Elizabeth Fazio, J.D., LL.M. Director, House Natural Resources Committee

Chick Bend at Sunrise, Brazos River near Kyle, Copyright © 2010 Photographs by Charles Kruvand, from The Living Waters of Texas, Texas A&M University Press

MECHANICS OF HOUSE BILL 4: FINANCING THE TEXAS STATE WATER PLAN83rd Texas Legislature

Overview: State Water Planning in Texas

• Senate Bill 1 in 1997– Created “Bottom-up” Regional Planning Process

• Senate Bill 2 in 2001– Created Water Infrastructure Fund

• Senate Bill 3 in 2007– Created Environmental Flow Process

• House Bill 4 in 2013– Created Mechanism for Financing State Water Plan2

Projected Population Growth, Water Demand, and Water Shortages in Texas’ Major Metro Areas by 2030

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2012 State Water PlanWater for Texas

BY THE NUMBERS Learn why Texas needs to implement the 2012 State Water P lan.

16 regional water planning groups plan for Texans’ needs for water over the next 50 years

12 interest groups are represented on each planning group: agriculture, industry, the public, the environment, municipalities, business, water districts, river authorities, water utilities, counties, power generation, and groundwater management areas

450 voting and non-voting members make up the planning groups

3,000 water user groups are planned for, representing 6 water use categories— municipal, manufacturing, steam-electric power, irrigation, livestock, and mining

46 million people will live in Texas by 2060

8.3 million acre-feet of wa te r would be needed during

a repeat of the drought of record in 2060

562 water management strategies were recommended by the planning groups

to meet the needs for wate r during a repeat of the drought of re c o rd

9.0 million acre-feet of water would be supplied from

recommended stra tegies

$53.1 billion in capital costs are required to implement the plan

$231 billion capital costs is needed for water su p p lies,

water treatment and dis tr ibutio n, wastewater collection and trea tm ent,

and flood control by 2060 4

Projected Texas Population Growth

The population in Texas is expected to increase 82 percent between the years 2010 and 2060, growing from 25.4 million to 46.3 million people.

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Projected Texas Population Growthin Texas Counties

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Projected Water Demand andExisting Supplies

Demand 18,010,599 19,038,954 19,821,152 20,517,886 21,190,527 21,952,198Supplies 16,983,205 16,409,225 16,015,972 15,611,330 15,400,092 15,270,535

Water demand is projected to increase by only 22 percent over the planning horizon, from about 18 million acre‐feet per year in 2010 to about 22 million acre‐feet per year in 2060. Existing water supplies— the amount of water that can be

produced with current permits, current contracts, and existing infrastructure during drought—are projected to decrease about 10 percent, from about 17.0 million acre‐feet in 2010 to about 15.3 million acre‐feet in 2060.

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Projected Need for Additional Waterin Times of Drought

If Texas does not implement new water supply projects or management strategies, then homes, businesses, and agricultural enterprises throughout the state are projected to need 8.3 million

acre-feet of additional water supply by 2060.

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Recommended Water Management Strategies in 2060

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Recommended Water Management Strategies in Acre-Feet Per Year

Municipal Conservation 137,847 264,885 353,620 436,632 538,997 647,361

Irrigation Conservation 624,151 1,125,494 1,351,175 1,415,814 1,463,846 1,505,465

Other Conservation 4,660 9,242 15,977 18,469 21,371 23,432

New Major Reservoir 19,672 432,291 918,391 948,355 1,230,573 1,499,671

Other Surface Water 742,447 1,510,997 1,815,624 2,031,532 2,700,690 3,050,049

Groundwater 254,057 443,614 599,151 668,690 738,484 800,795

Reuse 100,592 428,263 487,795 637,089 766,402 915,589

Groundwater Desalination 56,553 81,156 103,435 133,278 163,083 181,568

Conjunctive use 26,505 88,001 87,496 113,035 136,351 135,846

Aquifer Storage andRecovery

22,181 61,743 61,743 72,243 72,243 80,869

Weather Modification - 15,206 15,206 15,206 15,206 15,206

Drought Management 41,701 461 461 461 461 1,912

Brush Control 18,862 18,862 18,862 18,862 18,862 18,862

Seawater Desalination 125 125 143 6,049 40,021 125,514

Surface Water Desalination - 2,700 2,700 2,700 2,700 2,700

The regional water planning groups recommended 562 unique water supply projects designed to meet needs for additional water supplies for Texas during drought, resulting in a total, if

implemented, of 9.0 million acre feet per year in additional water supplies by 2060. ‐

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Total Capital Costs for Future Water Supply

The majority of the $53 billion in costs are for water management strategies recommended for municipal water user groups.

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Financing the 2012 State Water Plan

• Senate Joint Resolution 1– Constitutionally creates the

State Water Implementation Fund for Texas (SWIFT) & State Water Implementation Revenue Fund for Texas (SWIRFT).

Requires voter approval in November 5th, 2013 general election.

• House Bill 1025– Authorizes a one-time $2B transfer from the Rainy Day Fund to

the SWIFT.

• House Bill 4– Provides for the structure, administration, and oversight of the

funds.

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Overview: Senate Joint Resolution 1

• Constitutional Dedication• Inside State Treasury, Outside of the

General Revenue Fund• Self-Supporting• Rainy Day Fund

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House Bill 4: Goals

#1 GOAL: Increase Water Supply Today and Into the Future– Implement projects and develop water supply

• Leverage One-Time Capitalization with State’s Bonding Authority– State financial assistance requested = $27B over 50 years

• Protect the Corpus– Increase investment capabilities – grow the fund.

• Provide Incentives– Lower-interest rates;– Longer repayment terms;– Incremental repayment terms; and – Deferred repayments.

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House Bill 4: Challenges

• Lots and Lots of Questions…– Who gets the funding and what type of projects?– How much do we need?– How do we know how much we need and when?– Who would manage and invest the corpus? – How would the corpus be invested?– How much/ what type of incentives should the state

provide?– How is this similar to or different than the management

of other state water funds?– What does the management of yield restrictions/

arbitrage issues look like?

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Overview: House Bill 4

• Structure– Develops a sophisticated financing mechanism which leverages $2B

one-time capitalization with TWDB’s bonding authority:

• Administration– Embraces conservation and reuse projects as part of overall

strategy to meet future needs and recognizes the need to ensure rural areas are supported; and

– Requires the regional and statewide prioritization of projects in the financing of the state water plan.

• Oversight– Creates an advisory committee to provide recommendations on the

adoption of rules for the structure and administration of the funds.

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House Bill 4: High-Level View of Structure

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SWIRFT

House Bill 4: Solutions

• Models• Management• Mandatory Prioritization of Projects

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WIFC WIFD SPP Total-2019 3.33 0.42 0.24 3.99

2020-2029 4.54 0.4 0.28 5.222030-2039 4.75 0.4 0.59 5.742040-2049 4.75 0.4 0.58 5.732050-2059 5.22 0.44 0.64 6.3

22.59 2.06 2.33 26.98

Cash Flow Concept

House Bill 4: EXAMPLE Models

WIFC WIFD SPP Total-2019 11.9 2 1.2 15.1

2020-2029 2.9 0.3 0.9 4.12030-2039 2.7 0.7 0.69 4.092040-2049 1.6 0.1 0.22 1.922050-2059 0.83 0.155 0.4 1.385

19.93 3.255 3.41 26.595

2012 SWP Financial Assistance Requested ($B)

WIFC WIFD SPP Total-2019 5 0.62 0.36 5.98

2020-2029 6.81 0.6 0.42 7.832030-2039 3.52 0.3 0.43 4.252040-2049 3.52 0.3 0.43 4.252050-2059 3.87 0.33 0.47 4.67

22.72 2.15 2.11 26.98

Reserve Fund Concept*

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• Sec. 15.435 – A bond enhancement agreement entered into under this section is

an agreement for professional services. – This is NOT a credit enhancement agreement. – It IS the mechanism to support the “purpose” of SWIFT which is to

provide support, including the ability to provide additional security.

• Sec. 15.474 (SWIRFT) – Only place credit agreements mentioned.

“Bond Enhancement Agreement”

SWIFT SWIRFT

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House Bill 4: Management

• TWDB– Created in 1957, 6 part-time Members– To-date, has sold $3.95B in bonds– HB 4, Restructures to 3 full-time Members

• Texas Treasury Safekeeping Trust Company– Created in 1986, current powers 2001– Overseen by Texas Comptroller of Public Accounts– Invests, manages, and oversees $58B of state’s assets

• Advisory Committee– 7 members: Comptroller, 3 Senate Members, and 3 House Members– Advise and provide comments on rulemaking for SWIFT/ SWIRFT program

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House Bill 4: Mandatory Prioritization of Projects

• Use of the Fund– Sec. 15.434(b)

• Eligibility– Sec. 15.435(g)(1)

• Prioritization of Projects • Regional: Sec. 15.436• TWDB: Sec. 15.437

Independence CreekCopyright © 2010 Photographs by Charles Kruvand, from

The Living Waters of Texas, Texas A&M University Press

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Use of Funds

TARGETED GOAL: During the life of any 5-year SWP:• 10% of projects funded to support rural areas,

including agricultural water conservation, and• 20% of projects funded to support water

conservation or reuse, including agricultural irrigation projects.

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Eligibility

In order to be eligible to receive financial assistance through SWIFT, an applicant must:• submitted and implement a water

conservation plan; and • complete a request for financing information,

including a water infrastructure financing survey.

*All projects must be included in the state water plan.

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Conservation/ Reuse: Prioritization

• TWDB must develop a system for the prioritization of projects at the time of its request for financial assistance, including: – Demonstrated or projected effect of the project

on water conservation: • Prevention of water loss; and• Filing of a water loss audit which demonstrates

accountability for reducing water loss and increasing efficiency in the distribution of water.

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Regional Prioritization

• Each regional water planning group shall prioritize projects in its respective regional water plan, considering at a minimum:– decade of need; – feasibility of the project;– viability of the project;– sustainability of the project; and – cost-effectiveness of the project.

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TWDB Prioritization• TWDB prioritization:

– local contribution;– financial capacity of the applicant to repay;– ability of the board and the applicant to leverage local and federal funding;– emergency need for the project;– if applying for WIF programs, shovel ready;– demonstration of water conservation; and – priority given the project by the applicable RWPG.

• High consideration:– serve a large population;– provide assistance to a diverse urban and rural population;– provide regionalization; or– meet a high percentage of the water supply needs of the water users to be

served by the project.

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House Bill 4: Minimal Construction Contract Standards

Chapter 17, Texas Water Code changes:• Replaces terms “sound engineering principles”

with “approved plans and specifications”; – Sec. 17.183– Sec. 17.187 (strikes “in consultation with…” language)

• Adds “Buy American Provisions” – Sec. 17.183

*Effective September 1, 2013

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October 7-8, 2013 Texas Water Law Conference

House Bill 4: Maximized Lending Resources

Chapter 49, Texas Water Code change:• Enables federally approved entities to issue bonds

and/or notes to certain districts (more rural), in conjunction with already exempted entities:

o Farmers Home Administration;o United States Department of Agriculture;o TWDB; and o North American Development Bank.

– Sec. 49.153(e) re: 3 year issuances– Sec. 49.181(a) re: commission approval

*Effective September 1, 201331

October 7-8, 2013 Texas Water Law Conference

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Significant economic losses and threat to public health:

Total annual losses of $11.9 billion today Loss of $115.7 billion by 2060 Loss of 1.1 million jobs 1.4 million Texans gone by 2060 Loss of local and state revenues

Projected Economic Losses

“The constitutional amendment providing for the creation of the State Water Implementation Fund for Texas and theState Water Implementation Revenue Fund for Texas to assist in thefinancing of priority projects in the state water plan to ensure theavailability of adequate water resources.”

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Most Concepts in HB 4 Contingent OnWater Proposition 6 on November 5, 2013

Chick Bend at Sunrise, Brazos River near Kyle, Copyright © 2010 Photographs by Charles Kruvand, from The Living Waters of Texas, Texas A&M University Press

Elizabeth A. Fazio, J.D., LL.M.Director, House Natural Resources Committee

Texas House of RepresentativesP.O. Box 2910, E2.104Austin, Texas 78768

Telephone: (512) 463-0802elizabeth.fazio_hc@house.state.tx.us

Membership Chair http://www.associationofwomeninenergy.com/membership/sign-up

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Personal Twitter: Liz_Fazio

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