LCRA tables sale of water/wastewater assets to Canadian firm

Concerned taxpayers are hoping elected officials will be more open than they have been on the thus far unsuccessful LCRA water infrastructure project that has cost taxpayers in the range of $60,000 worth of due diligence studies

Note: This statement was provided by LCRA's public information office: The LCRA Board approved the following motion on divestiture today: “I move that the Board table the Divestiture matter until the September Board meeting; and direct staff to work with BMO to contact the individual customer bidders and the Coalition for further discussion concerning their bids; and further explore possible improvements to the bid of Corix Infrastructure and other bidders for the balance of the system.”

Send your comments and news tips to roundup.editor@gmail.com, to Mr. O'Dell at codell@austin.rr.com or click on the "comments" at the bottom of the story

By Charles O'Dell
Contributing Editor

Except for the shouting, it may yet be all over for one proposed Hays County water project, but it’s just beginning for another water project still in the shadows.

Twenty-three of twenty seven LCRA water/wastewater assets, including the Hwy 290 water line to Dripping Springs, were on the dock today to be sold to a Canadian water and wastewater firm, Corix. But LCRA's board, emerging from executive session, decided to table the sale until September. Their staff and outside financial advisor, BMO Capital Markets, had recommended approving the sale to Corix.

Hays County Commissioner Ray Whisenant was among several Hays Countians who attended today's board meeting and spoke on behalf of the county's interests.

The recently reactivated Hays County Water and Sewer Authority joined in the bidding through the Utility District Corporation, an entity formed by cooperating governments in Hays and Travis counties specifically to purchase some of the water assets LCRA is selling.

Texas Special District Local Laws Code section 8503.020 requires an affirmative vote of three-fourths by the LCRA board (12 votes) and that was expected to occur today.

Approval by the LCRA board would have authorized its staff to negotiate and enter into agreements to sell all of their water and wastewater utility assets, properties and related operations of the Water Utility.

History 101 on Government/Business Cooperation at Public Expense

What led up to today’s LCRA announcement?

Beginning in the mid 1990’s, LCRA embarked on a ten year $300 million buying spree of small community water systems and the construction of new water distribution infrastructure that promoted high-density development in Western Travis County and Northwestern Hays County.

On May 9, 2000, Hays County commissioners’ court created the Hays County Water and Sewer Authority under the guise of a “drought emergency” to jump-start the stalled LCRA Hwy 290 water line construction to Dripping Springs. The drought emergency was reportedly a water well in Sunset Canyon had gone dry.

The primary purpose of the new Water and Sewer Authority was to, “expand surface water service while reducing demands on the Trinity and Edwards Aquifers, insuring a safe reliable water source for all residents of Hays County.”

Touted as promoting water availability in unincorporated areas of the county, virtually all surface water in Hays County actually serves municipalities and high density users in extraterritorial jurisdictions of municipalities, not in unincorporated areas.

As part of the 290 water line deal, LCRA agreed to pay a 6% water utility franchise fee to Hays County. That Agreement fell by the wayside until 2004 when a non-profit organization, HaysCAN, made inquires to the County Auditor, asking for an accounting of the fees collected to date. No fees had been collected and the Agreement had been forgotten.

At commissioners’ court, LCRA officials agreed to make a one-time payment of $10,000 to the County to cover past omissions, and to begin making regular payments of the 6% fee for LCRA water sold in Hays County to Sunset Canyon, Belterra, High Point and other new subdivisions. Sales of water to the Dripping Springs Water Supply Corp were exempt from the franchise fee.

The DSWSC contract calls for use of up to one million gallons per day of LCRA water.

On November 16, 2005, following an exhaustive review and analysis of thousands of LCRA documents obtained through Open Records, HaysCAN presented findings to the LCRA board that showed they were pursuing a flawed business plan that had been instigated by then LCRA General Manager, Joe Beal.

The HaysCAN report concluded that the LCRA water business plan:

1. Captured community water and wastewater systems with faulty projections and promises,
2. Sought certificates of Necessity and Convenience (CCN) to exclude competition from lower-cost utilities,
3. Financed hundreds of millions of dollars in capital markets while attempting to integrate non-viable systems acquired on the basis of a flawed business plan,
4. Failed to inform board members until after open record requests were filed by a public entity, that many of the business plan projections were unreliable, and
5. Disguised a policy of higher impact fees/utility rates, and stimulation of new high-density residential development as the true business plan strategy.

In 2006, the LCRA board reviewed, with support from outside consultants, the Water Utility’s strategic direction. By August 2007, the Board directed staff to begin divesting some parts of the Water Utility to give it better focus and move the Water Utility toward financial self-sustainability.

In August 2007, Joe Beal retired from LCRA and went to live in Bastrop.

On November 17, 2010, the LCRA board directed its general manager to seek qualified buyers for all remaining assets comprising the Water Utility.

On April 27, 2011, Hays County commissioners’ court in a 4 –1 vote (Pct 2 Commissioner Mark Jones voting No) approved forming a Utility Development Corporation that is part of a coalition of other local government corporations that bid on some of the LCRA water assets, including the 290 line in Hays County.

On June 15, 2011, Mark Kennedy, acting attorney for both Hays County commissioners’ court and the Hays County Water and Sewer Authority, ordered a Certificate of Formation of a non-profit corporation for Hays County Water and Sewer Authority, Inc. Apparently, the original incorporation documents had been lost by the County.

What’s Next?

With the LCRA board's tabling of the sale of its water assets to Corix, efforts by the HCWSA to purchase 290 water infrastructure appears still to have a lifeline. So what else is on the HCWSA agenda?

On August 15, 2011, Pct 4 Commissioner Whisenant, who is President of the Hays County Water and Sewer Authority, Inc., and County Judge Bert Cobb, M.D., entered into an unsolicited Letter of Intent with Forestar Group Inc., “or an entity owned or controlled by it”, to, “enter into a Wholesale water supply Agreement for the water supply project. Forestar is a Delaware incorporated real estate firm.

The parties intend to pursue terms of this Letter of Intent as an Economic Development Negotiation. The parties’ participation in development of infrastructure within Hays County is designed to assure the ability to convey wholesale water supplies among retail suppliers in Hays County.

The language in this Letter of Intent and the secrecy surrounding its genesis is creating major concerns among many Hays County taxpayers. They are hoping elected officials will be more open on this new project than they have been on the thus far unsuccessful LCRA water infrastructure project that has cost taxpayers in the range of $60,000 worth of due diligence studies.

As co-founder of Hays Community Action Network (HaysCAN) in 2003, Mr. O'Dell strives to carry out the mission of ensuring open, accessible and accountable government. He is a long time and close observer of the workings of the Hays County County Commissioners Court. He earned a degree in Agricultural Education and a Masters in Ag Economics at Texas Tech, and, later a Ph.D. at The University of Maryland while employed as a Research Economist with the U.S. Department of Agriculture (USDA) in Washington, D.C. Texas born and raised on a family farm, O'Dell is a Hays County Master Naturalist and is a past president of the board of the Ethical Society of Austin.