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

SPONSOR Foley

ORIGINAL DATE

LAST UPDATED

2-5-07

HB 662

SHORT TITLE Repeal Water Law Forfeiture

SB

ANALYST Woods

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Office of the State Engineer (OSE)

SUMMARY

Synopsis of Bill

House Bill 662 seeks to repeal NMSA 1978, § 72-5-28 (1907), providing for the forfeiture of

surface water rights for the failure to beneficially use water for a period of four years plus an

additional year after the State Engineer has provided notice and a declaration of nonuse. In

addition to providing for forfeiture, Section 72-5-28 authorizes applications to the state engineer

for extensions of time in which to place water to beneficial use and specifies the conditions of

nonuse that will not result in forfeiture.

SIGNIFICANT ISSUES

AGO indicates that the Constitution of 1911, New Mexico adopted a prior appropriation system

for its waters, requiring that water be placed to beneficial use.

1

Article XVI, section 2 of the

1

AGO comments carry the following caveat: “This analysis is neither a formal Attorney General’s Opinion nor an

Attorney General’s Advisory Opinion letter. This is a staff analysis in response to the agency’s, committee’s or

legislator’s request."

House Bill 662 – Page

2

Constitution provides that “[t]he unappropriated water of every natural stream, perennial or

torrential, within the state of New Mexico, is hereby declared to belong to the public and to be

subject to appropriation for beneficial use, in accordance with the laws of the state." (emphasis

added) Article XVI, Section 3 states that beneficial use is the “basis, the measure and the limit"

of the right to appropriate water in New Mexico. The requirement that water be put to beneficial

use is fundamental to the doctrine of prior appropriation because it insures the equitable

allocation of a scarce public resource. Forfeiture is a legal penalty that applies by operation of

law under circumstances in which water has not been applied to beneficial use for four years or

more. Forfeiture or abandonment statutes exist in some form in every state that adheres to the

doctrine of prior appropriation. Repealing the forfeiture statute would fundamentally alter the

doctrine of prior appropriation in New Mexico and would remove the legal mechanisms that

promote the socially beneficial use of a limited natural resource.

AGO adds that, under existing law, when water can no longer be applied to beneficial use, the

owner must transfer that water right or place it in a water conservation program or water bank in

order to maintain the right. If the forfeiture statute is repealed, then the incentive for these

programs or for the marketing of water rights is eliminated or frustrated. In short, it would allow

the hoarding of “paper" water rights, without a concomitant obligation to apply the water under

those rights to beneficial use. The repeal of Section 72-5-28 raises obvious constitutional issues.

Does a repeal of Section 72-5-28 contravene the provisions of the New Mexico Constitution

cited above, particularly Article XVI, Section 3, which states that beneficial use is the “basis, the

measure and the limit" of a water right. Can the legislature repeal the forfeiture clause in the

surface water code but leave a nearly identical forfeiture clause in place under the groundwater

code. In that case, groundwater owners could have their water rights forfeited, but surface water

owners would not face forfeiture. This disparate treatment of surface and groundwater owners

would almost certainly lead to equal protection challenges under both the United States

Constitution and the New Mexico Constitution.

OSE voices similar concerns, also noting that the requirement that water be placed to beneficial

use is established by the New Mexico Constitution. Section 3 of article XVI provides that

“beneficial use shall be the basis, the measure and the limit of the right to the use of water." The

forfeiture statute is an essential component of the Water Code and has been part of the Water

Code since 1907. The requirement that water must be beneficially used in order to maintain a

right to use water is a fundamental element of the prior appropriation doctrine, to ensure the

equitable allocation of a scarce public resource. The New Mexico Constitution, article XVI,

section 2 of provides that “[t]he unappropriated water of every natural stream, perennial or

torrential, within the state of New Mexico, is hereby declared to belong to the public and to be

subject to appropriation for beneficial use, in accordance with the laws of the state." The prior

appropriation doctrine, based on the requirement of beneficial use, is designed to promote the

socially beneficial use of a limited natural resource. While there is no fee for using public water

pursuant to a state water right, there is a requirement that water must be put to beneficial use, or

returned to the public for appropriation. This ensures that a limited resource will be used where

it will benefit society, not wasted or hoarded. If water is no longer being put to beneficial use,

then it is to be reallocated where it can be put to beneficial use. This ensures that water is not

wasted or hoarded, but is optimized to provide the maximum benefit to society.

OSE indicates that forfeiture or abandonment statutes exist in some form in every state that

follows the prior appropriation doctrine. The elimination of this requirement by the repeal of this

statute would remove a necessary element of the state engineer’s ability to administer and

House Bill 662 – Page

3

determine water rights. While the state engineer has used this ability sparingly, it serves

nevertheless to deter the hoarding of water under water rights that are not or can no longer be

exercised. Where water can no longer be put to beneficial use under an existing water right, the

owner currently must transfer that water right or place it in a water conservation program or

water bank in order to maintain it. If this statute is repealed, then the incentive for these

programs or for the marketing of water rights is also eliminated or undermined.

OSE further suggests that, “…the repeal of the statute would serve to block the ability of the

state engineer to allocate the public resource that he is statutorily charged to supervise and

administer. Water rights could no longer be stacked §72-5-8(F)."

OTHER SUBSTANTIVE ISSUES

OSE anticipates that, making valid every water right ever established in New Mexico would lead

to a gross over-appropriation of all streams and aquifers there by rendering paper administrations

meaningless. On the other hand, everyone has a water right whether used recently or 100 or

more years ago there would be a real need for administration because priority calls would

become a part of daily life since the resulting demand would far exceed existing supply.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

OSE states that, “The constitutional requirement of beneficial use will be retained."

BFW/mt