Water a watchword as New Mexico lawmakers pass bond bills

Bloomberg News

The New Mexico Legislature wrapped up its session in March sending Gov. Michelle Lujan Grisham bills to address water woes and finance capital projects, along with a fiscal 2026 budget.

Legislation was passed to deal with too little and too much water.

House Bill 137's Strategic Water Supply Act creates a program authorizing the Office of the State Engineer and the state's Environment Department to award grants and loans for projects, according to a fiscal impact report on the measure.

Lujan Grisham called the bill's final passage a milestone in implementing her 50-Year Water Action Plan, which aims to ensure the long-term sustainability of New Mexico's freshwater resources.

"The Strategic Water Supply is essential to protecting our most precious natural resource, strengthening our rapidly growing economy, and ensuring that future generations have safe, fresh water supplies," the Democratic governor said in a March 22 statement.  "I look forward to signing House Bill 137 and putting more of our state's vast brackish water resources to use as soon as possible."

The bill appropriates $75 million to fund projects to remove salt from deep brackish water, which is naturally occurring underground salty water. Another $28.8 million would go to the New Mexico Institute of Mining and Technology for aquifer mapping. 

It differs from a plan the governor unveiled at an United Nations Climate Change Conference in Dubai that failed to make it out of the Democratic-controlled legislature last year. It aimed to incentivize private-sector investment in treatment infrastructure with long-term state contracts to purchase end-product water. An internal debt sale backed by state severance tax revenue would have raised an initial $250 million for the plan.

In her Jan. 21 State of the State address, Lujan Grisham said New Mexico is facing a severe water shortage made worse by climate change.

Most of the state is in severe or extreme drought, according to the latest U.S. Drought Monitor report. 

Flood relief

Lawmakers advanced a pair of bills to come to the rescue of Roswell, which sustained flood damage last fall and lacks sufficient money to fund recovery efforts. 

In October, the city was hit with a record 5.78 inches of rainfall, which was four times the region's average for that month, prompting water rescues and state of emergency declarations by New Mexico's governor and President Joe Biden. 

Senate Bill 383 would allow the city to issue flood recovery revenue bonds. It authorizes municipalities to levy a local option flood recovery gross receipts tax of up to 0.25% to pay off bonds issued for the rebuilding, repairing, replacing, and hardening of municipal property damaged by a flood, according to the measure's fiscal impact report.  
"Although the provisions of the substitute bill are applicable to any municipality damaged by flood, the principal beneficiary would be Roswell," the report said.

Senate Bill 31 would establish a $150 million natural disaster revolving fund administered by the state's finance and administration department to provide zero-interest loans to political subdivisions and electric cooperatives approved for Federal Emergency Management Agency funding following a federally declared natural disaster.

Roswell anticipates using the local option tax in conjunction with disaster revolving funds and FEMA-approved project reimbursements for rebuilding, repairs, replacement, and hardening of municipal property that was damaged or destroyed in the flood, according to City Manager Chad Cole.  

The city of 47,000 incurred an estimated $260 million in damaged public inventory, which includes roads, bridges, facilities, vehicles and equipment, he added.

At the end of fiscal 2023, Roswell had $21.7 million of outstanding bonds backed by gross receipts tax revenue, according to its latest annual financial report. The city also had $17.27 million of outstanding joint water and sewer utility revenue bonds and $11.56 million left in a loan through the New Mexico Finance Authority, which issues revenue bonds for its public projects revolving fund.

Capital outlay

A $1.2 billion capital outlay bill for the state includes $292 million of severance tax bonds, which are paid off with revenue from taxes based on the value of oil, gas, or other natural resources "severed" from the ground.

Henry Valdez, executive director of strategic initiatives in the New Mexico Department of Finance and Administration, said the final amount of bonding will depend on line-item vetoes the governor might make. 

Oil and natural gas production is booming in New Mexico, the Dallas Federal Reserve Bank reported last week. Revenue generated by the fossil fuel industry accounted for about a third of the state's fiscal 2024 recurring general fund revenue and pumped $6.6 billion into the Land Grant and Severance Tax permanent funds and the Early Childhood Trust Fund.

"New Mexico has capitalized on its booming oil and gas industry to undertake investment policies in education, child care, health care, infrastructure and public improvements," the report said. "Given that New Mexico has some of the top-performing wells in the Permian Basin, the overall outlook is promising."

A methodology review by Moody's Ratings last year resulted in one-notch downgrades for the state's senior and subordinate lien severance tax bonds.

Moody's now assigns its Aa2 rating to New Mexico's senior lien transportation tax revenue bonds, Aa3 to senior lien severance tax bonds, and A1 to subordinate lien severance tax bonds.

It rates New Mexico general obligation bonds Aa2 with a positive outlook.

Other bills

Lawmakers passed Senate Bill 481 to create a State Fairgrounds District in Albuquerque governed by a seven-member board that could issue up to $500 million of 25-year revenue bonds backed by 75% of state gross receipts tax revenue and gaming-related tax revenue collected within the district. The measure would empower the district to plan, design, construct, redevelop, or demolish and remove projects within the fairgrounds, as well as purchase property.

A big bonding bill for the New Mexico Department of Transportation made it through the House but stalled in the Senate.

The measure would have given the state transportation commission up to $1.5 billion in additional bonding authority, while keeping a $1.124 billion limit on outstanding debt. 

Lawmakers approved a fiscal 2026 general fund budget that calls for nearly $10.8 billion in recurring spending, which is 6% higher than in fiscal 2025, and maintains reserves at 30% of annual spending, according to a bill analysis.

At her end-of-session press conference, the governor said she has real concerns about the legislature's tax package. House Bill 14 would eliminate the income tax for some residents through an earned income tax credit at an estimated cost of $72 million to the fiscal 2026 general fund.