Breakout 3: Water Supply Troubles and Aging Infrastructure

Drought and aging water infrastructure are among the factors that make it that much harder to accommodate Texas' burgeoning economic development. How are water utilities in Texas looking to meet the water shortage challenge?


Transcription:

Matthew Lee (00:09):

Excellent. Thank you. Welcome to the water panel. Thank you all for stopping by. I think we have a pretty good panel set up for you guys. I want to be clear, it's not the legislative panel, that one will be tomorrow, but we will necessarily be talking about a couple bills that are out there to address water supply needs across the state and aging infrastructure in this legislative session. They've called it the water session, so there's quite a few bills out there that'll be impactful. Texas size investment in water and things like that. So I think we've got some pretty good speakers up here that can address all of that. So I guess before I introduce the panel, just want to on behalf of the panel, say thank you to Bond Buyer for letting us speak. This is certainly an important topic, so thank you to the bond buyer for continuing to put this on every year, especially in the middle of a legislative session.

(01:04):

It certainly benefits the audience. So we'll go ahead and I'll introduce the panel first we got have Kathleen Ligon with the Texas Water Development Board. She's the Assistant Executive Administrator prior to being named to this position last year. Congratulations. Thank you. She worked in the agency's executive office leading large scale agency initiatives and previously to that she served as Senior Policy Analyst in government relations for three legislative sessions and serve as a planner and special assistant to the Deputy Executive Administrator of the Agency's Planning office. Kathleen has prior public service experience with LCRA and TxDOT, and she's a graduate of the University of Texas here in Austin. No, whoops.

Kathleen Ligon (01:53):

Yeah,

 Darrell Nichols (01:53):

Thank goodness,

Kathleen Ligon (01:54):

We the Aggies today.

Matthew Lee (01:55):

There we go. Or his, I guess. Next we have Darrell Nichols. He's the General Manager and CEO of GBRA, where he oversees 32 operating divisions and has directed more than $700 million in capital improvement projects in his last seven years. Darrell has more than 30 years of experience in public utility policy planning and implementation. Prior to joining GBRA, Darrell served as the Assistant Executive Administrator and Director of Regional Planning at the Texas Water Development Board. His previous experience also includes engineering and consulting experience in the private sector as well as employment with the predecessor agency to the TCEQ. Darryl is a Bachelor of Science and Civil Engineering from the University of Texas, Austin.

 Darrell Nichols (02:37):

That's great.

Matthew Lee (02:39):

And then we have Alejandro Olivo Villa assume the position of Deputy Manager, Director of the North American Development Bank or NAD bank. As we all know, on January 1st, 2025. Congratulations. He brings nearly 30 years of experience in both public and private sectors specializing in finance, public policy, sustainable investment in global capital markets. Prior to joining NAD Bank, Mr. Olivo served as a senior advisor to the transition team for the Ministry of Finance in Mexico's new federal government. For the past 14 years, he held various management positions at Moody's and Latin America, Europe and the US. Mr. Olivo holds a bachelor's degree in economics from Mexico's ITAM and a master's degree in Finance and International Relations from John Hopkins University. And my name is Matt Lee with the law firm of Norton Rose Fulbright. I focus exclusively in public finance matters. So we'll start with Kathleen. I'm certain everybody in this room knows who water Development Board is, but just in case, can you briefly explain the role that the Water Development Board serves and what the agency's role is in helping Texas water utilities meet water challenges?

Kathleen Ligon (03:51):

Sure. Thanks Matt. So the Texas Water Development Board was first created in 1957 after the worst drought of record that the state of Texas as a whole has had is created by a constitutional amendment 1957. So we were initially created as a water infrastructure bank. We also do science and have all kinds of data and information science and modelers and engineers that do all kinds of work on that front. And then we also have planning. We administer a water supply planning process and also as of a few years ago, we also administer a flood mitigation planning process. Both of those been really successful. So I think the thing that maybe y'all are most interested in is our function as a bank. We have a $22 billion portfolio now since 1957. Our board has committed almost 40 billion in financial assistance for water wastewater projects. And now we're in the flood realm too.

(04:42):

So we've also done flood the past few years. About half of that 40 billion has been in the last 10 to 12 years. So we've really seen consistent strong demand for our programs that have increased over time. 12 years ago, the SWIFT program State Water Implementation Fund for Texas program was also another constitutional amendment y'all may have voted on in 2013. We've administered that program in the last 10 years. It's been incredibly successful. Our board has committed over $14 billion worth of funding for that program. And just this morning our board approved a prioritization for another 3 billion in commitments that'll go to the board in this summer. So that program's been really, really successful. But I'll point out one little program, one little thing about that program and then I'll let somebody else talk, but so it was a design to implement the 2012 state water plan and the state water plan is a document that's refreshed every five years.

(05:41):

And so a couple of water plants down the road now and our staff are now working on the next 2027 state water plan that's projected to have a price tag of about three times as much as the 2012 state water plan. So it tells you a little bit about demands. And so that cost is going to come out pretty soon. It's going to be probably looking at around $150 billion to implement that state water plan. So just to kind of put things in perspective, so the SWIFT program has been really, really successful, but it was designed to implement a program, something that needs from 10 years ago. So that's one thing to be forward looking, but we're definitely keeping an eye on the legislation and we're really excited about Texas Water Fund. It was created last session and potentially getting new funding for our programs through the Texas Water Fund this session.

Matthew Lee (06:30):

So cool. Thank you. And Darrell, please explain to the audience what GBRA is and explain its role in water supply for the region.

 Darrell Nichols (06:39):

Certainly GBRA, we're at Guadalupe - Blanco River Authority. I'm not sure how familiar y'all are with River Authorities, but we are a political subdivision that was created by the legislature in the 1930s with a lot of powers among the things to develop and preserve and control the water supplies in a particular river basin. Ours is the Guadalupe River and Blanco River. We support communities in our 10 counties statutory area that's located between Austin and San Antonio. So if you're familiar with that, you know that some of the fastest growing areas in the state and in the nation for the last 12 to 15 years, our primary operations are centered around providing wholesale water to municipalities and industries and utility districts and industrial customers within our regional service area, and we provide those services with regional water supply projects that we develop.

Matthew Lee (07:40):

Thank you, Alejandro. For those that may not be familiar with NAD Bank, can you talk a little about how and why NAD bank has played a role in water infrastructure along the border?

Alejandro Olivo Villa (07:50):

Absolutely, and thanks for the panel. NAT Bank is a bilateral development organization created 30 years ago by the governments of Mexico and the US initial capital injection was $3 billion back in the day, 1995 increased to $6 billion in total in 2017. That is under the first Trump administration. We think of ourselves as a niche player. We have a geographical mandate operating alongside the border 2000 mile border between Mexico and the US. 64% of that border is within the great state of Texas. Our mandate is also limited 64 miles up north and 184 miles south of the border. Just to put that mandate, which seems limited in perspective, if you were to draw a line across Europe that would take you between Portugal, the southernmost part of Western Europe all the way to Moscow. It's just to keep that into perspective in terms of what have we done in the state of Texas, we've provided the loans or grants.

(09:03):

We're also an administrator of the EPA for the border infrastructure environmental infrastructure facility. We provided over 1 billion in loans or grants, some of those projects we partner and we've honored to have partnered with the Texas Water Development Fund and we have many other projects alongside the border now we are a bank, we provide loans, we provide grants, but we're also a political agent and a policy instrument. We've heard throughout the conference all the tools in the box and we're one of those tools in the box supporting the governments of Mexico and the US Sometimes the water problems, the water needs, the infrastructure needs are not limited to one city, one side of the border, but they encompass twin cities, sister cities. We have at least 14 pairs of twin cities alongside the border. So you can imagine how the complexity just is compounded, the complexity we'll discuss about the infrastructure. It just compounded when we talk about transboundary issues.

Matthew Lee (10:11):

Thank you. So with that background, this panel is supply demand, water supply troubles, aging infrastructure, how do we deal with the demand and so just some brief statistics, and I don't know if Kathleen's going to talk about the statistics. This is straight out of the 2022 water plan. The next one is due in 27. I think that usually comes out a year before. So looking at around this time or around June of next year. So these statistics may already be a little stale, but as of 2022, Texas populations projected to increase by more than 70% from 29.7 million in 2020 to over 51 million in 2070 Texas existing water supplies, those that can be relied on in the event of a drought are projected to decline by approximately 18% in that same time period. Statewide water demand demand is projected to increase by approximately 9% over this period of time. And the largest demand category currently or historically has been irrigation. That's going to switch to municipal demand over the same time period. So with that in mind, with the background of these entities, Kathleen, what kind of demand have you seen from communities in Texas for your financial assistance programs and is the water development board able to keep up with that demand?

Kathleen Ligon (11:36):

Yeah, thanks Matt. That's a good question. I've got a couple more numbers off throughout there that I think you're kind of interesting that are a little more current. So like he mentioned, we're projected to grow by another 20 million people by 2070. So the current numbers are, the immigration into Texas is about 400,000 people a year, which comes out to about 1300 people a day who are moving here. And we know none of them bring water with them is what we like to say. So we obviously have a lot of growth, most of that growth. So in Texas, state of Texas, most of our population, 90% of our Texas lives in urban areas, in metropolitan statistical areas. And so the past few years, 95% of our growth has been in those areas. And so we see a lot of demand, like I mentioned for the switch program, and that primarily serves urban areas, not completely, I think Darryl can speak more to regional projects that happen that are urban and rural, but we see different challenges for urban and rural.

(12:30):

There's really nobody who doesn't face water challenges in the state of Texas. And so to speak to a little bit about the needs of smaller urban or rural communities, rather, what we see for our programs is that a lot of these counties outside of urban areas, they have either declining population or they have just a static population. And they also tend to have a large portion of their community that are 65 or older. So they're older communities and they just can't afford rate increases in the way that some of the urban communities can sometimes afford better. So we see challenges there and we also see challenges in that they have aging infrastructure and so they just don't have the customer base to pay for that infrastructure a lot of times. And then in urban areas, of course, we just see tremendous growth. I think you all heard the CFO with the city of Houston speak to their needs for infrastructure and those numbers are astounding on the wastewater side, that would take all the money we have and then much, much more.

(13:31):

That would take all of our bonding authority two or three times over to even cover the wastewater needs for Houston. And they are one of our bigger customers. But so in terms of demands for our programs, they just tend to go up and up and up. I think if you'd asked us 10 years ago, 12 years ago, where would we be this time now, I think we would've said, well, we would've made a big impact with the SWIFT program. And we have, we've made a big impact with the SWIFT program, but what we see is that demand just continues to grow. So yeah, just today our board looked at another 3 billion in potential funding commitments for the SWIFT program. Like I said, we got huge demands for the state water plan. Those are for water supply needs during drought specifically. So the state water plan does not cover the needs for aging infrastructure for the most part.

(14:17):

So we see a lot of demand for that. A lot of that type of funding goes through what's called our state revolving fund programs for clean water, the clean water and the drinking water. So that's waiter, water and wastewater. And in the past several years, we've since seen demand just continually creep up for those programs. We're now at the point where we're nine or 10 times over subscribed, so that means for every nine or 10 people in here, only one of you would get the funding and the new numbers that we're looking at that still just came in for the next round of the SRF programs are looking at 10 times oversubscribed. So we keep kind of uptick and with the Texas Water Fund, which we can speak to a little bit more maybe, but it's a really great tool that we have now. We just don't have a lot of money, so we have a lot of folks that come to us and say, we've got these needs for funding.

(15:12):

It's like, well, we have all the tools we need now or most of the tools we need, but we just don't have the money to do a lot of those things. And so in the initial tranche of money that we got last session, which was a billion dollars, that's all been fully allocated and a lot of that the legislature directed us to put it towards leaky pipes or water loss projects for rural communities and also smaller municipalities of 150,000 population or less. So a lot of that funding has been set aside for that. And that was actually a really great thing because oftentimes those projects, they Swift is a subsidized loan program, which means there aren't grants and there's a limit to the subsidy we can give out. So a lot of communities just can't afford to use the SWIFT program and other programs funded through the Texas Water Fund.

(15:56):

We've been able to give out larger percentages of grants and more greater subsidized loans, which has been a great thing. And so we have a lot of tools we can use there. And also the state revolving fund programs that I mentioned, or they're the projects that come in that we can't fund all of them. They're prioritized by primarily regulatory compliance. So if you're a community that's in compliance, you're not going to drink well. So if you have aging infrastructure and you don't have any regulatory issues, you're not going to rank well and you're just not going to be able to afford the project maybe. So having the new funding will be really a great thing if that passes the legislature this session.

Matthew Lee (16:38):

Okay. Darrell, water supply planning in Texas evolved or has evolved over the decades. What has changed and what does the future hold?

 Darrell Nichols (16:46):

Well, the approach taken by previous generations was for each community really to develop a water supply project just for themselves to meet their needs. Well, with the growth that has happened over the last 15, 20 years, a lot of these local supplies are not able to keep up just with the development that's coming. So as growth has occurred, there's a need to collaborate with other entities and to develop larger regional projects and to diversify their water portfolios. These projects are more complex and cost more to develop water from where it is to move it to where it is needed.

(17:24):

The cheapest projects now really you're seeing more of a focus put on conservation. You're seeing a focus put on trying to reduce water loss and potentially aging infrastructure. The cost of participating in these larger regional projects has definitely moved the needle where these communities are starting to show the demand and come to the water development board and look for funding to replace some of the aging infrastructure because that's still going to be cheaper than some of these large projects. However, those growth numbers that Kathleen talked about, it seems like all of 'em are moving into our basin as it has not slowed down one bit, but that water conservation and water replacing some of the aging infrastructure really isn't an option to meet the growth needs. You're going to have to participate in these water supply projects and with this new development, it's new infrastructure so you don't have quite the same issues with aging infrastructure.

Matthew Lee (18:19):

Do you mind if I stick with you for the next one?

 Darrell Nichols (18:20):

Sure.

Matthew Lee (18:20):

You mentioned your region, especially a region is subject to drought. How are water utilities and communities ensuring that there is ample water supply to meet those challenges and growth?

 Darrell Nichols (18:33):

So it is a challenge. Part of it is diversifying your water supplies. As you participate in these regional projects, you've got projects that are relying on groundwater on surface water, not just locally. So if you've got a drought or things that are happening locally, you can accommodate that with this portfolio that you have. It provides that resiliency is a big factor for it. We work with the communities in our basin. We're actively working with them now to develop these regional water supply projects to stay ahead of that growth curve to be able to withstand the drought. We're in a significant drought in our basin right now, some of which is more significant than the drought of the fifties, at least on a five-year schedule. The communities are still keeping up with growth. Growth has not stopped and they are actively participating. But these projects take longer to develop and I'll talk a little bit about that in a bit, the project that we've got going on.

Matthew Lee (19:25):

Okay. Alejandro do NAD Banks work exclusively along the US Mexico border. Can you please provide the bank's perspective in how water utilities in Texas are looking to meet the water shortage challenges?

Alejandro Olivo Villa (19:38):

Sure. It's fascinating when you look at the border because the diversity of the players there. On the Texas side, you have very sophisticated and large utilities in El Paso, Brownsville, Macallan, Laredo, but then the core of the border, it's smaller cities, less than 2,500 in terms of population and the point of how do you come up with a complex plan? Some of these are growing fast. Some of these have first or have the need of first time ever infrastructure on water treatment and the like. And we're the Bond Buyer conference. Think of it as a spectrum. When the project is ready, when you have a well-known utility rate of utility, et cetera, they can go to the market and as you were saying, it's a long-winded project nonetheless. Now think of the smaller ones that they haven't had access to the market, they're not rated, they don't have access to the financial markets and they don't know how to start and how to plan to cover their infrastructure needs. And that's where I think our role, again, even if we're a niche player, is important as an agent of the EPA partnering with the Texas Water Development Board and others just building those blocks at the very initial stage, it will take time, but then building from there.

Matthew Lee (21:13):

And Darrell handed at discussing some large projects, but before I go to him, I guess Kathleen, any big projects that you're excited about or success stories from the water of OMA board in financing new water supply projects?

Kathleen Ligon (21:26):

I guess it is exciting to hear about big projects, but really to say my heart is kind of with the projects we've gotten to fund with the Texas Water Fund because a lot of those projects we just weren't able to get to before, so that's been a really exciting thing to see a lot of communities that we've never even done business with before. And we also even set aside a pot of money for high risk projects distracted in the statute, and those are communities that they have difficulty, they can't access the market at all, they can't afford loans, and so we've been able to reach those and that's been pretty exciting. One of the things too, if we do get more money for the Texas Water Fund, one of the things that we may be able to do is fund some of the larger wastewater projects, which is something that we is not eligible for the SWIFT program and know we can't fund the $15 billion for City of Houston's wastewater needs, but we can do a lot more on the wastewater front potentially. And so that's pretty exciting.

Matthew Lee (22:28):

I know we did this panel last year at the Bond Buyer Conference and a former board member, George Peyton mentioned, I didn't know this, but at the time, so it's probably more now, but Water Development Board, I guess is financed 52 separate desal projects across the state of Texas, brackish and others, and I found that pretty interesting. I didn't know there were so many out there. So new interesting water supply projects that are out there that we're working on one right now with seawater desal plant through the Water Development Board Swift program, so that's pretty exciting. But Corpus Corpus Christi, yeah. What projects are you excited about?

 Darrell Nichols (23:06):

Well, I mean I talked earlier about these large regional projects, they're more complex. They cost more to develop, but the other piece of that is it takes more than a decade to develop these projects. And so what we're seeing is when you're limited to 30 year financing and these projects are six, seven years of construction, three to four years of design land acquisition, another four or five years of planning in your limited 30 year financing, almost a third of that cost of that project is born by local rate payers for water supply for growth, and you will not have water to sell to that growth for 10 plus years. That premise impedes local investment in infrastructure. I grew up in Austin the seventies, we voted to say, if you don't build it, they won't come for transportation. That worked out perfectly. So it really is a challenge for entities.

(24:05):

And so placing that burden on existing rate payers makes it difficult for communities to plan for the growth because you're not developing projects locally anymore, you're having to participate in regional projects. You have to take down the water supply you're going to need for the next 20 to 40 years in a single project to be prepared for that. We're working with communities in our basin to develop a project called Water Secure. It's a basin wide project all the way from the other side of 35, east of 35 all the way down to the coast. It's utilizing our existing surface water rights, developing brackish groundwater and aquifer storage and recovery. It's about a hundred thousand acre feet annually. To give you some perspective, if you're familiar with Texas, our main water supply in our basin is Canyon Lake. This is more water supply than Canyon Lake on an annual basis.

(24:54):

That project we will not, we've been working on engineering for about two years. We will not have that online and developed until 2034 is when water will be delivered. That is almost a $7 billion project. And I've got one city that has over a hundred thousand population in my basin. This is a conversion of rural to urban. I've got entities that want to participate, but when that 30 year financing presents a real challenge, these projects aren't the projects that were developed 30, 40 years ago. These projects have a useful service life of 75 to 125 years. And so what we're looking for, what we need is additional financial tools that allow for you to grow into these rates that provide financing that gets closer to what the life of these assets are and not 30 years. And so that's one of the things that we're looking at to be able to do that and that we've actually got some legislation that's out there to do that.

(25:54):

By having some financing that goes a little bit further, we can shift more of that cost from the locals, from the local current rate payers to the growth as it's coming and we can have more time for these rates to be able for them to grow into those rates. Now all of y'all know extended financing terms do not equate to lower project costs, but what it does equate to is lower annual debt service, which is absolutely needed, and it allows them to grow into those rates as well as the growth comes. That is the only way for some of these projects, these large regional projects for those local cities and local districts to be able to participate. But that 10 to 15% savings by these extended financing terms will make a difference. So when they hear about this Texas size investment in water, the reason is the Water development Board has been very successful in the first 10 years of the SWIFT program and a lot of the water supply projects, which were big projects then have been undertaking, have been developed or in development stage.

(26:56):

The next set of projects are even bigger and more expensive and take even longer to develop. And that's why this investment's going to be coming from the state. Some perspective on size of our project, almost 7 billion in the first 10 years of the Water Development Board's SWIFT program, which is to fund water, state water plan projects to entities across the state of Texas. Our project will represent more than half of what they put out in 10 years across the state. And we're not the only project like that in tech. There is several of these that are coming.

Matthew Lee (27:29):

I think it was the former chairwoman pop at the TML conference said the easy water's gone or the easy source of water's gone. So is this the new norm, these massive large scale projects?

 Darrell Nichols (27:39):

It is. This is the new norm rate structures are going to have to change. There is going to have to be a larger investment. We're not going to be able to go to the water dump board for all of our funding. We know that and other entities know that too. So there is going to be a need to utilize go into the open market, and that's why we're looking for some additional statute authority to be able to go up to 50 years. But it's a real challenge for these local communities to try to absorb and participate in these larger projects when you're limited to 30 years.

Kathleen Ligon (28:16):

I just want to say a couple words about rates too while we're on that topic. So one of the things that we like to always point out to people is I've got four people in my house that all have cell phones and we spend a lot more on our cell phones and water and probably everybody else this room does here too. And so we wish we lived in a world where people would pay more for water, but that's just not necessarily the case. But there are a lot of times we see applicants come in and they're looking at a hundred dollars rate increases and small communities with older folks living in them that are on fixed incomes. And so a hundred bucks, that's something you notice and a water bill. And so some of the rate increases are just really not doable. They're pretty difficult. In fact, our current chairwoman l Stephanie, she lives in Pflugerville and they had a $100 rate increase I think on the wastewater side, and she was not happy with it. So we noticed that kind of money and rates. And so to Darryl's point, it's pretty difficult to ask people to not only pay for a substantial rate increase for themselves, but also for people that don't even live in their communities yet.

Matthew Lee (29:22):

I think a good segue into legislations, we've identified the issues, the demand, what's next, what legislation's out there. And I know Darrell, you've already kind of touched on probably the biggest bill you're excited about, but I guess I'll start with Kathleen. What legislation are you pretty focused on at the moment?

Kathleen Ligon (29:43):

Well, we're pretty focused on the money for the water fund. Obviously mentioned that a number of times our board had made a recommendation to the legislature this session for more essentially like a revenue stream for water, which we've never had. That would be really exciting thing to have. So I think currently there's two and a half billion dollars in the supplemental budget for the Texas Water Fund, and that's looking pretty good right now. So that'd be a one-time appropriation and we would get it in the summer, which would be great. Sooner is always better than later. And then both on the house and the Senate, there's a revenue stream bill. I think both are about a billion dollars a year for a certain number of times kicks in after a couple of years. So really we will take whatever we get my boss likes to say because we get asked all the time, well, how much do you need? It's really hard to say how much we need. We know how much we need for state water plan projects, but on the wastewater side, we don't know how much we need really. EPA doesn't need survey, but it's not super accurate. And then as far as aging infrastructure that's outside the state water plan, we don't really know. So his answer to how much do you need is, well, how much have you got? We'll take it. So we're pretty excited about that.

Matthew Lee (30:58):

Darrell,

 Darrell Nichols (30:59):

So I can tell you that no matter what amount that they get, even if it's the two and a half billion in the billion a year, it will still not be enough. We will utilize as much of that as I possibly can. We have utilized those programs. I'm very familiar with them and they're great programs because it saves rate payers money. However, all those funds don't mean a thing if the local entities are not going to step up and borrow the money to develop that infrastructure. So we've worked with some folks and there is some developed bill, it's a developed a bill, it's Senate Bill 1261 and House Bill 2815. This provides an opportunity for entities like river authorities and municipalities and political subdivisions that have water plan projects that are at least $750 million in the state water plan, the clear ability to go open market for 50 year financing and to access the SWIFT program at the board to extend that from 30 years to 40 years for those type projects. There's only about 15 of those projects currently in the water plan right now that the 22 plan, the next water plan, I expect there to be more than double that in there. And these are the large regional projects. So it's not just a single entity. These are projects that benefit multiple entities. Those bills have both made it through committee for us, it's absolutely critical. We've got communities that want to participate, but this is the only way that they're able to participate in some of these large regional projects.

Matthew Lee (32:29):

Alejandro, what legislation are you maybe interested in or hoping to see that may benefit some of your clients?

Alejandro Olivo Villa (32:35):

Well, I think clearly more resources are always welcome. So that's an obvious one. Then anything that facilitates the partnership with the agencies, with the Texas Water Development Board, the authorities, and just again, allowing us or using us as a resource to focus on the niche that we serve is most welcome.

Matthew Lee (32:56):

Okay. Yeah, I think for all the bankers in the room, I know this is a banker heavy conference. We kind of chatted about this beforehand just making it relevant to a lot of the underwriters and bankers out there. The projects seem to be getting more and more expensive water of boards getting more money, but they are doing the best they can with that money. But it sounds like there's opportunities out there for the local jurisdictions to do their own financing to cover some of these projects. And so at a very high level, once again, this legislative session seems to be focusing on limiting the tools that local governments have to finance their growth and projects. So you've seen several bills out there on certificates of obligation and others, a lot of small issuers, especially if they placed debt with the war development board, it's going to be, or for most cities, more than half of them evidence that loan with certificate of obligation.

(33:55):

And so there are several bills out there that, I mean, HB 19 alone, I think it would apply. Some financial advisors have done some analysis. It would apply to like 90% of the cities out there that have issued debt. They wouldn't be able to. And so how can these local jurisdictions, cities especially, how can they finance when they typically finance their utility system projects with certificates of obligation? How can they do that with some of the legislation that's out there now, most of the CEOs that are issued with the utility system, because they don't have a separate utility system credit that they issue from, they like the lower cost of borrowing the better credit from their geo credit versus the utility system revenues. And so it's a lower cost of borrowing, so you take that away. It will cost more for these cities to finance their infrastructure projects.

(34:49):

So assuming these bills go forward, it'll be really interesting to see how cities are able to adjust. Do they vote that, do they issue on the revenue side, which would cause more, it'd be really interesting to see how they adapt if these bills go forward. So certainly be talking to this industry. That's why we're here. The bomb buyers held typically in April every year. And so it falls in the middle of a legislative session when bills start gaining traction in the legislature. So here we are as a collective group chatting about how to solve some of these problems. So definitely ask around, talk to everybody, try to figure out how we can address some of these bills that are out there so that we're not limiting the tools that these local jurisdictions have to finance their utility system projects, water supplies, infrastructure, et cetera. I'm trying to think of any other legislation that's out there. I mean there's so much on just the cos mentioned House Bill 19 14 53. Same thing with the cos. I don't know if Mike Bartolo is in the room, but he stood up and testified at that one and kind of corrected the record on that one. So appreciate those that are putting in a lot of work at the legislature. Any other bills or anything else that we may have missed that we want to make sure that this room has information on?

 Darrell Nichols (36:18):

Just keep your eyes on the funding. I mean, some of the other sessions have talked about demand for entities and money and how things are impacting that. Right now in the economy, Texas has a need for infrastructure investment and there is absolutely a need for that and it's going to be greater than what the Water Development Board can handle, and both on quantity wise and speed wise on sometimes. So some of these projects need to move very fast. So looking at understanding what this type of investment is and understanding the needs of the borrowers of what it takes for them to make this investment is definitely critical for us.

Kathleen Ligon (37:03):

I want to say a couple of words about the economically distressed areas program. There's not a related, well, there are some related bills, but that were not recommended by our board necessarily. But our board did recommend a study on the economically distressed areas program or if you'all familiar with that. It's supported by general obligation debt and we get debt service coverage to pay for that each session. We have a certain amount of bonds we can issue, and luckily through the Texas Water Fund, we can meet a lot of those needs that we had traditionally used that program for with one exception. And I believe that is we can't fund connections, which is the one thing that we can fund in the EAP program that we can't fund in any other program. And so we don't really know what the needs are there. We know that there's needs for first time service and for the ability for homes to connect.

(38:03):

We just don't know what the university of that need is. And so our board requested funding for the legislature to do a study on the needs for that program and what the challenges are for that program. It's been a really cumbersome program to administer. We do bond sales and we often have communities that drop out. It has a lot of restrictions. They have to have model subdivision rules in place. It was initially a border program, but it was expanded statewide a number of years ago. So that's just one thing that I think, I can't remember which if it's the center of the house has included it, so that's looking a little iffy. But that would be a really great thing for the legislature to fund for us to figure out what those needs are.

Matthew Lee (38:46):

We still have four minutes, so anyone that has questions, we can go ahead and start asking questions. But I'm going to put Darrell on the spot real quick. You mentioned the long lead time on some of these, the new norm, the bigger projects. So I assume the larger projects take additional environmental permits and applications and all that. So that's added time. So where are we seeing that or how do we anticipate that being factored into the longer term of the bonds and getting the projects online?

 Darrell Nichols (39:16):

So that does play a factor into it. I mean, you can build in the timelines. Permitting is not insurmountable. If you're building an on channel reservoir, it may be insurmountable, but all the other projects, which a lot of these projects are conveyance projects where you're moving water from one place to another. So it's not super complicated. It's just a significant amount of infrastructure. So the permitting plays a role into that. There's some hopes and expectations over the next few years that if you've got one of these large projects to try to get your permitting done a little bit quicker. But we're seeing the construction timeline now for the projects exceeding what the permitting is, where permitting used to take two to three years to complete, and the construction was a two to three year, maybe four year window. Now we're seeing construction six to seven, eight years for construction for the size of these projects. For that construction is also competing against construction of industry that's out there too. That's building their facilities. So all that drives up the cost too. But you can build it fast or you can build it cheaper. You can't do it both in some cases, so you have to make some decisions.

Matthew Lee (40:21):

Right. Any questions out there? We have two minutes left. Awesome. Well, we'll give you guys two minutes back to get to the next break. Thank you.