JBM H.B. 2851 75(R)BILL ANALYSIS


NATURAL RESOURCES
H.B. 2851
By: Williams
3-26-97
Committee Report (Amended)



BACKGROUND 

A special utility district ("SUD") is a type of conservation and
reclamation district, or water district, that may be created as a
political subdivision of the state pursuant to Article XVI, Section 59 of
the Texas Constitution.  Chapter 65 of the Water Code governs the creation
and operation of SUD's and provides that the Texas Natural Resource
Conservation Commission (TNRCC) may convert into SUD's certain water
supply corporations that were in operation before January 1, 1985. 

A water supply corporation is a special type of nonprofit corporation that
may be created under Article 143a, Vernon's Texas Civil Statutes, to
provide water and wastewater services to its members/customers.  A water
supply corporation does not have outside shareholders who seek to earn a
profit from providing water and sewer services.  Under existing state law,
a water supply corporation is exempt from sales and property taxes; but,
under federal tax law, because it is not a local government entity,
interest on its debt is not exempt from income tax.   

In 1994-1995, Coe Utilities, a private for-profit water and sewer company,
undertook an effort to sell its utility assets to its approximately 3,000
customers in far northwest Harris County and Montgomery County.  Coe
served thirty-five noncontiguous separate areas covering seventy
subdivisions in the general area of Tomball, Texas. 

The HMW Water Supply Corporation ("HMW") was created by Coe's customers to
acquire Coe's assets.  With consent from the TNRCC, the acquisition was
accomplished in fall 1996, with the HMW using proceeds of an interim bank
loan to fund the purchase.  To provide permanent financing of the
acquisition in mid-1996,  the HMW secured a funding commitment from the
Texas Water Development Board, which agreed to make either taxable or
tax-exempt funds available.  Tax-exempt funds bear a significantly lower
interest rate, which will save HMW's customers about $100,000 per year for
20 years. 

Because the HMW may not borrow at tax-exempt interest rates, only at
higher taxable rates, it needs to be converted to some type of water
district or political subdivision which qualifies as a local governmental
entity that may borrow at tax-exempt interest rates.  Due to the broad HMW
service area, conversion into a SUD is the most expedient and
cost-effective approach to becoming a political subdivision.  Chapter 65
expressly provides for such conversion by water supply corporations,
subject to TNRCC approval, but it only applies to older corporations that
were in operation before 1985.   

Alternatively, the HMW must undertake a potentially lengthy, expensive and
more complicated process of seeking to create another type of water
district to acquire and finance the HMW utility assets on a permanent
basis.  It is not clear that the laws applicable to other water districts
would permit the HMW to become another type of district.  Even if existing
statutes were adequate for the HMW's purposes, its utility assets are
included within the extraterritorial jurisdictions of at least four
municipalities, whose requirements for consent to the creation of a new
water district would almost certainly be different and probably
inconsistent. 

PURPOSE

To allow the HMW Water Supply Corporation to be eligible for conversion
into a SUD, subject  to the approval of the TNRCC.  The bill does not
impact any annexation or extraterritorial jurisdiction issues, because,
under existing law, SUD's may be annexed in part, as opposed to most other
water districts that must be annexed in whole.  See Section 43.071(e),
Water Code. 

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.  Amends Section 65.001(10), Water Code, to redefine water
supply corporations that are eligible to be converted into special utility
districts to include a water supply corporation that, regardless of the
date that it began providing service, provides services to noncontiguous
subdivisions in more than one county, one of which counties has a
population of more than two million.  

SECTION 2.  Provides that the acts, obligations, proceedings, and
exercises of power of and by water supply corporations are validated and
confirmed. 

SECTION 3.  Stipulates that Section 2 of this Act does not apply to an
act, proceeding, corporation, obligation, or exercise of power that on the
effective date of this Act is the subject of litigation pending on that
date.   

SECTION 4.  Emergency clause.


EXPLANATION OF AMENDMENTS

 Committee Amendment # 1: Amends HB 2851 by striking Sections 2 and 3 of
the bill (validation clauses for acts, etc. of water supply corporations)
and renumbering the existing Section 4 as Section 2.