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.

Notable SWIFT Projects

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.

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.

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.

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.