants…are increasingly being used as part of the

environmental 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 preferable 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 contamination.

Two principal policies are served by confirming the validity of environmental

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

CS/House Bill 48/aSCONC– Page

3

monitoring 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

contaminated property, often located in urban areas, to the stream of commerce. The

environmental 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 important 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

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

process for creating, modifying or terminating environmental covenants and for

recording these actions in recorded instruments which will be reflected in the title

abstract of the property in question.

EDD notes that 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 desirable, both from an

economic and redevelopment standpoint. 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.

SLO reported that the HB 48/HENRCS effectively exempts the state land office from the

provisions of the legislation and, therefore, does not apply nor affect that agency or the lands it

manages.

ADMINISTRATIVE IMPLICATIONS

NMED would need to develop systems for tracking contaminated parcels, deed restrictions in

counties, and property ownership to ensure covenants pursuant to the Act are enforceable. HB

48/HENRCS contemplates such systems but does not contain an appropriation to establish them.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 48/HENRCS duplicates SB 279CONCS.

OTHER SUBSTANTIVE ISSUES

EMNRD notes that the Act includes a number of provisions that clarifies the scope of the bill

and provide additional protections to the public and to people who purchase property with a

covenant. For example, the agency points out that Section 2.D. clarifies that covenants are

CS/House Bill 48/aSCONC– Page

4

prohibited from being used for restrictions on the withdrawal or use of groundwater. Additional

comments provided by EMNRD regarding the bill are as follows:

•

Section 4.A: the required contents of a covenant include statements on ground water

contamination, potential penalties, and notice and reporting requirements;

•

Section 6.C: restricts an entity from using the Act as leverage with the Water Quality

Control Commission to relax cleanup standards, but allows a local zoning authority to

impose water use restrictions;

•

Section 7.A: notice of the covenant must be provided to each signatory, each person holding

a recorded interest in the property, the agency, the state engineer, adjacent property owners,

and local government;

•

Section 8: provides a notice requirement to any person acquiring an interest in the property

and a 10-day contract-rescission provision;

•

Sections 13 and 15: provide civil and criminal penalties for anyone who fails to comply with

the notice provisions of Section 8. The civil penalties would be issued by the Secretary of

NMED; and

•

Section 14: provides for appealing decisions of the Secretary of NMED to the court of

appeals.

NMED notes that the Act ensures the state approves the covenant in all cases, even if the

“agency" is a federal one.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

According to NMED, owners and operators of contaminated sites would be required to remediate

contaminated property to state and federal cleanup standards and establish risk-based cleanup

levels based on a stringent residential or other unrestricted land-use scenario. The state would

have to develop other means of allowing contaminated sites to be more easily redeveloped.

Voluntary remediations through the state “brownfields" program will continue to be hampered

by the lack of an enforceable land-use tool.

MA/nt:csd