Amend CSHB 3442 by adding the following appropriately 
numbered SECTION and renumbering SECTIONS of the bill 
appropriately:
	SECTION ____.  WATER POLLUTION AND CONSERVATION PROGRAMS 
ADMINISTERED BY THE TEXAS WATER DEVELOPMENT BOARD.  (a)  Section 
15.602, Water Code, is amended by adding Subdivision (5-a) to read 
as follows:
		(5-a)  "Eligible lending institution" means a 
financial institution that makes commercial loans, is either a 
depository of state funds or an institution of the Farm Credit 
System headquartered in this state, agrees to participate in a 
linked deposit program established under Section 15.611 and to 
provide collateral equal to the amount of linked deposits placed 
with it, and meets any other requirements established by board 
rule.
	(b)  Section 15.603, Water Code, is amended by adding 
Subsection (i) to read as follows:
	(i)  In addition to authorized purposes under Subsection 
(a), the revolving fund is held by the board to provide linked 
deposits to eligible financial institutions for loans to persons 
for nonpoint source pollution control projects.
	(c)  Subsection (a), Section 15.604, Water Code, is amended 
to read as follows:
	(a)  The board may use the revolving fund for financial 
assistance only as provided by the federal act:
		(1)  to make loans, on the conditions that:                                   
			(A)  those loans are made at or below market 
interest rates, including interest-free loans, at terms not to 
exceed 20 years;
			(B)  principal and interest payments will begin 
not later than one year after completion of any treatment works and 
all loans will be fully amortized not later than 20 years after 
completion of the treatment works;
			(C)  the recipient of a loan will establish a 
dedicated source of revenue for repayment of loans; and
			(D)  the revolving fund will be credited with all 
payments of principal of and interest on all loans;
		(2)  to buy or refinance the debt obligation of 
political subdivisions at or below market rates if the debt 
obligations were incurred after March 7, 1985;
		(3)  to guarantee or purchase insurance for political 
subdivisions if the guarantee or insurance would improve access to 
market credit or reduce interest rates;
		(4)  as a source of revenue or security for the payment 
of principal and interest on bonds issued by the state if the 
proceeds of the sale of those bonds will be deposited in the 
revolving fund;
		(5)  to provide loan guarantees to similar revolving 
funds established by municipalities or intermunicipal agencies;
		(6)  to earn interest on revolving fund accounts;                             
		(7)  for the reasonable costs of administering the 
revolving fund and conducting activities provided for by Title VI 
of the federal act, except that those amounts may not exceed the 
amount authorized under Title VI of the federal act;
		(8)  to provide financial assistance to persons for a 
nonpoint source pollution control project under Section 319 of the 
federal act or for an estuary management project under Section 320 
of the federal act; [and]
		(9)  for other purposes as provided by the federal act; 
and          
		(10)  to provide linked deposits to eligible lending 
institutions for loans to persons for nonpoint source pollution 
control projects.
	(d)  Subchapter J, Chapter 15, Water Code, is amended by 
adding Sections 15.610 through 15.618 to read as follows:
	Sec. 15.610.  LINKED DEPOSIT.  A linked deposit is a deposit 
governed by a written deposit agreement between the board and an 
eligible lending institution that provides that:
		(1)  the eligible lending institution pay interest on 
the deposit at a rate determined by the board;
		(2)  the state not withdraw any part of the deposit 
before the expiration of a period set by a written advance notice of 
the intention to withdraw; and
		(3)  the eligible lending institution agree to lend the 
value of the deposit to a person at a maximum rate that is the rate 
paid by the eligible lending institution to the board plus a maximum 
of four percent.
	Sec. 15.611.  LINKED DEPOSIT PROGRAM.  (a)  The board by 
rule may establish a nonpoint source pollution control linked 
deposit program in accordance with this subchapter.
	(b)  An eligible lending institution may participate in the 
program established under this section as provided by this 
subchapter.
	Sec. 15.612.  APPLICATION BY ELIGIBLE LENDING INSTITUTIONS 
TO PARTICIPATE IN LINKED DEPOSIT PROGRAM.  To participate in the 
nonpoint source pollution control linked deposit program, an 
eligible lending institution must:
		(1)  solicit loan applications, which must contain a 
description of a proposed nonpoint source pollution control 
project;
		(2)  review applications to determine if applicants are 
eligible and creditworthy; and
		(3)  submit the applications of eligible and 
creditworthy applicants to the executive administrator with a 
certification:
			(A)  of the interest rate applicable to each 
applicant by the eligible lending institution; and
			(B)  of the proposed project by the appropriate 
person as required by Section 15.613.
	Sec. 15.613.  CERTIFICATION OF PROJECT.  (a)  An eligible 
lending institution must obtain from a director of a soil and water 
conservation district certification of an agricultural or 
silvicultural nonpoint source pollution control project proposed 
for the district.  The certification must state that:
		(1)  the applicant of the proposed project has a water 
quality management plan certified by the State Soil and Water 
Conservation Board; and
		(2)  the project furthers or implements the plan.                      
	(b)  An eligible lending institution must obtain from the 
executive director certification of a proposed nonpoint source 
pollution control project that is not an agricultural or 
silvicultural nonpoint source pollution control project.  The 
certification must state that the applicant's proposed project 
implements the state's nonpoint source pollution management plan.
	Sec. 15.614.  APPROVAL OR REJECTION OF APPLICATION.  The 
board may approve or reject an application of an eligible lending 
institution to participate in the program.  The board may delegate 
its authority to approve or reject an application to the executive 
administrator.
	Sec. 15.615.  DEPOSIT AGREEMENT.  If the board approves an 
application of an eligible lending institution, the board and the 
eligible lending institution shall enter into a written deposit 
agreement.  The agreement shall contain the conditions on which the 
linked deposit is made.  On execution of the agreement, the board 
shall place a linked deposit from the revolving fund with the 
eligible lending institution in accordance with the agreement.  A 
delay in payment or a default on a loan by an applicant does not 
affect the validity of the deposit agreement.
	Sec. 15.616.  COMPLIANCE.  (a)  On accepting a linked 
deposit, an eligible lending institution must lend money to an 
approved applicant in accordance with the deposit agreement and 
this subchapter.  The eligible lending institution shall forward a 
compliance report to the board in accordance with board rules.  The 
board shall adopt rules regarding the compliance report.
	(b)  The board shall monitor compliance with this subchapter 
and inform the comptroller of noncompliance on the part of an 
eligible lending institution.
	Sec. 15.617.  STATE LIABILITY PROHIBITED.  The state is not 
liable to an eligible lending institution for payment of the 
principal, interest, or any late charges on a loan made to an 
approved applicant.  A linked deposit is not an extension of the 
state's credit within the meaning of any state constitutional 
prohibition.
	Sec. 15.618.  LIMITATIONS ON PROGRAM.  (a)  The maximum 
amount of a loan under the linked deposit program is $250,000.
	(b)  The board may withdraw linked deposits from an eligible 
lending institution if the institution ceases to be either a state 
depository or a Farm Credit System institution headquartered in 
this state.
	(e)  Subdivisions (3) through (6), Section 17.871, Water 
Code, are amended to read as follows:
		(3)  "Eligible lending institution" means a financial 
institution that makes commercial loans, is either a depository of 
state funds or an institution of the Farm Credit System 
headquartered in this state, agrees to participate in a linked 
deposit program established under Section 17.905 and to provide 
collateral equal to the amount of linked deposits placed with it, 
and meets any other requirements established by board rule
["Conservation loan" means a loan from the board to a borrower 
district or from a lender district to an individual borrower].
		(4)  "Fund" means the agricultural water conservation 
fund authorized by Section 50-d, Article III, of the Texas 
Constitution.
		(5)  "Person" means an individual, corporation, 
partnership, association, or other legal entity that is not a 
political subdivision ["Individual borrower" means a person who 
receives or is eligible to receive a conservation loan from a lender 
district].
		(6)  "Political subdivision" includes a district or 
authority created under Section 52, Article III, or Section 59, 
Article XVI, of the Texas Constitution, a municipality, a county, 
an institution of higher education as defined by Section 61.003, 
Education Code, any interstate compact commission to which the 
state is a party, and any nonprofit water supply corporation 
created and operating under Chapter 67 ["Lender district" means a 
political subdivision, including a soil and water conservation 
district under Chapter 201, Agriculture Code, a groundwater 
conservation district created under Article XVI, Section 59, of the 
Texas Constitution, or a district or authority created under 
Article III, Section 52(b)(1), or Article XVI, Section 59, of the 
Texas Constitution authorized to supply water for irrigation 
purposes, that is eligible to receive or that receives a loan from 
the board for the purpose of making conservation loans to 
individual borrowers].
	(f)  Subsections (c) and (d), Section 17.879, Water Code, are 
amended to read as follows:
	(c)  By rule or in the resolution or order authorizing 
issuance of bonds or other resolution or order of the board, the 
board may establish an interest and sinking fund and may establish 
accounts in the funds, including an interest and sinking account, 
and may transfer money among the funds and accounts [fund].
	(d)  The board may invest and reinvest money in the fund, the 
interest and sinking fund, and any account therein in any 
obligations or securities as provided by bond resolutions, [and] 
orders of the board, and Section 404.024, Government Code.
	(g)  Subsection (a), Section 17.880, Water Code, is amended 
to read as follows:
	(a)  Loans, bonds of political subdivisions [borrower 
districts or lender districts], and other obligations owned by the 
state and deposited in the fund or in the interest and sinking fund 
are considered to be securities under this subchapter.
	(h)  Subsection (b), Section 17.881, Water Code, is amended 
to read as follows:
	(b)  The board shall sell the loans or bonds of political 
subdivisions [borrower districts or lender districts] at the price 
and under the terms that it determines to be reasonable.
	(i)  Section 17.883, Water Code, is amended to read as 
follows:              
	Sec. 17.883.  BOND REVIEW BOARD.  Bonds may not be issued 
under this subchapter unless the issuance of the bonds has been 
reviewed and approved by the bond review board.  Prior to issuance 
of bonds, the board shall estimate demand for [agricultural water] 
conservation programs or projects [loans] based on a survey of 
[districts] eligible participants [to participate] in the program.  
A summary of this information shall be furnished to the bond review 
board.
	(j)  Section 17.894, Water Code, is amended to read as 
follows:              
	Sec. 17.894.  BOND ENHANCEMENT AGREEMENTS; PAYMENT OF 
EXPENSES.  (a)  The board at any time and from time to time may 
enter into one or more bond enhancement agreements that the board 
determines to be necessary or appropriate to place the obligation 
of the board, as represented by the bonds, in whole or in part, on 
the interest rate, currency, cash flow, or other basis desired by 
the board.  A bond enhancement agreement is an agreement for 
professional services and shall contain the terms and conditions 
and be for the period that the board approves.
	(b)  The fees and expenses of the board in connection with 
the issuance of the bonds and the providing of financial assistance 
to political subdivisions may be paid from money in the fund, 
provided that any payments due from the board under a bond 
enhancement agreement, other than fees and expenses, that relate to 
the payment of debt service on the bonds constitute payments of 
principal of and interest on the bonds.
	(c)  Bond enhancement agreements may include, on terms and 
conditions approved by the board, interest rate swap agreements; 
currency swap agreements; forward payment conversion agreements; 
agreements providing for payments based on levels of or changes in 
interest rates or currency exchange rates; agreements to exchange 
cash flows or a series of payments; agreements, including options, 
puts, or calls, to hedge payment, currency, rate, spread, or other 
exposure; or other agreements that further enhance the 
marketability, security, or creditworthiness of water financial 
assistance bonds [USE OF FUND.  (a)  The board may use money in the 
fund to make conservation loans directly to borrower districts, to 
make loans to lender districts, and to pay the cost of bond 
issuance.
	[(b)  The board may use money in the fund:                    
		[(1)  to make loans to political subdivisions other 
than lender districts for agricultural water conservation 
projects;
		[(2)  to make grants to political subdivisions for 
agricultural water conservation projects as provided by 
legislative appropriation; or
		[(3)  to make grants to a state agency for the funding 
of any agricultural water conservation program of that agency, 
including a program in which the state agency provides funding to a 
political subdivision or a person for agricultural water 
conservation, as provided by legislative appropriation].
	(k)  Section 17.895, Water Code, is amended to read as 
follows:              
	Sec. 17.895.  SOURCES OF ASSETS.  The fund is composed of:              
		(1)  money and assets, including bond proceeds, 
attributable to the bonds;
		(2)  investment income earned on money on deposit in 
the fund and depository interest earned on money on deposit in the 
state treasury;
		(3)  money appropriated by the legislature;                            
		(4)  repayments of principal and interest on loans made 
under this subchapter;
		(5)  administrative fees charged by the board under the 
bond program; and
		(6)  any other funds, regardless of their source, that 
the board directs be deposited to the credit of the fund
[CONSERVATION LOANS.  (a)  This section applies only to a 
conservation loan from a lender district that is:
		[(1)  a soil and water conservation district under 
Chapter 201, Agriculture Code;
		[(2)  a groundwater conservation district created 
under Section 59, Article XVI, Texas Constitution; or
		[(3)  a district or authority created under Section 
52(b)(1), Article III, or Section 59, Article XVI, Texas 
Constitution.
	[(b)  The board or a lender district may make conservation 
loans for capital equipment or materials, labor, preparation costs, 
and installation costs:
		[(1)  to improve water use efficiency of water delivery 
and application on existing irrigation systems;
		[(2)  for preparing irrigated land to be converted to 
dryland conditions; and
		[(3)  for preparing dryland for more efficient use of 
natural precipitation.
	[(c)  Conservation loans for the purposes listed in 
Subsection (b) may be made by lender districts to individual 
borrowers for use on private property or by the board to borrower 
districts.
	[(d)  The board may make conservation loans to borrower 
districts for the cost of purchasing and installing devices, on 
public or private property, designed to indicate the amount of 
water withdrawn for irrigation purposes.
	[(e)  For purposes of this section, the board or lender 
districts may seek the advice of the Department of Agriculture 
regarding the feasibility of a project for which a conservation 
loan is sought].
	(l)  Section 17.896, Water Code, is amended to read as 
follows:              
	Sec. 17.896.  REPAYMENT PROCEEDS.  The board shall designate 
a transfer of repayment of principal and interest on a loan made 
under this subchapter to the fund, the interest and sinking fund, or 
any account in the funds [INTEREST RATES AND FEES.  (a)  The board 
shall establish the rate of interest it charges for loans to lender 
districts or for conservation loans to borrower districts.
	[(b)  A lender district may charge individual borrowers an 
interest rate not to exceed the interest rate the lender district is 
charged by the board, plus one percent for administrative expenses.
	[(c)  A lender district may charge individual borrowers a 
one-time application fee in an amount determined by the board to 
cover costs of processing loan applications].
	(m)  Section 17.897, Water Code, is amended to read as 
follows:              
	Sec. 17.897.  CONSERVATION PROGRAM.  (a)  A conservation 
program is:  
		(1)  an agricultural water conservation technical 
assistance program, including a program for an on-farm soil and 
water conservation plan developed jointly by a landowner, an 
operator, and a local soil and water conservation district as 
provided by Subchapter H, Chapter 201, Agriculture Code;
		(2)  a research, demonstration, technology transfer, 
or educational program relating to agricultural water use and 
conservation;
		(3)  a precipitation enhancement program in an area of 
the state where the program, in the board's judgment, would be most 
effective; and
		(4)  any other agricultural water conservation program 
defined by board rule.
	(b)  The costs of a conservation program eligible for 
financial assistance under Section 17.899 are the costs of the 
capital equipment, materials, labor, preparation, installation, or 
administration directly associated with implementing and 
completing the program [APPLICATION.  A lender district that 
desires to obtain loans or a borrower district that desires to 
obtain conservation loans under this subchapter shall file with the 
executive administrator an application in the manner and in the 
form provided by board rules].
	(n)  Section 17.898, Water Code, is amended to read as 
follows:              
	Sec. 17.898.  CONSERVATION PROJECT.  (a)  A conservation 
project is a project that:
		(1)  improves water use efficiency of water delivery 
and application on existing irrigation systems;
		(2)  prepares irrigated land for conversion to dryland 
conditions;   
		(3)  prepares dryland for more efficient use of natural 
precipitation;
		(4)  purchases and installs on public or private 
property devices designed to indicate the amount of water withdrawn 
for irrigation purposes;
		(5)  prepares and maintains land to be used for brush 
control activities in areas of the state where those activities in 
the board's judgment would be most effective, including activities 
conducted under Chapter 203, Agriculture Code; or
		(6)  implements any other agricultural water 
conservation project defined by board rule.
	(b)  The costs of a conservation project eligible for 
financial assistance under Section 17.899 are the costs of the 
capital equipment, materials, labor, preparation, installation, or 
administration directly associated with implementing and 
completing the project [CONSIDERATIONS IN PASSING ON AN 
APPLICATION.  (a)  In passing on an application from a lender 
district, the board shall consider the lender district's ability to 
manage a loan program, ability to repay any loan defaults, and 
overall conservation program.
	[(b)  In passing on an application from a borrower district, 
the board shall consider the ability of the borrower district to 
repay the conservation loan and whether the conservation loan will 
further water conservation].
	(o)  Section 17.899, Water Code, is amended to read as 
follows:              
	Sec. 17.899.  ELIGIBLE FUND USES.  (a)  Money in the fund, 
excluding money in the interest and sinking fund, may be used by the 
board to:
		(1)  provide a grant to a state agency to fund a 
conservation program or conservation project, including a 
conservation program that provides funding to a political 
subdivision or person for a conservation project;
		(2)  provide a grant or loan to a political subdivision 
for a conservation program or conservation project;
		(3)  provide a linked deposit to an eligible financial 
institution for a loan to a person for a conservation project;
		(4)  pay for a board conservation program;                             
		(5)  make a transfer to the interest and sinking fund;                 
		(6)  pay the costs of a bond issuance; and                             
		(7)  pay for a board expense in administering the 
agricultural water conservation program under this subchapter.
	(b)  Money in the interest and sinking fund may be used for 
the payment of bonds or, to the extent there are funds in excess of 
bond payment requirements, for transfers to the fund, or any other 
account in the funds [APPROVAL OF APPLICATIONS.  (a)  The board may 
approve an application if, after considering the factors in Section 
17.898 and other relevant factors, the board finds that:
		[(1)  the public interest would be served in granting 
the application;
		[(2)  a lender district has the ability to make 
conservation loans, manage a conservation loan program, and repay 
the loan to the board;
		[(3)  a borrower district has the ability to repay the 
conservation loan; and
		[(4)  granting the application will further water 
conservation in the state.
	[(b)  The board by rule may delegate to the executive 
administrator the authority to approve an application based on the 
considerations in Section 17.898 and on the findings in Subsection 
(a)].
	(p)  Section 17.900, Water Code, is amended to read as 
follows:              
	Sec. 17.900.  GRANT TO STATE AGENCY.  (a)  A state agency 
seeking a grant for a conservation program or conservation project 
must file an application with the board.
	(b)  In reviewing an application for a grant, the board shall 
consider:
		(1)  the commitment of the state agency to water 
conservation; and   
		(2)  the benefits that will be gained by making the 
grant.           
	(c)  To approve the grant, the board must find that:                    
		(1)  the grant funds will supplement rather than 
replace money of the state agency;
		(2)  the public interest is served by providing the 
grant; and       
		(3)  the grant will further water conservation in the 
state.         
	(d)  If a state agency is applying for funds that have been 
provided by legislative appropriation for that state agency, the 
board shall review the application according to the terms of the 
legislative appropriation.  To approve the grant, the board must 
make the determination required by the legislative language.
	(e)  The board may make money available to a state agency in 
any manner that it considers feasible, including a grant agreement 
with the state agency [METHODS OF MAKING LOANS AND ENFORCING 
OBLIGATIONS.  (a)  The board may make financial assistance 
available to lender or borrower districts in any manner that it 
considers economically feasible, including purchase of bonds or 
securities of the lender or borrower district, or by entering into a 
contract with the lender or borrower district.  The board shall not 
purchase bonds or securities that have not been approved by the 
attorney general and registered by the comptroller.
	[(b)  In the event of default in payment of the principal of 
or interest on bonds or securities purchased by the board or any 
other default as defined in the proceedings or indentures 
authorizing the issuance of the bonds or the default of any of the 
terms of a contract, the attorney general shall institute legal 
proceedings by mandamus or other legal remedies to compel the 
lender or borrower district or its officers, agents, and employees 
to cure the default by performing those duties which they are 
legally obligated to perform.  These proceedings shall be brought 
and venue shall be in a district court in Travis County.
	[(c)  This section is cumulative of any other rights or 
remedies to which the board may be entitled].
	(q)  Section 17.901, Water Code, is amended to read as 
follows:              
	Sec. 17.901.  GRANT OR LOAN TO POLITICAL SUBDIVISION.  The 
board may make a grant or loan to a political subdivision for a 
conservation program or conservation project.  A political 
subdivision seeking a grant or loan must file an application with 
the board [DEFAULT AND FORECLOSURE BY LENDER DISTRICTS.  (a)  In 
the event of a default in payment of a conservation loan made by a 
lender district or the failure of an individual borrower to perform 
any of the terms or conditions of the conservation loan agreement, 
the lender district shall pursue all remedies available under law, 
including without limitation foreclosure under the conservation 
loan agreement and liquidation of any collateral provided under the 
conservation loan agreement.  The lender district shall sell the 
collateral on terms and subject to procedures that it follows in 
liquidating other collateral.
	[(b)  Foreclosure under a conservation loan agreement shall 
be accomplished in the manner provided by law for foreclosure of 
similar loan agreements made by private lending institutions and by 
the conservation loan agreement.
	[(c)  The state guarantees to each lender district that in 
the event an individual borrower defaults on a conservation loan 
made by the lender district with money from this program, the state 
will assume 50 percent of the amount that remains due and payable 
under the default after all collateral for the conservation loan is 
liquidated.
	[(d)  The state is entitled to recover its pro rata share of 
any money recovered on a defaulted conservation loan on which the 
state has assumed liability under Subsection (c)].
	(r)  Section 17.902, Water Code, is amended to read as 
follows:              
	Sec. 17.902.  REVIEW OF APPLICATION FOR AND APPROVAL OF 
GRANT.  (a)  In reviewing an application by a political subdivision 
for a grant, the board shall consider:
		(1)  the degree to which the political subdivision has 
used other available resources to finance the use for which the 
application is being made;
		(2)  the willingness and ability of the political 
subdivision to raise revenue;
		(3)  the commitment of the political subdivision to 
water conservation; and
		(4)  the benefits that will be gained by making the 
grant.           
	(b)  To approve a grant to a political subdivision, the board 
must find that:
		(1)  the grant funds will supplement rather than 
replace money of the political subdivision;
		(2)  the public interest is served by providing the 
grant; and       
		(3)  the grant will further water conservation in the 
state [AUTHORITY OF DISTRICTS.  A lender or borrower district may 
borrow and lend money for the purposes of this subchapter and may 
adopt necessary rules to carry out this subchapter].
	(s)  Subchapter J, Chapter 17, Water Code, is amended by 
adding Sections 17.9021 and 17.9022 to read as follows:
	Sec. 17.9021.  APPLICATION FOR AND APPROVAL OF LOAN.  
(a)  In reviewing an application by a political subdivision for a 
loan, the board shall consider the ability of the political 
subdivision to repay the loan and whether the loan will further 
water conservation in this state.
	(b)  To approve a loan to a political subdivision, the board 
must determine that:
		(1)  the public interest is served by providing the 
loan;            
		(2)  the political subdivision has the ability to repay 
the loan; and
		(3)  the loan will further water conservation in the 
state.          
	(c)  The board by rule shall establish the rate of interest 
it charges for a loan to a political subdivision.
	Sec. 17.9022.  FINANCING OF GRANT OR LOAN FOR POLITICAL 
SUBDIVISION; DEFAULT; VENUE.  (a)  The board may make a loan or 
grant available to a political subdivision in any manner the board 
considers economically feasible, including purchase of bonds or 
securities of the political subdivision or execution of a loan or 
grant agreement with the political subdivision.  The board may not 
purchase bonds or securities that have not been approved by the 
attorney general and registered by the comptroller.
	(b)  In the event of a default in payment of the principal of 
or interest on bonds or securities purchased by the board, or any 
other default as defined in the proceedings or indentures 
authorizing the issuance of bonds, or a default of any of the terms 
of a loan agreement, the attorney general shall seek a writ of 
mandamus or other legal remedy to compel the political subdivision 
or its officers, agents, and employees to cure the default by 
performing the duties they are legally obligated to perform.  The 
proceedings shall be brought and venue is in a district court in 
Travis County.  This subsection is cumulative of any other rights or 
remedies to which the board may be entitled.
	(t)  Section 17.903, Water Code, is amended to read as 
follows:              
	Sec. 17.903.  CONTRACT AUTHORITY.  (a)  A political 
subdivision may borrow money for the purposes of this subchapter 
and may adopt necessary rules to carry out this subchapter [RULES 
AND CONTRACTS.  (a)  The board shall adopt rules necessary to carry 
out this subchapter.  The board by rule shall identify methods to be 
used by lender districts to ensure the financial integrity of a loan 
to an individual borrower, including an irrevocable letter of 
credit or a lien on property in excess of value of improvements].
	(b)  [The board by rule may establish:                        
		[(1)  procedures for applying for a loan or grant under 
Section 17.894(b);
		[(2)  procedures for considering and approving 
applications and for making loans or grants under Section 
17.894(b); and
		[(3)  the rate of interest the board charges, if any, 
for loans under Section 17.894(b).
	[(c)]  The board shall have the power to enter into any 
contracts to carry out the provisions of this subchapter.
	(u)  Subchapter J, Chapter 17, Water Code, is amended by 
adding Sections 17.904 through 17.912 to read as follows:
	Sec. 17.904.  LINKED DEPOSIT.  A linked deposit is a deposit 
governed by a written deposit agreement between the board and an 
eligible lending institution that provides that:
		(1)  the eligible lending institution pay interest on 
the deposit at a rate determined by the board;
		(2)  the state not withdraw any part of the deposit 
before the expiration of a period set by a written advance notice of 
the intention to withdraw; and
		(3)  the eligible lending institution agree to lend the 
value of the deposit to a person at a maximum rate that is the rate 
paid by the eligible lending institution to the board plus a maximum 
of four percent.
	Sec. 17.905.  LINKED DEPOSIT PROGRAM.  (a)  The board by 
rule may establish an agricultural water conservation linked 
deposit program in accordance with this subchapter.
	(b)  An eligible lending institution may participate in the 
program established under this section as provided by this 
subchapter.
	Sec. 17.906.  APPLICATION BY ELIGIBLE LENDING INSTITUTIONS 
TO PARTICIPATE IN LINKED DEPOSIT PROGRAM.  To participate in the 
agricultural water conservation linked deposit program, an 
eligible lending institution must:
		(1)  solicit loan applications, which must contain a 
description of an agricultural water conservation project;
		(2)  review applications to determine if applicants are 
eligible and creditworthy; and
		(3)  submit the applications of eligible and 
creditworthy applicants to the executive administrator with a 
certification:
			(A)  of the interest rate applicable to each 
applicant by the eligible lending institution; and
			(B)  of the soil and water conservation district 
in which an applicant is located by a director of the district that 
states that:
				(i)  the applicant of the proposed project 
has a soil and water conservation plan approved by the district; and
				(ii)  the project furthers or implements the 
plan.                 
	Sec. 17.907.  APPROVAL OR REJECTION OF APPLICATION.  The 
board may approve or reject an application of an eligible lending 
institution to participate in the program.  The board may delegate 
its authority to approve or reject applications to the executive 
administrator.
	Sec. 17.908.  DEPOSIT AGREEMENT.  If the board approves an 
application of an eligible lending institution, the board and the 
eligible lending institution shall enter into a written deposit 
agreement.  The agreement shall contain the conditions on which the 
linked deposit is made.  On execution of the agreement, the board 
shall place a linked deposit from the fund with the eligible lending 
institution in accordance with the agreement.  A delay in payment or 
a default on a loan by an applicant does not affect the validity of 
the deposit agreement.
	Sec. 17.909.  COMPLIANCE.  (a)  On accepting a linked 
deposit, an eligible lending institution must lend money to an 
approved applicant in accordance with the deposit agreement and 
this subchapter.  The eligible lending institution shall forward a 
compliance report to the board in accordance with board rules.  The 
board shall adopt rules regarding the compliance report.
	(b)  The board shall monitor compliance with this subchapter 
and inform the comptroller of noncompliance on the part of an 
eligible lending institution.
	Sec. 17.910.  STATE LIABILITY PROHIBITED.  The state is not 
liable to an eligible lending institution for payment of the 
principal, interest, or any late charges on a loan made to an 
approved applicant.  A linked deposit is not an extension of the 
state's credit within the meaning of any state constitutional 
prohibition.
	Sec. 17.911.  LIMITATIONS ON PROGRAM.  (a)  The maximum 
amount of a loan under the linked deposit program is $250,000.
	(b)  The board may withdraw linked deposits from an eligible 
lending institution if the institution ceases to be either a state 
depository or a Farm Credit System institution headquartered in 
this state.
	Sec. 17.912.  RULES.  The board shall adopt rules necessary 
to carry out this subchapter.  Applications shall be in the form and 
manner as provided by board rules.
	(v)  The agricultural trust fund and the agricultural soil 
and water conservation fund are abolished and all assets of those 
funds are transferred to the agricultural water conservation fund.
	(w)  The following provisions of the Water Code are repealed:                  
		(1)  Subchapters G, H, and I, Chapter 15; and                                 
		(2)  Subdivision (2), Section 17.871, Subdivision (7), 
Section 17.871, and Section 17.8955.
	(x)  The Texas Water Development Board shall continue to 
administer a loan made before September 1, 2003, under the pilot 
program for low-interest loans for agricultural water conservation 
equipment until the loan is fully repaid.  Subchapter I, Chapter 15, 
Water Code, is continued in effect for the limited purpose of 
allowing the board to administer those loans and to pursue remedies 
if a loan recipient defaults on a loan or otherwise violates the 
terms of the loan or of any loan guarantee instrument.
	(y)  The Texas Water Development Board shall continue to 
administer a conservation loan made before September 1, 2003, under 
Subchapter J, Chapter 17, Water Code.  Subchapter J, Chapter 17, 
Water Code, as it existed immediately before September 1, 2003, is 
continued in effect for the limited purpose of allowing the board to 
administer those loans and to pursue remedies if a loan recipient 
defaults on a loan or otherwise violates the terms of the loan or of 
any loan guarantee.
	(z)  This section takes effect September 1, 2003.