MINUTES OF THE SENATE COMMITTEE ON NATURAL RESOURCES Sixty-eighth Session February 20, 1995 The Senate Committee on Natural Resources was called to order by Chairman Dean A. Rhoads, at 1:40 p.m., on Monday, February 20, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Dean A. Rhoads, Chairman Senator Lawrence E. Jacobsen, Vice Chairman Senator Mark A. James Senator Mike McGinness Senator Ernest E. Adler Senator John B. (Jack) Regan Senator O. C. Lee STAFF MEMBERS PRESENT: Fred Welden, Chief Deputy Research Analyst, Legislative Counsel Bureau Billie Brinkman, Committee Secretary OTHERS PRESENT: Linda Slater, Douglas County Recorder Nancy Carr, Lyon County Recorder Margaret Lowther, Storey County Recorder Joe Melcher, Washoe County Recorder Alan Glover, Carson City Recorder Joe Johnson, Representative, Toiyabe Chapter, Sierra Club R. Michael Turnipseed, State Engineer, Division of Water Resources Jeffrey A. Fontaine, Supervisor, Public Health Engineering, Nevada State Health Division Gordon DePaoli, Outside Counsel, Sierra Pacific Power Co., Walker River Irrigation District Naomi Duerr, State Water Planner, Division of Water Planning Ande Engleman, Executive Director, Nevada Press Association Chairman Rhoads announced there was a bill draft request (BDR) to be presented for committee introduction. BILL DRAFT REQUEST 45-558: Establishes wildlife heritage trust account in state general fund. SENATOR ADLER MOVED FOR COMMITTEE INTRODUCTION OF BDR 45- 558. SENATOR JAMES SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Chairman Rhoads opened the hearing on Senate Bill (S.B.) 92. SENATE BILL 92: Provides for distribution of administrative fine imposed for violation of certain laws and regulations governing suppliers of water. Jeffrey A. Fontaine, Supervisor, Public Health Engineering, Nevada State Health Division, read a prepared statement (Exhibit C) in support of S.B. 92. Senator Jacobsen ask what had prompted the introduction of S.B. 92. Mr. Fontaine replied there has been only $200 in fines collected during the last 4 years. The fines are one possible source of income to assist with some of the training needs for water system operators. Senator Jacobsen said he would not like a fine put on rural water systems because many of the smaller water companies are already struggling financially. Mr. Fontaine implied the intent of the administrative fines are an incentive for water systems to do what is necessary. He said it is not a "heavy handed" enforcement tool. Senator McGinness queried how many training sessions there are annually for the water system operators. Mr. Fontaine replied a partnership between nonprofit organizations, state agencies and federal agencies meet on a quarterly basis, and try to identify educational needs. And he said there are other conferences throughout the state. Senator McGinness said his concern with S.B. 92 is that $50 a year will not provide much education for anyone. He said this measure could present an opportunity to create heavier fines in order to finance the training system. Mr. Fontaine said they have a detailed protocol for assessing fines and that they do not anticipate the fine system, in itself, will provide financing for all the training needs for Nevada. Chairman Rhoads closed the hearing on S.B. 92. ***** Chairman Rhoads opened the hearing on Senate Bill (S.B.) 93. SENATE BILL 93: Makes various changes relating to titling and recording of water rights. Chairman Rhoads announced all committee members have been given a copy of the book, Study of the Use, Allocation and Management of Water (Exhibit D on file in the Research Library). He stated this is a publication which will be referenced whenever a measure concerning water issues is discussed during committee meetings. Senator James, Chairman of the interim study of the Use, Allocation and Management of Water, came forward to give some background of S.B. 93. He said the issue of water rights titling has been a problem in Nevada for some time. Nevada, like other states, has the prior appropriation doctrine, but it also has the overlay on the water rights created pursuant to the prior appropriation doctrine that are real property rights and are treated by case law and by the Nevada Revised Statutes (NRS) as real property rights. Senator James said real property rights and water rights can be conveyed from one person to another. He pointed out Nevada has a complex system of recording and providing notice of real property conveyances. The system, which requires a certified, acknowledged copy of the deed, has to be recorded in the county recorder's office where the transaction occurs. He said water rights are a little different. Unlike a piece of land, water rights are created by an administrative action and so the state engineer is charged with administering all these rights and also charged with knowing where the rights are at any given time. The state engineer has to deal with the people in terms of forfeiture of water rights, given proof of beneficial use and a required document to be filed. NRS Chapter 533.385 has had for a long time, a provision that any application or permit to appropriate water can be assigned subject to the terms of the permits, but that no such assignment would be valid as against third parties, unless recorded in the office of the state engineer. That is a provision that is not known by a lot of people in Nevada who are dealing with water rights. Senator James commented there have been transfers of land which did not mention water rights, where water rights were pertinent to the land being transferred. Then title to the water rights also changed hands and was not recorded in the state engineer's office, obviously because the parties were not even thinking about it. Senator James recognized a further complication in the NRS which deals with recording of real property transactions. That statute states transactions in conveyances of real estate have to be recorded in the county recorder's office. So arguably, there is already a duplicative requirement in state law that a transfer of water rights, because it is considered real property, has to be recorded in the county recorder's office as well as in the state engineer's office. And until both of those things occur, there is not a perfected conveyance of water rights. Senator James surmised attorneys do not agree on this system...some think the water rights have to be recorded only in the county recorder's office. Senator James pointed out that the interim study committee struggled in trying to deal with the problem at hand in terms of the public interest and every one's interest in understanding existing water rights in the state, and who owns those water rights. He said uncertainty is cast upon all kinds of real property transactions in Nevada, including financing of water rights, because lenders do not know how to take a perfected interest in a water right. They are not sure that they have recorded the right documents to have a perfected interest in water rights when they make a loan. The interim study committee heard testimony by the attorney for the state engineer, from various attorneys in private practice throughout the state, and from other interested parties. The result is an attempted workable system which is set forth in most part in S.B. 93. Senator James gave an overview of S.B. 93. He discussed each section of the measure and outlined some of the controversies contained and suggested amendments. Discussion followed by committee members. Senator Jacobsen inquired about water transactions in past years where water rights were transferred and yet the rights were never filed on. He asked what really determines who the owner is of water rights which have been literally "hanging in limbo." Senator James replied that is one of the problems that the interim study committee has tried to deal with. But he said S.B. 93 would not have retroactive effect on those kinds of transactions. He declared S.B. 93 is totally prospective with respect to where recordation takes place in order to perfect a water rights title. He said conveyances which have not been properly recorded exist, and they will have to be hashed out under the previous existing law. He indicated previous cases will not be changed by S.B. 93. He said those problems will be governed by the existing law and the equities of the parties involved will have to be sorted out by the courts. Chairman Rhoads announced there were county recorders present from Douglas, Lyon, Storey, Washoe counties and Carson City. That their concern is in reference to section 4 of S.B. 93. Michael Turnipseed, State Engineer, came forward to testify. He expressed Senator James gave a very good overview of S.B. 93. He indicated his remarks would be directed to both S.B. 93 and Senate Bill (S.B.) 94. SENATE BILL 94: Makes various changes relating to recording of conveyances of water rights. Mr. Turnipseed said a proposal has been made to delete section 4 from S.B. 93, which he said should alleviate some of the concerns of the county recorders: Sec. 4. The county recorder of each county in which a deed is recorded pursuant to section 2 of this act shall promptly transmit a copy of the deed to the state engineer. The state engineer shall file the copy of the deed upon receipt. Mr. Turnipseed referred to Exhibit D in his discussion of S.B. 93. Mr. Turnipseed informed the committee the reason he wanted to address S.B. 94 along with S.B. 93 is because the two measures are identical in some sections and different in other sections. He said he proposed eliminating section 4 from S.B. 93 and inserting section 3 from S.B. 94 : Sec. 3. The county recorder of each county in which a deed is recorded pursuant to section 2 of this act shall: 1. If the place of use of the water is wholly or partly within the boundaries of an irrigation district, promptly transmit a certified copy of the deed to that irrigation district; and 2. Promptly transmit a copy of the deed to the state engineer. The state engineer shall file the copy of the deed upon receipt. Mr. Turnipseed went through S.B. 93 by sections, outlining suggested amendments and made comparisons with S.B. 94. He cited historic water rights which had been put to use since the turn of the century. He called attention to the fee schedule in S.B. 93, page 4, lines 21 to 24, and asked that "the first 100 words," line 22 be deleted, and "the first page" be inserted. And "100 words or fraction" on page 4, line 23 be deleted and "each page or fraction" be added. Mr. Turnipseed continued reviewing the remainder of S.B. 93 with approval. Chairman Rhoads requested that Mr. Turnipseed work with Senator James on language for section 7, S.B. 93 Chairman Rhoads added S.B. 94 to the hearing. Mr. Turnipseed continued with testimony on S.B. 94. He said much of the language is the same as in S.B. 93. He reiterated that sec. 3 of S.B. 94 be inserted into S.B. 93 and he suggested that both measures be wrapped together into one bill. Senator James indicated he thought that would be agreeable. Mr. Turnipseed requested the language be changed to apply a little more "teeth" in just one measure. Senator James said the issue at hand is complicated and changes will be necessary. He pointed out the interim study committee had a difficult task as there is no guidance in the current statutes; and secondly, the interim study committee wanted to go to a privatization type of system, just like real property deeds with that kind of certainty, but it was not accepted. He remarked S.B. 93 and S.B. 94 are a compromise in an attempt to settle a difficult problem. Mr. Turnipseed said the present language will go a long way toward privatization of the title work. Senator Adler inquired about the objection to section 7, S.B. 93. Mr. Turnipseed said it is written in the state engineer's adjudication statutes, and copies of those actions are on file in the state engineer's office. Senator James responded that the language in section 7 deals with the judgments referred to in the adjudication statutes referenced in that section. Gordon DePaoli, Outside Counsel, Sierra Pacific Power Company and the Walker River Irrigation District, reiterated the proposed changes in S.B. 93. He added a bit of detail to Senator James' remarks, saying the conflict between NRS 533.385 and the recording statutes, arises in part because NRS 533.385 simply makes reference to applications for permits to appropriate water. He pointed out the substantial majority of surface water rights in Nevada are not actually the subject of any application to the state engineer or the subject of any permit issued by the state engineer. They are water rights that were acquired prior to 1905 and are vested rights. And so, Mr. DePaoli continued, in a lot of cases, particularly on the Truckee, Carson and Walker Rivers, those rights are recognized in federal court decrees and may or may not be the subject of any kind of filing, generally with the state engineer. On the other hand, changes in those water rights require change applications to the state engineer and as a result of that process, sometimes some of those rights do become the subject of an application and/or a permit and even a certificate. He stressed that situation has created part of the conflict that legislation is trying to correct in a prospective way. Mr. DePaoli then talked on sec. 3 of S.B. 93 and sec.4 of S.B. 94 and he indicated that the suggestion of moving these sections would not necessarily satisfy the concerns expressed by the county recorders through Mr. Turnipseed. He said in the rural counties where there are irrigation districts, the county recorders are more aware of water rights and the transfer of water rights. He indicated he is not sure what the answer could be for the irrigation districts, but he suggested that sec. 3, S.B. 93, could be amended to read: "a person conveying the water right or water already appropriated shall file with the state Engineer and if the place of use of the water is wholly or partly within the boundaries of the irrigation district, with the irrigation district, together with the prescribed fee or report of the conveyance which includes the following information on a form to be provided by the State Engineer or the irrigation district." Senator James added that the person who gets the water conveyed to them should have the responsibility of filing. And it was agreed that "person" should be changed to "grantee" in sec. 3, S.B. 93. Mr. DePaoli said with the previous suggested amendments, that S.B. 94 would not be necessary. And he commented on all the sections of S.B. 93. Mr. DePaoli mentioned he interpreted section 11 to be dealing with the situations where the water is truly appurtenant to the land for purposes of use which are primarily situations involving irrigation water rights. Water rights which are available to be used within a service territory of a utility, or available to be used within a particular town, are not appurtenant in the same sense that irrigation rights are appurtenant to the land. He said he would not change the language in section 11, that the intent is consistent with what the law is and has been. Senator James agreed with the statement by Mr. DePaoli regarding the municipal water rights. He said a reasonable argument could not be made that a person has some kind of an equity interest in a water purveyor's water rights because the statutes says the water is appurtenant to the land upon which it is used. He mentioned that technically it comes within the terms of the statute. Senator James said maybe the discussion in this committee meeting is enough to "disclose the legislative intent that it not be so." Mr. DePaoli continued, commenting on each section of S.B. 93. And he said he was not sure what sec. 13 should say. In just layman's terms, S.B. 93 is intended to be neutral on any disputes that have arisen prior to its effective date concerning, where or when a conveyance of water should or should not have been filed or recorded. His comment was that there is language used from time to time that says the bill is intended to be neutral on conflicts of filing status. Chairman Rhoads asked that Senator James and Mr. Turnipseed work together on some of the suggested ideas for S.B. 93 and S.B. 94. Senator James asked for the language which Mr. DePaoli was referring to concerning sec. 13. He said the intent of the interim study committee is that S.B. 93 would not decide all the old title disputes. Nancy M. Carr, Lyon County Recorder, asked for clarification of the intended amendment which would delete sec. 4 from S.B. 93 and replace it with sec. 3 from S.B. 94 . She reconfirmed the word "person", page l, line 12, S.B. 93, be changed to "grantee." She indicated that amendment would satisfy the county recorders of Nevada. Ande Engleman, Executive Director, Nevada Press Association, called attention to page 3, lines 3 and 10, S.B. 93 ,which refers to the cost of publication. She said the fees are not realistic in today's market. She suggested the fees be based on a circulation number of the publication being used. Ms. Engleman indicated she opposes the language on page 4, line 16, S.B. 93. Senator James pointed out that particular language refers to the state engineer's examining the records. Chairman Rhoads closed the hearings on S.B. 93 and S.B. 94. ***** Chairman Rhoads adjourned the meeting at 2:55 p.m. RESPECTFULLY SUBMITTED, Billie Brinkman, Committee Secretary APPROVED BY: Senator Dean A. Rhoads, Chairman DATE: Senate Committee on Natural Resources February 20, 1995 Page