Amendment No. 6 (S.J.R. 1) – Analysis by Texas Legislative Council

Amendment No. 6 (S.J.R. 1)

Wording of Ballot Proposition

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.

Analysis of Proposed Amendment

S.J.R. 1 proposes to amend the Texas Constitution by creating the State Water Implementation Fund for Texas and the State Water Implementation Revenue Fund for Texas as special funds in the state treasury outside the general revenue fund to be administered, without further appropriation, by the Texas Water Development Board and used for the purpose of implementing the state water plan adopted by the board. The proposed amendment authorizes the transfer or deposit of state revenue into each fund but does not itself make a transfer or deposit of money into either fund.

The proposed amendment permits the legislature to authorize the Texas Water Development Board to enter into bond enhancement agreements payable from the State Water Implementation Fund for Texas to provide additional security for bonds used to finance state water plan projects. Repayment of an amount paid under a bond enhancement agreement may not cause general obligation bonds to be no longer self-supporting. The proposed amendment also permits the legislature to authorize the board to use the State Water Implementation Fund for Texas to finance water projects by direct loan. A bond enhancement or loan agreement is subject to the approval of the Legislative Budget Board.

The proposed amendment also permits the legislature to authorize the Texas Water Development Board, with the approval of the Legislative Budget Board, to issue bonds and enter into related credit agreements that are payable from the State Water Implementation Revenue Fund for Texas.

The proposed amendment requires the Texas Water Development Board to annually set aside from each fund amounts sufficient to make bond or bond enhancement agreement payments that become due from those funds during that year. It prohibits any dedication or appropriation of amounts in a fund from being modified in a way that would impair any outstanding obligation under a bond enhancement agreement secured by a pledge of those amounts unless provisions have been made for a full discharge of the bond or bond enhancement agreement.

The proposed amendment also provides that obligations payable from either fund are not considered general obligations of the state. The proposed amendment provides that money in the funds is dedicated by the Texas Constitution for purposes of the limit on spending from undedicated state tax revenues established under Section 22, Article VIII, of the constitution, and also provides that an appropriation from the economic stabilization fund (also known as the rainy day fund) to the State Water Implementation Fund for Texas is an appropriation of state tax revenues dedicated by the constitution for the purposes of that section.

H.B. 4, Acts of the 83rd Legislature, Regular Session, 2013, is the enabling legislation for S.J.R. 1. The bill addresses in more detail the manner in which the proposed water funds are administered, including the manner in which projects are prioritized for funding and the portion of the money disbursed from the fund that is to be applied for various purposes. In addition, H.B. 1025, Acts of the 83rd Legislature, Regular Session, 2013, appropriates $2 billion out of the economic stabilization fund to the State Water Implementation Fund for Texas to be used by the Texas Water Development Board to finance projects in the state water plan in accordance with H.B. 4. Because S.J.R. 1 provides that an appropriation from the economic stabilization fund to the State Water Implementation Fund for Texas is an appropriation of state tax revenues dedicated by the constitution, the $2 billion appropriation would not to be counted against the biennial state spending cap that is established under Chapter 316, Government Code, to ensure that the rate of growth of certain appropriations does not exceed the rate of growth of the state’s economy, as Section 22, Article VIII, of the constitution prohibits. The relevant provisions of H.B. 4 and H.B. 1025 are contingent on the approval by the voters of the constitutional amendment proposed by S.J.R. 1.

Background

The Texas Water Development Board is required to adopt a state water plan that provides for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions in order that sufficient water will be available at
a reasonable cost to ensure public health, safety, and welfare, further economic development, and protect the agricultural and natural resources of the state. According to the 2012 plan, 8.3 million acre-feet of additional water supply will be needed by 2060. The plan recommends 562 water management strategies and projects that, if implemented, would provide 9 million acre-feet of additional water supply. The cost of implementing the recommended water management strategies and projects is $53 billion. Municipal water providers are expected to need nearly $27 billion in state financial assistance to implement the strategies recommended in the plan. Among the recommendations of the plan is that the legislature develop a long-term, affordable, and sustainable method to provide financial assistance for the implementation of the plan. S.J.R. 1, together with H.B. 4 and H.B. 1025, seeks to accomplish that purpose by creating the State Water Implementation Fund for Texas and the State Water
Implementation Revenue Fund for Texas to provide support for financial assistance provided by the board for projects included in the state water plan and by capitalizing the State Water Implementation Fund for Texas with money appropriated out of the economic stabilization fund.

Summary of Comments

The following paragraphs are based on comments made about the amendment during the legislative process and generally summarize the main arguments supporting or opposing the amendment.

Comments by Supporters

Ensuring an adequate water supply is vital to the public health and continued economic well-being of the state. The current ongoing drought, coupled with the water needs of the state’s
growing population, has raised the specter of critical shortages in the state’s water supply, making it of paramount importance that the state invest in water infrastructure to ensure Texas’ continued prosperity. If the state’s growing water needs are not addressed, the state stands to suffer from the loss of over a million jobs, billions of dollars in lost income, reduced economic activity, and decreased tax revenues in the coming years.

The proposed amendment establishes the State Water Implementation Fund for Texas and the State Water Implementation Revenue Fund for Texas, which are to be capitalized by a one-time appropriation of $2 billion from the economic stabilization fund, for the purpose of financing water projects included in the state water plan. Using money from the economic stabilization fund for water infrastructure is an appropriate use of the fund, which was created as a savings account from which the legislature can appropriate funds as necessary to respond to emergencies such as the current drought, and will provide a better return on investment than if the money were left in the fund. Such a use of money from the fund will neither harm the state’s credit rating nor hinder the state’s ability to respond to an emergency.

Comments by Opponents

The economic stabilization fund should not be used to capitalize the two funds to be created by the proposed amendment. Instead, such funding should come from the general revenue fund. Drawing down funds from the economic stabilization fund to capitalize the two funds may negatively affect the state’s credit rating and leave the state inadequately equipped to respond to future emergencies.

Furthermore, constitutionally dedicating the money used to capitalize the funds is merely an accounting gimmick designed to enable the legislature to avoid the constitutional limit on spending of undedicated state revenue.

These two new funds are unnecessary as there already exist two constitutionally dedicated water development funds as well as several financial assistance programs for water infrastructure administered by the Texas Water Development Board. Through the two new funds, the state would act like an investment bank, and it is not the state’s role to be in the commercial investment banking business. Financing for local water projects should be provided not by the state but by the users benefitting from those projects. Instead of funding new projects and initiatives, the state should ease regulatory burdens that currently hinder the development of an adequate available water supply in the state.

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