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Parched Texas Looks Way Ahead

DALLAS — With its population expected to nearly double to 46 million in 50 years, Texas is confronting one factor that could impede that growth: a shortage of water and the money needed to keep it flowing.

Amid one of the worst droughts on record and an anti-tax political environment, Texas voters are considering a $6 billion bond program — Proposition 2 — for water development and another proposal — Proposition 8 — that would offer tax incentives to landowners for protecting water quality.

At the same time, the Texas Water Development Board is completing public hearings this week on a long-term plan that calls for $53 billion of capital spending on water projects. For the muni bond industry, Texas’ thirst for new water could provide a steady stream of debt.

“Of the total reported needs for state financial assistance, nearly $15.7 billion is expected to occur between the years 2010 and 2020, $4.2 billion will occur between 2020 and 2030 and $4.1 billion between 2030 and 2040,” the new plan states. “About $400 million would be for projects in rural and economically distressed areas of the state.”

Since its creation in 1957, the Texas Water Development Board has been authorized $4.23 billion of bonds to finance water-related projects, of which $3.29 billion has been issued, including more than $1 billion in the last three years.

In September, the TWDB issued another $116 million while anticipating that its authorized debt will be exhausted by 2013. That has prompted Proposition 2 on the Nov. 8 ballot, which would change the formula for issuing water debt by establishing a ceiling rather than requiring authorization for annual issues. The bonding formula would be similar to one used by the Texas Veterans Land Board.

Melanie Callahan, the board’s interim executive director, said Prop 2 could result in increased issuance, depending on how many loans are sought by local water utilities. “I think that’s a possibility,” she said. “What we issue will depend on who comes in. We’ve seen cycles. With the economy the way it is, there could be an increased need for loans.”

The TWDB serves as a bond bank for local water districts, allowing them to borrow at a lower rate based on the board’s triple-A rating from Moody’s Investor’s Service and Fitch Ratings. It is rated AA-plus by Standard & Poor’s.

Proposition 2 has raised little controversy, so far. The chief argument against the proposal is that it would allow the TWDB open-ended authority to issue new bonds without periodic approval from voters. However, some Texans question the underlying premise of the 2012 water plan and Prop 2: that the state must fuel growth by increasing water supplies.

“The economists are ultimately propagandists for their own world views, and have established a trend of getting us deeper and deeper in trouble,” West Texas landowner Allie Devereaux wrote in an op-ed for the San Angelo Standard-Times. “What quality of life do we want in Texas? If we are rationing water now, can you imagine what it will be like when the population is allowed, or even encouraged, to double because we fear the economic repercussions of saying we have limits?”

According to the economists that Devereaux disparaged, failure to adopt recommendations for new reservoirs and other projects would cost the state $116 billion in income, $10 billion in state and local taxes, and 1.4 million fewer residents by 2060.

Although a statewide water bond issue has never failed in Texas, conservative lawmakers are sticking by their pledges of “no new taxes,” even when it comes to something as vital as drinking water.

In the 2011 Legislature, a bill from state Rep. Allan Ritter, R-Nederland, to levy $3.25 per person to finance water supplies was quashed by Republican party leaders who supported GOP Gov. Rick Perry’s vow not to raise taxes while cutting state spending dramatically to overcome a $15 billion budget deficit.

The TWDB also had to take a reduction in general revenues, meaning lower subsidies for water utilities that borrow from the agency. In September, the subsidy was halved to 100 basis points from 200. The new rate will provide $100 million in subsidized water infrastructure fund loans over the budget years 2012-13, board staff members said.

Along with tax hikes, another touchy subject in energy-intensive Texas is global warming, which scientists say will affect climate in future generations and is confirmed by recent statistical studies.

The Texas Commission on Environmental Quality, whose board is appointed by Perry, was accused last week of censoring mentions of global warming in a report on potential rising water levels in Galveston Bay.

Sen. Rodney Ellis, D-Houston, and Sen. Leticia Van de Putte, D-San Antonio, cited the original report from Rice University professor John Anderson, saying that scientific facts were deleted.

The commission expressed “shock” at the disclosure, saying that Anderson breached his contract by providing lawmakers a copy of the original report. It also denied censoring the report.

“We are paying for this report and the assertions and statements will be attributable” to the commission,  the TCEQ said. “Why should we include questionable information we don’t agree with?”

Regardless of the cause, Texas officials acknowledge that the past 12 months have been the driest on record, spawning wildfires across the state and a recent dust storm in Lubbock that prompted memories of the Dust Bowl era of the Great Depression.

The drought caused the ground to shift, cracking pipelines and causing leaks in several areas, particularly in Central Texas. Towns like Groesbeck and Llano have nearly exhausted their supplies of water and are seeking help from the TWDB.

Meanwhile, large water utilities such as Dallas’ are planning major projects, such as a water pipeline from an East Texas reservoir to serve the urban population. Building new reservoirs, as proposed in the 2012 Water Plan, will present major challenges from landowners and environmentalists, officials said.

The concerns prompted a special comment from Fitch, though ratings are not likely to be immediately affected.

“This does give us some cause for concern,” said Fitch analyst Doug Scott. “The state is growing and is projected to grow more, and utilities are going to have to issue debt to obtain the supply needed to meet demand for water.”

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