The Golden Hammer Staff Reports
Conroe and Austin, October 27 – On November 5, 2019, and in Early Voting, which is occurring right now, Texas voters will face a Constitutional Amendment, Proposition 2, which reads:
“The constitutional amendment providing for the issuance of additional general obligation bonds by the Texas Water Development Board in an amount not to exceed $200 million to provide financial assistance for the development of certain projects in economically distressed areas.”
After witnessing the severe conflict of interest of the Texas Water Development Board (TWDB) in its dealings with the San Jacinto River Authority (SJRA) and Lone Star Groundwater Conservation District (LSGCD) in Montgomery County, it’s become clear that voters should squarely reject and vote “NO” on Proposition 2. Fundamentally, TWDB should not both finance water development for some agencies and regulate other state, local, and regional agencies which provide water resources in direct competition with the agencies TWDB has financed.
TWDB’s money-lending to SJRA
Approximately a decade ago, SRJA decided to compete against groundwater producers by developing huge surface water treatment plants, building a monolithic pipeline system to carry that water throughout Montgomery County, and to sell that water for very high retail prices. The problem, however, was groundwater production which severely undercut likely surface water sale prices.
Therefore, SJRA solved the problem of groundwater production through its control of the LSGCD Board of Directors. A majority of the previously-appointed LSGCD Board were beholden to SJRA because they were part of the surface water sales and financial system SJRA was developing. For example, the Woodlands Joint Powers Agency (WJPA), which provides water to The Woodlands, has a close relationship with SJRA through SJRA’s ownership of wells in The Woodlands and through SJRA’s delivery of surface water to WJPA for resale.
SJRA and its General Manager Jace Houston, who used to serve on the LSGCD Board of Directors himself, began to impose severe groundwater regulations on groundwater producers in order to eliminate competition for SJRA, which clearly sought a monopoly over water sales and has employed monopolistic practices to increase water prices dramatically.
TWDB has solidly backed SJRA in SJRA’s scheme to monopolize water sales and eliminate competition from groundwater producers, because TWDB is the largest money lender to SJRA. In 2017 alone, TWDB loaned SJRA $43 million. In 2014, TWDB loaned SJRA $29 million.
A source inside SJRA has confirmed on the condition of anonymity that of SJRA’s issued first lien water revenue bonds totaling $624,603,734, TWDB owns more than $465 million of the bonds. Several others, including Restore Affordable Water’s Simon Sequeira, have confirmed that TWDB holds more than two-thirds of the issued and outstanding bonds of SJRA.
TWDB’s “oversight” of LSGCD’s groundwater regulations
In late September, 2018, Senior District Judge Lamar McCorkle, sitting for the 284th District Court of Montgomery County, ruled that, as a matter of law, the core groundwater regulation, which LSGCD imposed on large groundwater producers, was outside of LSGCD’s authority under the Texas Water Code and is not valid. Judge McCorkle’s ruling was a major setback for the aggressive regulatory district which has attempted to impose highly restrictive groundwater usage regulations on private property owners.
Specifically, Judge McCorkle’s Order declared invalid, the regulations that require large volume groundwater users to reduce their permitted production by 30% by January 1, 2016, and to seek “alternative water sources” for water demand beginning in 2016. The imposition of the regulations forced many water utility providers such as the City of Conroe, and private utility companies to enter into extraordinarily expensive contracts with the San Jacinto River Authority (SJRA) to meet their customers’ water needs.
As a result, when the new elected, as opposed to appointed, Board of LSGCD came into office on November 16, 2018, that Board began to develop new and less restrictive groundwater regulations in order to comply with the legal ruling and with the Texas Water Code.
To no one’s surprise, however, since TWDB has such a strong financial interest in SJRA’s sale of water, it came as no surprise when TWDB rejected the new LSGCD’s Board’s regulations. SJRA celebrate TWDB’s ruling in at least three press releases including the following statement from Heather Ramsey, SJRA’s full-time Public Relations Specialist:
“Since the commencement of SJRA’s surface water treatment facility, groundwater regulations in Montgomery County have changed. A local district court found that LSGCD’s groundwater reduction regulations went beyond their legal authority in how they regulated groundwater withdrawals. This does not mean that they cannot or should not regulate the withdrawal of groundwater. The recent judgment did not say conservation isn’t necessary, it simply said LSGCD did not have the legal authority to enforce their current conservation rules. The newly elected LSGCD board of directors subsequently struck all conservation rules from their regulatory plan, permits, and other District materials and submitted a management plan without conservation rules for Montgomery County to the Texas Water Development Board (TWDB) for approval. The TWDB rejected LSGCD’s newly proposed groundwater management plan for Montgomery County as incomplete and deficient and instructed it to utilize management goals approved by groundwater conservation districts in surrounding counties. LSGCD has 180 days to submit a new plan.”
In response to TWDB’s conflicted ruling, LSGCD issued the following statement:
“TWDB’s Executive Administrator previously determined that the District’s management plan was not administratively complete because the plan did not include the desired future condi- tions (DFCs) from the first round of joint planning in 2010. The District appealed the decision because the 2010 DFCs were superseded by and replaced with the DFCs adopted in 2016 during the second round of joint planning and Chapter 36 of the Texas Water Code (Chapter 36) prohibits reinstatement of an expired DFC. The District also requested reversal of the Executive Adminis- trator’s decision because it contradicts TWDB’s prior instructions and approval, and is inconsistent with science, policy and Chapter 36.
“The debate over which DFC should apply in the District’s management plan arose after several permittees successfully challenged the District’s 2016 DFCs. Following a successful DFC petition, Chapter 36 requires the districts in a Groundwater Management Area (GMA) to recon- vene within 60 days to revise the DFC and adopt a new DFC applicable to the district that received the petition.
“Following the petition finding the District’s 2016 DFCs no longer reasonable, the GMA 14 districts voted to delay revision of the District’s DFCs until the third round of planning when it addressed DFCs for all districts even though the order finding the District’s DFCs no longer rea- sonable did not invalidate any of the other districts’ DFCs. The GMA 14 districts voted to delay revision on the basis that DFCs should not be changed in isolation since aquifers cross county lines. GMA 14 determined that changing the DFC for Lone Star GCD, which covers Montgomery County, may require a change in adjacent counties to ensure the overall effects of pumping are consistent with the physics of groundwater flow in the aquifer. GMA 14 did not vote to re-adopt the 2010 DFCs presumably because doing so would effectively be a single county DFC adjust- ment, which GMA 14 determined was inappropriate and inconsistent with groundwater science.
“Chapter 36 mandates that all DFCs must be adopted through the joint planning process by a 2/3 vote of the voting districts in the GMA. No other entity, TWDB included, can establish a DFC. Per Chapter 36, the GMA 14 districts must propose new DFCs by May 1, 2021. However, because the five-year review of Lone Star’s management plan was not synced with the five-year DFC planning cycles, the District had to submit its plan for approval before GMA 14 adopted new DFCs in Round 3. Chapter 36 requires DFCs to be included in a management plan unless explained as not applicable. TWDB instructed the District to use the 2016 DFCs and pre-approved a draft plan that included the 2016 DFCs with a statement that they were no longer reasonable as a result of the successful petition. However, when the District formally submitted the management plan, with the 2016 DFCs and an explanation of their limited applicability, TWDB denied approval on the basis that the 2010 DFCs apply.
“The District appealed TWDB’s determination that the 2010 DFCs apply for a multitude of reasons.
- The 2010 DFCs were superseded as a matter of law by adoption of the 2016 DFCs and cannot be reinstated.
- The 2010 DFCs can only be the applicable DFCs if GMA 14 re-adopts them by a 2/3 vote after notice and hearing.
- The 2010 DFCs were adopted under an old statutory scheme intentionally amended by the Legislature to rectify scientific and due process concerns.
- The 2010 DFCs were derived using an almost identical methodology as, and are substan- tially similar to, the petitioned 2016 DFCs declared no longer reasonable on the basis that the science was flawed.
- The assumed total pumping used to create both the 2010 and 2016 DFCs was essentially identical and based on void and unenforceable reduction rules.
- Chapter 36 requires use of the best available science and data. The methodologies and assumptions used to derive the 2010 DFCs are not the best available science and data as determined through the DFC petition and reduction rule litigation.
- Using the 2010 DFCs subjects the District to potential litigation by the former litigants who are still waiting for GMA 14 to revise the DFCs.
- Using the 2010 DFCs subjects the District to potential litigation by all persons who were denied notice, hearing and the right to challenge the reinstated DFCs, and by all permittees whose property rights are unnecessarily restricted through management of the reinstated DFCs.Before filing the appeal, the District attempted to resolve the dispute through correspond- ence with and a pre-review submission to TWDB. Realizing the District could not comply with TWDB’s request for the previously stated technical and legal reasons, the District filed the appeal to ensure Chapter 36 is followed and to protect the due process and property rights of all affected persons.
“The District has requested that TWDB approve its plan as submitted. Under Chapter 36, the District’s explanation of the limited applicability of the DFCs renders the District’s plan ad- ministratively complete and all administratively complete plans shall be approved. Approval of the plan will let GMA 14 conduct its statutory work without interference from entities not author- ized to determine DFCs. DFCs are long-term goals that dictate aquifer conditions 50+ years into the future. Chapter 36 contemplates that DFCs may be in flux following a successful petition while the mandated administrative and due process procedures are carried out. The District will update its plan after new DFCs are adopted.
“The District understands this scenario is one of first impression for TWDB. If TWDB believes this appeal revealed areas where additional clarification from the Legislature could en- hance the process, TWDB can suggest statutory revisions during the next legislative session. Until then, TWDB must follow the current statute, which mandates approval.
“If TWDB denies the District’s appeal, the District will be forced to seek any and all avail- able remedies to ensure compliance with Chapter 36 and protect the constitutional rights of all affected persons. Future actions may include mediation and filing suit in Travis County Texas, if necessary.”
Neither TWDB nor any state regulatory agency should be in a position where it both finances and regulates other governmental entities in an industry where it engaged in money-lending. Clearly, the finance and regulatory functions should be separate and apart from each other.
That makes the decision on Proposition 2 a rather straightforward one. Even if providing financing for economically distressed areas is a worthy goal, TWDB shouldn’t be involved in those activities, because TWDB is to regulate groundwater rather than protect its investments.