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Municipal League and counties flag $204 million shortfall for water projects, warn GRT erosion threatens local services
Summary
Municipal League and New Mexico Counties told the LFC that the Water Trust Board has about $522M in recommended projects for 2026 but only ~$318M available, leaving roughly $204M unfunded; presenters also warned that state tax deductions have eroded local gross‑receipts tax bases and that a new veterans property‑tax exemption creates an unknown county fiscal exposure.
Representatives of the New Mexico Municipal League and New Mexico Counties briefed the Legislative Finance Committee on Jan. 28 about urgent water‑infrastructure needs and growing pressure on local revenues.
Water Trust Board pipeline: The Municipal League described the 2026 Water Trust Board cycle as having 113 recommended projects totaling roughly $522.2 million while available funding is about $318 million, leaving an approximate $204 million shortfall. Municipal League speakers urged procedural changes so appropriated capital can be deployed more quickly: projects approved by the Water Trust Board and NMFA oversight now wait on separate legislative authorization language before funds can be spent, which can delay construction until late spring.
“The impact is tremendous,” a Municipal League speaker said, noting wastewater projects were newly eligible in 2024 and demand spiked as many systems are operating outside EPA permits and require costly upgrades.
Local revenue and GRT erosion: Municipal League testimony highlighted how heavily municipalities rely on gross receipts tax (GRT) — on average about two‑thirds of municipal general fund revenue — and noted that recent state‑level deductions (notably for medical and health care) have removed large sums from local tax bases. Presenters described this as an incremental threat to municipal budgets: even small, repeated carve‑outs can create substantial shortfalls for smaller cities that lack alternative revenue sources.
County priorities and fiscal risks: New Mexico Counties identified several priorities with direct county impacts, including detention‑reimbursement funding (county costs of housing state detainees are reportedly under‑reimbursed by roughly $9–$10 million annually), continued support for courthouse funding, and 700 MHz radio subscription support. Counties also raised alarm about an unresolved fiscal exposure from a voter‑approved expansion of the veterans' property‑tax exemption (the ballot measure broadened eligibility but the full county cost is unknown until claims are processed); officials said counties could be required to backfill lost revenue to other local taxpayers if state support is not provided.
Why it matters: Water projects and local fiscal stability have direct public‑safety and economic consequences. The Municipal League argued that faster legislative authorization of Water Trust Board projects (or a temporary delegation mechanism with clear guardrails) would preserve jobs and allow shovel‑ready projects to proceed while maintaining project prioritization criteria that favor low‑MHI and high‑need communities.
What’s next: Committee members debated the balance between legislative oversight and faster funding deployment. Some members said policy safeguards and codified board policies should come first before delegating more authority; others urged procedural fixes to clear the backlog so communities can begin construction this year.
