Search for the Elusive 35%; A Sponsor Dilemma
By: James W. Featherston 1
Introduction
In November, 2000, the US Congress passed the Small Watershed Rehabilitation Amendments (Section 313, Public Law 106-472), which contained legislation authorizing the rehabilitation of small watershed floodwater retarding structures (FRS or dams) constructed under the USDA-assisted water resource programs (Public Law 83-566, Public Law 78-534, Pilot Watersheds, and Resource Conservation and Development). The law authorized the United States Department of Agriculture (USDA) through the Natural Resources Conservation Service (NRCS) to assist local project sponsors with dam rehabilitation by providing technical and financial assistance. Rehabilitation costs would be shared by NRCS providing 65% and sponsors financing 35%, which could include in-kind costs applied to their 35% share.
Since the dams actually belong to the watershed project sponsors, the 65/35 cost share initially sounded like an attractive means for local organizations to meet the needs of aging dams. However, due to many of the dams not meeting current design and safety criteria along with ever-increasing construction costs, rehabilitation costs (and consequently sponsors’ 35% share) began to skyrocket.
So, the question “How do sponsors meet their 35% share?” became even more difficult to answer. However, some sponsors initiated innovative techniques to raise needed funds. Some sought other funding sources, while other sponsors just simply dug deeper into their pockets. This paper will discuss how some sponsors in Texas addressed funding of their 35% cost share of rehabilitation, along with potential future means of funding. Specifically, the following will be discussed along with pros and cons of each.
v Sponsor assesses “fees” to developers based on drainage area above the dam. These fees are then applied to the 35% cost of rehabilitation.
v Sponsor utilizes local bond issue to raise money. Taxes are then devoted to the rehabilitation effort.
v Sponsor secures funding from another taxing entity. Funding is devoted strictly to rehabilitation, with sponsor agreeing to provide in-kind services in order to reduce needed funds from other source.
v Sponsor secures funding from alternate source, such as state government.
History
Since 1948 when the first FRS, West Fork Above Bridgeport FRS No. 6, was constructed in Jack County, nearly 2,000 dams have been built in Texas. These dams have been a part of our country’s infrastructure, silently yet consistently providing downstream (and in many cases upstream) benefits for many years. Benefits include:
ü reduction in flood damages to cropland, grazingland, fences, equipment, barns, roads, bridges, utilities, and urban areas;
ü reduced sedimentation and erosion;
ü allowing more intensive farmland production downstream;
ü providing recreation opportunities (eg. fishing, boating);
ü enhancing property values adjacent to permanent water upstream;
ü protection and enhancement of wetlands and wildlife habitat;
ü improvement of water quality; and
ü providing municipal water supplies (multi-purpose dams).
However, over the years conditions have changed and in many cases what used to be productive farmland downstream is now vibrant urban area, teeming with people who may be oblivious to the potential hazard upstream. This is currently the case downstream of 248 dams in Texas that were originally designed and built as either “low” or “significant” hazard, but have since been re-classified as “high” hazard. Dams are classified as high hazard when there is a risk of loss of life downstream in the event of dam failure. This doesn’t mean that the dam is unsafe. The classification simply alerts the public of what could happen should a catastrophic breach occur. To date 10 dams have been upgraded (rehabilitated) to meet current design and safety criteria under the Small Watershed Rehabilitation program. Federal cost was about $16 million, while sponsor or local cost was close to $6 million. NRCS has estimated that funds needed to rehabilitate the remaining 238 dams would approach $334 million, with the local share of 35% being about $116 million.
So, what exactly is the dilemma? In a nut shell, it’s the sponsors’ ability (or rather, inability) to come up with about $116 million. That’s all! No problem, right? NOT! And this dilemma is growing. As the State’s population grows, more and more people will become at risk by building or working downstream of a dam, causing more and more dams to be reclassified as high hazard.
The Dilemma Explained
There’s an old joke that goes something like this: “How do you eat an elephant? Answer: One bite at a time!” Sounds easy enough, especially if you’re really hungry, have the necessary cutlery, and elephant appeals to your palate. However, if you don’t have the appetite or the necessary utensils, then digesting an elephant would be a monumental task!
Unfortunately for many watershed project sponsors in Texas, aging dams are looking more and more like elephants, or maybe even like mammoths, those hulking prehistoric beasts even larger than elephants! And some sponsors have simply lost their appetite for elephant meat or just can’t afford such a delicacy any more. What in the world do I mean by such an analogy? Let me explain by first addressing the former part – the “appetite.”
In the same way our physical appetite for a particular entrée is based on how we remember what it tasted like before, some peoples’ memories of past flooding events are vague because they don’t remember! Such events just don’t happen anymore (and haven’t occurred in years). Why? The answer is simple, really - because of dams located upstream that have been doing their job for many years, probably decades. And the old adage “out of sight out of mind” comes into play. Only “old timers” can recall when a 2-3 inch rain used to swell creeks to overflowing, flood every bridge crossing, delay traffic, strand people from getting home or getting away from home, wreck havoc to fences, crops, equipment - damaging whatever was in the path of the floodwaters. So, if you don’t remember how cordon blue elephant used to taste, chances are you won’t have an appetite for it, and you’ll order something else on the menu. In other words, most people don’t remember or don’t know the history of flooding where they live, so support for upgrading a dam to meet current design and safety criteria just doesn’t make sense to them. “What’s the problem? Flooding? It doesn’t flood anymore, so why fix something that isn’t broke?” Sound familiar? I thought so.
Now for the latter part - cost. Even if elephant (dark or white meat?) appeals to the palate, one may not be able to afford it due to its exorbitant price. When they were built in rural areas, dams protected primarily agricultural land. Now, due to uncontrolled (but allowed) urban sprawl downstream of the dams, these same dams protect people, houses, businesses, infrastructure, and utilities. People living and working downstream now face a risk most likely unforeseen when deciding on the location of their home or business - risk of loss of life due to dam failure (i.e. breach). Most sponsors are (or should be) aware of such a risk, but the price tag to upgrade the dams to address the current hazard rating now well exceeds their checking account balance due to inflationary impacts over time.
What’s Being Done
Following are some examples of ways that some Texas watershed project sponsors have approached “the dilemma.” These are not inclusive. They just represent how some sponsors approached financing their 35% share. Also, these methodologies might not work for other sponsors. Even though conventional wisdom regarding eating elephants stresses one bite at a time, exactly where on the elephant the feast begins is left up to each individual diner.
A. Combination of Tax Bonds and Development Fees
The city of McKinney is located in Collin County, adjacent to Dallas County (north side). Because of its close proximity to Dallas and the network of connecting highways, Collin County (and particularly the city of McKinney) has seen unprecedented growth during the past 20 years or so - cotton fields and other agricultural lands converted to subdivisions, shopping malls, and business districts. From 1951 to 1981, 99 floodwater retarding structures were constructed in Collin County, primarily in rural areas. Eighteen of those dams are currently within the city limits and extraterritorial jurisdiction (ETJ) of the city of McKinney.
The city of McKinney, along with six other local sponsors (including the Collin County Soil and Water Conservation District, owner of the dams’ easements), were the first sponsors in Texas to utilize the Rehabilitation program, with NRCS contributing 65% and the City of McKinney 35% toward rehabilitation costs (the city of McKinney was the sole sponsor funding the 35% share). To date, rehabilitation of four dams has been completed and construction on a fifth dam should be completed by late summer. Plans are in the works for rehabilitation of a sixth dam to be completed during 2010.
The rehabilitation projects are vital due to the age of the structures and the fact that increased flows come from upstream development and population growth. Mayor Bill Whitfield comments that the dam rehabilitation projects enhance the quality of life in the city of McKinney and its economic development focus and aging infrastructure. “It’s shown great insight that NRCS has the funds available to help rehabilitate these dams, because for us it means health, safety and welfare in an aging infrastructure,” he said.
In order to fund the 35% share of these projects, the City Council of McKinney utilizes bond funding through taxes combined with developer’s contributions. Since it is generally unreasonable to require developers to completely fund a dam rehabilitation project, those with land located within the fully developed watershed of the lake are asked to contribute towards the upgrade of the dam based on the acreage of the development within the watershed. This works out to be a true partnership with the city of McKinney, the development community, and the NRCS.
Here’s an example of how this works.
The city authorizes a preliminary study that shows the estimated cost to rehabilitate a dam is $800,000. The study is utilized to develop rehabilitation concepts and determine an approximate cost of installing the improvements. The dam's drainage area is 1,000 acres. Thus, the cost, distributed equally, is $800 per acre. The developer’s contribution is 50% of the estimated cost. The city provides the balance of the local sponsors’ share for construction through the issuance of bonds. Upon development of a 50-acre tract, all of which is within the drainage area of the dam, the contribution is 50 acres x $800 per acre x 50% = $20,000. Any area to be developed outside the drainage area, even if it is part of a development that is mostly within the basin, is not required to contribute to the improvements.
Following are pros and cons of this scenario.
Ø Pros:
§ Cost is spread over many beneficiaries of project.
§ Tax increase is usually minimal per capita.
§ Reduces local tax burden of cost of rehabilitation.
§ Frees up local taxes for other uses.
§ Since fees are usually passed on to buyer, promotes a sense of property owner responsibility towards the upkeep of area adjacent to the dam and/or sediment pool (permanent water);
§ Allows sponsors to have more input into land plat development.
Ø Cons:
§ Option only available in instances where sponsor has control or jurisdiction of drainage area above dam.
§ Developer cannot start construction until fees are paid.
§ Lack of developable land could hinder fee assessment.
B. Utilize Local Tax Base
This methodology involves the financial contribution needed to fulfill the 35% local share comes from a local tax base. However, sponsors have adopted several ways to address this option. Below are two examples based on the source of the tax revenue.
1. County Government
In many instances, the county governing body (i.e. County Commissioner’s Court) is an active watershed sponsor member. This body assesses taxes and uses the revenue for the good of the county’s populace. Some of the tax revenue is distributed annually to watershed sponsors located within the county. In order to succeed, parties involved in this option need strong working relations and good, open communications. In the case highlighted below, however, a unique situation exists. The county allocates a large portion of tax revenue towards the rehabilitation of reclassified high hazard dams within the county boundary. But, the county is not an official watershed sponsor!
Bexar County and San Antonio River Authority
Bexar County is located in south central Texas and has San Antonio as its county seat. The San Antonio River Authority (SARA) was formed in 1937 by the Texas legislature. Its main concerns are water supply and water conservation in the San Antonio River basin in Bexar, Goliad, Karnes, and Wilson counties. SARA operates and maintains 27 dams in Bexar County.
A series of six dams was constructed from 1964 to 1965 in eastern Bexar County to provide flood protection and promote soil conservation in the Martinez Creek Watershed. Several years ago, SARA and Bexar County conducted a comprehensive assessment of all dams in the Martinez Creek Watershed to determine their condition and ability to safely withstand a maximum flood event. Due to increased residential development upstream and downstream of the dam, three of the six dams were determined to be structurally sound but hydraulically inadequate by current performance standards.