Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Herrera

ORIGINAL DATE

LAST UPDATED

1-25-2007

HB 309

SHORT TITLE Hanover Mutual Domestic Water Assoc. Debt

SB

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$112.3 Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Environment Department (NMED)

New Mexico Finance Authority (NMFA)

Depart of Finance – Local Governments (DFA)

SUMMARY

Synopsis of Bill

House Bill 309 appropriates

$112,281.66 from the general fund to the New Mexico Environment De-

partment to repay the outstanding balance of a Rural Infrastructure Program (RIP) loan made to the Hano-

ver Mutual Domestic Water Consumers Association for infrastructure improvements to the Hanover

water system.

FISCAL IMPLICATIONS

The appropriation of $112,281.66 contained in this bill is a non-recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of FY08 would revert to

the general fund.

NMED would gain $112,281.66 to add to the RIP revolving loan fund which would then be

available to loan to other communities.

House Bill 309 – Page

2

SIGNIFICANT ISSUES

NMED stated that the Hanover Mutual Domestic Water Consumers Association (Hanover) ob-

tained a 20 year loan for $100 thousand in 1985 to make improvements to their water system.

The improvements were completed and Hanover began repaying the loan. However, the associa-

tion fell behind in payments in the 1990s when the local mining industry declined, which led to

an economic depression, and has been in default on several occasions. The loan was refinanced

in 1996, lowering the interest rate from 5 percent to 3 percent.

NMFA reported that since October 2005, Hanover has been making consistent payments of $400

a month, which falls below its annual payment requirement of approximately $9.8 thousand.

Thus, Hanover has been unable to catch up" on payments and the loan balance continues to grow

as interest is applied.

In addition, according to DFA, Hanover is currently pumping groundwater that is contaminated

by an old, problematic septic system. The association is faced with paying possible fines for

non-compliance with safe drinking water standards, as well as paying on the outstanding loan.

According to NMED, the community has raised user rates, but population declines and water

shortages have reduced the positive impact of this action. DFA also noted that the economic

base for this community does not support any additional charges for services currently provided.

HB 309 would pay off the current loan.

PERFORMANCE IMPLICATIONS

With loan retired, Hanover would then be able to devote those financial resources toward resolv-

ing its ongoing water issues, which would improve both water quality and quantity for its resi-

dents.

ADMINISTRATIVE IMPLICATIONS

If enacted, HB 309 would allow NMED to spend less administrative time servicing this delin-

quent loan.

TECHNICAL ISSUES

NMED’s general counsel, in consultation with the New Mexico Attorney General’s Office, de-

termined that the Legislature may make an appropriation to pay off a loan as long as the purpose

is clearly stated in the appropriation. This appropriation contains that language.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

If HB 309 is not enacted, Hanover Mutual Domestic Water Consumers Association will have to

continue to pay off the existing loan and may face additional fines placed on them by NMED for

their current, contaminated system. Hanover may permanently default on the loan.

MA/nt