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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

Funding Water Infrastructure

By Spencer Grubbs and Shannon Halbrook Published April 2019

HOW TEXAS PAYS FOR WATER

Water infrastructure — dams, pipelines, reservoirs, desalination plants and more — can be tremendously expensive, and usually requires financing through some form of long-term borrowing.

The Texas Water Development Board (TWDB) offers a wide array of low-cost financing options for new infrastructure, or water management strategy projects (WMSPs), to help local and regional entities with all phases of their implementation, from planning and design to construction. Since 1957, TWDB has provided $27.6 billion in financial assistance for water projects.

In the wake of the devastating drought of 2011, the Texas Legislature sought additional tools for funding water projects. In 2013, Texas voters approved a constitutional amendment creating the State Water Implementation Fund for Texas (SWIFT) and the State Water Implementation Revenue Fund for Texas (SWIRFT) to finance projects approved by one or more of the state’s 16 regional water planning groups and included in the State Water Plan (SWP). At inception, the Legislature’s goal for the funds was to provide about $27 billion in loans for SWP projects over 50 years.

SWIFT and SWIRFT

SWIFT offers financing support for low-interest loans provided by TWDB, with options such as extended repayment terms, repayment deferrals and incremental repurchase terms for projects with elements of state ownership. These loan structures are intended to provide an incentive to encourage water project sponsors (such as cities, counties and river authorities) to enter the state water planning process and address growing water needs.

SWIFT was initially funded with $2 billion from the state’s Economic Stabilization Fund. Its investments are managed by the Texas Treasury Safekeeping Trust Company, an entity of the Texas Comptroller of Public Accounts. As of Jan. 31, 2019, SWIFT had a balance of nearly $1.7 billion.

The SWIRFT, in turn, sells revenue bonds to generate the proceeds TWDB uses to provide SWIFT-subsidized loans to income-earning water projects. Revenue from projects supported by these loans is used to repay the bonds’ interest and principal.

TWDB uses a scoring system to prioritize eligible WMSPs (those approved under an SWP water management strategy) for financial assistance. Under the system’s criteria, the highest scores generally are given to projects that serve a large population, assist both urban and rural Texans and meet a high percentage of water users’ needs. TWDB prioritizes potential projects annually, most recently in 2018.

“While interested communities still need to apply for and meet all requirements of the SWIFT program, the low [loan] interest rates have served as an important incentive for communities across Texas,” says TWDB Member Brooke Paup.

SWIFT Projects Past and Present

TWDB began offering SWIFT-subsidized loans in 2015, when 30 WMSPs received about $3.9 billion. The latest round in 2018 provided six projects with about $2 billion. In all, the program has provided nearly $8.2 billion in financial assistance to 54 projects from 38 different sponsors around the state (Exhibit 1). TWDB estimates that these sponsors will save almost $845 million in debt service over the life of their current obligations, compared to financing available in the open market.

EXHIBIT 1: SWIFT FUNDING COMMITMENTS, 2015-2018

Year Funded Projects* Funding Commitments
2015 30 $3,899,485,000
2016 11 759,255,000
2017 7 1,552,775,000
2018 6 1,955,800,000
Total 54 $8,167,315,000

* Note: Projects are counted only once even if they have received multiple funding commitments.
Source: Texas Water Development Board

Notable SWIFT Projects

Construction on a water pipeline connecting East Texas water supplies with the DFW area
Photo courtesy of the Texas Water Development Board

2015: The largest project receiving SWIFT-subsidized loans in 2015 was the Northeast Water Purification Plant expansion in Humble near Houston. Its purpose was to increase surface water supplies through additional treatment of water from the Luce Bayou Interbasin Transfer. The overall project included five individual WMSPs in the state’s Region H water planning area, each with its own sponsor. In all, the sponsors received nearly $1.3 billion in TWDB loans for planning, design and construction.

In 2018, this project received an additional $528.9 million and is now in the construction phase, with completion expected in January 2025. The plant expansion is projected to provide an additional 358,000 acre-feet in water supplies when fully implemented.

SWIFT-funded improvements to an agricultural irrigation system in Hidalgo County
Photo courtesy of the Texas Water Development Board

2016: The city of Austin received more than $80 million in SWIFT-subsidized loans for the planning, design and construction of an advanced water-meter infrastructure to reduce water losses due to old metering technology. The project is expected to provide 6,105 acre-feet in additional water supplies when completed in September 2023.

2017: TWDB loaned the Brushy Creek Regional Utility Authority in Cedar Park nearly $17 million for the planning, design, acquisition and construction of a regional facility to ensure sufficient water supplies for the cities of Cedar Park, Leander and Round Rock. In 2018, the project received an additional $15.7 million from TWDB and is now in pre-construction, with completion expected in June 2021. The project should provide about 14,500 acre-feet in additional water supplies.

2018: The city of McAllen received $6.9 million in SWIFT-subsidized loans to purchase water rights for municipal and industrial use. The project should be completed in September 2019 and will provide 3,000 acre-feet of water.

SWIFT ASSISTANCE

The program provides three broad categories of financial assistance:

  1. Low-interest loans: loans for WMSPs receive subsidized interest rates, with loan maturities ranging between 20 and 30 years.
  2. Deferred obligations: repayment of loan principal and interest can be deferred for eight years or until construction is completed.
  3. Board participation: TWDB assumes an ownership interest in the “excess” capacity of a project being built to accommodate greater future demand; the state’s share may be incrementally repurchased by the project sponsor. Financing terms vary but are generally for 34 years.

Other Financial Assistance Programs

TWDB also manages several other financial assistance programs, both state and federal, for water projects that may or may not be included in the SWP (Exhibit 2). The revolving funds are supported with revenue bonds while the remainder are funded by general obligation bonds.

REVENUE BONDS VS. GENERAL OBLIGATION BONDS

Revenue bonds are tied to specific projects intended to generate revenue to repay the bondholders. General obligation bonds are not necessarily tied to specific projects and are backed by the “full faith and credit” of the issuing government, with bondholders typically repaid through tax revenue.

The programs include the federal Clean Water State Revolving Fund and Drinking Water State Revolving Fund, which offer below-market loans to public or private entities, as well as principal forgiveness — that is, a waiver of some or all of the outstanding principal balance on a loan — for eligible disadvantaged communities or “green” projects. The former supports wastewater collection and treatment, while the latter provides loans for water treatment, infrastructure and source-water preparation and protection.

The Economically Distressed Areas Program offers financial assistance for areas of low median income where water and sewer connections do not exist or do not meet state standards. The program helps with planning, land acquisition, design and construction on new or improved supply, collection or treatment facilities.

EXHIBIT 2: TWDB-ADMINISTERED FINANCIAL ASSISTANCE—
TOTAL FUNDING AND PROJECT COMMITMENTS SINCE INCEPTION

Source: Texas Water Development Board and U.S. Environmental Protection Agency

The Texas Water Development Fund offers support to state political subdivisions and nonprofit water-supply corporations for water supply, wastewater and flood control projects.

The State Participation Program is open to any state political subdivision that can sponsor construction of a new water supply, wastewater or flood control project. In this program, the state assumes temporary ownership interest in a project to allow the local authority to build at a scale that will accommodate future needs. The local authority must fund the percentage required by current needs, while the state may assume up to 80 percent of the cost of new supply projects and up to 50 percent for other projects.

Agricultural Water Conservation Grants and Loans are offered to government agencies or political subdivisions that support agricultural irrigation conservation programs, projects and strategies.

View of the Northeast Water Purification Plant expansion project in Humble
Photo courtesy of the Texas Water Development Board

The Rural Water Assistance Fund helps small rural utilities and counties without an urban area of more than 50,000 residents. It offers assistance for well and pumping projects, desalination, storage, water treatment and quality enhancement.

Other TWDB assistance includes grants for flood protection planning, early warning systems and flood response strategies; loans to fund the creation and startup of new groundwater conservation districts; and grants to help regional water planning authorities develop their plans.

SWIFT, however, has brought an unprecedented amount of support in a very short time. As Exhibit 2 indicates, only the Clean Water State Revolving Fund has provided more support for water projects in Texas, and that program has been in place for more than 30 years.

“The SWIFT program has been a tremendous success,” Paup says. “This funding is benefiting communities and projects of all sizes. Perhaps most important of all, projects supported by SWIFT will create approximately 1.5 million acre-feet of new water supply in Texas when they are completed.” FN

Visit the Texas Water Development Board for more information on SWIFT.

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