Infrastructure & Environment

Texas Voters Consider Billions for Water Infrastructure

With a rapidly growing population, stagnant water supply and regular droughts, Texas voters are being asked to make $2 billion in state financing available for local and regional projects.
by | October 23, 2013
Lake Lavon Dam, near Wylie, Texas. flickr user gurdonark

Texas voters will soon decide whether to transfer $2 billion from the state's rainy day fund to help finance water projects.

Backers of the plan say they need to take action, given the state's rapidly growing population, stagnant water supply and regular droughts.

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"I believe this is the most important vote most people in Texas will make in their lifetime," state Sen. Troy Fraser, chairman of the Senate Committee on Natural Resources, tells Governing. "They're guaranteeing a supply of water for their children, grandchildren, and all future Texans."

State officials say the state's population is projected to nearly double by 2060, while existing water supplies could decrease by 10 percent in that same time. Unless the state implements its water plan in that time frame, 50 percent of Texans could lack an adequate supply of water during droughts.

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Two years ago, Texas voters approved $6 billion in bonding authority for the water board. Officials with the state water board say while that authority will allow them to access capital from the bond market, the newly requested $2 billion from the rainy day fund will allow them to lend the money to regional and local agencies on even more favorable terms. Those could include lower interest rates, longer payment periods or payment deferrals, says Merry Klonower, a spokeswoman for the Texas Water Development Board. "Those types of financing package are what incentivizes them to move forward with building their water supply projects," Klonower says.

The board has offered low-interest loans in the past, Klonower says, but they've been largely subject to the appropriations process, and the board typically can't keep up with the demand.

The $2 billion would be a large enough one-time influx of money that it could support an ongoing, revolving fund. Moreover, it would only be used specifically for projects in the state water plan. The funds would be available in March 2015.

The state, along with 16 regional water planning groups, has a 50-year water plan it updates every five years. The latest water plan, released last year, includes more than 500 water supply projects that would account for an extra 144 billion gallons of water for the state annually by 2060 through techniques like conservation and reuse and tapping new major reservoirs and other surface water supplies.

Fraser says throughout its 16-year-history, the plan has periodically been updated, but one thing has been constant: it's never had the dedicated funding to make its projects happen.

The state estimates the capital cost to design and implement those projects will be nearly $53 billion through 2060, and municipal water providers will need nearly $27 billion in financial assistance to make them happen.

If the funding is approved, the state water board would evaluate and prioritize the projects that seek financing based on the number of people they serve and the urgency of the project, among other factors. The legislation allowing for the $2 billion transfer requires 20 percent of the funding to be used for conservation purposes and 10 percent to be used on rural projects.

Backers of the plan insist that tapping the rainy day fund won't jeopardize the state's credit rating or affect its ability to respond to emergencies; it's projected to have a balance of $11.8 billion by the end of FY 2015 if left untouched.

The fund's soaring balance is largely due to the fact that the oil and gas industry in Texas is booming. Under state law a portion of energy production taxes automatically goes into the fund. Backers of the plan say the boom won't slow down any time soon, which will ensure the funds quickly get replenished. Moreover, failure to spend money in the fund mean excess revenues simply role into the general fund.

Still, the plan has its skeptics. The conservative Texans for Fiscal Responsibility opposes the ballot measure, arguing it will encourage more state and local borrowing at a time when Texas shouldn't be taking on additional debt. Despite the fact that the fund is flush, some have suggested it's still not fiscally prudent to tap it.

The Texas American Federation of Teachers urged state lawmakers -- unsuccessfully -- to instead use the excess revenue in the rainy day fund to restore big cuts the legislature made to education two years ago.

Critics also point out that the actual ballot language voters will see in November is ambiguous. Indeed, when voters go to the polls, they won't see any mention of the $2 billion or the rainy day fund transfer. Instead, they'll simply be asked to say yes or not to the creation of a pair of funds for financing water projects. Separate legislation passed earlier this year would transfer the $2 billion into those funds once they're created.

The money won't do much to alleviate the current drought -- funds won't be available until 2015 -- but it could be crucial in addressing challenges brought on by future droughts. Today, more than 90 percent of the state is under drought conditions, which has helped put the issue on the forefront of many Texans' minds.

Fraser emphasize the $2 billion is to help create favorable financing terms and isn't being used as a source of capital funding. "It's not a grant and it's not a gift," Fraser says. He also emphasized its for projects specifically designed to  conserve water or create new sources of water -- not for basic maintenance. "This is not for day-to-day repairs," Fraser says.

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