Sunday, June 30, 2013

Understanding House Bill 4


After several months of debate, the legislature approved and Governor Perry signed House Bill 4, setting up a revolving loan fund to implement the Texas Water Plan.  However, the proposed transfer of $ 2.0 billion from the Economic Stabilization Fund (known as the Rainy Day Fund) to capitalize the new implementation fund will not become effective unless authorized by a constitutional amendment that will be before voters in the November 2013 statewide election.

But, HB 4 is much more than just a new loan fund.  In fact, it restructures the Texas Water Development Board and, contingent on the passage of the constitution amendment, sets up a complex new prioritization process for deciding how to allocate the new loan funds. 

And, as with any major public policy initiative, the devil is in the details. So, what does HB 4 do and what can we expect to happen over the next few years?

First, let’s look at what happens even if the constitutional amendment authorizing the transfer from the Rainy Day Fund, SJR 1, does not pass in November. 

The Texas Water Development Board will change from the current six-member unpaid, part-time board to a three-member, paid, full-time board whether or not the voters approve the constitutional amendment.  As with the current TWDB, the Governor will make all board appointments, in this case by September 1, 2013.  Under the new legislation, one member must have experience in engineering, one in public or private finance, and one in law or business.   The new board is then required to hire a new Executive Administrator by October 1, 2013.  It’s likely that this new administrative team will also begin to set their own goals and policies.

Once the board members are appointed, they will face some looming deadlines under HB 4 to get the new infrastructure fund up and running and establish a process to set priorities for using the fund.  But, these actions will only be required if the constitutional amendment transferring rainy funds to the infrastructure fund is approved by the voters.

If SJR 1 does pass, then the board will begin a fairly complex process to prioritize spending from the new infrastructure fund, which will be known as the State Water Implementation Fund for Texas (SWIFT). The legislation itself sets some priorities for spending, requiring that not less than 10% of the funds disbursed go to projects for “rural political subdivisions or agricultural water conservation and that not less than 20% go to support projects for water conservation or reuse, including agricultural irrigation projects.

Beyond these directives, however, the Board has the primary role in prioritizing projects for funding. 

Here, in brief are the steps set out in HB 4:

First, the Board is to convene the chairs of the regional water planning groups (RWPGs).  This group is tasked with developing “uniform standards to be used by the regional water planning groups” in prioritizing projects. These standards must be developed by December 2013 and “approved by the Board.” 

Then, using these “standards”, each regional group is to prioritize projects in its respective regional water plan.  This prioritization will be conducted for both the existing 2012 plan and, at the appropriate time, for the new plans now under development.   The draft regional prioritization for the 2012 plans must be submitted to the Board by June 2014.  The Board can then comment on the RWPG draft prioritization.  The final RWP prioritization is due by September 2014.

 

At a minimum, a regional water planning group must consider the following criteria in prioritizing each project:

(1)        the decade in which the project will be needed;

 

(2 )   the feasibility of the project, including the

availability of water rights for purposes of the project and the

hydrological and scientific practicability of the project;

 

(3)    the viability of the project, including whether

the project is a comprehensive solution with a measurable outcome;

 

(4)    the sustainability of the project, taking into

consideration the life of the project; and

 

(5)    the cost-effectiveness of the project, taking into

consideration the expected unit cost of the water to be supplied by

the project.

 

In prioritizing projects, each regional water planning group is to “include projects that meet long-term needs as well as projects that meet short-term needs.”

But, the regional prioritization is not the final step.  In fact, it is only one factor to be considered by the Board.  HB 4 provides that the Board has the final say on prioritization as it relates to providing financial assistance from the SWIFT.

The Board is charged with setting up a “point system” for prioritization.  This system must include a “standard for the board to apply in determining whether a project qualifies for financial assistance at the time the application for financial assistance is filed with the board.”

 

The legislation then provides fairly substantial direction to the Board in what should be considered in setting up this point system.  Specifically it provides:

 

(c)The board shall give the highest consideration in

awarding points to projects that will have a substantial effect,

including projects that will:

 

(1) serve a large population;

(2) provide assistance to a diverse urban and rural

population;

(3) provide regionalization; or

(4) meet a high percentage of the water supply needs of

the water users to be served by the project.

 

In addition to these criteria the Board must

must also consider at least the following criteria in

prioritizing projects:

 

(1)        the local contribution to be made to finance the

project, including the up-front capital to be provided by the

applicant;

 

(2)        the financial capacity of the applicant to repay

the financial assistance provided;

 

(3)        the ability of the board and the applicant to

timely leverage state financing with local and federal funding;

 

(4)        whether there is an emergency need for the

project, taking into consideration whether:

 

(A)the applicant is included at the time of the

application on the list maintained by the commission of local

public water systems that have a water supply that will last less

than 180 days without additional rainfall; and

 

(B)federal funding for which the project is

eligible has been used or sought;

 

… whether the applicant is ready to proceed with the project at the time of the application, including whether:

 

(A)        all preliminary planning and design work

associated with the project has been completed;

 

(B)        the applicant has acquired the water rights

associated with the project;

 

(C)        the applicant has secured funding for the

project from other sources; and

 

(D)        the applicant is able to begin implementing

or constructing the project;

 

(5)        the demonstrated or projected effect of the

project on water conservation, including preventing the loss of

water, taking into consideration, if applicable, whether the

applicant has filed a water audit with the board … that demonstrates that the applicant is accountable with regard to reducing water loss and increasing efficiency in the distribution of water; and

 

(6)        the priority given the project by the applicable

regional water planning group….

The Board will also have to consider comments from the SWIFT Advisory Committee created by HB 4.  This committee will be made up of the Comptroller, three senators appointed by the Lt. Governor and three representatives appointed by the Speaker of the House. 

House Bill 4 does not set a date by which the Board must complete the point system for administering the SWIFT, but it is unlikely to happen before September 2014, when the regional prioritizations of the 2012 plans are to be finalized.  By that time, of course, the current round of planning will be well underway and a new session of the legislature will be just around the corner.

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