1. Mark B. Taylor San Marcos 1

2. Legislative Outlook on Water Issues Overview Broader Legislative Outlook What issues are in the courts? TCEQ/TWDB Sunset Review Legislation Background Groundwater Surface Water Funding Q & A 2

3. Legislative Outlook on Water Issues Broader Legislative Outlook Two major issues will take precedence: Budget Possible $20-25 billion shortfall Balanced budget required by constitution Will spending cuts or revenue increases impact water-related agencies? Redistricting Legislature did not complete this process after the last two censuses; will they succeed this time? Water-related bills will compete for attention 3

4. Legislative Outlook on Water Issues What issues are in the Courts? Nature of ownership of groundwater – EAA and State of Texas v. Day and McDaniel (Texas Supreme Court) Is groundwater owned in place, or only when pumped to the surface? Landowners have argued the former, and Edwards Aquifer Authority and Attorney General have argued the latter Ownership in place would curtail ability of groundwater districts to manage production Ownership at surface would curtail ability of landowners to challenge regulations 4

5. Legislative Outlook on Water Issues What issues are in the Courts? Groundwater management process – Mesa Water, LP v. TWDB (Travis Co. District Court) Can DFCs be different for different areas of an aquifer? DFCs based on historic use often mean some areas get more production per acre than other areas Requiring uniform DFCs across an aquifer can result in greater depletion, or curtailment of historic uses Does the groundwater planning process afford due process for landowners? Decisions are made by administrative bodies and appealed to state agencies w/o formal hearings 5

6. Legislative Outlook on Water Issues What issues are in the Courts? Miscellaneous issues Aransas Project case - Challenge to TCEQ administration of surface water permits as a violation of the Endangered Species Act Challenges to groundwater district moratoriums on permit applications Challenges to groundwater district granting or denial of permits on constitutional/other grounds Challenge to an Oklahoma law prohibiting permits to export water to Texas 6

7. Legislative Outlook on Water Issues TCEQ/TWDB Sunset Review Sunset Advisory Commission – 6 senators, 6 House members Sunset process Agencies have submitted self-evaluations Sunset staff prepares reports Commission to meet and take testimony TWDB-Nov. 16; TCEQ: Dec.15 & 16 Commission will submit recommendations to legislature in January 2011 Legislature debates and amends the bills Bills must pass to continue agencies’ existence 7

8. Legislative Outlook on Water Issues TCEQ/TWDB Sunset Review Sunset provides opportunities: Reorganization of agencies Combining or separating of functions Changes to management structures Repurposing of agencies Changes in authority Transfers of authority between agencies Sunset bills are often “vehicles” for enacting unrelated legislation 8

9. Legislative Outlook on Water Issues TCEQ Sunset Review TCEQ self-evaluation – water policy issues: Need to define state’s role in fixing aging dams Increase funding and authority to enforce drought contingency plans? Establish statewide watermaster program? (15 major basins w/o watermaster) Require monthly reports of surface water use? Enhance state control over groundwater districts? 9

10. Legislative Outlook on Water Issues TWDB Sunset Review TWDB self-evaluation – water policy issues: Authority to issue more water project bonds (requires constitutional amendment) Provide funding for enhanced water conservation activities Revise substance and process of DFC adoption so a “fuller range” of DFCs is considered Provide funding to continue environmental flows process 10

11. Legislative Outlook on Water Issues TWDB Sunset Review Sunset staff report - water policy issues: Allow TWDB to issue more water project bonds Increase coordination of GMAs with RPGs for groundwater planning process Strengthen notice reqmts. for GMA meetings Transfer appeals of DFCs to TCEQ and allow contested case hearings on DFCs Enhance reporting standards and data collection for water conservation activities 11

12. Legislative Outlook on Water Issues Legislation - Background Legislature has expressed a clear preference for development of groundwater Surface water markets suppressed by interbasin transfer restrictions Groundwater markets enhanced by rule prohibiting discrimination against exports Has made rural landowners significant stakeholders in water markets Has created conflicts among landowners as available groundwater supplies are developed May lead to decline in agricultural areas as groundwater is exported to urban areas 12

13. Legislative Outlook on Water Issues Legislation - Groundwater Draft bill on groundwater ownership - Texas Farm Bureau and other landowner groups Recognition that groundwater is owned in place May recognize correlative rights (apportionment of ownership over the surface area of aquifers) Draft bills by Texas Water Conservation Association Clarify definition of “management plans” for groundwater districts Change MAG from “managed” to “modeled” available groundwater 13

14. Legislative Outlook on Water Issues Legislation – Surface water Loosen restrictions on inter-basin transfers? Level the playing field for transfers of groundwater and surface water Promote capture/storage of stormwater flows Support for reservoir construction? E.g., Region C (D/FW region) 2010 Water Plan includes 3 new major reservoirs Bill designating reservoir sites State funding support 14

15. Legislative Outlook on Water Issues Legislation-Funding for water projects Projects in 2007 Water Plan: $30.7 billion Past funding: State bonds for loans/grants Proposals for State funding : Apply sales tax to retail water sales 13¢ State fee per 1,000 gallons of retail water Increase in TCEQ annual fee on surface water Current fee (8 or 22¢/a-f) - $416,483 in 2006 $1.50/a-f would yield $49.3 million/year $1 monthly fee on each retail water connection Apply sales tax to bottled water sales 15

16. Legislative Outlook on Water Issues Source: Texas Water Development Board. and Texas Comptroller of Public Accounts 16 Proposed Revenue Sources Fiscal 2008Fiscal 2011 State Sales Tax$243,270,000$266,579,375 State fee/1,000 gal$127,250,019$130,001,766 Water Rights Fee$49,339,946 Water Connection Fee $94,573,104$97,280,928 Sales Tax on Bottled Water $78,000,000$101,750,000 Legislation-Funding for water projects

17. Legislative Outlook on Water Issues “All the water that will ever be is, right now.” National Geographic magazine, October 1993 Questions? 17

18. Legislative Outlook on Water Issues References TCEQ self-evaluation to Sunset Commission: http://www.sunset.state.tx.us/82ndreports/tceq/ser.pdf TWDB self-evaluation to Sunset Commission: http://www.twdb.state.tx.us/publications/reports/ser_documents/ 2009/ser.asp TWDB evaluation by Sunset Commission staff: http://www.sunset.state.tx.us/82ndreports/wdb/wdb_sr.pdf 2009 Report by Comptroller Susan Combs, Liquid Assets: The State of Texas’ Water Resources: http://www.window.state.tx.us/specialrpt/water/stateplan.php Position paper by Texas Farm Bureau and other associations on groundwater ownership: http://www.groundwaterownership.com/PDF/10-25-2010-Joint- GW-v-3.pdf 18