IAL 070507.

• Case Date: July 05, 2007
• Court: New Mexico

New Mexico Attorney General Opinions 2007. IAL 070507. July 5, 2007IAL 070507David Abbey, DirectorNew Mexico Legislative Finance Committee 325 Don Gaspar, Suite 101 Santa Fe, New Mexico 87501Dear Mr. Abbey: You have requested an Attorney General's opinion on a series of seven questions relating to use of tax-exempt severance tax bond proceeds for water projects, particularly water rights adjudications, under the Water Project Finance Act.(fn1) Based on our examination of the relevant New Mexico constitutional, statutory and case law authorities, and on the information available to us at this time, we conclude that federal law and regulations governing tax-exempt financings are not relevant to proceeds from senior taxable short-term, or sponge, severance tax notes ("senior sponge notes"), the type of financing that has traditionally been used to fund water projects, and that the current state of the law ensures adequate capacity to continue to provide taxable severance tax note proceeds for water projects--and particularly for water rights adjudications--into the foreseeable future. Water projects, including water adjudications, are funded from severance tax financings pursuant to legislative directives. See NMSA 1978, §§ 7-27-10.1 (2003) and 72-4A-9 (2005). In section 7-27-10.1, the legislature authorizes the annual issuance of severance tax bonds in the amount of ten percent of the estimated bonding capacity for that year for the use of the water trust board to fund water projects statewide. Upon the water trust board's certification of need, the state board of finance ("Board") issues bonds for that purpose, and the proceeds of those bonds are appropriated to the water project fund (the "Fund"). The Fund is created by section 72-4A-9, and includes monies appropriated for the purpose of supporting water projects. Pursuant to section 72-4A-9, ten percent of all monies in the Fund are dedicated to the State Engineer for water rights adjudications, which monies are nonreverting.(fn2) This office has previously upheld the use of proceeds from severance tax financings to fund water adjudications and court costs related to them consistent with section 72-4A-9, including the application of that section's ten percent set-aside to any such proceeds. See N.M. Att'y. Gen. Op. No. 05-04 (2005). We direct your attention to that opinion if you have any concerns related to use of proceeds for those purposes generally. All of your questions relate to federal law and regulation governing issuance of tax-exempt bonds. Historically...