Author’s Note 2/3/26: We included this article in our most recent newsletter because it was the latest information available online. The House Appropriation and Finance Committee passed their committee substitute for House Bill 2 on February 2. The Legislature posted it February 3. It’s better, but far from sufficient. To get the full picture, read the original Fiscal Malpractice article published January 17 and this update.
State Failure to Provide for Core State of New Mexico Responsibilities – Updated
After years of underinvestment, the Legislative Finance Committee (LFC) has set an initial funding position that fails to support the essential water governance work only the State of New Mexico is authorized to perform.
As used here, fiscal malpractice means the Legislature’s failure to fund known, essential state responsibilities despite clear evidence of need and the terrible legal, economic, and public health, safety, and welfare consequences of continued neglect.
Each year, the House Appropriations and Finance Committee (HAFC) advances the Legislative Finance Committee recommendation as the starting point for the House budget, which then moves to the Senate and a conference committee.
The NM Legislature’s House Appropriations and Finance Committee (HAFC) on January 16 adopted an initial FY27 proposed budget for the Office of the State Engineer and Interstate Stream Commission (OSE/ISC). When the numbers are examined together, this adopted starting point is a stark failure to support the State’s core water responsibilities. On February 2, 2026, the HAFC passed a committee substitute that reportedly increases the special appropriations from <18% of the agencies budget request to 39%.
What the Water Resources Management Agencies Said They Need
As shown in the agencies’ presentation slides and one-page summary presented by the State Engineer and the Interstate Stream Commission Director, OSE/ISC argued for the Governor’s FY27 Executive Budget recommendation. The Governor’s Executive Budget recommended $95.3 million, while HAFC’s initial budget covers only $23.25 million. As reported in an LFC staff analysis, the HAFC approved increases to “over $53 million to OSE for multiple purposes, including interstate litigation (implementation of the Rio Grande Texas V. New Mexico settlement) …”
The agencies’ initial request totaled $132.8 million in extraordinary special appropriations and program expansions needed to meet legal responsibilities for interstate compact compliance, Indian water rights settlements, water planning and modernization, and active administration of scarce water supplies.
Comparing the Numbers: Agency Request, Executive Budget, and HAFC Starting Point
Executive agency’s annual budget requests are not normally publicly disclosed. The author obtaned the OSE/ISC FY27 submittal in response to a public records request. This table compares the three; the graphic shows the HAFC’s initial budget funds are less than one-quarter of the Executive recommendation and less than 18% of what the agencies said they need. Update: On February 2, the HAFC reportedly increased that amount to 39%
What the HAFC Budget Leaves Unfunded
The omissions are consequential. HAFC eliminated Rio Grande Compact Compliance funding for Lower Rio Grande settlement implementation and depletion reductions in the Middle Rio Grande, water planning and modernization under the Water Security Planning Act, replacement of the obsolete WATERS water-rights database, Colorado River Basin protection, and the major river conveyance and efficiency work intended to improve deliveries to Elephant Butte Reservoir. These are not optional programs; they are how New Mexico enforces priorities, manages shortages, and reduces litigation risk.
The largest of these omissions—the $50 million request for Rio Grande Compact compliance—reflects immediate and unavoidable obligations. Upon U.S. Supreme Court approval of the proposed settlement, New Mexico’s delivery accounting to El Paso begins immediately. The settlement imposes annual requirements with penalties that must be paid back quickly with water if violated. It establishes one-, two-, five-, and ten-year compliance milestones. For example, New Mexico must purchase 9,100 acre-feet of actively used groundwater rights from willing sellers within five years, and double that amount within ten.
At the same time, unmanaged excess depletions in the Middle Rio Grande continue to grow. Without funding to carry out a major new State compliance effort, New Mexico likely will violate the Compact within two to three years. The cost of defending a new, decade-long Texas lawsuit—and paying damages for chronic underdelivery—would be many times greater than the State’s investment required now to rein in illegal uses and meet New Mexico’s obligation to protect and deliver water belonging to users, including Las Cruces, NMSU, and Elephant Butte Irrigation District farmers, supplied by water from Elephant Butte Dam.
HAFC’s budget funds only two of the six permanent program expansion FTE the OSE/ISC requested to carry out Rip Grande compact compliance and Indian water rights settlement field water distribution work with water users.
Stop the Recent History of Water Resources Management Funding Neglect
This critique should not be read as a judgment on individual legislators. During the HAFC hearing, members from both parties expressed concern and supported higher funding levels for many specific OSE/ISC requests. The hearing was unusually long to accommodate the members’ questions, recommendations, and statements of concern, and agency leaders’ responses. HAFC’s standard practice is to advance the Legislative Finance Committee recommendation unchanged, regardless of testimony or discussion. The Chair promised “additional work.”
Historically, under the current Chair and Vice-chair, the HAFC’s process has not resulted in meaningful additions. The result is a recurring structural failure. Serious water resources management needs, repeatedly presented to and discussed by policy and budget interim committees, are not acted upon. Many of these problems have have become true crises. The question is whether the 2026 Legislature will be responsive now to fund New Mexico’s water resources management agencies to carry out their crucially important work.
Budgets are policy. The HAFC starting budget increases risk rather than reducing it, by leaving the State without the capacity to manage its water resources at a time of growing scarcity and extreme interstate legal exposure.