Effective September 1, 2013, the Texas Legislature adopted rules governing the State Water Implementation Fund for Texas (SWIFT) pursuant to House Bill 4 (Ritter). Creation and funding of SWIFT requires constitutional amendment through Proposition 6, which will be submitted to Texas voters on November 5, 2013. If Proposition 6 passes, SWIFT would be managed by the new Texas Water Development Board (TWDB), which I described in an earlier post.
As stated in HB 4, the purpose of SWIFT is to ensure that meaningful and adequate financial assistance is available to provide an adequate water supply for the future of the state. SWIFT is designed as a water infrastructure bank that will offer low-cost capital financing or credit enhancements for the development of water projects that further the State Water Plan. That plan includes approximately 550 projects statewide, but does not identify any financing sources.
Funds for SWIFT are expected to derive from a one-time transfer of $2 billion from the Texas Economic Stabilization Fund, commonly known as the “Rainy Day Fund,” if approved by Texas voters through Proposition 6. The Legislature could appropriate other funds to SWIFT in the future, or could create a tax or fee dedicated for deposit to the fund. HB 4 also created the State Water Implementation Revenue Fund for Texas (SWIRFT), which can hold funds appropriated by the Legislature, transferred from SWIFT or derived from revenue bonds issued by the TWDB. Funds deposited to SWIFT would generally be distributed to other existing financial assistance programs administered by the TWDB.
SWIFT is authorized to provide project sponsors with financial assistance including:
- Low-interest loans;
- Longer repayment terms for loans than might be otherwise available;
- Incremental repurchase terms for projects with state ownership interest; and
- Deferral of loan payments, including deferral of principal and interest.
SWIFT is not authorized to make grants, meaning that project sponsors must contribute local or federal funds in order to quality for state financial assistance. Other limitations are that a project sponsor may not receive financial assistance if it has not submitted a water conservation plan in accordance with Texas Water Code section 11.1271, and a sponsor must agree to comply with federal and state laws concerning contracting with disadvantaged business enterprises and historically underutilized businesses.
Importantly, SWIFT is prohibited from providing any financial assistance to a project that is not listed in the State Water Plan. This bolsters the importance of that document, as it effectively creates a difference in the cost of capital for local citizens based on whether or not a project is in the State Water Plan. Unfortunately, it may disincentivize innovation by the private sector or local governmental officials for projects that are not part of the long-term planning efforts of the State Water Plan. It also means that local governments must obtain political support for their projects from other agencies in their planning region.
HB 4 established two priority systems for projects. First, each regional water planning group must prioritize projects within that region, considering the following criteria:
- The decade in which the project will be needed;
- Feasibility of the project, including availability of water rights and hydrologic and scientific practicability;
- Viability of the project, including if it is a comprehensive solution with a measurable outcome;
- Sustainability of the project, taking full project life into account; and
- Cost-effectiveness of the project, including unit cost of water to be supplied by the project.
In addition, TWDB is required to establish priorities based on:
- Whether a project will have a substantial effect, such as serving a large population, providing assistance to a diverse urban and rural population, providing regionalization, or meeting a high percentage of the water supply needs of water users to be served by the project;
- Local financial contribution to the project;
- Financial capacity of applicant to repay the financial assistance provided;
- Ability to leverage state financing with local and federal financing;
- Whether there is an emergency need for the project;
- Effect on water conservation; and
- Priority given to the project by the regional planning group.
If SWIFT receives voter approval, the TWDB will undertake a rulemaking process to establish specific criteria for project selection, including an opportunity for public comment. During the five-year period between adoption of editions of the State Water Plan, at least 10 percent of monies disbursed from SWIFT are to be used for projects benefitting rural water systems that serve 10,000 or fewer persons, or that involve agricultural water conservation. In addition, at least 20 percent of disbursements are to be used for projects promoting water conservation or reuse.
As stated by representatives of the TWDB in a meeting earlier today in Austin, although Texas faces a number of water supply challenges, the Legislature and the TWDB intend to meet those challenges and remove water as a potential barrier to economic growth in the state. SWIFT is seen as one key component of efforts to implement the State Water Plan and secure the state’s water future.