BILL ANALYSIS S.B. 768 By: Montford (Junell) March 31, 1995 Committee Report (Unamended) BACKGROUND The Federal Water Pollution Control Act of 1987 (Clean Water Act) created the State Water Pollution Control Revolving Fund (SRF) to provide financial assistance to political subdivisions at below market rates of interest for the construction of sewage treatment facilities. Since 1987, the SRF has made available over $1.0 billion for loans which will produce aggregate savings for SRF borrowers of over $100 million. The SRF program is a self-supporting program funded from three sources: 1) federal grants; 2) SRF revenue bonds; and 3) state of Texas general obligation bonds. The bonds are repaid from borrowers' loan repayments and investment earnings. Initially, operating costs for the SRF were funded directly from draws on federal grants. Beginning in 1992, a portion of the interest collected on loans from users of the SRF program has provided the resources necessary to fund all SRF operating costs. Current operating expenses are about $4.5 million annually. Current federal law restricts the total amount of operating expenses that may be paid from the SRF to 4.0 percent of total federal grant funds. All authorized grant funds for the Clean Water Act of 1987 have been appropriated and additional authorizations or appropriations are not anticipated. This translates into a cap of about $24 million for the life of the program. Current projections indicate that this cap will be reached during the next biennium. Federal law and EPA regulations allow for recovery of SRF operation costs through the assessment and collection of charges to SRF borrowers, provided those charges are not deposited to the internal SRF program accounts. State law currently does not permit the assessment and collection of charges to SRF borrowers. PURPOSE This bill would provide for cost recovery charges consisting of a one-time loan origination charge combined with an annual loan servicing charge which can be assessed to borrowers on loans made from the SRF or additional SRFs. Charges by the agency are limited to a total deemed necessary to recover the costs of administering and operating the SRF program and servicing SRF loans. RULEMAKING AUTHORITY It is the committee's opinion that this bill does grant additional rulemaking authority to the Texas Water Development Board to allow rules to be established to provide for the collection of an origination charge and annual charges from recipients of SRF financial assistance. Further, rules may be utilized to direct how money in the operating fund shall be invested. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter J, Chapter 15, Texas Water Code by adding Section 15.609: (a) authorizes an origination fee and an annual fee, set by rule, to be collected from recipients of financial assistance from the SRF or additional SRFs; limits fees to amounts necessary to recover costs incurred in administering and operating the SRF or additional SRFs; (b) allows establishment of operating funds to be held outside the state treasury and separate and apart from other revolving funds; fees collected and deposited in an operating fund shall be used to pay costs of administering the revolving fund to which the operating fund relates; (c) allows money to be transferred from an operating fund to its respective revolving fund, but prohibits money from being transferred from a revolving fund to an operating fund; (d) provides that money in the operating fund shall be invested in authorized investments as provided by board order, resolution, or rule; (e) provides the board may agree with SRF bondholders that charges deposited to the operating fund(s) will be used only as provided by this section. SECTION 2. Emergency clause. Effective date: upon passage. SUMMARY OF COMMITTEE ACTION The bill was taken up and considered in a public hearing on April 5, 1995. Craig Pederson, Executive Administrator of the Water Development Board testified on the bill. Monte Akers with Texas Municipal League testified for the bill. The bill was left pending. The bill was taken up and considered again in a public hearing on April 26, 1995. Craig Pederson, Water Development Board, testified on the bill. There were no amendments to the bill. The motion to report the bill favorably to the Committee on Calendars carried favorably by a vote of 20 ayes, 0 nays, 0 PNV and 7 absent.