DALLAS — In a state where drought has threatened to slow growth, Texas Land Commissioner Jerry Patterson is proposing a desalination project to supply water for development on state-owned land while raising revenue for the state’s Permanent School Fund.

As chairman of the School Land Board, which manages the real estate portfolio of the state’s $26 billion PSF, Patterson is investigating the feasibility of tapping into Texas’ abundant brackish groundwater, desalinating it, and selling it.

Patterson, a Republican, is running for lieutenant governor, a powerful office in Texas legislative matters. The biennial state Legislature could open its 2013 session in January with Patterson in charge of the Senate.

The Permanent School Fund, whose assets include state lands and real estate investments, acts as guarantor on bond issues for local school districts. It carries triple-A ratings from all three major rating agencies.

Patterson’s plan involves a 2,000-acre tract between Austin and San Antonio along heavily traveled Interstate 35. Suburban growth along the 60-mile corridor between the two cities has spurred development.

The site sits atop the Edwards Aquifer, which is restricted for fear the underground water will be consumed, particularly by the city of San Antonio.

The high cost of pipelines and the difficulty of building new reservoirs are also factors that favor alternatives to traditional water sources, Patterson said.

“We don’t need to live one step away from crisis and drought,” he said. “Texas may be short on water, but not innovation. Desal is part of Texas’ water future and we’re going to start right here.”

The General Land Office has contracted with experts to study the hydrology and geology of several Permanent School Fund tracts of land along the I-35 corridor, according to Patterson.

“If the water is there, then I think the School Land Board is ready to invest the time and resources needed to deliver an entirely new and drought-resistant source of water for Central Texas,” he said. “This is a game-changer, a commonsense fix for the Texas water crisis.”

Jim Suydam, spokesman for the State Land Board, said financing of the project could come from bonds, private financing or a combination of public and private funds.

“Or the PSF could just cut a $100 million check, as they did for Wal-Mart’s distribution center in Baytown,” Suydam said.

The 4 million square-foot Baytown Wal-Mart distribution center investment was approved by the School Land Board in August 2004. Wal-Mart was required to pay an annual rent payment of $4.8 million to the Permanent School Fund, with the lease payments increasing by 10.4% every five years. Last year, Wal-Mart exercised its option to buy the facility outright.

“With this deal, the Permanent School Fund earned more than $40 million for Texas schools without raising anyone’s taxes,” Patterson said after the sale. “And while the state of Texas may no longer own this facility, Wal-Mart’s biggest distribution center is still located in Baytown, along with the jobs it provides and the additional taxes it earns the city, county and schools.”

After the high-tech bubble burst in 2001, the PSF board decided to expand its portfolio, with real estate going from 2% to more than 10%. The shift was designed to reduce the fund’s exposure to stock market swings. Then the real estate market collapsed in 2008.

While still experiencing some effects from the recession of 2008, the Texas economy is comparatively robust, with aggressive development of oil and natural gas plays in the Eagle Ford Shale south of San Antonio. That growth has pressured state and local finances, as new infrastructure and water supplies are required in a drought-stricken area.

As the nation’s largest oil and gas-producing state, Texas has been at the heart of the debate about the tradeoffs between water pollution and energy production through the technique known as hydraulic fracturing, or fracking.

Last year, water management districts warned residents and businesses to curtail usage from rivers, lakes and aquifers. The shortage forced oil companies to buy water from farmers, irrigation districts and municipalities farther away from the fracking operations.

The Eagle Ford’s geology requires three to four times more water to fracture shale than the Barnett Shale in North Texas, according to the Texas Water Development Board.

Just one Eagle Ford well requires as much as 13 million gallons of water, which could supply 240 adults for a year, according to estimates.

Conversely, desalinating brackish groundwater requires abundant energy.

Undertaking the costly conversion of brackish underground water for household uses would be a first for the State Land Office, but not for Texas.

Texas has 32 municipal desalination plants that treat about 70 million gallons of brackish groundwater per day. El Paso’s Kay Bailey Hutchison Desalination Plant is the largest, treating 27.5 million gallons a day.

By 2016, the San Antonio Water System expects to produce at least 10 million gallons a day from a desalination facility it is building south of the city. SAWS, which depends on underground water, has taken aggressive efforts to conserve water and find alternative sources.

Under the South Central Texas regional water plan, three desal projects are envisioned. The proposed plants atop the Carrizo-Wilcox Aquifer would be operating by 2060 at a cost of $378 million, providing up to 13.8 billion gallons of water a year.

The Lower Colorado River Authority estimates a cost of $1,120 per acre-foot to secure desalinated groundwater and a similar cost to ship in groundwater. By comparison, squeezing more out of current water resources — through conservation — costs $250 to $450 per acre-foot.

The General Land Office has hired Austin-based Intera, a geosciences and engineering company, and Colorado-based Malcolm Pirnie, the water division of engineering company Arcadis, to study the issue.

“We can’t plan on taking any more fresh water from the Edwards Aquifer,” Patterson said. “It takes 30 years to get a new lake permitted and filled. Pipelines cost a fortune. If we want to keep growing, we need water and I think desal is a common-sense part of that solution.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.