JBM C.S.H.B. 2448 75(R)BILL ANALYSIS NATURAL RESOURCES C.S.H.B. 2448 By: Hightower 4-9-97 Committee Report (Substituted) BACKGROUND In April of 1995, a non-profit corporation was formed in order to secure bonds to purchase a water system currently in bankruptcy. Subsequently, it was realized that if this entity became a Special Utility District it could qualify for tax-exempt status. This status would recognize a savings in excess of two million dollars over the period of the loan for the customers on this water system. PURPOSE To establish a Special Utility District for the purpose of providing water to customers on the current system, to provide for the improvement and expansion of existing facilities, and to set the guidelines for the operation of the District. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS Section 1.01. States that the Lake Livingston Special Utility District is created in Hardin, Liberty, Polk, San Jacinto, Trinity, Tyler, and Walker counties, subject to approval at a confirmation election under Section 2.04 of this Act. Also, this Section states that the District will be a government agency and a body politic and corporate. Finally, this Section states that the District is created under and is essential to the accomplishment of the purposes of Section 59, Article XVI, Texas Constitution. Section 1.02. Defines terms to be used in the legislation. Section 1.03. (1) Authorizes the district to acquire by purchase, owning, holding, leasing, and other sources of a water supply; the ability to build, operate, and maintain facilities for the transportation of water; and the authority to sell water to municipalities or other political subdivisions of the state, to private business entities or to individuals. (2) States that another purpose of the district is to protect, preserve, and restore the purity and sanitary condition of water within the district. Section 1.04. Sets the boundaries in which the district has jurisdiction. Section 1.05. States the requirement that all meetings of the corporation or district be in accordance with Chapter 551, Government Code, the Open Meetings Act. Section 2.01. States the resolution proposing creation of district. (a) Requires that the board of directors of the corporation adopt a resolution supporting the conversion of the corporation to a special utility district and that all assets of the corporation be conveyed to such special utility district and the corporation be dissolved. (b) Requires an election to be held not later than November 15, 1997, where the board of directors shall submit the resolution to the membership for their vote on the conversion of the corporation to the district. Also, this Section requires that the election be held according to the corporation's bylaws. Section 2.02. Prohibits land in the corporate limits or extraterritorial jurisdiction of a city from being included in a district unless the city grants its written consent by resolution or ordinance to the inclusion of the land in the district. Section 2.03. Provides that the district shall be governed by a board of seven directors. A person must be at least 18 years old and a qualified voter of the district to serve as a director. In addition, two directors must be residents of Polk County, two residents must be residents of San Jacinto County, and one director must be a resident of Trinity County. Provides that temporary directors serve until initial directors are elected. Provides that initial directors serve until permanent directors are elected. Further, the permanent directors serve staggered four-year terms, and each director must qualify to serve as director in the manner provided by Section 49.055 of the Water Code. Section 2.04. Provides that if the resolution to convert to a special utility district is successful, the board of directors of the corporation shall call and conduct a confirmation and directors election as provided by Subchapter D, Chapter 49 of the Water Code. Provides that the board of directors of the corporation shall serve as temporary directors for the confirmation and directors election. Section 2.05. Requires that on the first Saturday in May of the first even-numbered year after the year in which the confirmation election is held, an election shall be held to elect three directors at large to serve two-year terms and four directors at large to serve four-year terms. Thereafter, on the same date in each subsequent even-numbered year, the appropriate number of directors shall be elected to the board. Section 3.01. (a) Grants the district the functions, powers, authority, rights, and duties provided by the general law of this state, including Chapters 49 and 65, Water Code, applicable to special utility districts created under Section 59, Article XVI, Texas Constitution. (b) States that the rights, powers, privileges, authority, functions, and duties of the district are subject to the continuing supervision of the state through the Texas Natural Resource Conservation Commission (TNRCC). Section 3.02. Authorizes a district to purchase, construct, acquire, own, operate, maintain, repair, improve, or extend inside and outside its boundaries any and all facilities necessary to accomplish the purpose of its creation, including any works, improvements, facilities, plants, equipment, and appliances incident, helpful, or necessary to: (1) supply water for both municipal use or domestic use, power and commercial purposes, and other beneficial uses or controls; (2) collect, transport, process, dispose of, store, and control domestic, industrial, or communal wastes whether in fluid, solid, or composite state; (3) irrigate the land in a district; (4) alter land elevation in a district where it is needed. Section 3.03. States that the District may not collect municipal solid waste as defined in Section 361.003, Health & Safety Code or otherwise purchase, acquire, own, operate, maintain, repair, improve, or extend a solid waste collection and disposal system. Section 3.04. (a) Sets out guidelines by which the district may adopt and enforce rules to: (1) ensure that any connections, appurtenances as subsidiary parts of its sanitary sewer system, and adequate plumbing installations, are secure, safe, and sanitary; (2) preserve the purity and the sanitary condition of all water controlled by the district; (3) prevent waste or the unauthorized use of water controlled by the district; (4) regulate privileges on any land or easement owned or controlled by the district; and (5) provide and regulate a safe and adequate freshwater distribution system. (b) States that in adopting rules under this Act, the district is subject to Subchapter B, Chapter 2001, Government Code. Section 3.05. Establishes that after the required publication, any rules adopted by the district under Section 3.04 of this Act, be recognized by the courts as if they were penal ordinances of a municipality. Section 3.06. States requirements regarding publication of rules. Section 3.07. States that a penalty for violation of rule is not effective or enforceable until five days after the last publication of notice. Provides that a published rule takes effect on the fifth day after the date of the last publication. Also, provides that ignorance of the rule is not a defense to a prosecution for the enforcement of the penalty. Section 3.08. Prohibits the district from assessing or collecting taxes of any kind. Section 4.01. Authorizes the district to issue bonds or notes for certain projects. Section 4.02. (a) Authorizes the district to issue its bonds or notes in various series or issues. (b) Prohibits bonds or notes maturing serially or otherwise more than 40 years from their date and requires such to bear interest permitted by the constituting and laws of this state. Gives authority to the board to determine maturity and interest rates of the bonds and notes. (c) States that the bonds, notes, and interest coupons, are investment securities under Chapter 8, Business & Commerce Code. Allows issuance to be registrable as to principal or as to both principal and interest. Allows the board to make the bonds redeemable before maturity, at the option of the district, or may include in the bonds a mandatory redemption provision. (d) Provides that the district bonds or notes may be issued in the form, denominations, and manner and under the terms and conditions prescribed, and must be signed and executed as provided, by the board in the resolution or order authorizing the issuance of such bonds or notes. Section 4.03. States that the board may provide for payment of principal of and interest and redemption price on the bonds or notes by pledging any or all part of the revenues resulting from the ownership or operation of the district's works, improvements, facilities, plants, equipment, or appliances or under specific contracts for the period of time set by the board. Section 4.04. (a) Allows for board discretion to additionally secure the bonds or notes by a deed of trust or mortgage lien on any of the properties within the district and any franchises, easements, water rights, permits, leases, contract, and rights appurtenant to such properties. Vests authority in the trustee power to sell the property for payment of indebtedness, the power to operate the property, and all other authority necessary for the security of the bonds or notes. (b) Sets out that the trust indenture, regardless of the existence of the deed of trust or mortgage lien on any property, may: (1) include provisions prescribed by the board for the security of the bonds or notes and the preservation of the trust estate; (2) make provision for amendment or modification; (3) condition the right to spend the district's monies or sell the district's properties on approval of a registered professional engineer selected as provided in the trust indenture; (4) and make provision for investment of moneys of the district. (c) States that any purchaser under a sale under the deed of trust or mortgage lien, is the absolute owner of the property, facilities, and rights purchased and is entitled to maintain and operate them. Section 4.05. States that, upon order or by resolution of the board, bonds or notes may be issued. Section 4.06. (a) Provides for the flow of funds, the establishment and maintenance of the interest and sinking fund, the reserve fund, and other funds, to be authorized by the board, by order or resolution authorizing such issuance of bonds or notes, including refunding bonds. Allows provisions for the board to enter into additional covenants relating to the bonds, notes, pledged revenues and to the operation and maintenance of those works, facilities, plants, equipment, and appliances the revenues of which are pledged. Provides for the operation or for the leasing of all or any part of the improvements and the use or pledge of money derived from the operation contracts and leases as the board considers appropriate. (b) States that an order or resolution from the board authorizing the issuance of bonds or notes also may prohibit the further issuance of bonds, notes or other obligations payable from the pledged revenue. Provides that the board may reserve the right to issue additional bonds to be secured by a pledge of and payable from the revenue on a parity with or subordinate to the lien and pledge in support of the bonds being issued, subject to any conditions set forth in the order or resolution. (c) Gives authority to the board to include other provisions and covenants not prohibited by the constitution or by this chapter by order or resolution of the board. (d) Provides that the board may adopt and have executed any other proceedings or instruments necessary and convenient in the issuance of bonds or notes. Section 4.07. Provides criteria by which the district may use bond or note proceeds. Sec. 4.08. (a) Requires the board to sell the bonds on the best terms and best possible price, but prohibits the bonds from being sold for less than 95 percent of their face value. (b) Allows the district to exchange bonds for property acquired by purchase or in payment of the contract price of work done or services performed for the use and benefit of the district. Section 4.09. (a) Provides that the district may issue bonds to refund all or any part of its outstanding bonds, notes, or other obligations, including matured but unpaid interest coupons. (b) Requires that any refunding bonds mature serially or otherwise not more than 40 years from their date and requires that the bonds bear interest at any rate or rates permitted by the constitution and laws of this state. (c) Allows for refunding bonds to be paid from the same source as the bonds, notes, or other obligations being refunded or from other additional sources. (d) Requires the attorney general to approve the refunding bonds and requires the comptroller to register the bonds on the surrender and cancellation of the bonds being refunded. (e) Provides authorization for the refunding bonds to be sold and the proceeds deposited. Establishes that the refunding bonds may be issued before the cancellation of the bonds being refunded under certain criteria. Requires the comptroller to register the refunding bonds without the surrender and cancellation of bonds being refunded. (f) Provides for the accomplishment of a refunding in one or several installment deliveries. States that under Chapter 8, Business & Commerce Code, the refunding bonds and their interest coupons are investment securities. (g) Provides that in lieu of the method set forth in this section, a district may refund bonds, notes, or other obligations as provided by the general laws of this state. Section 4.10. (a) Provides that the bonds, notes, and other obligations issued by a district are legal and authorized investments for financial institutions, insurance companies, fiduciaries, and trustees, guardians, and for interest and sinking funds and other public funds of the state and its agencies, including the permanent school funds, and counties, cities, school districts, and other political subdivisions of the state. (b) Provides that the district's bonds, notes, and other obligations are eligible to secure deposits of public funds of the state and its agencies and counties, cities, school district, and other political subdivision of the state. Sets out that the bonds, notes, and other obligations are lawful and sufficient security to the extent of their market value if accompanied by all unmatured interest coupons attached to them. Section 4.11. Provides that in addition to other rights and remedies provided by law, if the district should default in the payment of principal of, interest on, or redemption price on its bonds when due, or if the district fail to make payments into any fund created in the order or resolution authorizing the issuance of such bonds, or defaults in the observation or performance of any other covenants, conditions, or obligations stated in the resolution or order authorizing the issuance of its bonds, the owners of any of the bonds are entitled to a writ of mandamus issued by a court of competent jurisdiction compelling the district and its officials to observe and perform the covenants, the obligations, or conditions prescribed in the order or resolution authorizing the issuance of the district's bonds. Section 4.12. Delineates provisions for cancellation of unsold bonds. Section 5.01. Allows the district to consolidate with any district governed by Chapter 65, Water Code, in accordance with Section 65.723 et seq., Water Code. Section 6.01. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE In the original, the caption describing the bill stated that the legislation provided for "severability and declaring an emergency," and, in the substitute, these statements were deleted and replaced with the statement "granting the authority to issue bonds." Further, throughout the bill, all references to a "city" or "town" have been changed to a "municipality." Section 1.01. The substitute adds the specific names of the counties that will be included in the district and states that a confirmation election will be held under Section 2.04 of the Act. Section 1.02. The substitute deletes the definition of a "city" and a "corporation." Section 2.01(b). The original stated that a resolution must be submitted by September 15, 1997, and, in the substitute, the date has been changed to November 15, 1997. Sections 2.03-2.06 of the original and Sections 2.03-2.05 of the substitute. These sections have been reorganized and renumbered in the substitute. Also, the original did not specify which counties a director must be from; however, the substitute specifies in Section 2.03(a) that two directors must be residents of Polk County, two must be residents of San Jacinto County and one director must be a resident of Trinity County. Further, the original in Section 2.04 specified that one director be elected from each precinct of the three precincts and four directors be elected at large, and, in the substitute in Section 2.05, the bill provides for the election at large of three directors who shall serve two-year terms and four directors who shall each serve four-year terms. Finally, the substitute specifies the date the election of directors will be held each year in Section 2.05; this was not included in the original. Section 2.03(b)-(e) of the substitute. The substitute also includes several new provisions for the election of directors that were not included in the original. (b) The substitute states that temporary directors serve until initial directors are elected under Section 2.04. (c) The substitute states that initial directors serve until permanent directors are elected under Section 2.05. (d) The substitute states that permanent directors serve staggered four-year terms. (e) The substitute states that each director must qualify to serve as director in the manner provided by Section 49.055 of the Water Code. Section 3.01. The substitute adds references to the appropriate Water Code and Constitutional Sections and states that this Act prevails over any provision of general law that is in conflict or inconsistent with this Act. Also, the substitute moves Section 3.01(b)(1)(2)(3) and (4) of the original to Section 3.02(1)(2)(3) and (4) of the substitute. Further, the substitute adds a new Section 3.01(b) that states that the district is subject to continuing review by the TNRCC. Section 3.02 of the original is renumbered as Section 3.03 of the substitute. Section 3.03 of the original is renumbered as Section 3.04 of the substitute, and Section 3.03(b) is added to the substitute. Section 3.03(b) of the substitute states that, in adopting rules under this Act, the district is subject to Subchapter B, Chapter 2001, Government Code, as if the district were a state agency. Sections 3.04, 3.05, and 3.06 of the original are renumbered as Sections 3.05, 3.06, and 3.07, respectively, in the substitute. Section 3.07 of the original is renumbered as Section 3.08 of the substitute. Also, regarding the manner in which this Act establishes a prohibition on assessment or collection of taxes, the original stated that Section 49.107 of the Water Code does not apply to the district, and, in Section 3.08 of the substitute, the bill simply specifically states that the district may not assess or collect a tax of any kind. Section 4.13 of the original is deleted in the substitute. That section appeared to be a clerical drafting error, whereas it was a verbatim duplicate of Section 4.12 of the original (i.e. the language relating to the cancellation of unsold bonds was in the original twice). Section 6.01 of the original (a severability clause) is deleted in the substitute, and Section 6.02 of the original is subsequently renumbered as Section 6.01 in the substitute.