Legislature Prepares to Take On Water Projects

When the 83rd legislative session begins in January, Texas lawmakers will return to a city of brown lawns and low lakes. Austin has withered, getting just 3 percent of its normal rainfall for the past two months, and Lake Travis has fallen to 36 feet below normal. Most of the rest of the state is also still struggling through a severe drought.

If there is a silver lining, it is that after years of hand-wringing from water experts, Texas seems poised to get serious about financing water projects. Top officials, including House Speaker Joe Straus, have said water legislation will be a high priority.

Lt. Gov. David Dewhurst recently proposed tapping the state’s Rainy Day Fund for $1 billion to finance water projects. Other proposals around the Legislature have even higher figures.

But details are scarce and the stakes are high. Texas’ population is poised to grow by more than 80 percent over 50 years, according to the Texas Water Development Board, the state’s water-planning agency. Some small communities have nearly exhausted their water supplies. Fears are growing that companies and factories will stray to other states.

“Clearly not having an adequate water supply will harm us in terms of bringing jobs to Texas and is doing so now already,” said Bill Hammond, president of the Texas Association of Business.

The question around the Capitol is how to finance Texas’ water plan, which assesses water needs far into the future. The most recent version of the plan, published in January, cites $53 billion of water-supply projects seeking money, including reservoirs, wells, pipelines and desalination facilities. Local authorities would put up roughly half the cost, and the state would provide low-interest loans to the local groups.

So far, the plan has been financed in a limited fashion. Last year, lawmakers and voters authorized the water board to issue up to $100 million in bonds to finance water-plan projects. (The total sum authorized last year, $6 billion in bond authority, included wastewater and other infrastructure projects also overseen by the water board.)

Some experts question whether the water plan is the best blueprint for Texas. Mary Kelly, a principal at Parula, an Austin environmental analysis firm, said the water plan, which essentially cobbles together 16 regional plans, overstates Texas’ overall water needs by not projecting lower per-capita usage in places like Dallas.

There is a risk that policymakers could “toss money at projects that aren’t really needed,” like large and costly reservoirs, Kelly said. She emphasized that conservation projects should come first.

Carolyn Brittin, who oversees water-supply planning for the water board, said conservation was a key criteria for communities seeking financial assistance from the board.

Lawmakers are focused on how much money the state will need. Dewhurst’s proposal has accelerated the debate. He proposed providing money from the state’s Rainy Day Fund, which is supplied by oil and gas taxes, to create a water infrastructure bank. Local communities could presumably borrow from the bank at low interest rates to help finance water projects. When they repaid the money, other projects could get financing.

State Rep. Lyle Larson, R- San Antonio, has already filed a bill to pull $1 billion from the fund.

State Sen. Kel Seliger, R-Amarillo, says $1 billion is not enough, and has proposed drawing $1.6 billion. State Rep. Allan Ritter, R-Nederland, said he believed $2 billion in seed money would be needed to create a self-supporting infrastructure bank.

Rainy Day Fund expenditures must be approved by a two-thirds majority of both legislative chambers. Once routine, tapping the fund has become politically tougher as more conservatives have entered the Legislature. The state’s comptroller estimates that the fund will hold $7.3 billion by the end of fiscal 2013, though experts say that figure could be higher.

Straus has said he is looking to the leadership of Ritter, who chairs the House Natural Resources Committee, on water financing. However, neither Ritter nor Seliger, who sits on the Senate Committee on Natural Resources, has filed water bills, reflecting the number-crunching going on. Ritter said he plans to file bills that would offer various options for financing sources, which include the Rainy Day Fund and a fee on Texas water users. (Similar legislation did not pass last session.)

A key question is whether a water infrastructure bank would be fully financed up front and be able to make new loans as local utilities pay off old ones, or whether it would need subsequent infusions from the state budget’s general revenue. Tapping general revenue, large chunks of which go to health care and education, carries extra political challenges.

Michael Quinn Sullivan, the president of Texans for Fiscal Responsibility, a small government group, said in an e-mail that although conservatives are unenthusiastic about using recurring general-revenue expenses for water, the idea of an infrastructure bank with a one-time draw on the Rainy Day Fund “certainly is worth exploring, but the devil always remains in the details.”

He added: "Governments don't have a good track record as venture capitalists or investors, but increasing water infrastructure capacity ranks as one of the few 'investments' for which government expenditures might actually pay off when done right."

In a potential complication for those who want to tap the Rainy Day Fund, the Legislative Budget Board says that the fund’s dollars would count toward Texas’ spending limit, which Gov. Rick Perry wants to tighten next year. Some lawmakers, like Seliger, do not believe this is the case.

Lucy Nashed, a spokeswoman for Perry, said that water would be a continuing priority for the governor. “As we move forward, it’s imperative that our state policies incent water suppliers and users to find new ways to clean, convey and conserve water,” she said in an email.

Meanwhile, the weather is not poised to improve. Federal scientists on Thursday forecast that West Texas had a strong chance of receiving below-normal rainfall during the usually wet spring and that temperatures statewide are likely to be warmer than normal. That raises the specter of another summer like 2011, when reservoir levels dropped worryingly low and water supplies grew tight.

“People can’t argue with the fact that we need to do something and start with it now,” Seliger said.

Coming Sunday: The role of the private sector in financing Texas water projects.