1. 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 PLAN 83 rd Texas Legislature

2. 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 Plan 2

3. Projected Population Growth, Water Demand, and Water Shortages in Texas’ Major Metro Areas by 2030 3

4. 2012 State Water Plan Water for Texas 4

5. 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. 5

6. Projected Texas Population Growth in Texas Counties 6

7. Projected Water Demand and Existing Supplies Demand18,010,59919,038,95419,821,15220,517,88621,190,52721,952,198 Supplies16,983,20516,409,22516,015,97215,611,33015,400,09215,270,535 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. 7

8. Projected Need for Additional Water in 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. 8

9. Recommended Water Management Strategies in 2060 9

10. Recommended Water Management Strategies in Acre-Feet Per Year Municipal Conservation137,847264,885353,620436,632538,997647,361 Irrigation Conservation624,1511,125,4941,351,1751,415,8141,463,8461,505,465 Other Conservation4,6609,24215,97718,46921,37123,432 New Major Reservoir19,672432,291918,391948,3551,230,5731,499,671 Other Surface Water742,4471,510,9971,815,6242,031,5322,700,6903,050,049 Groundwater254,057443,614599,151668,690738,484800,795 Reuse100,592428,263487,795637,089766,402915,589 Groundwater Desalination56,55381,156103,435133,278163,083181,568 Conjunctive use26,50588,00187,496113,035136,351135,846 Aquifer Storage and Recovery 22,18161,743 72,243 80,869 Weather Modification-15,206 Drought Management41,701461 1,912 Brush Control18,862 Seawater Desalination125 1436,04940,021125,514 Surface Water Desalination-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. 10

11. 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. 11

12. 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 5 th, 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. 12

13. Overview: Senate Joint Resolution 1 Constitutional Dedication Inside State Treasury, Outside of the General Revenue Fund Self-Supporting Rainy Day Fund 13

14. 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. 14

15. 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? 15

16. 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. 16

17. House Bill 4: High-Level View of Structure 17 SWIRFT

18. House Bill 4: Solutions Models Management Mandatory Prioritization of Projects 18

19. House Bill 4: EXAMPLE Models 19

20. House Bill 4: Overfunded Reserve Concepts 20

21. House Bill 4: Overfunded Reserve Concepts 21

22. 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” 22

23. 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 23

24. 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 Creek Copyright © 2010 Photographs by Charles Kruvand, from The Living Waters of Texas, Texas A&M University Press 24

25. 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. 25

26. 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. 26

27. 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. 27

28. 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. 28

29. 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. 29

30. 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 30 October 7-8, 2013 Texas Water Law Conference

31. 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, 2013 31 October 7-8, 2013 Texas Water Law Conference

32. 32 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

33. “The constitutional amendment providing for the creation of the State Water Implementation Fund for Texas and the State Water Implementation Revenue Fund for Texas to assist in the financing of priority projects in the state water plan to ensure the availability of adequate water resources.” 33 Most Concepts in HB 4 Contingent On Water Proposition 6 on November 5, 2013

34. 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 Representatives P.O. Box 2910, E2.104 Austin, Texas 78768 Telephone: (512) 463-0802 elizabeth.fazio_hc@house.state.tx.us Membership Chair http://www.associationofwomeninenergy.com/m embership/sign-up/ http://www.associationofwomeninenergy.com/m embership/sign-up/ Personal Twitter: Liz_Fazio Questions?