According to the Legislative Budget Board (LBB), the fiscal implications of SB 1261 are currently indeterminate due to the unknown timing and volume of applications and expenditures associated with eligible water supply projects. The bill does not make a direct appropriation but could lay the groundwork for future appropriations, as it enables a new framework through which public entities may issue long-term obligations—up to 40 years in term—for large-scale water projects costing at least $750 million. These obligations can be secured through project revenues or contractual agreements but not ad valorem taxes.

Notably, the bill would expand the eligible use of several major funding pools managed by the Texas Water Development Board (TWDB), including the State Water Implementation Fund for Texas (SWIFT), its revenue counterpart (SWIRFT), the Texas Water Resources Fund, and the State Participation Account within the Water Development Fund II. The proposed expansion of allowable use and longer repayment terms under these funds could incentivize greater participation by local governments, particularly for complex, capital-intensive water infrastructure projects. However, this may also accelerate the depletion of fund balances and reduce interest income earned from those funds over time.

The TWDB estimates that to support the increased complexity and volume of financial review tasks associated with these long-term obligations, it would require three new full-time equivalent positions, including financial analysts and a financial examiner. The associated costs are estimated at $446,268 in FY 2026 and $421,068 in FY 2027, with ongoing staffing and benefit costs totaling over $400,000 annually through FY 2030. These staff would be responsible for performing more in-depth credit analysis and post-closure financial monitoring of borrowers.

While the Comptroller and Attorney General's offices anticipate being able to absorb any related administrative costs within existing resources, the overall fiscal impact on both state and local governments remains uncertain. Local governments would benefit from the ability to spread debt service over longer terms, lowering annual repayment costs, but the full scope and timing of participation remain speculative at this stage.

SB 1261 seeks to provide a streamlined financing mechanism for large-scale water supply projects included in the Texas State Water Plan, which is an essential objective given the state’s growing population and long-term water security concerns. The bill authorizes a broad class of governmental entities to issue long-term obligations—up to 50 years—for projects with cumulative capital costs exceeding $750 million. These obligations are designed to be secured through project revenues or water-related contracts, not property taxes, and are intended to lower annual debt payments for large regional water infrastructure initiatives.

While the bill responds to an urgent and valid need, the mechanism it proposes opens the door to significant fiscal and structural risks. Chief among these is the expansion of public debt authority without adequate safeguards. The bill does not require voter approval for obligations, and while ad valorem taxes are prohibited as collateral, the financial burden can still fall on ratepayers if project revenues underperform. This is particularly concerning for future generations, who may inherit the cost of financing infrastructure that no longer serves them or whose value has depreciated. This intergenerational debt transfer is a fundamental departure from sound fiscal conservatism.

Additionally, the Committee Substitute version of SB 1261 eliminates key oversight mechanisms found in the originally filed bill, such as mandatory review by the Attorney General and registration by the Comptroller. It also carves out an exemption from Texas Water Development Board (TWDB) oversight, severing these large-scale financing activities from the traditional institutional frameworks used to vet, prioritize, and monitor water infrastructure investment in Texas. While the goal is to expedite financing, the removal of these layers of scrutiny substantially increases the risk of misuse or mismanagement of public funds.

The scope of eligible issuers is another concern. SB 1261 extends financing authority to an expansive set of public entities beyond traditional political subdivisions—such as state agencies, boards, and public corporations—many of which may lack the financial sophistication or governance capacity to responsibly manage obligations of this magnitude and duration. Without clear standards for eligibility, risk assessments, or financial vetting, the state may inadvertently create incentives for over-leveraging or speculative infrastructure development.

Despite these significant concerns, the policy goal behind the bill is sound. Texas does need a strategy to facilitate investment in regional-scale water infrastructure. However, for this bill to uphold core liberty principles—particularly limited government, personal responsibility, and financial accountability—it must include meaningful amendments.

Recommended Amendments:

• Reinstating mandatory review by the Office of the Attorney General and Comptroller to ensure constitutional and statutory compliance.
• Reintroducing oversight or coordination with the Texas Water Development Board, at minimum for project feasibility, environmental impact, and financial vetting.
• Limiting eligible issuers to those with demonstrated financial capacity, perhaps based on bond ratings or independent credit assessments.
• Requiring public hearings and transparency measures for obligations over a certain threshold, particularly when projects are financed with multigenerational timelines.
• Imposing a cap on debt terms or requiring that the useful life of the project not be exceeded by its financing maturity, with allowances only through engineer-certified exceptions.

In conclusion, while SB 1261 attempts to offer an innovative response to a pressing infrastructure challenge, its current form lacks the fiscal guardrails and democratic safeguards necessary to justify its broad delegation of borrowing authority. Without these amendments, the bill risks increasing the scope of government authority, reducing transparency, and placing long-term financial burdens on Texans without proper accountability. For these reasons, Texas Policy Research recommends that lawmakers vote NO on SB 1261 unless amended as described above.

• Individual Liberty: The bill has indirect implications for individual liberty. By supporting long-term financing of water infrastructure, it seeks to ensure that Texans have reliable access to water—an essential service that underpins daily life, health, and economic participation. In that sense, the bill serves the broader public good by helping to secure a basic necessity. However, it does not directly expand or restrict personal freedoms, nor does it contain any provisions that meaningfully engage individual consent. Because obligations issued under this authority do not require voter approval or public referenda, individuals have limited recourse or voice in the incurrence of long-term debt that may affect them through rate increases or utility charges.
• Personal Responsibility: The bill shifts financial responsibility for water infrastructure away from the current generation of users and places a substantial portion of the cost on future ratepayers. While this may be economically rational for long-term capital projects, it risks eroding the principle of fiscal self-responsibility if governments overextend without thoroughly assessing future risk and capacity to repay. By removing some oversight mechanisms—such as review by the Attorney General or Comptroller—the bill also reduces external checks that would ensure that local entities are being prudent and accountable in their borrowing decisions. Without a strong internal control structure or public scrutiny, there’s an increased risk that local leaders may act without fully bearing the consequences of long-term debt.
• Free Enterprise: The bill's impact on free enterprise is ambiguous. On one hand, enhancing infrastructure such as regional water supply systems is essential to enabling private-sector growth, especially in rural or underserved areas. Strong water infrastructure supports housing development, agriculture, manufacturing, and other industries. On the other hand, the bill authorizes government-driven, large-scale financing that may compete with or crowd out private sector solutions, particularly if state-affiliated entities receive preferential financing terms or absorb market risk that private firms would otherwise bear. The absence of requirements for public-private partnerships or competitive bidding in the bill means it could unintentionally skew market dynamics in favor of government-led development.
• Private Property Rights: There is no explicit impact on private property rights in the bill as written. The bill does not invoke eminent domain, alter land-use regulations, or authorize land acquisition for projects. However, as with any large-scale infrastructure, downstream implications for property rights could emerge during project implementation—especially if water lines, treatment facilities, or reservoirs require land access. Without strong protections or procedural requirements included in this financing statute, property rights concerns are not proactively addressed, but they are not directly implicated either.
• Limited Government: This is where the bill has the greatest tension with liberty principles. While the bill does not create a new agency or direct appropriation, it significantly expands the authority of a broad array of governmental entities to issue long-term debt—up to 50 years—without requiring voter approval, direct oversight from TWDB, or review by statewide offices. This expansion of borrowing power, with limited guardrails, represents a meaningful enlargement of government scope. By loosening oversight and enabling long-term obligations that could outlast the usefulness of the projects they fund, the bill risks undermining fiscal conservatism and principles of governmental restraint. Without more stringent controls, the risk is that political subdivisions or state-level authorities may over-leverage their financial position in ways that extend government influence well into the future, possibly without sufficient accountability to taxpayers or ratepayers.

• HB 2815 (Same As)