LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 1, 1997 TO: Honorable J.E. "Buster" Brown, Chair IN RE: Senate Bill No. 1, Committee Report 1st House, Substituted Committee on Natural Resources By: Brown Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB1 ( relating to the development and management of the water resources of the state; providing penalties) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB1-Committee Report 1st House, Substituted FN Revision 1 Implementing the provisions of the bill would result in a net negative impact of $(50,441,293) to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. Fiscal Analysis The bill would provide a framework for the management of water resources, including drought planning, water rights regulation, financial and technical assistance and data collection. Article I of the bill would require the Texas Water Development Board (TWDB) to adopt a State Water Plan, incorporating regional water plans and including drought response planning. TWDB would be required to designate water planning regions by September 1, 1998. The deadline for initial submission of regional water plans to TWDB would be September 1, 2000, with updated regional water plans required every five years. TWDB and Texas Parks and Wildlife Department (TPWD) would provide financial and technical assistance in the development of regional water plans. In addition, Article I of the bill would designate the Governor's Office--Division of Emergency Management (DEM) as the lead state agency responsible for coordinating the drought response component of the State Water Plan. DEM would be required to provide administrative support for drought response activities. The Texas Natural Resource Conservation Commission (TNRCC) would be responsible for enforcement during drought conditions. The bill would also create a Drought Response and Monitoring Committee, consisting of DEM as chair, TNRCC, TWDB, TPWD, Texas Department of Agriculture (TDA), Texas Agricultural Extension Service (TAES) and any other entity designated by the governor. Article II of the bill would amend statutory provisions relating to TNRCC's responsibilities in water rights permitting and would provide a regulatory process and requirements for considering interbasin water transfers. The bill also would establish the Texas Water Trust within the Texas Water Bank, to be administered by TWDB. TWDB would be authorized to act as a clearinghouse for water marketing information and to prepare and publish a manual on structuring water transactions. Article III of the bill would establish an administrative penalty for violation of a water right. It would also specify conditions for granting emergency authorizations for the use of water. In addition, TNRCC would be required to make and enforce rules to provide for the safe construction, maintenance, repair and removal of levees; the bill would establish an administrative penalty for violating levee requirements. Article IV of the bill would provide a process and procedures for TNRCC to identify priority groundwater management areas and would establish procedures for TNRCC to create new groundwater districts. TNRCC, TWDB and TAES would administer an education program to inform district residents of water issues relevant to the area. The bill would require TNRCC to provide technical assistance to districts to develop comprehensive management plans that are consistent with approved regional water plans, while TWDB would be required to review and certify the comprehensive plans. This article would create a Groundwater District Loan Assistance Fund to provide loans to newly-created districts for start-up operations; TWDB would administer the fund. The bill would also provide a tax exemption for capital equipment used for water conservation or water/wastewater recycling in the manufacturing process. Article V of the bill would authorize TWDB to use the principal in the Agricultural Trust Fund for loans to agricultural water conservation districts. The Texas Water Development Fund (Fund II), a special fund in the state treasury, would be established contingent on the passage of a constitutional amendment (SJR 17). Fund II would be created by consolidating existing bond authorizations for water supply, water quality and flood control into a single financial assistance account within the fund; Fund II also would include a state participation account and an economically distressed areas program account. Article VI of the bill addresses TNRCC's regulation of water and wastewater services, rates, service areas and implementation of certain provisions of the federal Safe Drinking Water Act Amendments of 1996. The bill would require entities that merge or purchase water utilities to demonstrate financial, managerial and technical capabilities to ensure a continuous and safe drinking water supply. The bill also would allow TWDB to provide loans through the Safe Drinking Water Act State Revolving Fund (SDWASRF) to investor-owned utilities. The bill would authorize loan subsidies to disadvantaged communities through the SDWASRF. Article VII of the bill would merge the Texas Natural Resources Information System and the existing Texas Geographic Information Systems Planning Council to form a new Texas Geographic Information Council. The council would provide oversight and direction for data collection statewide and serve as the centralized clearinghouse for natural resources data. The bill also would require the Executive Administrator of TWDB to coordinate, conduct, and facilitate the development and use of statewide digital base maps. Article VIII of the bill would establish the effective dates for the provisions in the bill. Most provisions would take effect on September 1, 1997, with the following exceptions: sections addressing TNRCC oversight of water rights would take effect immediately; the sales, excise and use tax exemption for water conservation equipment would take effect October 1, 1997; and provisions relating to the consolidation of existing bond authorizations would take effect upon passage of a constitutional amendment by the voters and certification of the results by the Secretary of State. Section 11.028, Texas Water Code, which addresses the further appropriation of non-domestic, non-municipal water, would be repealed effective September 1, 1997. Methodolgy The fiscal impact of this bill was assessed by all the state agencies mentioned in the bill. In estimating the costs of the bill, the agencies generally relied on historical data and past experience for similar programs or requirements. The following agencies estimated costs to their respective agencies based on additional responsibilities. The estimated fiscal impact and FTEs required are shown for the 1998-99 biennium. TEXAS WATER DEVELOPMENT BOARD: Lead agency for drought planning and monitoring; water conservation; financial assistance for regional water planning and groundwater management plans; administration of financial assistance to investor-owned utilities and disadvantaged communities through the SDWASRF (state funds satisfy match requirements for loan subsidy provisions of the federal Safe Drinking Water Act); coordinate/manage data collection and dissemination, including development of digital base maps (state funds would be supplemented by federal matching funds--at about a 2-1 federal to state ratio--and local and private funds; completion in four years). TWDB estimates deadlines for 16 regional management plans will require expenditure of $18 million in grant money (General Revenue funding) in fiscal year 1998. ESTIMATED COST to General Revenue, 1998-99 biennium: $(40,778,960) and 18.5 FTEs TEXAS NATURAL RESOURCE CONSERVATION COMMISSION: Drought planning and monitoring; water conservation; enforcement; water management through water rights permitting, enforcement and marketing; review and approval of interbasin water transfers; data collection. ESTIMATED NET COST to General Revenue, 1998-99 biennium: $(5,983,333) and 24 FTEs TEXAS PARKS AND WILDLIFE DEPARTMENT: Drought Planning and Monitoring Committee; assess impact of regional water plans and groundwater management plans on fish and wildlife; assist groundwater districts and directly fund (grants) assessments of impacts to fish and wildlife; data collection. ESTIMATED COST to General Revenue, 1998-99 biennium: $(700,000) and 3 FTEs. COMPTROLLER: Tax exemption for water conservation and wastewater recycling equipment. ESTIMATED LOSS to General Revenue, 1998-99 biennium: $(1,479,000) TEXAS AGRICULTURAL EXTENSION SERVICE: Administer an education program to inform district residents of water issues. ESTIMATED COST to General Revenue, 1998-99 biennium $(1,500,000) OTHER AGENCIES: The Texas Department of Agriculture (TDA) estimated that the linked deposit program would result in a loss of interest earnings of $200,000 per year. The State Office of Administrative Hearings and the Attorney General's Office would adjudicate cases referred to them by TNRCC. These offices estimated no fiscal impact. The Governor's Office Division of Emergency Management estimated that drought-management oversight duties could be absorbed at current staffing levels. The probable fiscal implications of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Five Year Impact: Fiscal Year Probable Probable Revenue Probable Revenue Probable Revenue Change in Number Savings/(Cost) Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from of State from General General Revenue Federal Funds Federal Funds Employees from Revenue Fund Fund FY 1997 0001 0001 0555 0555 1998 ($37,006,517) ($493,000) $5,776,796 ($5,776,796) 45.5 1998 (11,955,776) (986,000) 5,763,297 (5,763,297) 45.5 2000 (12,556,776) (1,478,000) 5,833,934 (5,833,934) 45.5 2001 (17,556,776) (1,523,000) 5,833,934 (5,833,934) 45.5 2002 (14,023,119) (1,563,000) 91,712 (91,712) 45.5 Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 ($37,499,517) 1999 (12,941,776) 2000 (14,034,776) 2001 (19,079,776) 2002 (15,586,119) Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. Local governments would be affected by several provisions in this bill. The bill would impose additional requirements on units of local government that function as water utilities to develop both drought contingency and management plans. State grant funding (from General Revenue) would provide a 50 percent match for these costs. Newly-created groundwater districts could apply for loans to pay for start-up costs. Water planning regions would be required to hold at least one public hearing on a proposed regional water plan. Groundwater districts would be authorized to assess user and standby fees to fund maintenance and operating expenses, as well as to repay bond debt service. The Comptroller estimated no significant loss of revenue to local governments due to the tax exemption on capital equipment used for water conservation. Source: Agencies: 304 Comptroller of Public Accounts 551 Department of Agriculture 555 Texas Agricultural Extension Service 580 Water Development Board 582 Natural Resources Conservation Commission 592 Soil and Water Conservation Board 802 Parks and Wildlife Department Governor's Office Division of Emergency Management LBB Staff: JK ,BB ,DM