A proposal to revamp the state water board has turned a spotlight on concerns about oversight of an agency that in the coming years likely will be entrusted to handle billions of additional taxpayer dollars meant for projects to protect Texas from ruinous drought.
For decades, the Texas Water Development Board has been an obscure state agency, essentially acting as a bank that lends money, at low interest rates, to communities wishing to build new wells, repair aging sewage treatment plants and engineer new pipelines.
But under an ambitious plan to upgrade the state’s water-bearing and storage infrastructure, the board stands poised to control $2 billion in new state money.
After a scandal over the management of cancer research money controlled by a small state agency, and in the muddied game of Texas politics, governance of the board has become a political football.
State Sen. Troy Fraser, R-Horseshoe Bay, an ally of Gov. Rick Perry, says he wants to professionalize a board that will be handling more responsibility and money. But former board members say the agency works fine as is and worry about undue political influence.
Under a proposal by Fraser, lawmakers would fire the current head bureaucrat at the 295-employee agency and dismiss its six-member volunteer governing board.
In their place would appear a new director and a three-member, paid full-time board, to be appointed, as is the current one, by the governor.
“The system has worked well, but the difference now is the sheer amount of money they’re going to be handling,” Fraser said. “The Legislature, because of the problems at (the cancer agency), wants to make sure there’s going to be adequate review for the money we put into projects.”
But the proposal is drawing criticism from some former board members, who say the agency has never approved a bad loan and that a full-time professional board would be subject to political interference in a way that the part-time board is not. Though current board members are appointed by the governor, they aren’t beholden to him for their living.
The governance proposal “is a really bad idea,” said Jack Hunt, who retired from the board in 2011 after 13 years and, as the retired CEO of the King Ranch, fits the profile of most of the board members, who have run banks and large businesses.
“I don’t have an ax to grind with governor,” said Weir Labatt III, who had worked in his family’s San Antonio wholesale grocery business before being appointed to the board by Perry in 2002 (he served until 2012). “But it’s just power politics and not good for the state of Texas.”
Perry’s office made supportive noises about the bill.
“(It) seeks to ensure that the agency tasked with overseeing this investment is properly structured to manage the increased activities of the board,” Perry spokesman Josh Havens said. The new board would “provide the appropriate oversight that the people of Texas expect with their tax dollars.”
Should the proposal become law, it would point, yet again, to Perry’s reach as Texas’ longest-serving governor. He has made thousands of appointments to state boards and commissions over his 12-year tenure, and his appointees oversee every corner of state government. He and his appointees have remade bureaucracies large and small, from the University of Texas, where Perry’s regents have rumbled about replacing the president, to the Texas Commission on Environmental Quality, where one of Perry’s former legislative aides is now the executive director.
The Legislature created the Water Development Board in 1957, as the state crept out of the worst drought on the books and readied itself for a massive reservoir and infrastructure building effort.
Nowadays, the board loans money to local governments for more modest water supply projects and pays for conservation work and water-related research, such as the collection of data on freshwater needs in the state’s bays and estuaries.
It has a $5.5 billion loan portfolio, which could soon expand overnight. Lawmakers are weighing whether to take $2 billion from the state’s rainy day fund as seed money on a revolving loan program, to be administered by the Water Development Board, that could finance tens of billions of dollars worth of water projects over the next 50 years. Otherwise, according to the 2012 state water plan, water shortages and drought could cost a million jobs in that time and hamper the economy.
Fraser, who chairs the Senate Natural Resources Committee, has tied the financing to a governance shake-up of the Water Development Board, which has a 2013 budget of $56.2 million.
“The agency has changed a lot,” Fraser said in a February committee hearing. The pumping in of new money will make “a huge workload for a volunteer board member,” he said.
He won the support of J. Kevin Ward, who stepped down in 2011 as administrator of the Water Development Board and now is general manager of the Trinity River Authority.
“I spent a lot of my career both as a deputy and executive administrator educating board members and helping them understand not only our programs, but the legislative process,” Ward testified at the hearing. “It may be the time that the board would benefit from full-time board members that are appointed and are salaried.”
The board members would be there every day, he continued, making staff more accountable and improving relations with lawmakers. “They’re going to know the business and they’re going to be involved,” Ward said.
But Hunt said the move would politicize a board that has traditionally been overseen by businessmen, bank presidents and engineers from all parts of the state.
“Three guys who are Austin preachers would get the job — people in the political life here in Austin,” Hunt said. The people running the Water Development Board “don’t have any particular biases other than making sure their regions are represented and that nothing happens there that would damage the state’s reputation, its bond ratings or their personal reputations.”
Currently the Water Development Board enjoys top marks from ratings agencies, making it cheaper for the agency to borrow money, driving down interest rates it makes on its own loans.
“It makes you nervous with a lot of money flowing around,” Hunt said. “Bad things can happen. Right now, there are six guys whose lives are elsewhere, and if they smell something off it’s not going to happen.”
“You get career people, only inside people — that doesn’t lead to objectivity,” said Labatt, another former board member.
Fraser said the former board members “would naturally be defensive.”
“The governor’s office is really staying totally independent of this,” he said.
As with other boards and commissions, Perry has tried to reach past his appointees on the Water Development Board to install favorites and associates into bureaucratic positions.
“If I had to characterize this, having intimately been involved working for the board, this is a power play from the governor’s office,” said Labatt, who was originally appointed — and then reappointed — by Perry.
Both Labatt and Hunt said personnel moves at the agency could be to blame.
A decade or so ago, board members passed up an opportunity to hire Barry McBee, who had served as Perry’s chief of staff in both the governor’s and lieutenant governor’s office. Instead, they opted for Ward, an internal candidate who served nearly a decade in the top job.
“If he was really mad at us,” acknowledged Labatt, who was reappointed by Perry in 2006, “he would have fired us 10 years ago.”
When Ward left in 2011, the commissioners again turned internally to fill the position, despite signals from Perry’s office that he hoped they would appoint his aide on natural resource issues to the job.
“The governor operates under the assumption if he appoints you, regardless of your business judgment, you’re supposed to do what he wants you to do,” Hunt said.
By April 2012, the chairman, Ed Vaughan, a lawyer in Boerne, was demoted by Perry. Vaughan declined to speak for this story.
Fraser has not been happy with the board and its administrator either.
In a hearing, Fraser said they were not responsive to his requests, chiefly one in which he asked the agency to compose a priority list of the many projects listed in the state water plan.
Of the board members, Fraser said: “I haven’t had a lot of luck communicating with (them).”
Labatt said he was astounded by the allegation.
“I never got a single call from him or his staff person in 10-and-a-half years,” Labatt said. “For him to take on the Water Development Board because it’s not responsive — I find it hard to believe.”
‘Ability to lead’
Fraser told the American-Statesman that he has lost confidence in board executive administrator Melanie Callahan’s “ability to lead.” She would lose her job if his legislation becomes law.
Callahan has a mixed record. In 2012, the Texas State Agency Business Administrators’ Association named her administrator of the year.
In her most recent performance review, obtained by the American-Statesman under the state’s public information law, Callahan received an overall score of 2.8 out of 4 from board members; her highest marks were for “business acumen,” her lowest for “managing vision and purpose.”
There also have been complaints about inflexibility in the agency’s loan program and questions about whether board members are equipped to handle the demands of the agency.
“It’s a volunteer, part-time board, very much reliant on staff for their resources, facts and information,” state Rep. Dennis Bonnen, R-Angleton, said at the February Natural Resources Committee hearing.
“I know how engaged board members are,” Callahan told the committee. “I speak to one of them daily probably. It’s an ongoing dialogue. We’re already handling several billion in loans and debt, so that doesn’t particularly give me pause.”
Bonnen seemed unsatisfied: “If I were a member of your board, you and your staff are the only resource I have, is that correct?”
Callahan acknowledged that her staff is responsible for briefing the board members. Under questioning from Bonnen, she said that board meetings, held once a month, typically don’t last longer than a half-hour.
The former board members, interviewed separately, pointed to the board’s track record on loans as evidence that the agency works well: Not a single borrower has defaulted on a single dollar of state money, Labatt said.
“If it ain’t broke why fix it?” said Hunt. “The only thing that appears to be broke here is feelings hurt because the governor’s office has met with resistance.”
Fraser said the governance issue will likely be hashed out in conference committee, since the House version of the measure doesn’t include the governance shake-up.
“At the end of the day, we don’t know what structure is going to look like,” he said. “We might leave it as is, or we might radically change it.”
Asher Price has covered the environment, climate and related issues for six years, including business efforts to take advantage of market opportunities presented by drought and limited water supplies.