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

SPONSOR Cisneros

ORIGINAL DATE

LAST UPDATED

2-16-07

2-18-07 HB

SHORT TITLE Liquid Waste Revolving Loan Fund Act

SB 920

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$5,000.0 Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$5,000.0

Non-Recurring

Liquid Waste

Revolving Loan

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

See

narrative

Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 1130

Relates to SB 702 and HB 859

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Environment Department (NMED)

Energy, Minerals and Natural Resources Department (EMNRD)

New Mexico Finance Authority (NMFA)

Senate Bill 920 – Page

2

SUMMARY

Synopsis of Bill

Senate Bill 920 appropriates $5.0 million from the general fund to a newly created fund in the

state treasury, the liquid waste revolving loan fund, to be administered by the New Mexico

Environment Department to make low-interest loans to indigent homeowners to purchase,

permit, install and maintain on-site liquid waste treatment systems.

FISCAL IMPLICATIONS

The appropriation of $5.0 million contained in this bill is a non-recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of fiscal year 2008 shall

not revert to the general fund. The fund consists of appropriations, gifts, grants, donations and

bequests to the fund.

No appropriation is made in SB 920 for administrative costs to NMED, although it provides for

administrative costs to be paid from the fund when accrued interest income is sufficient to cover

the costs. It should be noted that a successful program of making the loans would reduce the fund

balance fairly quickly, and because of the long-term nature of these loans (up to 40 years), the

fund would not be quickly replenished. Thus, any interest revenue would likely be minimal

unless additional funds were acquired.

No estimate of administrative costs for NMED was provided. These on-site systems would most

likely not require the technical expertise of the Construction Program Bureau, but would require

administrative support from the Environmental Health Program and at least one loan coordinator.

Because the program is unique to the menu of funds currently managed by NMED, the total

costs are indeterminate, but should not be excessive.

Continuing Appropriations

This bill creates a new fund 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

Septic systems are the leading source of groundwater pollution and have impaired 355 river

miles in New Mexico. Low-income households may not have the financial resources to install

modern liquid waste systems that comply with the Liquid Waste Regulations or to replace

substandard existing liquid waste systems with proper systems.

SB 920 will establish a method for low-income individuals to receive assistance to address

installation of liquid waste and disposal systems. This bill creates a new revolving loan fund

within the state treasury, administered by the NMED. Any expenditure will be authorized by the

Secretary of Finance and administration by warrant on vouchers signed by the Secretary of

Environment.

NMED will provide low-interest, long-term loans to indigent recipients for permitting, site

Senate Bill 920 – Page

3

evaluation, design, purchase and installation costs of new on-site liquid waste treatment and

disposal systems, and up to two years of maintenance, operation and any required testing of the

systems. SB 920 defines “indigent recipient" as an owner of an owner-occupied single-family

dwelling, an owner-occupied single-family dwelling with a guest house or an owner-occupied

duplex whose household income does not exceed two hundred fifty percent of the federal

poverty level.

The Federal poverty level rates are as follow for calendar year 2007:

2007 POVERTY LEVEL GUIDELINES

ALL STATES (EXCEPT ALASKA AND HAWAII) AND DC

Income Guidelines as Published in the Federal Register on January 24, 2007

ANNUAL GUIDELINES

FAMILY

100% 133% 150% 170% 175% 185% 200% 250%

SIZE POVERTY*

1

10,210 13,579 15,315 17,357 17,868 18,889 20,420 25,525

2

13,690 18,208 20,535 23,273 23,958 25,327 27,380 34,225

3

17,170 22,836 25,755 29,189 30,048 31,765 34,340 42,925

4

20,650 27,465 30,975 35,105 36,138 38,203 41,300 51,625

5

24,130 32,093 36,195 41,021 42,228 44,641 48,260 60,325

6

27,610 36,721 41,415 46,937 48,318 51,079 55,220 69,025

7

31,090 41,350 46,635 52,853 54,408 57,517 62,180 77,725

8

34,570 45,978 51,855 58,769 60,498 63,955 69,140 86,425

The number of households that would be eligible for the program is not known. However, the

following data from the 2005 U.S. Data Abstract, when combined with the NMED data that

shows that the greatest contamination to groundwater in New Mexico comes from cesspools or

failed on-site systems, indicates a highly probable need for such assistance.

Median Household Income

$37,492

Persons Below Poverty Level

18.5%

HB 920 stipulates that NMED shall not determine minimum credit standards as a condition to

receive a loan from the fund. In determination of a loan application, the criteria will be made to

approve loan proceeds based upon rules and regulations as determined by the Environment

Department and the New Mexico Finance Authority. Loans made from the fund will have a

maximum term of 40 years with the interest rate equal to the prevailing prime rate as published

in the Wall Street Journal. The interest rate can be reduced during the term of the loan in the

following manner:

.

1 percent below prime rate, if the household drops below 150 percent but no more than

200 percent of the federal income poverty level;

.

2 percent below prime rate, if the household drops below 100 percent but no more than

150 percent of the federal income poverty level;

.

3 percent below prime rate, if the household drops below 100 percent of the federal

income poverty level.

The loan has equal installment payments due one year from approval of the loan. Loan

documents shall be produced declaring the intent to repay the funds borrowed.

Senate Bill 920 – Page

4

ADMINISTRATIVE IMPLICATIONS

Under HB 920, NMED and the NMFA will devise rules to implement the loan program,

including the application procedure and requirements for disbursing proceeds. NMFA maintains

that there could be a considerable amount of time to be spent working on the rules and

regulations of creation of a new fund that is devised to be a revolving loan fund.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to SB 702, a similar bill proposing to establish an assistance fund that provides funding

for indigent individuals or households for installing liquid waste systems. SB 702 does not

require the repayment of these funds.

Relates to HB 859, which provides grant funding to low-income households for replacing

cesspools with on-site septic systems.

Duplicates HB 1130.

TECHNICAL ISSUES

NMED notes that SB 920 does not differentiate between the construction of new liquid waste

systems and the replacement of substandard existing systems, nor does it establish a standard for

the type of liquid waste system to be financed to the minimum level of treatment system required

by the Liquid Waste Regulations. Thus, loan recipients could acquire financing to install a

more-expensive, advanced liquid waste treatment system for property where a conventional

septic system would be allowed.

EMNRD believes that NMED acts strictly as a financial institution in administering the loan

program, and has very little discretion in that role. It is not functioning as a regulatory agency

setting and enforcing standards for waste treatment and disposal systems.

OTHER SUBSTANTIVE ISSUES

EMNRD maintains that although the act is titled the “Liquid Waste Revolving Loan Fund Act,"

it is not set up to be a revolving fund for many years, if ever. Loan terms can be as long as 40

years, so amounts loaned out may not return to the fund for many years. The lender is not

permitted to consider the borrower’s credit qualifications and there are no express provisions for

canceling or collecting on the loans in event of default. The interest rate is set at the prime rate

at the time the loan is made. The interest rate can only go down, it can never go up, during the

life of the loan, which may be as long as 40 years.

NMFA indicates that SB 920 is balancing a fine line between the anti-donation clause, working

as an independent funding source for individual household members.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Substandard liquid waste systems owned by indigent persons and households will continue to

degrade water quality, resulting in hazards to public health and interference with property rights

and welfare.

POSSIBLE QUESTIONS

Senate Bill 920 – Page

5

1.

Since NMED is primarily a regulatory agency, would this loan program be more

effectively administered by NMFA, which has a successful track record in running loan

programs.

Questions raised by EMNRD are as follows:

2.

Whether and under what circumstances loans can be cancelled;

3.

What collection proceedings are available in the event of default;

4.

What happens if the property is transferred (must the loan be repaid immediately, or

does it transfer to the new owner – who may not be indigent.); and

5.

If the recipient installs a liquid waste-system qualifying for the $1,500 income tax credit

provided for in HB 802, will the recipient receive the credit in addition to the loan.

MA/mt