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

SPONSOR Taylor

ORIGINAL DATE

LAST UPDATED

1-22-07

HB

SHORT TITLE DRINKING WATER SYSTEM FINANCING

SB 105

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$4,000.0

Non-Recurring

Public Project

Revolving Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$4,000.0

Non-Recurring

Drinking Water

State Revolving

Loan Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

New Mexico Environment Department (NMED)

SUMMARY

Synopsis of Bill

Senate Bill 105 appropriates $4.0 million from the Public Project Revolving Fund to the Drink-

ing Water State Revolving Loan Fund to provide state match funds for carrying out the purposes

of the federal Safe Drinking Water Act of 1974 in FY07 and subsequent fiscal years.

Senate Bill 105 – Page

2

FISCAL IMPLICATIONS

The appropriation of $4.0 million contained in this bill is a non-recurring expense to the Public

Project Revolving Fund. Any unexpended or unencumbered balance remaining at the end of

FY07 and subsequent fiscal years shall not revert to the Public Project Revolving Fund but

would remain in the Drinking Water State Revolving Loan Fund.

SIGNIFICANT ISSUES

This funding will provide the required 20 percent state match for the next two allocations from

the U.S. Environmental Protection Agency (EPA) capitalization grants totaling $16.0 million.

This funding will be used to carry out provisions of the Drinking Water State Loan Fund Act by

providing low-cost loans for water-quality projects from the Drinking Water State Revolving

Loan Fund (DWRLF).

The New Mexico Drinking Water State Revolving Loan Fund Act was enacted by the 1997 Leg-

islature in response to the re-authorization of the federal Safe Drinking Water Act (SDWA). The

Act charged NMFA with establishing, in cooperation with NMED, a loan program to provide

local entities with low-cost financial assistance in constructing necessary drinking water facilities

and developing programs that support public water systems in achieving, or remaining in com-

pliance, with primary drinking water regulations (“set-aside" components). The Act created the

drinking water state revolving loan fund administered by NMFA.

According to NMFA, up to 31 percent of the annually allotted federal capitalization grant is des-

ignated by SDWA for “set-aside" activities, which in New Mexico encompass the following:

a)

develop technical, managerial, and financial capacity for local water systems;

b)

assist entities in qualifying for loans;

c)

provide technical assistance targeted to systems serving 10,000 persons or less;

and

d) provide loans to community water systems that assist water systems to improve

infrastructure and meet SDWA requirements.

NMFA further reported that the federal capitalization grant, less the amount of “set-asides", is

deposited in the DWRLF along with the entire state match. The NMFA can then utilize funds in

the DWRLF to make loans to community water systems for eligible water system improvements.

For projects with the proper legislative authorization, DWRLF loans can be combined with loans

from the NMFA’s PPRF to “leverage" the funds in the DWRLF to create a much greater dollar

amount for projects financed. Drinking Water Bureau (DWB) of the NMED uses the “set-

asides" to support public water systems, less the 4% utilized for administrative costs by NMFA.

According to the operating agreement between the state of New Mexico and the U.S. EPA, the

state agrees to deposit the 20 percent state match into the DWRLF on the date on or before re-

ceiving payments under the capitalization grant. To date, NMED noted that New Mexico had

received approximately $75 million in capitalization grants from the EPA and had provided state

match grant funds totaling approximately $15 million.

Senate Bill 105 – Page

3

ADMINISTRATIVE IMPLICATIONS

The SDWA allows a 31 percent “set-aside" of the annual federal allocation to be used for admin-

istrative activities of both the Drinking Water Bureau (DWB) of the state Environment Depart-

ment (ED) and NMFA. NMFA utilizes 4 percent of the set-aside to administer the financial as-

pects of the program including legal support, construction oversight, and technical review. DWB

utilizes the funds to provide technical support and capacity development to public water systems

TECHNICAL ISSUES

Section 2 of the bill contains an emergency clause.

OTHER SUBSTANTIVE ISSUES

DWRLF Loans in New Mexico

0

1

2

3

4

5

6

7

8

9

State Fiscal Years

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

# of Loans

Dollar Amount

Source: NMFA

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The primary implication of not passing this bill, as expressed by both NMFA and NMED, is that

the state will be unable to receive the federal capitalization grant money if the 20 percent state

match is not received.

Both agencies expressed additional concerns, as follows:

•

The 31 percent “set aside" portion of the fund that is allocated to the DWB provides

revenue to fund local technical assistance, capacity development and the Public Water

Senate Bill 105 – Page

4

Supply Supervision Program pursuant to New Mexico’s “set aside" programs, which

are key components of the state’s primacy agreement with EPA. These functions

would go unfunded.

•

Without this match, NMED’s DWB will lose a critical funding source that pays for the

salaries of approximately 28 Full Time Employees (FTEs). Those employees assist in

regulatory oversight for all public water systems in New Mexico to ensure the systems

meet state and federal regulations to protect public health pursuant to the Safe Drinking

Water Act.

•

Currently, the fundable priority list has 36 projects, which would be affected. If the

funding is unavailable, these 36 projects and future projects may not be able to obtain

needed funding. This may cause these systems to be out of compliance with the Safe

Drinking Water Act

.

•

NMFA would lose critical funding for several of its activities, including administering

the DWRLF that requires expenditures such as legal counsel, construction oversight,

and technical reviews. In addition, NMFA reported that it is responsible for the devel-

opment and implementation of marketing strategies to promote the DWRLF loan fund,

conducting outreach efforts, and providing technical assistance to public entities in the

development of qualified project proposals to the NMFA.

MA/mt