Water Supply and Infrastructure Grants

House Bill 500, passed during the 89th Legislative Session, appropriated $1.038 billion in funds for water supply and infrastructure projects to the Texas Water Development Board.

This is a one-time opportunity for a limited number of Texas communities to receive grant funding to implement water supply/water infrastructure projects. Once this initial appropriation is provided to communities by August 31, 2027, the TWDB will no longer have these grant funds available to provide financial assistance.

HB 500 from the 89th Texas Legislative Session appropriated $1,038,000,000 from the general revenue fund to the TWDB but did not specify that the money was appropriated to a specific fund, which resulted as a deposit of the appropriated money into TWDB's general revenue fund. Additionally, the appropriation language did not provide authority for the TWDB to transfer that money into another TWDB fund or account. Therefore, the money must be provided for the stated purposes directly from TWDB's general revenue fund and not through an existing financial assistance program.

Further, the purpose for the appropriation was stated in the HB 500 legislation as "water infrastructure and supply projects and grants as determined by the board." As the language is specific to water infrastructure and supply, the plan excludes wastewater and flood projects.

Additionally, water supply corporations (WSCs) would not be eligible for funding as the Texas Constitution prohibits the grant of public funds (1) for private purposes and (2) to "individuals" when the grant is not provided for in pre-existing law. (Tex. Const., Art. III, §§ 51 and 44). Art. III, § 51 can be met for all of TWDB's usual customers even when money is appropriated for general revenue grants that do not flow through an existing program, but Art. III, § 44 will prevent TWDB's private entity customers, such as WSCs and Investor-Owned Utilities, from receiving a general revenue grant. Section 51's public purpose test is met by the typical projects funded by TWDB to typical governmental entities because (1) the grant is designed to accomplish a public purpose, not to benefit private parties; (2) TWDB will retain control over the funds to ensure the public purpose is accomplished and to protect the public's investment; and (3) the state receives a return benefit. Section 44's prohibition on grants to individuals without preexisting law would prohibit the use of these funds to provide a grant to WSCs because they are considered "individuals" under the provisions and no preexisting law authorizes the grant of these funds to WSCs. TWDB's existing financial assistance programs are governed by statutes that clearly provide financial assistance to non-profit WSCs (see e.g., Tex. Water Code § 15.001(5)). Section 44 would not prohibit general revenue grants to cities, counties, or other governmental entities because they are not "individuals" within the meaning of that section of the Constitution.

Additionally, the TWDB will provide this funding in the form of a 100 percent grant because HB 500 does not provide authorization for the TWDB to use the funding to leverage bonds; therefore, the appropriation does not create a benefit to providing the funding in the form of a loan. The Constitution generally prohibits all state debt, except as otherwise authorized by the Constitution. More specifically, the TWDB's authority to issue bonds must be "authorized by constitutional amendment of by a debt proposition." (Tex. Const. § 49-c). Each of the TWDB's authorities to issue both revenue and general obligation bonds is specifically authorized in the Constitution. Constitutional provisions applicable to the TWDB can be found at Texas Constitution, Article III, §§ 49-c - 49-d-16. Each of those authorizations is specific to particular programs or accounts of the TWDB. The Constitution and statute provide clear and prescriptive language on where bond proceeds may be deposited and transferred and how money may be deposited and transferred to pay debt service on those bonds. The TWDB does not have any applicable language in the appropriation from HB 500, existing statute, or existing constitutional provisions to leverage this appropriation with bonds or use this appropriation to pay debt service.

Because these funds were deposited into the TWDB's general revenue fund, they may not be transferred into an existing account to be used to leverage additional funding through TWDB-issued bonds in an existing program. Without statutory direction otherwise, loan repayments must be deposited into the account from which they originated. If loan repayments were deposited back into the general revenue fund, the TWDB would not have authority to then use those funds again without additional appropriation from the Texas Legislature and they would revert to the State Treasury. From the TWDB's perspective, any loans provided from this funding would effectively be "grants that require repayment" and would lack the benefit of a revolving corpus to justify the extra level of financial review necessary to confirm a borrower's ability to repay a loan. Based on these circumstances, there would be no benefit to the State or the local entities receiving funding to provide this funding in the form of a loan.

Additionally, the language of HB 500 only speaks to grants, thereby not providing clear legal authority to require repayment.

How to access these funds

The TWDB has developed an implementation plan to distribute these funds to eligible applicants. An opportunity to provide a formal comment on this plan is forthcoming.

Stay tuned for more updates, including Frequently Asked Questions, other resources, and the notice to submit applications for this one-time grant opportunity. If you are not already signed up for the TWDB's mailing list, please consider doing so for the most up-to-date information.