Wednesday, May 23, 2001

SENATE JOURNAL

SEVENTY-NINTH DAY

Wednesday, May 23, 2001

PROCEEDINGS

The Senate met at 10:00 a.m. pursuant to adjournment and was called to order by the President.

The roll was called and the following Senators were present: Armbrister, Barrientos, Bernsen, Bivins, Brown, Cain, Carona, Duncan, Ellis, Fraser, Gallegos, Harris, Haywood, Jackson, Lindsay, Lucio, Madla, Moncrief, Nelson, Ogden, Shapiro, Shapleigh, Sibley, Staples, Truan, Van de Putte, Wentworth, West, Whitmire, Zaffirini, Mr. President.

The President announced that a quorum of the Senate was present.

The Reverend John Dillard, First United Methodist Church, Wichita Falls, offered the invocation as follows:

Dear God, we thank You for each and every person here today. We thank You for each and every one that is represented by these here today. It is both a privilege and awesome responsibility to be a free people. We need more help than we are at times. May Your inspiring guidance be present in both the work of the specific words and letters used to create the laws we live by, and may we never lose sight of the spirit or the purpose of the laws in the first place.

May we work to make this state a better place in which to live for all who dwell here or are passing through. May we acknowledge a power greater than ourselves in life, by whatever name we choose to call You.

Thank You for the gift of life we have. Thank You for all that You have done, are doing, and will do this day. In the name of all that is holy and sacred. Amen.

On motion of Senator Truan and by unanimous consent, the reading of the Journal of the proceedings of yesterday was dispensed with and the Journal was approved.

SENATE BILL 1156 WITH HOUSE AMENDMENTS

Senator Zaffirini called SB 1156 from the President's table for consideration of the House amendments to the bill.

The President laid the bill and the House amendments before the Senate.

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Amendment

Amend SB 1156 by substituting in lieu thereof the following:

A BILL TO BE ENTITLED

AN ACT

relating to the state Medicaid program.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1.  Section 32.024, Human Resources Code, is amended by adding Subsections (x) and (y) to read as follows:

(x)  In its rules and standards governing the vendor drug program, the department may not limit benefits for the number of medications prescribed to a recipient of prescription drug benefits under the medical assistance program. In accordance with Section 531.02106, Government Code, the department also shall provide for cost-sharing by recipients of prescription drug benefits under the medical assistance program in a manner that ensures that recipients with higher levels of income are required to pay progressively higher percentages of the costs of prescription drugs. In implementing cost-sharing provisions required by this subsection, the department may not require a pharmacy participating in the vendor drug program to collect copayments or other cost-sharing payments from recipients for remittance to the department, but shall allow the pharmacy to retain the payments as a component of the reimbursement provided to the pharmacy under the program.

(y)  The department shall provide medical assistance to a person in need of treatment for breast or cervical cancer who is eligible for that assistance under the Breast and Cervical Cancer Prevention and Treatment Act of 2000 (Pub. L. No. 106-354) for a continuous period during which the person requires that treatment. The department shall simplify the provider enrollment process for a provider of that medical assistance and shall adopt rules to provide for certification of presumptive eligibility of a person for that assistance. In determining a person's eligibility for medical assistance under this subsection, the department, to the extent allowed by federal law, may not require a personal interview.

SECTION 2. (a) Subchapter B, Chapter 32, Human Resources Code, is amended by adding Sections 32.0247 and 32.0248 to read as follows:

Sec. 32.0247.  ELIGIBILITY OF CERTAIN ALIENS. (a) The department shall provide medical assistance in accordance with 8 U.S.C. Section 1612(b), as amended, to a person who:

(1)  is a qualified alien, as defined by 8 U.S.C. Sections 1641(b) and (c), as amended;

(2)  meets the eligibility requirements of the medical assistance program;

(3)  entered the United States on or after August 22, 1996; and

(4)  has resided in the United States for a period of five years after the date the person entered as a qualified alien.

(b)  If authorized by federal law, the department shall provide pregnancy-related medical assistance to the maximum extent permitted by the federal law to a person who is pregnant and is a lawfully present alien as defined by 8 C.F.R. Section 103.12, as amended, including a battered alien under 8 U.S.C. Section 1641(c), as amended, regardless of the date on which the person entered the United States. The department shall comply with any prerequisite imposed under the federal law for providing medical assistance under this subsection.

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Sec. 32.0248.  MEDICAL ASSISTANCE FOR CERTAIN PERSONS MAKING TRANSITION FROM FOSTER CARE TO INDEPENDENT LIVING. (a) In this section, "independent foster care adolescent" has the meaning assigned by 42 U.S.C. Section 1396d(w)(1).

(b)  The department shall provide medical assistance, in accordance with department rules, to an independent foster care adolescent who:

(1)  is not otherwise eligible for medical assistance; and

(2)  is not covered by a health benefits plan offering adequate benefits, as determined by the Health and Human Services Commission.

(c)  The department may not consider a person's income, assets, or resources in determining whether the person is eligible for medical assistance under this section.

(b)  As soon as possible after the effective date of this Act, the Health and Human Services Commission shall submit an amendment to the state's Medicaid plan to include the provision of medical assistance to independent foster care adolescents as required by Section 32.0248, Human Resources Code, as added by this Act.

SECTION 3. Subchapter B, Chapter 32, Human Resources Code, is amended by adding Section 32.0252 to read as follows:

Sec. 32.0252.  CONTRACT TO PROVIDE ELIGIBILITY DETERMINATION SERVICES. (a) To the extent allowed by federal law, and except as otherwise provided by this section, the department may contract for the provision of medical assistance eligibility services with:

(1)  a hospital district created under the authority of Sections 4-11, Article IX, Texas Constitution;

(2)  a hospital authority created under the authority of Chapter 262 or 264, Health and Safety Code, that uses resources to provide health care services to indigent persons to some extent;

(3)  a hospital owned and operated by a municipality or county or by a hospital authority created under Chapter 262 or 264, Health and Safety Code;

(4)  a medical school operated by this state;

(5)  a medical school that receives state money under Section 61.093, Education Code, or a chiropractic school that receives state money under the General Appropriations Act;

(6)  a teaching hospital operated by The University of Texas System;

(7)  a county that is required to provide health care assistance to eligible county residents under Subchapter B, Chapter 61, Health and Safety Code;

(8)  a governmental entity that is required to provide money to a public hospital under Section 61.062, Health and Safety Code;

(9)  a county with a population of more than 400,000 that provides money to a public hospital and that is not included in the boundaries of a hospital district;

(10)  a hospital owned by a municipality and leased to and operated by a nonprofit hospital for a public purpose;

(11)  a hospital that receives Medicaid disproportionate share payments;

(12)  a community mental health and mental retardation center;

(13)  a local mental health or mental retardation authority;

(14)  a local health department or public health district;

(15)  a school-based health center;

(16)  a community health center; and

(17)  a federally qualified health center.

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(b)  The department may contract with an entity described by Subsection (a) for the entity to designate one or more employees of the entity to process medical assistance application forms and conduct client interviews for eligibility determinations.

(c)  The contract must require each designated employee to submit completed application forms to the appropriate agency as determined by the department to finally determine eligibility and to enroll eligible persons in the program. A designated employee may not make a final determination of eligibility or enroll an eligible person in the program.

(d)  The department may:

(1)  monitor the eligibility and application processing program used by an entity with which the department contracts; and

(2)  provide on-site supervision of the program for quality control.

(e)  The Health and Human Services Commission shall ensure that there are adequate protections to avoid a conflict of interest with an entity described by Subsection (a) that has a contract for eligibility services and also has a contract, either directly or through an affiliated entity, as a managed care organization for the Medicaid program or for the child health plan program under Chapter 62, Health and Safety Code. The commission shall ensure that there are adequate protections for recipients to freely choose a health plan without being inappropriately induced to join an entity's health plan.

SECTION 4. Subchapter B, Chapter 32, Human Resources Code, is amended by adding Section 32.0271 to read as follows:

Sec. 32.0271.  SELECTION OF NURSE FIRST ASSISTANT. (a) In this section, "nurse first assistant" means a registered nurse who:

(1)  is certified in perioperative nursing by an organization recognized by the Board of Nurse Examiners; and

(2)  has completed a nurse first assistant educational program approved by an organization recognized by the Board of Nurse Examiners.

(b)  The department shall ensure that a recipient of medical assistance may select a nurse first assistant to perform any health care service or procedure covered under the medical assistance program if:

(1)  the selected nurse first assistant is authorized by law to perform the service or procedure; and

(2)  the physician requests that the service or procedure be performed by the nurse first assistant.

(c)  The Board of Nurse Examiners may adopt rules governing nurse first assistants for purposes of this section.

SECTION 5. Section 32.029, Human Resources Code, is amended by adding Subsection (f) to read as follows:

(f)  The department or its designee may implement demonstration projects designed to reduce medical assistance claims processing costs.

SECTION 6. (a) Subchapter B, Chapter 32, Human Resources Code, is amended by adding Section 32.0422 to read as follows:

Sec. 32.0422.  HEALTH INSURANCE PREMIUM PAYMENT REIMBURSEMENT PROGRAM FOR MEDICAL ASSISTANCE RECIPIENTS. (a) In this section:

(1)  "Department" means the Texas Department of Health.

(2)  "Group health benefit plan" has the meaning assigned by Article 21.52K, Insurance Code.

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(b)  The department shall identify individuals, otherwise entitled to medical assistance, who are eligible to enroll in a group health benefit plan. The department must include individuals eligible for or receiving health care services under a Medicaid managed care delivery system.

(c)  The department may require an individual requesting medical assistance to provide information as necessary relating to the availability of a group health benefit plan to the individual through an employer of the individual or an employer of the individual's spouse or parent. The department may not leave pending, consider incomplete, or otherwise delay an individual's application for medical assistance or request for recertification as a result of the requirement authorized by this subsection.

(d)  For an individual identified under Subsection (b), the department shall determine whether it is cost-effective to enroll the individual in the group health benefit plan under this section.

(e)  If the department determines that it is cost-effective to enroll the individual in the group health benefit plan, the department shall:

(1)  require the individual to apply to enroll in the group health benefit plan as a condition for eligibility under the medical assistance program; and

(2)  provide written notice to the issuer of the group health benefit plan in accordance with Article 21.52K, Insurance Code.

(f)  The department shall provide for payment of:

(1)  the employee's share of required premiums for coverage of an individual enrolled in the group health benefit plan; and

(2)  any deductible, copayment, coinsurance, or other cost-sharing obligation imposed on the enrolled individual for an item or service otherwise covered under the medical assistance program.

(g)  A payment made by the department under Subsection (f) is considered to be a payment for medical assistance.

(h)  A payment of a premium for an individual who is a member of the family of an individual enrolled in a group health benefit plan under this section and who is not eligible for medical assistance is considered to be a payment for medical assistance for an eligible individual if:

(1)  enrollment of the family members who are eligible for medical assistance is not possible under the plan without also enrolling members who are not eligible; and

(2)  the department determines it to be cost-effective.

(i)  A payment of any deductible, copayment, coinsurance, or other cost-sharing obligation of a family member who is enrolled in a group health benefit plan in accordance with Subsection (h) and who is not eligible for medical assistance:

(1)  may not be paid under this chapter; and

(2)  is not considered to be a payment for medical assistance for an eligible individual.

(j)  The department shall treat coverage under the group health benefit plan as a third party liability to the program. Enrollment of an individual in a group health benefit plan under this section does not affect the individual's eligibility for medical assistance benefits, except that the state is entitled to payment under Sections 32.033 and 32.038.

(k)  The department may not require or permit an individual who is enrolled in a group health benefit plan under this section to participate in the Medicaid managed care program under Chapter 533, Government Code, or a Medicaid managed care demonstration project under Section 32.041.

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(l)  The Texas Department of Human Services shall provide information and otherwise cooperate with the department as necessary to ensure the enrollment of eligible individuals in the group health benefit plan under this section.

(m)  The department shall adopt rules as necessary to implement this section. In developing rules and related procedures, the department shall consult with providers and other interested persons to minimize the administrative complexity of the program.

(b)  Subchapter E, Chapter 21, Insurance Code, is amended by adding Article 21.52K to read as follows:

Art. 21.52K.  ENROLLMENT OF MEDICAL ASSISTANCE RECIPIENTS

Sec. 1.  DEFINITION OF GROUP HEALTH BENEFIT PLAN. (a) In this article, "group health benefit plan" means a plan that provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including a group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or a group evidence of coverage or similar group coverage document that is offered by:

(1)  an insurance company;

(2)  a group hospital service corporation operating under Chapter 20 of this code;

(3)  a fraternal benefit society operating under Chapter 10 of this code;

(4)  a stipulated premium insurance company operating under Chapter 22 of this code;

(5)  a reciprocal exchange operating under Chapter 19 of this code;

(6)  a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code);

(7)  a multiple employer welfare arrangement that holds a certificate of authority under Article 3.95-2 of this code; or

(8)  an approved nonprofit health corporation that holds a certificate of authority under Article 21.52F of this code.

(b)  The term "group health benefit plan" includes:

(1)  a small employer health benefit plan written under Chapter 26 of this code; and

(2)  a plan provided under the Texas Employees Uniform Group Insurance Benefits Act (Article 3.50-2, Vernon's Texas Insurance Code), the Texas State College and University Employees Uniform Insurance Benefits Act (Article 3.50-3, Vernon's Texas Insurance Code), the Texas Public School Employees Group Insurance Act (Article 3.50-4, Vernon's Texas Insurance Code), or a successor of any of those plans.

Sec. 2.  ENROLLMENT REQUIRED. (a) The issuer of a group health benefit plan, on receipt of written notice from the Texas Department of Health or a designee of the Texas Department of Health that states that an individual who is otherwise eligible for enrollment in the plan is a recipient of medical assistance under the state Medicaid program and is a participant in the health insurance premium payment reimbursement program for medical assistance recipients under Section 32.0422, Human Resources Code, shall permit the individual to enroll in the plan without regard to any enrollment period restriction.

(b)  If an individual described by Subsection (a) of this section is not eligible to enroll in the plan unless a family member of the individual is also enrolled in the plan, the issuer, on receipt of the written notice under Subsection (a) of this section, shall enroll both the individual and the family member in the plan.

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(c)  Unless enrollment occurs during an established enrollment period, enrollment under this article takes effect on the first day of the calendar month that begins at least 30 days after the date written notice is received by the issuer under Subsection (a) of this section.

(d)  Notwithstanding any other requirement of the group health benefit plan, the issuer of the plan shall permit an individual who is enrolled in a group health benefit plan under Subsection (a) of this section, and any family member of the individual enrolled under Subsection (b) of this section, to terminate enrollment in the plan not later than the 60th day after the date on which the individual provides satisfactory proof to the issuer that the individual is no longer:

(1)  a recipient of medical assistance under the state Medicaid program; or

(2)  a participant in the health insurance premium payment reimbursement program for medical assistance recipients under Section 32.0422, Human Resources Code.

(c)  The changes in law made by this section take effect August 31, 2001, and apply only to a group health benefit plan that is delivered, issued for delivery, or renewed on or after that date. A group health benefit plan that is delivered, issued for delivery, or renewed before August 31, 2001, is governed by the law as it existed immediately before that date, and that law is continued in effect for that purpose.

SECTION 7.  (a) Subchapter B, Chapter 32, Human Resources Code, is amended by adding Sections 32.053-32.056 to read as follows:

Sec. 32.053.  DEMONSTRATION PROJECT FOR CERTAIN MEDICATIONS AND RELATED SERVICES. (a) The department shall establish a demonstration project to provide to a person through the medical assistance program psychotropic medications and related laboratory and medical services necessary to conform to a prescribed medical regime for those medications.

(b)  A person is eligible to participate in the demonstration project if the person:

(1)  has been diagnosed as having a mental impairment, including schizophrenia or bipolar disorder, that is expected to cause the person to become a disabled individual, as defined by Section 1614(a) of the federal Social Security Act (42 U.S.C. Section 1382c), as amended;

(2)  is at least 19 years of age, but not more than 64 years of age;

(3)  has a net family income that is at or below 200 percent of the federal poverty level;

(4)  is not covered by a health benefits plan offering adequate coverage, as determined by the department; and

(5)  is not otherwise eligible for medical assistance at the time the person's eligibility for participation in the demonstration project is determined.

(c)  To the extent allowed by federal law, and except as otherwise provided by this section, the department may contract for the provision of eligibility services for the demonstration project with a local mental health authority.

(d)  Notwithstanding any other provision of this section, the department shall provide each participant in the demonstration project with a 12-month period of continuous eligibility for participation in the project.

(e)  Participation in the demonstration project does not entitle a participant to other services provided under the medical assistance program.

(f)  The department shall establish an appropriate enrollment limit for the demonstration project and may not allow participation in the project to exceed that

77th Legislature — Regular Session 79th Day

limit. Once the limit is reached, the department shall establish a waiting list for enrollment in the demonstration project.

(g)  To the extent permitted by federal law, the department may require a participant in the demonstration project to make cost-sharing payments for services provided through the project.

(h)  To the maximum extent possible, the department shall use existing resources to fund the demonstration project.

(i)  Not later than December 1 of each even-numbered year, the department shall submit a biennial report to the legislature regarding the department's progress in establishing and operating the demonstration project.

(j)  Not later than December 1, 2006, the department shall evaluate the cost-effectiveness of the demonstration project, including whether the preventive drug treatments and related services provided under the project offset future long-term care costs for project participants. If the results of the evaluation indicate that the project is cost-effective, the department shall incorporate a request for funding for the continuation of the program in the department's budget request for the next state fiscal biennium.

(k)  This section expires September 1, 2012.

Sec. 32.054.  DEMONSTRATION PROJECT FOR PERSONS WITH HIV INFECTION OR AIDS. (a) In this section, "AIDS" and "HIV" have the meanings assigned by Section 81.101, Health and Safety Code.

(b)  The department shall establish a demonstration project to provide a person with HIV infection or AIDS with the following services and medications through the medical assistance program:

(1)  services provided by a physician, physician assistant, advanced practice nurse, or other health care provider specified by the department;

(2)  medications not included in the formulary for the HIV medication program operated by the department, but determined to be necessary for treatment of a condition related to HIV infection or AIDS;

(3)  vaccinations for hepatitis B and pneumonia;

(4)  pap smears, colposcopy, and other diagnostic procedures necessary to monitor gynecologic complications resulting from HIV infection or AIDS in women;

(5)  hospitalization;

(6)  laboratory and other diagnostic services, including periodic testing for CD4+ T-cell counts, viral load determination, and phenotype or genotype testing if clinically indicated; and

(7)  other laboratory and radiological testing necessary to monitor potential toxicity of therapy.

(c)  The department shall establish the demonstration project in at least two counties with a high prevalence of HIV infection and AIDS. The department shall ensure that the demonstration project is financed using funds made available by the counties in which the department establishes the demonstration project. The manner in which a county makes funds available may include an option for the county to be able to certify the amount of funds considered available instead of sending the funds to the state.

(d)  A person is eligible to participate in the demonstration project if the person:

(1)  has been diagnosed with HIV infection or AIDS by a physician;

(2)  is under 65 years of age;

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(3)  has a net family income that is at or below 200 percent of the federal poverty level;

(4)  is a resident of a county included in the project or, subject to guidelines established by the department, is receiving medical care for HIV infection or AIDS through a facility located in a county included in the project;

(5)  is not covered by a health benefits plan offering adequate coverage, as determined by the department; and

(6)  is not otherwise eligible for medical assistance at the time the person's eligibility for participation in the demonstration project is determined.

(e)  Participation in the demonstration project does not entitle a participant to other services provided under the medical assistance program.

(f)  The department shall establish an appropriate enrollment limit for the demonstration project and may not allow participation in the project to exceed that limit. Once the limit is reached, the department:

(1)  shall establish a waiting list for enrollment in the demonstration project; and

(2)  may allow eligible persons on the waiting list to enroll solely in the HIV medication program operated by the department.

(g)  The department shall ensure that a participant in the demonstration project is also enrolled in the HIV medication program operated by the department.

(h)  Notwithstanding any other provision of this section, the department shall provide each participant in the project with a six-month period of continuous eligibility for participation in the project.

(i)  Not later than December 1 of each even-numbered year, the department shall submit a biennial report to the legislature regarding the department's progress in establishing and operating the demonstration project.

(j)  Not later than December 1, 2006, the department shall evaluate the cost-effectiveness of the demonstration project, including whether the services and medications provided offset future higher costs for project participants. If the results of the evaluation indicate that the project is cost-effective, the department shall incorporate a request for funding for the expansion of the project into additional counties or throughout the state, as appropriate, in the department's budget request for the next state fiscal biennium.

(k)  This section expires September 1, 2012.

Sec. 32.055.  DEMONSTRATION PROJECTS FOR PROVISION OF MEDICAL ASSISTANCE TO CERTAIN LOW-INCOME INDIVIDUALS. (a) The Health and Human Services Commission shall establish demonstration projects to provide medical assistance under this chapter to adult individuals who are not otherwise eligible for medical assistance and whose incomes are at or below 200 percent of the federal poverty level.

(b)  The Health and Human Services Commission shall select one or more municipalities or counties in which to implement the demonstration projects.

(c)  The Health and Human Services Commission, in conjunction with local governmental entities that make funds available to the commission in accordance with this section, shall design the components of the demonstration project and shall ensure that:

(1)  each demonstration project is financed using funds made available by certain local governmental entities, through a certification process, to the commission for matching purposes to maximize federal funds for the medical assistance program; and

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(2)  a participant in a demonstration project is not subject to a limitation imposed on prescription drug benefits under the medical assistance program.

(d)  The Health and Human Services Commission shall appoint regional advisory committees to assist the commission in establishing and implementing demonstration projects under this section. An advisory committee must include health care providers, employers, and local government officials.

Sec. 32.056.  DEMONSTRATION PROJECT FOR WOMEN'S HEALTH CARE SERVICES. (a) The department shall establish a five-year demonstration project through the medical assistance program to expand access to preventive health and family planning services for women. A woman eligible under Subsection (b) to participate in the demonstration project may receive preventive health and family planning services, including:

(1)  medical history;

(2)  physical examinations;

(3)  counseling and education on contraceptive methods;

(4)  provision of contraceptives;

(5)  health screenings, including screening for:

(A)  diabetes;

(B)  cervical cancer;

(C)  breast cancer;

(D)  sexually transmitted diseases;

(E)  hypertension;

(F)  cholesterol; and

(G)  tuberculosis;

(6)  risk assessment; and

(7)  referral of medical problems to appropriate providers.

(b)  A woman is eligible to participate in the demonstration project if the woman:

(1)  is of childbearing age, as determined by the department;

(2)  has a net family income that is at or below 185 percent of the federal poverty level; and

(3)  is not otherwise eligible for the medical assistance program.

(c)  The department shall develop procedures for determining and certifying presumptive eligibility for a woman eligible under Subsection (b). The department shall integrate these procedures with current procedures to minimize duplication of effort by providers, the department, and other state agencies.

(d)  The department shall provide for 12 months of continuous eligibility for a woman eligible under Subsection (b).

(e)  The department shall compile a list of potential funding sources a client can use to help pay for treatment for health problems:

(1)  identified using services provided to the client under the demonstration project; and

(2)  for which the client is not eligible to receive treatment under the medical assistance program.

(f)  Not later than December 1 of each even-numbered year, the department shall submit a report to the legislature that includes a statement of the department's progress in establishing and operating the demonstration project.

(g)  The department shall ensure that money under the demonstration project established by this section may not be used for an abortion, as that term is defined by Section 245.002, Health and Safety Code.

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(h)  To the extent required by federal budget neutrality requirements, the department may establish an appropriate enrollment limit for the demonstration project.

(i)  This section expires September 1, 2007.

(b)  The state agency responsible for implementing the demonstration projects required by Sections 32.053-32.056, Human Resources Code, as added by this Act, shall request and actively pursue any necessary waivers or authorizations from the Health Care Financing Administration or other appropriate entities to enable the agency to implement the demonstration project not later than September 1, 2002. The agency may delay implementing the demonstration project until the necessary waivers or authorizations are granted.

SECTION 8. (a) Subchapter B, Chapter 32, Human Resources Code, is amended by adding Section 32.057 to read as follows:

Sec. 32.057.  PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE). (a) The department, as a part of the medical assistance program, shall develop and implement a program of all-inclusive care for the elderly (PACE) in accordance with Section 4802 of the Balanced Budget Act of 1997 (Pub. L. No. 105-33), as amended. The department shall provide medical assistance to a participant in the PACE program in the manner and to the extent authorized by federal law.

(b)  The department shall adopt rules as necessary to implement this section. In adopting rules, the department shall:

(1)  use the Bienvivir Senior Health Services of El Paso initiative as a model for the program; and

(2)  ensure that a person is not required to hold a certificate of authority as a health maintenance organization under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code) to provide services under the PACE program.

(c)  The department may not contract with a person to provide services under the PACE program unless the person:

(1)  purchases reinsurance in an amount determined by the department that is sufficient to ensure the person's continued solvency; or

(2)  has the financial resources sufficient to cover expenses in the event of the person's insolvency.

(d)  To demonstrate sufficiency of financial resources for purposes of Subsection (c)(2), a person may use cash reserves, a letter of credit, a guarantee of a company affiliated with the person, or a combination of those arrangements. The amount of a person's financial arrangement must be at least equal to the sum of:

(1)  the total capitation revenue for one month; and

(2)  the average monthly payment of operating expenses.

(e)  The department shall consult with the Texas Department of Insurance in determining a person's sufficiency of financial resources for continued solvency or to cover expenses in the event of the person's insolvency as required by Subsection (c).

(f)  The department, with direction from the Health and Human Services Commission, shall develop and implement a coordinated plan to promote PACE program sites operating under this section. The department shall adopt policies and procedures to ensure that caseworkers and any other appropriate state agency staff discuss the benefits of participating in the PACE program with long-term care clients.

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(b)  The state agency administering the program of all-inclusive care for the elderly (PACE) implemented under Section 32.057, Human Resources Code, as added by this Act, shall use its best efforts to develop and support multiple PACE program sites.

(c)  If before June 1, 2004, the state does not receive federal approval for the operation of all PACE program sites for which the state has applied solely because the federal limit on the number of new PACE program sites allowed nationwide per year has been attained, the Health and Human Services Commission and Texas Department of Human Services, not later than September 1, 2004, shall examine federal laws and regulations regarding PACE programs and identify changes to law that would result in an increased number of PACE programs in this state.

(d)  Not later than December 1, 2004, the commissioner of health and human services shall submit to the legislature a written report concerning the results of the examination conducted under Subsection (c) of this section. The report must include any recommendations for memorializing the Congress of the United States to request changes to federal laws or regulations.

(e)  As soon as practicable after the effective date of this Act, the Health and Human Services Commission shall submit an amendment to the state's Medicaid plan authorizing the state to implement the program of all-inclusive care for the elderly (PACE) established under Section 32.057, Human Resources Code, as added by this Act. The commission is not required to submit an additional amendment to the state's Medicaid plan each time the state agency administering the PACE program selects and enters into a proposed agreement with a provider to deliver services under the program.

SECTION 9.  (a) Subchapter B, Chapter 531, Government Code, is amended by adding Sections 531.02101-531.02106 to read as follows:

Sec. 531.02101.  TRANSFER AUTHORITY RELATING TO ADMINISTRATION OF MEDICAID PROGRAM. (a)  To the extent that reorganization is necessary to achieve the goals of increased administrative efficiency, increased accountability, or cost savings in the Medicaid program or to otherwise improve the health of residents of this state, the commission, subject to Subsection (b), may transfer any power, duty, function, program, activity, obligation, right, contract, record, employee, property, or appropriation or other money relating to administration of the Medicaid program from a health and human services agency to the commission.

(b)  A transfer authorized by Subsection (a) may not take effect unless approved by the Medicaid legislative oversight committee created under Section 531.02102.

(c)  The commission must notify the Legislative Budget Board and the governor's office of budget and planning not later than the 30th day before the effective date of a transfer authorized by Subsection (a).

Sec. 531.02102.  MEDICAID LEGISLATIVE OVERSIGHT COMMITTEE. (a)  The Medicaid legislative oversight committee is composed of:

(1)  three members of the senate appointed by the lieutenant governor; and

(2)  three members of the house of representatives appointed by the speaker of the house of representatives.

(b)  A member of the Medicaid legislative oversight committee serves at the pleasure of the appointing official.

(c)  The lieutenant governor and speaker of the house of representatives shall appoint the presiding officer of the Medicaid legislative oversight committee on an alternating basis. The presiding officer shall serve a two-year term expiring February 1 of each odd-numbered year.

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(d)  The Medicaid legislative oversight committee shall:

(1)  meet not more than quarterly at the call of the presiding officer; and

(2)  review and approve or reject any transfer proposed by the commission of a power, duty, function, program, activity, obligation, right, contract, record, employee, property, or appropriation or other money relating to administration of the Medicaid program from a health and human services agency to the commission.

(e)  The Medicaid legislative oversight committee may use staff of standing committees in the senate and house of representatives with appropriate jurisdiction, the Department of Information Resources, the state auditor, the Texas Legislative Council, and the Legislative Budget Board in carrying out its responsibilities.

Sec. 531.02103.  MEDICAID PROGRAM: STRATEGIES FOR IMPROVING BUDGET CERTAINTY AND COST SAVINGS. (a) To achieve administrative efficiency and cost savings in the Medicaid program, the commission shall develop and implement strategies to improve management of the cost, quality, and use of services provided under the program. The strategies developed and implemented under this section may include:

(1)  expansion of an enhanced primary care case management model in areas of the state currently subject to fee-for-service arrangements;

(2)  use of medical case management for complex medical cases;

(3)  mandatory enrollment of some or all Medicaid recipients who receive Supplemental Security Income (SSI) (42 U.S.C. Section 1381 et seq.) into a STAR + Plus pilot program in an area of the state served by a STAR + Plus pilot program as of January 1, 2001, or into an alternate managed care model developed by the commission;

(4)  use of telemedicine for children and other persons with special health care needs;

(5)  use of copayments and other mechanisms to encourage responsible use of health care services under the program, provided that implementation occurs in accordance with Section 531.02106;

(6)  use of procurement initiatives such as selective contracting as a mechanism for obtaining provider services under the program, provided that the initiatives may not apply to pharmacies participating in the vendor drug program;

(7)  expansion of the program of all-inclusive care for the elderly (PACE), as authorized by Section 4802 of the Balanced Budget Act of 1997 (Pub. L. No. 105-33), as amended, to additional sites;

(8)  use of disease management and drug therapy management for Medicaid recipients with chronic diseases, including congestive heart failure, chronic obstructive pulmonary disease, asthma, and diabetes;

(9)  use of cost controls in the provision of pharmaceutical services as necessary to ensure appropriate pricing, cost-effective use of pharmaceutical products, and the state's greatest entitlement to rebates from pharmaceutical manufacturers;

(10)  use of competitive pricing for medical equipment and supplies, including vision care equipment and supplies;

(11)  expansion of the health insurance premium payment reimbursement system (HIPPS); and

(12)  reduction of hospital outlier payments by not more than five percent for cases that exceed the established rate of reimbursement.

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(b)  The commission shall consult with local communities, providers, consumers, and other affected parties in the development and implementation of strategies under Subsection (a) and shall solicit input on the need for and effect of those strategies. The commission may use existing state or local advisory committees for this purpose or may hold public hearings in the development of agency rules and procedures and necessary state plan amendments or waivers.

Sec. 531.02104.  MEDICAID ELIGIBILITY AND ENROLLMENT. The commission shall ensure that:

(1)  the Medicaid eligibility policies, processes, and time frames of the Texas Department of Human Services, including policies, processes, and time frames relating to an applicant or recipient whose eligibility status is on hold, are designed to minimize the time that an applicant or recipient is required to wait before the applicant or recipient begins receiving services or is recertified;

(2)  each state agency operating a part of the Medicaid program conforms the Medicaid eligibility policies and related processes and time frames, including any cutoff dates, of the agency and any agency contractor to the Medicaid eligibility policies, processes, and time frames of the Texas Department of Human Services; and

(3)  the Medicaid eligibility policies, processes, and time frames of each agency operating a part of the Medicaid program and any agency contractor are designed to minimize the time that an applicant or recipient is required to wait before receiving services.

Sec. 531.02105.  TEXAS HEALTH STEPS PROGRAM. The commission shall:

(1)  take all actions necessary to simplify:

(A)  provider enrollment in the Texas Health Steps program;

(B)  reporting requirements relating to the Texas Health Steps program; and

(C)  billing and coding procedures so that Texas Health Steps program processes are more consistent with commercial standards;

(2)  in consultation with providers of Texas Health Steps program services, develop mechanisms to promote accurate, reliable, and timely reporting of examinations of children conducted under the program to managed care organizations and other appropriate entities;

(3)  in consultation with providers of Texas Health Steps program services, develop a mechanism to promote incorporation of Texas Health Steps program services into a child's medical home; and

(4)  require the external quality monitoring organization to evaluate the Texas Health Steps program using information available from all relevant sources and prepare periodic reports regarding the program for submission by the commission to the legislature.

Sec. 531.02106.  GUIDELINES FOR MEDICAID COST-SHARING. Before requiring Medicaid recipients to make copayments or comply with other cost-sharing requirements, the commission by rule shall:

(1)  establish monthly limits on total copayments and other cost-sharing requirements so that:

(A)  a recipient with an income at or below the federal poverty level is not required to pay more than the lesser of $10 or five percent of the recipient's monthly household gross income, and the total amount required to be paid by all members of a household consisting only of recipients with incomes at or below the federal poverty level does not exceed five percent of the recipients' monthly household gross income; and

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(B)  a recipient with an income above the federal poverty level is not required to pay more than five percent of the recipient's monthly household gross income, and the total amount required to be paid by all members of a household that includes a recipient with an income above the federal poverty level does not exceed five percent of the members' monthly household gross income; and

(2)  exempt preventive care services from any copayment or other cost-sharing requirements.

(b)  As soon as possible after the effective date of this Act, the lieutenant governor and the speaker of the house of representatives shall appoint the members of the Medicaid legislative oversight committee created by Section 531.02102, Government Code, as added by this Act. The speaker of the house of representatives shall appoint the initial presiding officer of the committee.

SECTION 10.  Subchapter B, Chapter 531, Government Code, is amended by adding Section 531.02131 to read as follows:

Sec. 531.02131.  COMMUNITY OUTREACH CAMPAIGN. (a) The commission shall conduct a community outreach campaign to provide information relating to the availability of Medicaid coverage for children and adults and to promote enrollment of eligible children and adults in Medicaid.

(b)  As a part of the community outreach campaign, the commission shall inform potential Medicaid recipients of the toll-free telephone assistance number required by Section 531.0213.

(c)  The commission shall contract with community-based organizations and other organizations, as appropriate, for assistance in implementing the community outreach campaign.

(d)  In designing the community outreach campaign, the commission shall include components similar to components of the community outreach campaign required under Section 62.056, Health and Safety Code.

(e)  To the extent feasible and appropriate, the commission may combine the community outreach campaign required by this section with any other state outreach campaign or educational activity relating to health care and available health care coverage.

SECTION 11.  Subsection (d), Section 531.0214, Government Code, is amended to read as follows:

(d)  The commission shall develop the database system in a manner that will enable a complete analysis of the use of prescription medications[, including information relating to:

[(1)  Medicaid clients for whom more than three medications have been prescribed; and

[(2)  the medical effect denial of Medicaid coverage for more than three medications has had on Medicaid clients ].

SECTION 12.  Subsection (a), Section 531.026, Government Code, is amended to read as follows:

(a)  The commission shall prepare and submit to the lieutenant governor, the speaker of the house of representatives, the comptroller, the Legislative Budget Board, [and ] the governor's office of budget and planning, each member of the appropriations committees of the senate and house of representatives, and each member of the standing committees of the senate and house of representatives with responsibility for oversight of health and human services issues [governor ] a consolidated health and human services budget recommendation not later than October 15 of each even-numbered year.

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SECTION 13.  Subchapter B, Chapter 531, Government Code, is amended by adding Section 531.0261 to read as follows:

Sec. 531.0261.  CONSOLIDATED MEDICAID APPROPRIATIONS REQUEST. (a)  The commission shall include in the consolidated budget recommendation required by Section 531.026 a consolidated Medicaid appropriations request for the subsequent fiscal biennium.

(b)  The commission shall:

(1)  develop the consolidated Medicaid appropriations request with input from the Legislative Budget Board and the governor's office of budget and planning to ensure that relevant information for acute and long-term care Medicaid programs relating to caseloads, costs, measures, rates, waivers, and eligibility is reflected; and

(2)  provide assistance with the legislative appropriations process by revising the consolidated Medicaid appropriations request each time that revised caseload and cost estimates relating to the Medicaid program are prepared.

SECTION 14.  Subchapter B, Chapter 531, Government Code, is amended by adding Section 531.0272 to read as follows:

Sec. 531.0272.  COMPREHENSIVE MEDICAID OPERATING BUDGET; QUARTERLY EXPENDITURE REPORTS. (a)  The commission shall prepare a comprehensive Medicaid operating budget at the beginning of each fiscal year, with input as appropriate from each health and human services agency that receives legislative appropriations relating to the Medicaid program.

(b)  The commission shall monitor all Medicaid expenditures by the commission and health and human services agencies and submit quarterly Medicaid expenditure reports to the lieutenant governor, the speaker of the house of representatives, the comptroller, the Legislative Budget Board, the governor's office of budget and planning, each member of the appropriations committees of the senate and house of representatives, and each member of the standing committees of the senate and house of representatives with responsibility for oversight of health and human services issues.

(c)  The commission shall prepare the comprehensive Medicaid operating budget and quarterly Medicaid expenditure reports with input from the Legislative Budget Board and the governor's office of budget and planning to ensure that the information described by Section 531.0261(b)(1) is reflected.

SECTION 15.  Subchapter B, Chapter 531, Government Code, is amended by adding Sections 531.055 and 531.056 to read as follows:

Sec. 531.055.  MEDICAID REIMBURSEMENT RATES REPORT. Not later than December 1 of each even-numbered year, the commission shall prepare and deliver to the governor, the lieutenant governor, the speaker of the house of representatives, and each member of the legislature a report that:

(1)  identifies the Medicaid provider reimbursement rates established by rule for each county in this state and the rates paid to providers by managed care organizations contracting with the commission under Chapter 533 in each affected area of the state;

(2)  compares the rates identified under Subdivision (1) to:

(A)  the rates paid by other health care payors, including Medicare, in the same county or affected area of the state for comparable services provided to comparable populations; and

(B)  the appropriate Medicaid rates of the top 15 industrial states as ranked by the United States Department of Commerce Bureau of Economic Analysis based on gross state product;

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(3)  includes information necessary to permit an accurate comparison of reimbursement provided to pharmacies participating in the vendor drug program, including information relating to dispensing fees, brand name drug product cost definitions, generic drug product cost definitions, any other reimbursements or deductions, and total reimbursements for the top 25 brand name drug prescriptions and for the top 25 generic drug prescriptions; and

(4)  includes information resulting from cost reports obtained from a statistically valid sample of pharmacies participating in the vendor drug program that specify the costs of the pharmacies in preparing and dispensing prescriptions and providing other pharmacy services, including drug therapy management.

Sec. 531.056.  MIGRANT CARE NETWORK STUDY; PILOT PROGRAM. (a) In this section, "migrant or seasonal agricultural worker" means an individual who:

(1)  is working or available for work seasonally or temporarily in primarily an agricultural or agriculture-related industry; and

(2)  moves one or more times from one place to another to perform seasonal or temporary employment or to be available for seasonal or temporary employment.

(b)  The commission shall conduct a study regarding the feasibility of contracting with one or more existing networks of health care providers located in this state and in other states to establish a migrant care network to provide health care services to children of migrant or seasonal agricultural workers who are residents of this state and intend to return to this state at the conclusion of temporary or seasonal employment in another state and who are:

(1)  recipients of medical assistance under Chapter 32, Human Resources Code; or

(2)  enrollees in the child health plan program under Chapter 62, Health and Safety Code, or the health benefits plan program under Chapter 63, Health and Safety Code.

(c)  In conducting the study under this section, the commission shall:

(1)  consider migrant work patterns to determine in which states the migrant care network is most needed to adequately provide the medical assistance, child health plan coverage, or health benefits plan coverage;

(2)  examine the necessity and fiscal effect of entering into interstate agreements to establish the migrant care network; and

(3)  determine whether ensuring the provision of health care services under the medical assistance program, the child health plan program, and the health benefits plan program for children of migrant or seasonal agricultural workers during the time in which a child is outside of this state is necessary to maintain continuity of care for the child.

(d)  If, based on the results of the study under this section, the commission determines that the establishment of a migrant care network is feasible, the commission shall develop and implement a pilot program for that purpose. The commission by rule shall establish eligibility criteria for participation in the pilot program.

(e)  The commission shall report its findings and recommendations regarding the establishment of a migrant care network to the governor, the lieutenant governor, and the standing committees of the senate and house of representatives having primary jurisdiction over the commission. The commission shall make the report:

(1)  on completion of the study required by this section if the commission determines that the establishment of the migrant care network is not feasible; or

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(2)  on implementation of the pilot program required by this section if the commission determines that the establishment of the migrant care network is feasible.

(f)  This section expires September 1, 2003.

SECTION 16.  (a) The purpose of this section is to pilot a coordinated approach to addressing the needs of homeless people with chronic illnesses who are recipients of medical assistance under Chapter 32, Human Resources Code, so that homeless people may learn to manage their illnesses and become productive members of society. Current state, federal, and local agencies fund separate programs that address only one aspect of the needs of homeless people, such as housing, job training, and medical care. Homeless people with chronic illnesses will benefit from a coordinated approach that comprehensively addresses the needs of homeless people.

(b)  Subchapter B, Chapter 531, Government Code, is amended by adding Section 531.057 to read as follows:

Sec. 531.057.  PILOT CASE MANAGEMENT PROGRAM. (a) The commission, in cooperation with the Texas Interagency Council for the Homeless, shall develop a pilot case management program for homeless people who have chronic illnesses, including diabetes and HIV infection or AIDS, and who are recipients of medical assistance under Chapter 32, Human Resources Code. The council in cooperation with relevant state agencies shall administer the pilot program under the direction of the commission.

(b)  Using existing resources of the agencies composing the council, the staff of the council shall:

(1)  select a county with a population of more than 2.8 million in which to implement the program;

(2)  identify existing services provided through programs of the agencies composing the council to homeless people with chronic illnesses who are recipients of medical assistance;

(3)  identify existing federal, state, county, and local sources from which money may be available to fund the pilot program; and

(4)  create a pilot case management program for not more than 75 homeless people with chronic illnesses who are recipients of medical assistance using existing financial and agency resources.

(c)  The council shall select, through competitive bidding, a nonprofit entity to implement the pilot case management program for the homeless. The pilot program established under this section must:

(1)  provide case management services and existing health-related education services to participants of the program; and

(2)  coordinate housing, medical, job training, and other necessary services for the participants of the program.

(d)  The commission shall identify programs available through health and human services agencies through which homeless people described by Subsection (a) may receive housing, medical, job placement, or other services. The commission shall report to the council information regarding the identified programs, including the programs' sources of funding and eligibility requirements.

(e)  Not later than December 15 of each even-numbered year, the council shall submit a report to the governor, the lieutenant governor, and the speaker of the house of representatives regarding the effectiveness of the pilot program established under this section.

(f)  This section expires September 1, 2005.

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(c)  The Health and Human Services Commission shall develop and the Texas Interagency Council for the Homeless shall implement the pilot program established under this section not later than November 1, 2001.

SECTION 17. The heading to Chapter 533, Government Code, is amended to read as follows:

CHAPTER 533. DEVELOPMENT AND IMPLEMENTATION

OF MEDICAID MANAGED CARE PROGRAM

SECTION 18. Subchapter A, Chapter 533, Government Code, is amended by amending Sections 533.001 and 533.002 and adding Sections 533.0021, 533.0022, and 533.0023 to read as follows:

Sec. 533.001.  DEFINITIONS. In this chapter:

(1)  "Commission" means the Health and Human Services Commission or an agency operating part of the state Medicaid managed care program, as appropriate.

(2)  "Commissioner" means the commissioner of health and human services.

(3)  "Health and human services agencies" has the meaning assigned by Section 531.001.

(4)  "Managed care organization" means a person who is authorized or otherwise permitted by law to arrange for or provide a managed care plan. The term includes a health care system established under Chapter 20C, Insurance Code.

(5)  "Managed care plan" means a plan under which a person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of any health care services. A part of the plan must consist of arranging for or providing health care services as distinguished from indemnification against the cost of those services on a prepaid basis through insurance or otherwise. The term includes a primary care case management provider network and a health care system established under Chapter 20C, Insurance Code. The term does not include a plan that indemnifies a person for the cost of health care services through insurance.

(6)  "Recipient" means a recipient of medical assistance under Chapter 32, Human Resources Code.

(7)  "Health care service region" or "region" means a Medicaid managed care service area as delineated by the commission.

Sec. 533.002.  MEDICAID HEALTH CARE DELIVERY SYSTEM. The commission may develop a health care delivery system that restructures the delivery of health care services provided under the state Medicaid program.

Sec. 533.0021.  DESIGN AND DEVELOPMENT OF HEALTH CARE DELIVERY SYSTEM. In developing the health care delivery system under this chapter, the commission shall:

(1)  design the system in a manner that:

(A)  improves the health of the people of this state by:

(i)  emphasizing prevention;

(ii)  promoting continuity of care; and

(iii)  providing a medical home for recipients;

(B)  ensures that each recipient receives high-quality, comprehensive health care services in the recipient's local community; and

(C)  ensures that the community supports the implementation of the system in the health care service region, to be ascertained through a public hearing in the community at which the commission takes public comment from health care consumers and physicians and other health care providers;

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(2)  to the extent that it is cost-effective to this state and local governments:

(A)  maximize the financing of the state Medicaid program by obtaining federal matching funds for all resources or other money available for matching; and

(B)  expand Medicaid eligibility to include persons who were eligible to receive indigent health care services through the use of those resources or other money available for matching before expansion of eligibility; and

(3)  develop and prepare the waiver or other documents necessary to obtain federal authorization for the system.

Sec. 533.0022.  PURPOSE. The commission shall implement the Medicaid managed care program as part of the health care delivery system developed under this chapter [Chapter 532 ] by contracting with managed care organizations in a manner that, to the extent possible:

(1)  accomplishes the goals described by Section 533.0021 [improves the health of Texans by:

[(A)  emphasizing prevention;

[(B)  promoting continuity of care; and

[(C)  providing a medical home for recipients;

[(2)  ensures that each recipient receives high quality, comprehensive health care services in the recipient's local community ];

(2) [(3) ]  encourages the training of and access to primary care physicians and providers;

(3) [(4) ]  maximizes cooperation with existing public health entities, including local departments of health and community mental health and mental retardation centers established under Chapter 534, Health and Safety Code;

(4) [(5) ]  provides incentives to managed care organizations to improve the quality of health care services for recipients by providing value-added services; [and ]

(5) [(6) ]  reduces administrative and other nonfinancial barriers for recipients in obtaining health care services; and

(6)  controls the costs associated with the state Medicaid program.

Sec. 533.0023.  RULES FOR HEALTH CARE DELIVERY SYSTEM. The commissioner of insurance shall adopt rules as necessary or appropriate to carry out the functions of the Texas Department of Insurance under this chapter.

SECTION 19. Section 533.003, Government Code, is amended to read as follows:

Sec. 533.003.  CONSIDERATIONS IN AWARDING CONTRACTS. (a) In awarding contracts to managed care organizations, the commission shall:

(1)  give preference to organizations that have significant participation in the organization's provider network from each health care provider in the region who has traditionally provided care to Medicaid and charity care patients;

(2)  give extra consideration to organizations that agree to assure continuity of care for at least three months beyond the period of Medicaid eligibility for recipients;

(3)  consider the need to use different managed care plans to meet the needs of different populations; and

(4)  consider the ability of organizations to process Medicaid claims electronically.

(b)  The commission may not award a contract to or renew a contract with a managed care organization that, after July 1, 2001, has a policy that the usual and customary reimbursement rate for a health care provider who is outside the organization's provider network is equal to the lowest contracted rate the organization

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has negotiated with a provider who is in the network in the same health care service region.

SECTION 20. Subchapter A, Chapter 533, Government Code, is amended by adding Section 533.0035 to read as follows:

Sec. 533.0035.  LIMITATION ON NUMBER OF CONTRACTS AWARDED. The commission shall:

(1)  evaluate the number of managed care organizations with which the commission contracts to provide health care services in each health care service region, focusing particularly on the market share of those managed care organizations; and

(2)  limit the number of contracts awarded to managed care organizations under this chapter in a manner that promotes the successful implementation of the delivery of health care services through the state Medicaid managed care program.

SECTION 21. (a) Section 533.005, Government Code, is amended to read as follows:

Sec. 533.005.  REQUIRED CONTRACT PROVISIONS. A contract between a managed care organization and the commission for the organization to provide health care services to recipients must contain:

(1)  procedures to ensure accountability to the state for the provision of health care services, including procedures for financial reporting, quality assurance, utilization review, and assurance of contract and subcontract compliance;

(2)  capitation and provider payment rates that ensure the cost-effective provision of quality health care;

(3)  a requirement that the managed care organization provide ready access to a person who assists recipients in resolving issues relating to enrollment, plan administration, education and training, access to services, and grievance procedures;

(4)  a requirement that the managed care organization provide ready access to a person who assists providers in resolving issues relating to payment, plan administration, education and training, and grievance procedures;

(5)  a requirement that the managed care organization provide information and referral about the availability of educational, social, and other community services that could benefit a recipient;

(6)  procedures for recipient outreach and education;

(7)  a requirement that the managed care organization make payment to a physician or provider for health care services rendered to a recipient under a managed care plan not later than the 45th day after the date a claim for payment is received with documentation reasonably necessary for the managed care organization to process the claim, or within a period, not to exceed 60 days, specified by a written agreement between the physician or provider and the managed care organization;

(8)  a requirement that the commission, on the date of a recipient's enrollment in a managed care plan issued by the managed care organization, inform the organization of the recipient's Medicaid certification date;

(9)  a requirement that the managed care organization comply with Section 533.006 as a condition of contract retention and renewal; [and ]

(10)  a requirement that the managed care organization provide the information required by Section 533.012 and otherwise comply and cooperate with the commission's office of investigations and enforcement;

(11)  a requirement that the managed care organization or managed care plan reimburse health care providers for medical screening and stabilization of an emergency medical or psychiatric condition and not use a triage method of reimbursement; and

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(12) a process by which the commission is required to:

(A)  provide in writing to the managed care organization the projected fiscal impact on the state and managed care organizations that contract with the commission under this chapter of proposed Medicaid managed care program, benefit, or contract changes; and

(B)  negotiate in good faith regarding appropriate operational and financial changes to the contract with the managed care organization before implementing those changes.

(b)  The changes in law made by Section 533.005, Government Code, as amended by this Act, apply to a contract between the Health and Human Services Commission and a managed care organization under Chapter 533, Government Code, that is entered into or renewed on or after the effective date of this Act. A contract that is entered into or renewed before the effective date of this Act is governed by the law in effect on the date the contract was entered into or renewed, and the former law is continued in effect for that purpose.

SECTION 22. (a) Subchapter A, Chapter 533, Government Code, is amended by adding Sections 533.0051, 533.0076, 533.0091, 533.0131, and 533.016-533.0208 to read as follows:

Sec. 533.0051.  CONTRACT RENEWAL. Before renewing a contract with a managed care organization under this chapter, the commission shall consider:

(1)  the managed care organization's:

(A)  overall contract compliance;

(B)  implementation of simplified administrative processes for health care providers and recipients;

(C)  compliance with statutory requirements to promptly reimburse health care providers for covered services provided under the Medicaid managed care program;

(D)  compliance with the requirements under Article 3.70-3C, Insurance Code, as added by Chapter 1260, Acts of the 75th Legislature, Regular Session, 1997, and Section 14, Texas Health Maintenance Organization Act (Article 20A.14, Vernon's Texas Insurance Code), to identify advanced practice nurses and physician assistants as providers in the managed care organization's provider network;

(E)  financial performance; and

(F)  participation in the state child health plan under Chapter 62, Health and Safety Code; and

(2)  the level of satisfaction of recipients and health care providers with the managed care organization.

Sec. 533.0076.  LIMITATIONS ON RECIPIENT DISENROLLMENT. (a) Except as provided by Subsections (b) and (c), and to the extent permitted by federal law, the commission may prohibit a recipient from disenrolling in a managed care plan under this chapter and enrolling in another managed care plan during the 12-month period after the date the recipient initially enrolls in a plan.

(b)  At any time before the 91st day after the date of a recipient's initial enrollment in a managed care plan under this chapter, the recipient may disenroll in that plan for any reason and enroll in another managed care plan under this chapter.

(c)  The commission shall allow a recipient who is enrolled in a managed care plan under this chapter to disenroll in that plan at any time for cause in accordance with federal law.

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Sec. 533.0091.  UNIFORM STANDARDS FOR IDENTIFYING RECIPIENTS WITH DISABILITIES OR CHRONIC CONDITIONS. (a) The commission shall collaborate with managed care organizations that contract with the commission under this chapter to develop a uniform screening tool to be used by the managed care organizations to identify adult recipients with disabilities or chronic health conditions and assist those recipients in accessing health care services.

(b)  The commission, in cooperation with the Texas Department of Health, by rule shall adopt criteria by which to classify a child with certain health conditions as a child with special health care needs. In adopting the criteria, the commission must include children who have:

(1)  severe disabilities;

(2)  severe mental or emotional disorders;

(3)  medically complex or fragile health conditions; or

(4)  rare or chronic health conditions that are likely to last at least one year and result in limitations on the child's functioning and activities when compared to other children of the same age who do not have those conditions.

(c)  The commission, in cooperation with the Texas Department of Health, shall:

(1)  monitor and assess health care services provided under the state Medicaid managed care program and the medical assistance program under Chapter 32, Human Resources Code, to children with special health care needs as determined by the criteria adopted under Subsection (b);

(2)  adopt specific quality of care standards applicable to health care services provided under the state Medicaid managed care program to children described by Subdivision (1); and

(3)  undertake initiatives to develop, test, and implement optimum methods for the delivery of appropriate, comprehensive, and cost-effective health care services under the state Medicaid managed care program to children described by Subdivision (1), including initiatives to:

(A)  coordinate health care services with educational programs and other social and community services; and

(B)  promote family involvement and support.

Sec. 533.0131.  USE OF ENCOUNTER DATA IN DETERMINING PREMIUM PAYMENT RATES. (a) In determining premium payment rates and other amounts paid to managed care organizations under a managed care plan, the commission may not base or derive the rates or amounts on or from encounter data, or incorporate in the determination an analysis of encounter data, unless a certifier of encounter data certifies that:

(1)  the encounter data for the most recent state fiscal year is complete, accurate, and reliable; and

(2)  there is no statistically significant variability in the encounter data attributable to incompleteness, inaccuracy, or another deficiency as compared to equivalent data for similar populations and when evaluated against professionally accepted standards.

(b)  For purposes of determining whether data is equivalent data for similar populations under Subsection (a)(2), a certifier of encounter data shall, at a minimum, consider:

(1)  the regional variation in utilization patterns of recipients and costs of health care services;

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(2)  the range and type of health care services to be covered by premium payment rates;

(3)  the number of managed care plans in the region; and

(4)  the current number of recipients in each region, including the number for each category of recipient.

Sec. 533.016.  INTERAGENCY SHARING OF INFORMATION. (a) The commission shall require a health and human services agency implementing the Medicaid managed care program to provide to each other health and human services agency implementing the program information reported to the agency by a managed care organization or health care provider providing services to recipients.

(b)  Except as prohibited by federal law, the commission, each health and human services agency implementing the Medicaid managed care program, and the Texas Department of Insurance shall share confidential information, including financial data, that relates to or affects a person who proposes to contract with or has contracted with a state agency or a contractor of a state agency for the purposes of this chapter.

(c)  Information shared between agencies under Subsection (b) remains confidential and is not subject to disclosure under Chapter 552.

Sec. 533.017.  REDUCTION AND COORDINATION OF REPORTING REQUIREMENTS AND INSPECTION PROCEDURES. (a) The commission shall:

(1)  streamline on-site inspection procedures of managed care organizations contracting with the commission under this chapter;

(2)  streamline reporting requirements for managed care organizations contracting with the commission under this chapter, including:

(A)  combining information required to be reported into a quarterly management report;

(B)  eliminating unnecessary or duplicative reporting requirements; and

(C)  to the extent feasible, allowing managed care organizations contracting with the commission under this chapter to submit reports electronically;

(3)  require managed care organizations contracting with the commission under this chapter to streamline administrative processes required of health care providers, including:

(A)  simplifying and standardizing, to the extent reasonably feasible, the forms providers are required to complete, including forms for preauthorization for covered services;

(B)  eliminating unnecessary or duplicative reporting requirements; and

(C)  encouraging the adoption of collaboratively developed uniform forms; and

(4)  designate one entity to which managed care organizations contracting with the commission under this chapter may report encounter data.

(b)  Except as provided by Subsection (d), the commission and the Texas Department of Insurance and contractors of the commission or department may not schedule, initiate, prepare for, or conduct a documentary, electronic, or on-site review, a readiness, compliance, or performance review, or any other review, audit, or examination of a managed care organization contracting with the commission under this chapter until:

(1)  the commission, the department, and, if appropriate, each health and human services agency implementing a part of the Medicaid managed care program enter into a memorandum of understanding under Section 533.018; and

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(2)  the agencies described by Subdivision (1) provide that memorandum to the managed care organization.

(c)  Notwithstanding Subsection (b), the commission or the Texas Department of Insurance may take any action:

(1)  otherwise authorized by law to protect the safety of a recipient; or

(2)  with respect to a managed care organization determined to be in a hazardous financial condition.

(d)  The commission and the Texas Department of Insurance may review monthly, quarterly, or annual reports required to be filed by managed care organizations contracting with the commission under this chapter.

Sec. 533.018.  MEMORANDUM OF UNDERSTANDING REGARDING COORDINATION OF REPORTING REQUIREMENTS AND INSPECTION PROCEDURES. (a) The commission, the Texas Department of Insurance, and, if appropriate, each health and human services agency implementing a part of the Medicaid managed care program shall enter into a memorandum of understanding that outlines methods to:

(1)  maximize interagency coordination in conducting reviews of managed care organizations contracting with the commission under this chapter; and

(2)  eliminate and prevent duplicative monitoring, regulation, and enforcement policies and processes with respect to those managed care organizations.

(b)  The memorandum of understanding under this section must:

(1)  ensure that managed care organizations contracting with the commission under this chapter are not required to file the same or similar information with more than one state agency;

(2)  maximize the use of electronic filing of information by managed care organizations contracting with the commission under this chapter;

(3)  specifically identify all information, documents, and reports that managed care organizations contracting with the commission under this chapter are required to file with state agencies, either electronically or otherwise, and describe the information, documents, or reports and the authority for the filing requirement;

(4)  ensure that regularly scheduled, comprehensive compliance monitoring of and enforcement efforts with respect to managed care organizations contracting with the commission under this chapter:

(A)  are highly coordinated between the agencies entering into the memorandum of understanding and consolidate similar monitoring and enforcement functions of each agency in a unified, streamlined process; and

(B)  do not require duplication of efforts of agency employees or contractors or the managed care organizations;

(5)  include as an attachment the operational and financial audit instrument to be developed under Section 533.019;

(6)  specify in detail the process by which the commission and the Texas Department of Insurance will amend the operational and financial audit instrument developed under Section 533.019;

(7)  specify in detail the process by which the commission and the Texas Department of Insurance will jointly schedule a single on-site visit that satisfies the requirements of all state agencies regarding regularly scheduled, comprehensive compliance monitoring of and enforcement efforts with respect to managed care organizations contracting with the commission under this chapter;

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(8)  specify in detail the process by which the commission and the Texas Department of Insurance will coordinate with respect to:

(A)  focus studies, market conduct investigations, data calls, and any type of ad hoc requests for information from or performance reviews of a managed care organization that contracts with the commission under this chapter;

(B)  investigations of complaints regarding a managed care organization that contracts with the commission under this chapter, both before and during the investigation; and

(C)  the development and implementation of corrective action plans for and enforcement actions against a managed care organization that contracts with the commission under this chapter;

(9)  specify the manner in which the commission and the Texas Department of Insurance will:

(A)  ensure the regular exchange of information between the commission, the department, and each health and human services agency that operates a part of the Medicaid managed care program, including information regarding:

(i)  the names of and contact information for agency staff members having monitoring and enforcement responsibilities with respect to managed care organizations that contract with the commission under this chapter; and

(ii)  each agency staff member responsible for collecting and distributing information to be exchanged and the frequency with which that information will be exchanged;

(B)  schedule and conduct regular, periodic interagency briefings by electronic notice or otherwise to assist agency staff members in:

(i)  remaining informed regarding current monitoring and enforcement activities; and

(ii)  coordinating monitoring and enforcement activities, including coordinating persons who will participate in the activities, and the frequency with which the activities will be conducted;

(C)  schedule and conduct interagency orientation and training to ensure that agency staff members are familiar with:

(i)  the obligation to eliminate and prevent duplicative monitoring and enforcement activities;

(ii)  the general regulatory responsibilities of each agency; and

(iii)  resources for maintaining coordination between the agencies;

(D)  ensure that the agencies eliminate and prevent duplication of efforts by agency employees and contractors and managed care organizations that contract with the commission under this chapter with respect to the activities of contractors who communicate or interact with the managed care organizations; and

(E)  ensure coordination to eliminate and prevent duplication regarding policy development and implementation, procurement, cost estimates, electronic systems issues, and monitoring and enforcement activities with respect to managed care organizations that serve recipients as well as enrollees in the state child health plan under Chapter 62, Health and Safety Code; and

(10)  describe the process by which the commission and the Texas Department of Insurance will collaborate to:

(A)  identify statutory barriers to eliminating or preventing duplicative public and private monitoring and enforcement activities with respect to managed care organizations that contract with the commission under this chapter; and

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(B)  develop recommendations for legislation regarding removing the barriers described by Paragraph (A).

Sec. 533.019.  OPERATIONAL AND FINANCIAL AUDIT INSTRUMENT. (a) The commission and the Texas Department of Insurance shall develop and use an operational and financial audit instrument for regularly scheduled, comprehensive, on-site readiness, performance, or compliance reviews, or other reviews, audits, or examinations of managed care organizations that contract with the commission under this chapter.

(b)  In developing the operational and financial audit instrument, the commission and the Texas Department of Insurance must include:

(1)  a method to assess compliance with each applicable federal and state law and each applicable accreditation and contractual requirement, including financial, actuarial, operational, and quality of care requirements, the agencies are authorized to enforce at least on a periodic basis;

(2)  a method to assess compliance of documents, records, and electronic files the commission or the Texas Department of Insurance requires managed care organizations that contract with the commission under this chapter to submit for review, either before or as an alternative to an on-site review, audit, or examination; and

(3)  a method to assess compliance through on-site reviews, audits, and examinations, including document review, electronic systems testing or review, and observation and interviews of managed care organization employees.

(c)  The commission and the Texas Department of Insurance may contract on a competitive bid basis with a consultant not affiliated with the commission or department to develop the operational and financial audit instrument required by this section.

Sec. 533.020.  PREAUTHORIZATION FOR CERTAIN SERVICES NOT REQUIRED. The commission, in consultation with physicians, hospitals, and managed care organizations contracting with the commission under this chapter, shall develop:

(1)  a process by which the managed care organizations eliminate preauthorization processes for covered services that are considered to be routine services; and

(2)  a process by which to notify health care providers of covered services under the Medicaid managed care program for which preauthorization is not required.

Sec. 533.0201.  UTILIZATION REVIEW UNDER PRIMARY CARE CASE MANAGEMENT NETWORK. To the extent allowed by federal law, the commission shall require a managed care organization that contracts with the commission under this chapter and that provides health care services to recipients through a primary care case management network to conduct utilization review of those services in accordance with Article 21.58A, Insurance Code.

Sec. 533.0202.  NOTICE OF DETERMINATIONS MADE BY UTILIZATION REVIEW AGENTS. (a) In this section, "utilization review agent" has the meaning assigned by Section 2, Article 21.58A, Insurance Code.

(b)  A utilization review agent shall notify a recipient or a person acting on behalf of the recipient and the recipient's health care provider of a utilization review determination in accordance with this section and Section 5(a), Article 21.58A, Insurance Code, with respect to services provided under the state Medicaid managed care program.

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(c)  If the utilization review agent makes an adverse determination, the notice required by this section must include:

(1)  the principal reasons for the adverse determination;

(2)  the clinical basis for the adverse determination;

(3)  a description or the source of the screening criteria used as guidelines in making the determination; and

(4)  a description of the procedure for the complaint and appeal process, including a description provided to the recipient of:

(A)  the recipient's right to a Medicaid fair hearing at any time; and

(B)  the procedures for appealing an adverse determination at a Medicaid fair hearing.

(d)  The utilization review agent must provide notice of an adverse determination:

(1)  to the recipient and the recipient's health care provider of record by telephone or electronic transmission not later than the next business day after the date the determination is made if the recipient is hospitalized when the determination is made, to be followed not later than the third business day after the date the determination is made by a written notice of the determination;

(2)  to the recipient and the recipient's health care provider of record by written notice not later than the third business day after the date the determination is made if the recipient is not hospitalized when the determination is made; or

(3)  to the recipient's treating physician or health care provider within the time appropriate to the circumstances that relate to the delivery of the services and the condition of the patient, but not later than one hour after the recipient's treating physician or provider requests poststabilization care following emergency treatment.

(e)  The commissioner shall adopt rules to implement this section.

Sec. 533.0203.  COMPLAINT INFORMATION. (a) The commission, in cooperation with the Texas Department of Insurance and any other appropriate entity, shall collect complaint data, including complaint resolution rates, regarding managed care organizations contracting with the commission under this chapter. In entering into or renewing a contract with a managed care organization under this chapter, the commission may include provisions in the contract to accomplish the purposes of this section.

(b)  The commission shall report on a quarterly basis the complaint data collected under Subsection (a) to the state Medicaid managed care advisory committee under Subchapter C.

(c)  Not later than December 1 of each even-numbered year, the commission shall report to the legislature the complaint data collected under Subsection (a). The report may be consolidated with any other report relating to the same subject matter the commission is required to submit under other law.

Sec. 533.0204.  PROVIDER REPORTING OF ENCOUNTER DATA. The commission shall collaborate with managed care organizations that contract with the commission and health care providers under the organizations' provider networks to develop incentives and mechanisms to encourage providers to report complete and accurate encounter data to managed care organizations in a timely manner.

Sec. 533.0205.  QUALIFICATIONS OF CERTIFIER OF ENCOUNTER DATA. (a) The person acting as the state Medicaid director shall appoint a person as the certifier of encounter data.

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(b)  The certifier of encounter data must have:

(1)  demonstrated expertise in estimating premium payment rates paid to a managed care organization under a managed care plan; and

(2)  access to actuarial expertise, including expertise in estimating premium payment rates paid to a managed care organization under a managed care plan.

(c)  A person may not be appointed under this section as the certifier of encounter data if the person participated with the commission in developing premium payment rates for managed care organizations under managed care plans in this state during the three-year period before the date the certifier is appointed.

Sec. 533.0206.  CERTIFICATION OF ENCOUNTER DATA. (a) The certifier of encounter data shall certify the completeness, accuracy, and reliability of encounter data for each state fiscal year.

(b)  The commission shall make available to the certifier all records and data the certifier considers appropriate for evaluating whether to certify the encounter data. The commission shall provide to the certifier selected resources and assistance in obtaining, compiling, and interpreting the records and data.

Sec. 533.0207.  IMPLEMENTATION OF CERTAIN MANAGED CARE PLANS IN CERTAIN COUNTIES. (a) Notwithstanding any other law, before implementing a Medicaid managed care plan that uses capitation as a method of payment in a county with a population of less than 100,000, the commission must determine that implementation is economically efficient.

(b)  Notwithstanding Subsection (a), the commission may continue implementation of a Medicaid managed care plan described by Subsection (a) in a county with a population of less than 100,000 if implementation of the plan in the county was in progress on January 1, 2001.

Sec. 533.0208.  INTEGRATED MENTAL HEALTH FUNDING TO LOCAL MHMR AUTHORITIES. (a) The commission and the Texas Department of Mental Health and Mental Retardation may establish a program that uses direct contracting with units of local government that the department designates as local mental health and mental retardation authorities to allow the authorities to manage all federal, state, and local matching funds for community mental health services to provide more customer choice, an improved array of services at the provider level, improved quality of services, and more cost-effective services.

(b)  A local mental health and mental retardation authority shall:

(1)  establish an effective process for planning, policy development, and monitoring of the local program that includes consumers and family members; and

(2)  maintain an effective local process for planning, policy development, resource management, service contracting, and coordination with other local agencies, including local jails.

(c)  The Texas Department of Mental Health and Mental Retardation shall adopt rules to implement the program.

(b)  Not later than March 1, 2002, the Health and Human Services Commission, the Texas Department of Insurance, and each appropriate health and human services agency implementing a part of the Medicaid managed care program under Chapter 533, Government Code, shall enter into the memorandum of understanding required by Section 533.018, Government Code, as added by this Act.

(c)  Not later than March 1, 2002, the Health and Human Services Commission and the Texas Department of Insurance shall develop the operational and financial audit instrument required by Section 533.019, Government Code, as added by this Act.

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(d)  The changes in law made by Section 533.0202, Government Code, as added by this Act, apply to a contract between the Health and Human Services Commission and a managed care organization under Chapter 533, Government Code, that is entered into or renewed on or after the effective date of this Act. A contract that is entered into or renewed before the effective date of this Act is governed by the law in effect on the date the contract was entered into or renewed, and the former law is continued in effect for that purpose.

(e)  Not later than January 1, 2002, the person acting as the state Medicaid director shall appoint the certifier of Medicaid managed care encounter data required by Section 533.0205, Government Code, as added by this Act.

(f)  The agencies responsible for implementing Section 533.0208, Government Code, as added by this Act, shall request and actively pursue any necessary waivers or authorizations from the Health Care Financing Administration or other appropriate entities to enable the agencies to implement that section not later than September 1, 2002. The agencies may delay implementing Section 533.0208, Government Code, as added by this Act, until the necessary waivers or authorizations are granted.

SECTION 23. Subsection (a), Section 533.041, Government Code, is amended to read as follows:

(a)  The commission shall appoint a state Medicaid managed care advisory committee. The advisory committee consists of representatives of:

(1)  hospitals;

(2)  managed care organizations;

(3)  primary care providers;

(4)  state agencies;

(5)  consumer advocates representing low-income recipients;

(6)  consumer advocates representing recipients with a disability;

(7)  parents of children who are recipients;

(8)  rural providers;

(9)  advocates for children with special health care needs;

(10)  pediatric health care providers, including specialty providers;

(11)  long-term care providers, including nursing home providers;

(12)  obstetrical care providers;

(13)  community-based organizations serving low-income children and their families; [and ]

(14)  community-based organizations engaged in perinatal services and outreach;

(15)  medically underserved communities; and

(16)  community mental health and mental retardation centers established under Subchapter A, Chapter 534, Health and Safety Code.

SECTION 24. (a) The commissioner of health and human services shall conduct a study regarding the feasibility of expanding the medical assistance program under Chapter 32, Human Resources Code, to provide medical assistance to disabled children 18 years of age or younger in accordance with 42 U.S.C. Section 1396a(e)(3), as amended.

(b)  In conducting the study, the commissioner shall evaluate:

(1)  the number of children who would be eligible for medical assistance under the expanded program and who would be likely to enroll;

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(2)  the effect of other health insurance coverage provided for children who would be eligible under the expanded medical assistance program on the cost of expanding the program;

(3)  utilization patterns of similar populations of disabled children under similar programs in this state and other states;

(4)  the cost to the state of inappropriate institutionalization of disabled children resulting from unavailability of health insurance coverage for those children; and

(5)  options for setting an income eligibility cap for the expanded medical assistance program.

(c)  Not later than December 1, 2002, the commissioner shall submit a report to the legislature regarding the results of the study conducted under this section. The report must include a recommendation regarding expanding the medical assistance program to provide that assistance to disabled children in accordance with 42 U.S.C. Section 1396a(e)(3), as amended.

SECTION 25. On January 1, 2002, or on an earlier date specified by the Health and Human Services Commission:

(1)  all powers, duties, functions, activities, obligations, rights, contracts, records, employees, property, and appropriations and other money of the Texas Department of Health that are determined by the commissioner of health and human services to be essential to the administration of Medicaid acute care services or the Medicaid vendor drug program are transferred to the Health and Human Services Commission;

(2)  a rule or form adopted by the Texas Department of Health that relates to a transferred component of the Medicaid program is a rule or form of the Health and Human Services Commission and remains in effect until altered by the commission;

(3)  a reference in law or an administrative rule to the Texas Department of Health that relates to a transferred component of the Medicaid program means the Health and Human Services Commission;

(4)  a license, permit, or certification in effect that was issued by the Texas Department of Health that relates to a transferred component of the Medicaid program is continued in effect as a license, permit, or certification of the Health and Human Services Commission; and

(5)  a complaint, investigation, or other proceeding pending before the Texas Department of Health that relates to a transferred component of the Medicaid program is transferred without change in status to the Health and Human Services Commission.

SECTION 26. (a) Subject to Subsection (b) of this section, if before implementing any provision of this Act a state agency determines that a waiver or authorization from a federal agency is necessary for implementation of that provision, the agency affected by the provision shall request the waiver or authorization and may delay implementing that provision until the waiver or authorization is granted.

(b)  Implementation of Sections 32.053-32.056, Human Resources Code, as added by this Act, is governed by Section 7 of this Act. Implementation of Section 32.057, Human Resources Code, as added by this Act, is governed by Section 8 of this Act. Implementation of Section 533.0208, Government Code, as added by this Act, is governed by Section 22 of this Act.

SECTION 27. Except as otherwise provided by this Act, this Act takes effect September 1, 2001, and applies to a person receiving medical assistance on or after that date regardless of the date on which the person began receiving that medical assistance.

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Floor Amendment No. 1

Amend CSSB 1156 as follows:

(1)  In the recital of SECTION 1 of the bill (House committee printing, page 1, line 5), strike "Subsections (x) and (y)" and substitute "Subsections (x), (y), and (z)".

(2)  In SECTION 1 of the bill, following proposed Section 32.024(y), Human Resources Code (House committee printing, page 2, between lines 8 and 9), insert the following:

(z)  The department shall provide hyperbaric oxygen therapy to the extent permitted by federal law.

Floor Amendment No. 2

Amend CSSB 1156 as follows:

(1)  In the recital of SECTION 1 of the bill (House committee printing, page 1, line 5), strike "Subsections (x) and (y)" and substitute "Subsection (x)".

(2)  In SECTION 1 of the bill, in proposed Section 32.024(x), Human Resources Code (House committee printing, page 1, lines 7-9), strike "the department may not limit benefits for the number of medications prescribed to a recipient of prescription drug benefits under the medical assistance program. In" and substitute "and in".

(3)  In SECTION 1 of the bill, in proposed Section 32.024(x), Human Resources Code (House committee printing, page 1, line 10), strike "also".

(4)  In SECTION 1 of the bill (House committee printing, page 1, line 21, through page 2, line 8), strike proposed Section 32.024(y), Human Resources Code.

(5)  In SECTION 4 of the bill, in proposed Section 32.0271, Human Resources Code (House committee printing, page 7, between lines 1 and 2), insert the following:

(c)  A managed care organization or a managed care plan, as those terms are defined by Section 533.001, Government Code, may not by contract or any other method require a physician to use the services of a nurse first assistant in providing care to a recipient of medical assistance.

(6)  In SECTION 4 of the bill, in proposed Section 32.0271(c), Human Resources Code (House committee printing, page 7, line 2), strike "(c)" and substitute "(d)".

(7)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(1), Government Code (House committee printing, page 26, line 12), strike "in areas of the state" and substitute "to areas of the state and to populations".

(8)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(3), Government Code (House committee printing, page 26, line 19), strike "+ Plus".

(9)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(6), Government Code (House committee printing, page 27, lines 3 and 4), strike ", provided that the initiatives may not apply to pharmacies participating in the vendor drug program".

(10)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(9), Government Code (House committee printing, page 27, line 14), between "services" and "as necessary", insert ", including use of prior authorization requirements,".

(11)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(12), Government Code (House committee printing, page 27, lines 21-23), strike "by not more than five percent for cases that exceed the established rate of reimbursement".

(12)  In SECTION 9(a) of the bill, in proposed Section 531.02103(b), Government Code (House committee printing, page 27, lines 26 and 27), strike " and shall solicit input on the need for and effect of those strategies".

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(13)  In SECTION 9(a) of the bill, in proposed Section 531.02103(b), Government Code (House committee printing, page 28, line 1), strike "may use" and substitute "shall use".

(14)  In SECTION 9(a) of the bill, in proposed Section 531.02103(b), Government Code (House committee printing, page 28, lines 2-4), strike "or may hold public hearings in the development of agency rules and procedures and necessary state plan amendments or waivers".

(15)  In SECTION 9(a) of the bill, in proposed Section 531.02103, Government Code (House committee printing, page 28, between lines 4 and 5), insert the following:

(c)  The commission shall hold public hearings at least quarterly regarding the development and implementation of strategies under Subsection (a) and the development of agency procedures and necessary state plan amendments or waivers. If the commission proposes to adopt a rule necessary to implement a strategy under Subsection (a), the commission shall adopt the rule in accordance with Chapter 2001 and hold any public hearing required by that chapter.

(16)  In SECTION 9(a) of the bill (House committee printing, page 29, line 22, through page 30, line 15), strike proposed Section 531.02106, Government Code, and substitute the following:

Sec. 531.02106.  LIMITS ON MEDICAID COST-SHARING. Before requiring Medicaid recipients to make copayments or comply with other cost-sharing requirements, the commission by rule shall establish monthly limits on total copayments and other cost-sharing requirements.

(17)  In SECTION 10 of the bill, in proposed Section 531.02131, Government Code (House committee printing, page 31, lines 3-12), strike Subsections (b), (c), and (d).

(18)  In SECTION 10 of the bill, in proposed Section 531.02131(e), Government Code (House committee printing, page 31, line 13), strike "(e) To the extent feasible and appropriate, the" and substitute "(b) The".

(19)  In SECTION 15 of the bill, in proposed Section 531.055, Government Code (House committee printing, page 34, lines 4-17), strike Subdivisions (1) and (2) and substitute the following:

(1)  identifies the Medicaid provider reimbursement rates established by rule for each county in this state and the premiums paid to Medicaid managed care organizations in this state;

(2)  compares the rates and premiums identified under Subdivision (1) to:

(A)  the rates and premiums paid by other health care payors, including Medicare, in the same county or other relevant area of the state for comparable services provided to comparable populations; and

(B)  the appropriate Medicaid rates of the top 15 industrial states as ranked by the United States Department of Commerce Bureau of Economic Analysis based on gross state product;

(20)  In the recital of SECTION 18 of the bill (House committee printing, page 39, line 19), strike "Sections 533.0021, 533.0022, and 533.0023" and substitute "Sections 533.0021, 533.0022, 533.0023, and 533.0024".

(21)  In SECTION 18 of the bill, in proposed Section 533.0021(1), Government Code (House committee printing, page 41, lines 9-13), strike Paragraph (C) and substitute the following:

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(C)  ensures that the community is given an opportunity to provide input and participate in the implementation of the system in the health care service region by holding public hearings in the community at which the commission takes public comment from all persons interested in the implementation of the system;

(22)  In SECTION 18 of the bill, in proposed Section 533.0023, Government Code (House committee printing, page 42, line 25), between "SYSTEM." and "The", insert "(a)".

(23)  In SECTION 18 of the bill, at the end of proposed Section 533.0023, Government Code (House committee printing, page 43, between lines 1 and 2), insert the following:

(b)  The commissioner of health and human services shall adopt rules and obtain public input in accordance with Chapter 2001 before making substantive changes to policies or programs under the Medicaid managed care program.

Sec. 533.0024.  RESOLUTION OF IMPLEMENTATION ISSUES. The commission shall conduct a meeting at least quarterly with managed care organizations that contract with the commission under this chapter and health care providers to identify and resolve implementation issues with respect to the Medicaid managed care program.

(24)  Strike SECTION 19 of the bill (House committee printing, page 43, lines 2-24) and renumber subsequent SECTIONS of the bill accordingly.

(25)  In SECTION 21(a) of the bill, in amended Section 533.005, Government Code (House committee printing, page 46, lines 1-13), strike proposed Subdivisions (11) and (12) and substitute the following:

(11)  a process by which the commission is required to:

(A)  provide in writing to the managed care organization the projected fiscal impact on the state and managed care organizations that contract with the commission under this chapter of proposed Medicaid managed care program, benefit, or contract changes; and

(B)  negotiate in good faith regarding appropriate operational and financial changes to the contract with the managed care organization before implementing those changes;

(12)  a requirement that the managed care organization providing services to recipients under a Medicaid STAR + Plus pilot program:

(A)  have an appropriate number of clinically trained case managers within the Medicaid STAR + Plus pilot program service delivery area to manage medically complex patients; and

(B)  implement disease management programs that address the medical conditions of the Medicaid STAR + Plus pilot program population, including persons with HIV infection, AIDS, or sickle cell anemia;

(13)  a requirement that the renewal date of the contract coincide with the beginning of the state fiscal year; and

(14)  a requirement that the managed care organization reimburse health care providers for an appropriate emergency medical screening that is within the capability of the hospital's emergency department, including ancillary services routinely available to the emergency department, and that is provided to determine whether:

(A)  an emergency medical or psychiatric condition exists; and

(B)  additional medical examination and treatment is required to stabilize the emergency medical or psychiatric condition.

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(26)  In the recital of SECTION 22(a) of the bill (House committee printing, page 46, line 25), strike "533.016-533.0208" and substitute "533.016-533.0207".

(27)  In SECTION 22(a) of the bill, in proposed Section 533.018(a)(2), Government Code (House committee printing, page 53, lines 11 and 12), strike "monitoring, regulation," and substitute "monitoring, reporting, reviewing of forms, regulation,".

(28)  In SECTION 22(a) of the bill, strike proposed Section 533.018(b), Government Code (House committee printing, page 53, line 14, through page 57, line 6), and substitute the following:

(b)  The memorandum of understanding under this section must:

(1)  maximize the use of electronic filing of information by managed care organizations contracting with the commission under this chapter;

(2)  specify the process by which the commission and the Texas Department of Insurance will jointly schedule a single on-site visit that satisfies the requirements of all state agencies regarding regularly scheduled, comprehensive compliance monitoring of and enforcement efforts with respect to managed care organizations contracting with the commission under this chapter;

(3)  require that interagency orientation and training are scheduled and conducted to ensure that agency staff members are familiar with the obligation to eliminate and prevent duplicative monitoring and enforcement activities; and

(4)  ensure coordination to eliminate and prevent duplication regarding policy development and implementation, procurement, cost estimates, electronic systems issues, and monitoring and enforcement activities with respect to managed care organizations that serve recipients as well as enrollees in the state child health plan under Chapter 62, Health and Safety Code.

(29)  In SECTION 22(a) of the bill, in the heading to proposed Section 533.019, Government Code (House committee printing, page 57, line 7), between "533.019." and "OPERATIONAL", insert "INTEGRATED".

(30)  In SECTION 22(a) of the bill, in proposed Section 533.019(a), Government Code (House committee printing, page 57, line 9), strike "an operational and financial" and substitute "an integrated operational and financial".

(31)  In SECTION 22(a) of the bill, in proposed Section 533.019(b), Government Code (House committee printing, page 57, line 14), strike "the operational and financial" and substitute "the integrated operational and financial".

(32)  In SECTION 22(a) of the bill, in proposed Section 533.019(c), Government Code (House committee printing, page 58, lines 7 and 8), between "the" and "operational and financial", insert "integrated".

(33)  In SECTION 22(a) of the bill, strike proposed Section 533.0208, Government Code (House committee printing, page 62, line 20, through page 63, line 12).

(34)  In SECTION 22 of the bill, following Subsection (a) of that SECTION (House committee printing, page 63, between lines 12 and 13), insert the following and reletter subsequent subsections of that SECTION accordingly:

(b)  Not later than March 1, 2002, the Health and Human Services Commission and each appropriate health and human services agency implementing part of the Medicaid managed care program under Chapter 533, Government Code, shall complete the requirements for reducing and coordinating reporting requirements and inspection procedures as required by Section 533.017, Government Code, as added by this Act.

77th Legislature — Regular Session 79th Day

(35)  In SECTION 22(c) of the bill (House committee printing, page 63, line 21), strike "the operational and financial" and substitute "the integrated operational and financial".

(36)  Strike SECTION 22(f) of the bill (House committee printing, page 64, lines 9-16).

(37)  In SECTION 26(b) of the bill (House committee printing, page 68, lines 5 and 6), strike "Implementation of Section 533.0208, Government Code, as added by this Act, is governed by Section 22 of this Act."

Floor Amendment No. 3

Amend the Coleman amendment No. 2 to CSSB 1156 by striking Item (10) of the amendment on page 2, lines 9-12, and renumbering subsequent items accordingly.

Floor Amendment No. 4

Amend CSSB 1156 (House Committee Printing) as follows:

On page 27, line 3 after the word "program," insert "provided that the initiatives shall not apply to a Class A community independent pharmacy or a Class A community chain pharmacy with ten or fewer pharmacies."

Floor Amendment No. 5

Amend CSSB 1156 as follows:

(1)  In the recital to SECTION 2(a) of the bill (House committee printing, page 2, line 9), strike "(a)".

(2)  In the recital to SECTION 2(a) of the bill (House committee printing, page 2, line 10), strike "Sections 32.0247 and 32.0248" and substitute "Section 32.0247".

(3)  In SECTION 2(a) of the bill, strike proposed Section 32.0248, Human Resources Code (House committee printing, page 3, lines 5-19).

(4)  Strike SECTION 2(b) of the bill (House committee printing, page 3, lines 20-25).

Floor Amendment No. 6

Amend CSSB 1156 as follows:

(1) In SECTION 3 of the bill, in proposed Section 32.0252(c), Human Resources Code (House committee printing, page 5, line 18), strike "The" and substitute "Except as provided by Subsection (d), the".

(2) In SECTION 3 of the bill, in proposed Section 32.0252, Human Resources Code (House committee printing, page 5, between lines 23 and 24), insert the following new Subsection (d) and redesignate subsequent subsections accordingly:

(d) Notwithstanding Subsection (c), the commissioner may apply for federal authorization to allow a designated employee of an entity described by Subsection (a) to make a final determination of eligibility or enroll an eligible person in the program.

Floor Amendment No. 9

Amend CSSB 1156 in SECTION 7(a) of the bill, in proposed Subsection (a), Section 32.056, Human Resources Code (House Committee Printing, page 19, line 15), between "methods" and the semicolon, by inserting the following:

that includes:

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(A)  promoting abstinence as the preferred choice of behavior related to all sexual activity for unmarried persons;

(B)  emphasizing abstinence from sexual activity, if used consistently and correctly, is the only method that is 100 percent effective in preventing pregnancy, sexually transmitted diseases, infection with human immunodeficiency virus or acquired immune deficiency syndrome, and the emotional trauma associated with adolescent sexual activity; and

(C)  informing single and divorced adults that abstinence from sexual activity before marriage is the most effective way to prevent pregnancy, sexually transmitted diseases, and infection with human immunodeficiency virus or acquired immune deficiency syndrome

Floor Amendment No. 10

Amend CSSB 1156 (House Committee Printing) in SECTION 7 of the bill, in added Section 32.056(b), Human Resources Code (page 20, lines 3-4), by striking "is of childbearing age, as determined by the department" and substituting "is 18 years of age or older".

Floor Amendment No. 11

Amend CSSB 1156, on page 7, between lines 15 and 16 to insert the following:

(3) "Spouse" means a husband, who is a male, or a wife, who is a female. A member of a civil union or similar relationship entered into in another state between persons of the same sex is not a spouse.

Floor Amendment No. 12

Amend CSSB 1156 as follows:

(1)  In the recital to SECTION 9(a) of the bill (House committee printing, page 24, line 10), strike "Sections 531.02101-531.02106" and substitute "Sections 531.02101-531.02107".

(2)  In SECTION 9(a) of the bill, at the end of proposed Section 531.02106, Government Code (House committee printing, page 30, between lines 15 and 16), insert the following:

Sec. 531.02107.  AUTHORIZATION FOR EXPANDED MEDICAID COST-SHARING. Notwithstanding any other law, the commissioner may request federal authorization to require all Medicaid recipients to make copayments or comply with other cost-sharing requirements for all services provided under the program in accordance that authorization.

Floor Amendment No. 13

Amend CSSB 1156 as follows:

(1) In SECTION 9 of the bill, in added Section 531.02102(a)(1), Government Code (House committee printing, page 25, line 5), strike "three" and substitute "five".

(2) In SECTION 9 of the bill, in added Section 531.02102(a)(2), Government Code (House committee printing, page 25, line 7), strike "three" and substitute "five".

Floor Amendment No. 14

Amend CSSB 1156 as follows:

(1)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a)(11), Government Code (House committee printing, page 27, line 20), strike "and".

77th Legislature — Regular Session 79th Day

(2)  In SECTION 9(a) of the bill, in proposed Section 531.02103(a), Government Code (House committee printing, page 27, line 23), between "reimbursement" and ".", insert the following:

; and

(13)  any other strategy designed to improve the quality and cost-effectiveness of the Medicaid program

Floor Amendment No. 15

Amend CSSB 1156 as follows:

(1)  In SECTION 10 of the bill, in proposed Section 531.02131(a), Government Code (House Committee printing, page 30, line 26), strike "shall" and substitute "may".

(2)  In SECTION 10 of the bill, in proposed Section 531.02131(e), Government Code (House Committee printing, page 31, line 14), strike "required by" and substitute "under".

Floor Amendment No. 16

Amend CSSB 1156 by striking SECTION 15 of the bill (House committee report, page 33, line 24 through page 37, line 6), renumbering subsequent SECTIONS of the bill accordingly, and making necessary conforming changes to cross-references in SECTION 26(b) of the bill.

Floor Amendment No. 17

Amend CSSB 1156 as follows:

(1) In SECTION 18 of the bill, in proposed Section 533.0021(2)(A), Government Code (House committee printing, page 41, line 18), strike "and".

(2) In SECTION 18 of the bill, in proposed Section 533.0021(2), Government Code (House committee printing, page 41, between lines 22 and 23), insert the following:

(C) develop a sliding scale copayment schedule for recipients based on income and other factors determined by the commissioner; and

Floor Amendment No. 18

Amend CSSB 1156 in SECTION 6 of the bill by adding the following appropriately numbered Subsections to the SECTION and by renumbering subsequent Subsections of the SECTION accordingly:

( )  Section 301.104, Labor Code, is amended to read as follows:

Sec. 301.104.  ELIGIBILITY. A person is eligible for the refund for wages paid or incurred by the person, during each calendar year for which the refund is claimed, only if:

(1)  the wages paid or incurred by the person are for services of an employee who is:

(A)  a resident of this state; and

(B)  a recipient of:

(i)  financial assistance and services in accordance with Chapter 31, Human Resources Code; or

(ii)  medical assistance in accordance with Chapter 32, Human Resources Code;

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(2)  the person satisfies the certification requirements under Section 301.105; and

(3)  the person provides and pays for the benefit of the employee a part of the cost of coverage under:

(A)  a health plan provided by a health maintenance organization established under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code);

(B)  a health benefit plan approved by the commissioner of insurance; [or ]

(C)  a self-funded or self-insured employee welfare benefit plan that provides health benefits and is established in accordance with the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.); or

(D)  a medical savings account authorized under the Health Insurance Portability and Accountability Act of 1996 (26 U.S.C. Section 220).

( )  Section 301.105, Labor Code, is amended to read as follows:

Sec. 301.105.  CERTIFICATION. A person is not eligible for the refund for wages paid or incurred by the person unless the person has received a written certification from the commission that the employee is a recipient of financial assistance and services or medical assistance on or before the day the employee begins employment with the person.

( ) A person may claim a refund under Section 301.104, Labor Code, as amended by this Act, only for wages paid or incurred on or after the effective date of this Act.

Floor Amendment No. 19

Amend CSSB 1156 by adding a new section to read as follows:

(1) SECTION _____. The Commissioner of Health and Human Services shall examine the reimbursement methodology for air ambulance services purchased under the medical assistance program and may implement any changes necessary to maintain a viable air ambulance system through the state.

Floor Amendment No. 1 on Third Reading

Amend CSSB 1156 on third reading in SECTION 1 of the bill, in added Section 32.024(x), Human Resources Code (House committee printing, page 1, line 8), between "prescribed" and "to a recipient", by inserting "by a physician, a person permitted to prescribe under Subchapter B, Chapter 157, Occupational Code, a dentist, an optometrist, and a podiatrist."

Floor Amendment No. 2 on Third Reading

Amend CSSB 1156 on third reading as follows:

In SECTION 10 of the bill, in proposed Section 531.02131(a), Government Code (House Committee printing, page 30, line 26), as amended by Second Reading Amendment No. 15, strike "may" and substitute "shall".

Floor Amendment No. 3 on Third Reading

Amend CSSB 1156, on third reading, by adding the following appropriately numbered section and renumbering subsequent sections accordingly:

77th Legislature — Regular Session 79th Day

SECTION _____. Subchapter B, Chapter 32, Human Resources Code, is amended by adding Section 32.0471 to read as follows:

Sec. 32.0471. FAMILY PLANNING COUNSELING SERVICES; PROVIDER QUALIFICATIONS. Notwithstanding Section 503.056, Occupations Code, the department shall require that anyone who provides counseling services related to family planning services provided under this chapter must be:

(1) a licensed healthcare provider or a licensed counseling professional; or

(2) under the supervision of a licensed healthcare professional or a licensed counseling professional.

The amendments were read.

Senator Zaffirini moved that the Senate do not concur in the House amendments, but that a conference committee be appointed to adjust the differences between the two Houses on the bill.

The motion prevailed.

The President asked if there were any motions to instruct the conference committee on SB 1156 before appointment.

There were no motions offered.

The President announced the appointment of the following conferees on the part of the Senate on the bill: Senators Zaffirini, Chair; Harris, Duncan, Ogden, and Moncrief.

SESSION TO CONSIDER EXECUTIVE APPOINTMENTS

The President announced the time had arrived to consider the executive appointments to agencies, boards, and commissions. Notice of submission of these names for consideration was given yesterday by Senator Nelson.

Senator Nelson moved confirmation of the nominees reported yesterday by the Committee on Nominations.

The President asked if there were requests to sever nominees.

There were no requests offered.

NOMINEES CONFIRMED

The following nominees as reported by the Committee on Nominations were confirmed by the following vote: Yeas 30, Nays 0, Present-not voting 1.

Present-not voting: Mr. President.

Members, Texas School for the Deaf Governing Board: Theresa Johnson, Harris County; Kenneth D. Kesterson, Howard County.

Members, Upper Neches River Municipal Water Authority Board of Directors: Joe M. Crutcher, Anderson County; Robert E. McKelvey, Anderson County.

Presiding Officer, Board of Pardons and Paroles: Gerald Garrett, Travis County.

Members, Board of Pardons and Paroles: James E. Bush, Walker County; Roy Anthony Garcia, Anderson County.

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Member, State Cemetery Committee: George E. Christian, Sr., Travis County.

Members, Commission on Jail Standards: Lee Hamilton, Taylor County; Evelyn "Kelly" McVay, Nacogdoches County.

Chair, Texas Diabetes Council: Lawrence B. Harkless, D.P.M., Bexar County.

Members, Texas Diabetes Council: Mary-Ann Galley, Harris County; Lenore Frances Pressman Katz, Dallas County; Margaret G. Pacillas, El Paso County; Jeffrey A. Ross, D.P.M., Harris County.

Members, Texas Board of Architectural Examiners: Gordon E. Landreth, Nueces County; Janet Forgey Parnell, Hemphill County; Linda Diane Steinbrueck, Hays County.

Members, Texas Commission on Private Security: Joan T. Neuhaus, Harris County; Cephus S. "Dusty" Rhodes, El Paso County; Linda J. Sadler, Lubbock County.

MESSAGE FROM THE HOUSE

HOUSE CHAMBER

Austin, Texas

May 23, 2001

The Honorable President of the Senate

Senate Chamber

Austin, Texas

Mr. President:

I am directed by the House to inform the Senate that the House has taken the following action:

THE HOUSE HAS PASSED THE FOLLOWING MEASURES:

SJR 6, Proposing a constitutional amendment authorizing the legislature to exempt from ad valorem taxation tangible personal property held at certain locations only temporarily for assembling, manufacturing, processing, or other commercial purposes.

(Amended)

SJR 32, Proposing a constitutional amendment authorizing municipalities to donate outdated or surplus firefighting equipment or supplies to underdeveloped countries.

SJR 49, Proposing a constitutional amendment to promote uniformity in the collection, deposit, reporting, and remitting of civil and criminal fees.

(Amended)

Respectfully,

/s/Sharon Carter, Chief Clerk

House of Representatives

77th Legislature — Regular Session 79th Day

HOUSE CONCURRENT RESOLUTION 297

The President laid before the Senate the following resolution:

HCR 297, Instructing the enrolling clerk of the house to make technical corrections to HB 7.

SIBLEY

The resolution was read.

On motion of Senator Sibley and by unanimous consent, the resolution was considered immediately and was adopted by a viva voce vote.

GUESTS PRESENTED

Senator Ellis was recognized and introduced to the Senate a delegation of dignitaries from the Federal Republic of Nigeria.

The Senate welcomed its distinguished guests.

SENATE BILL 2 WITH HOUSE AMENDMENTS

Senator Brown called SB 2 from the President's table for consideration of the House amendments to the bill.

The President laid the bill and the House amendments before the Senate.

Amendment

Amend SB 2 by substituting in lieu thereof the following:

A BILL TO BE ENTITLED

AN ACT

relating to the development and management of the water resources of the state, including the ratification of the creation of certain groundwater conservation districts; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. TEXAS WATER ADVISORY COUNCIL

SECTION 1.01.  Subtitle A, Title 2, Water Code, is amended by adding Chapter 9 to read as follows:

CHAPTER 9. TEXAS WATER ADVISORY COUNCIL

Sec. 9.001.  DEFINITIONS. In this chapter:

(1)  "Authority" means an entity listed in Section 9.010(b).

(2)  "Board" means the governing body of an authority.

(3)  "Commission" means the Texas Natural Resource Conservation Commission.

(4)  "Conjunctive use" means the combined use of groundwater and surface water sources that optimizes the beneficial characteristics of each source.

(5)  "Council" means the Texas Water Advisory Council.

Sec. 9.002.  CREATION AND MEMBERSHIP. (a)  The council consists of 13 members as follows:

(1)  the chairman, or a board member designated by the chairman, of the Texas Water Development Board;

(2)  the chairman, or a commissioner designated by the chairman, of the commission;

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(3)  the chairman, or a commissioner designated by the chairman, of the Parks and Wildlife Commission;

(4)  the commissioner of agriculture;

(5)  the commissioner of the General Land Office;

(6)  three members of the house of representatives appointed by the speaker of the house of representatives;

(7)  two members of the senate appointed by the lieutenant governor; and

(8)  three members of the general public appointed by the governor, one representing groundwater management, one representing surface water management, and one representing the environmental community.

(b)  Council members may not delegate participation or council duties to staff.

Sec. 9.003.  TERMS. (a)  Except for the commissioner of the General Land Office and the commissioner of agriculture, council members who are officials of state agencies serve terms as determined by the chairman of each agency.

(b)  Council members who are members of the general public serve staggered six-year terms with the term of one member expiring August 31 of each odd-numbered year.

(c)  Council members may be reappointed to serve additional terms.

(d)  A vacancy on the council shall be filled by appointment by the original appointing authority for the unexpired term.

Sec. 9.004.  OFFICERS OF THE COUNCIL. (a)  The governor shall appoint a council member as the chair of the council for a two-year term expiring May 31 of each even-numbered year.

(b)  The council shall have a secretary of the council who serves at the pleasure of the council and is accountable only to the council.

Sec. 9.005.  COUNCIL STAFF. On request by the council, the commission, the Parks and Wildlife Department, the Department of Agriculture, and the Texas Water Development Board shall provide any staff other than the secretary of the council necessary to assist the council in the performance of its duties.

Sec. 9.006.  MEETINGS. (a)  The council shall meet at least once in each calendar quarter. Six members constitute a quorum.

(b)  The council is subject to Chapters 551 and 2001, Government Code.

Sec. 9.007.  COMPENSATION OF MEMBERS. (a)  Members of the council serve without compensation but may be reimbursed by legislative appropriation for actual and necessary expenses related to the performance of council duties.

(b)  Reimbursement under Subsection (a) is subject to the approval of the chair.

Sec. 9.008.  POWERS AND DUTIES OF COUNCIL. (a)  The council shall:

(1)  heighten the level of dialogue on significant water policy issues and, in an advisory role only, strive to provide focus and recommendations on state water policy initiatives, including:

(A)  promoting flexibility and incentives for water desalination, brush control, regionalization, weather modification projects, and public-private partnerships relating to water projects;

(B)  promoting adequate financing for surface water and groundwater projects;

(C)  development of water conservation and drought management projects;

(D)  implementation of approved regional and state water plans;

77th Legislature — Regular Session 79th Day

(E)  encouraging commonality of technical data and information such as joint agency studies, freshwater inflow recommendations, surface water and groundwater availability models, and bay and estuary and instream flow recommendations developed by the Parks and Wildlife Department, the commission, and the Texas Water Development Board; and

(F)  encouraging the use of supplemental environmental projects for water infrastructure needs and enhancing the aquatic environment and habitat in enforcement proceedings at a state agency or political subdivision;

(2)  encourage the enhancement and coordination of state, interstate, and international efforts to improve environmental quality and living conditions along the Texas-Mexico border;

(3)  coordinate a unified state position on federal and international water issues; and

(4)  advise the Texas Water Development Board on developing criteria for prioritizing the funding of projects in the state water plan.

(b)  The council may not:

(1)  adopt rules;

(2)  regulate water use, water quality, or any other aspect of water resource management;

(3)  plan or construct water resource projects or have such projects planned or constructed;

(4)  grant or lend money for the construction of water resource projects;

(5)  establish water resource management standards or otherwise usurp the authority of or infringe upon the duties, responsibilities, or powers of local, regional, or state water management entities, including groundwater districts, river authorities and compacts, regional water planning groups, or member agencies of the council; or

(6)  consider or discuss a specific permit or project or recommendation for a project until the water permit has been issued by the state and all motions for rehearing have been overruled.

Sec. 9.009.  REPORT. Not later than December 1 of each even-numbered year, the council shall submit a report to the governor, lieutenant governor, and speaker of the house of representatives and to the senate and house standing committees with primary responsibility over water resource management and financing. The report must include findings of the council made in the periodic reviews of authorities during the preceding two-year period and any other findings and recommendations the council considers necessary.

Sec. 9.010.  ANALYSIS OF AUTHORITIES. (a)  On a five-year cycle, each authority shall provide the council with the information required by Sections 9.011 and 9.012. The information shall be provided to the council in the order of groups described in Subsection (b), with the information submitted by group 1 by the council's first quarterly meeting of the five-year period and group 2 submitted by the council's third quarterly meeting of the period. The council shall continue in numerical order to receive the information by each group at every other quarterly meeting until all 10 groups have been completed and then shall recommence the cycle.

(b)  Authorities shall provide the information under Subsection (a) in the following groups:

(1)  in group 1, Northeast Texas Municipal Water District;

(2)  in group 2, Angelina and Neches River Authority, Lower Neches Valley Authority, Sabine River Authority, and Upper Neches River Municipal Water Authority;

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(3)  in group 3, Red River Authority of Texas, Sulphur River Municipal Water District, and Sulphur River Basin Authority;

(4)  in group 4, San Jacinto River Authority, Gulf Coast Water Authority, and North Harris County Regional Water Authority;

(5)  in group 5, North Texas Municipal Water District, Tarrant Regional Water District, Trinity River Authority of Texas, and Dallas County Utility and Reclamation District;

(6)  in group 6, Brazos River Authority, West Central Texas Municipal Water District, and North Central Texas Municipal Water Authority;

(7)  in group 7, Guadalupe-Blanco River Authority, Lavaca-Navidad River Authority, Lower Colorado River Authority, and Upper Guadalupe River Authority;

(8)  in group 8, Nueces River Authority, San Antonio River Authority, and Bexar-Medina-Atascosa Counties Water Control and Improvement District No. 1;

(9)  in group 9, Colorado River Municipal Water District, Central Colorado River Authority, and Upper Colorado River Authority; and

(10)  in group 10, Canadian River Municipal Water Authority and Mackenzie Municipal Water Authority.

(c)  The council may not require an authority under this section to submit the information required under Section 9.012 more than once every five years. The council may, however, request an authority that has submitted information to provide follow-up information on any specific item or issue raised during the initial council analysis.

(d)  The council, on a request by an authority, may modify the schedule in order to have the flexibility in scheduling the information submittal and council analysis, if needed, to be more responsive to particular circumstances, changing conditions, or time-sensitive conflicts.

Sec. 9.011.  PERFORMANCE STANDARDS. (a)    Before its five-year analysis under Section 9.010, an authority shall report to the council a self-assessment of:

(1)  how the authority is achieving its stated mission and goals, including an identification of any barriers to achieving the mission and goals;

(2)  how the authority is providing service to its customers, including mechanisms the authority provides to encourage input from the public and its customers;

(3)  how the authority is addressing issues raised by its most recent management audit, if the audit is required by commission rule to be performed, including its administrative policies; and

(4)  the authority's role in the regional water planning process.

(b)  The authority's report to the council under this section must include recommendations related to:

(1)  any interregional issues the authority has identified as problematic and any potential solutions to those issues; and

(2)  solutions to any barriers the authority determines are interfering with the successful implementation of the approved regional water plan or state water plan.

Sec. 9.012.  ADMINISTRATIVE POLICIES FOR AUTHORITIES. The commission shall expand the applicability of its rules under 30 T.A.C. Chapter 292 to include all the authorities subject to this chapter. The commission shall provide the council with copies of the most recent information provided by each authority in accordance with its administrative rules.

77th Legislature — Regular Session 79th Day

Sec. 9.013.  GIFTS AND GRANTS. The council may accept gifts and grants from any source to carry out the purposes of this chapter. The use of gifts and grants other than legislative appropriations is subject only to limitations contained in the gift or grant.

Sec. 9.014.  FUNDING. (a)  The interagency water advisory account is a special account in the general revenue fund.

(b)  The interagency water advisory account consists of legislative appropriations, gifts and grants received under Section 9.013, and other money required by law to be deposited in the account.

(c)  Money in the interagency water advisory account may be used only as provided by this chapter.

Sec. 9.015.  CONTINUING RIGHT OF SUPERVISION. Nothing in this chapter affects the continuing right of supervision over authorities by the commission as provided by Section 12.081.

Sec. 9.016.  PUBLIC PARTICIPATION. The council shall encourage public input regarding the exercise of its powers and duties under Section 9.008, its preparation of the report described in Section 9.009, and its analysis of authorities under Sections 9.010 and 9.011.

Sec. 9.017.  DISSOLUTION OF COUNCIL AND ACCOUNT. Unless extended by the 78th Texas Legislature, this chapter and the interagency water advisory account expire on September 1, 2003.

ARTICLE 2. SURFACE WATER AND GROUNDWATER

CONJUNCTIVE MANAGEMENT; REGULATORY INCENTIVES

SECTION 2.01.  Section 11.002, Water Code, is amended by adding Subdivisions (11), (12), (13), and (14) to read as follows:

(11)  "River basin" means a river or coastal basin designated by the board as a river basin under Section 16.051. The term does not include the bays or arms of the Gulf of Mexico.

(12)  "Agriculture" means any of the following activities:

(A)  cultivating the soil to produce crops for human food, animal feed, or planting seed or for the production of fibers;

(B)  the practice of floriculture, viticulture, silviculture, and horticulture, including the cultivation of plants in containers or nonsoil media, by a nursery grower;

(C)  raising, feeding, or keeping animals for breeding purposes or for the production of food or fiber, leather, pelts, or other tangible products having a commercial value;

(D)  planting cover crops, including cover crops cultivated for transplantation, or leaving land idle for the purpose of participating in a governmental program or normal crop or livestock rotation procedure; and

(E)  raising or keeping equine animals.

(13)  "Agricultural use" means any use or activity involving agriculture, including irrigation.

(14)  "Nursery grower" means a person who grows more than 50 percent of the products that the person sells or leases, regardless of the variety sold, leased, or grown. For the purpose of this definition, "grow" means the actual cultivation or propagation of the product beyond the mere holding or maintaining of the item prior to sale or lease and typically includes activities associated with the production or multiplying of stock such as the development of new plants from cuttings, grafts, plugs, or seedlings.

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SECTION 2.02.  Section 11.023(a), Water Code, is amended to read as follows:

(a)  State water may be appropriated, stored, or diverted for:

(1)  domestic and municipal uses, including water for sustaining human life and the life of domestic animals;

(2)  agricultural uses and industrial uses, meaning processes designed to convert materials of a lower order of value into forms having greater usability and commercial value, including the development of power by means other than hydroelectric;

(3)  [irrigation;

[(4) ]  mining and recovery of minerals;

(4) [(5) ]  hydroelectric power;

(5) [(6) ]  navigation;

(6) [(7) ]  recreation and pleasure;

(7) [(8)  stock raising;

[(9) ]  public parks; and

(8) [(10) ]  game preserves.

SECTION 2.03.  Section 11.024, Water Code, is amended to read as follows:

Sec. 11.024.  APPROPRIATION: PREFERENCES. In order to conserve and properly utilize state water, the public welfare requires not only recognition of beneficial uses but also a constructive public policy regarding the preferences between these uses, and it is therefore declared to be the public policy of this state that in appropriating state water preference shall be given to the following uses in the order named:

(1)  domestic and municipal uses, including water for sustaining human life and the life of domestic animals, it being the public policy of the state and for the benefit of the greatest number of people that in the appropriation of water as herein defined, the appropriation of water for domestic and municipal uses shall be and remain superior to the rights of the state to appropriate the same for all other purposes;

(2)  agricultural uses and industrial uses, which means [meaning ] processes designed to convert materials of a lower order of value into forms having greater usability and commercial value, including the development of power by means other than hydroelectric;

(3)  [irrigation;

[(4) ]  mining and recovery of minerals;

(4) [(5) ]  hydroelectric power;

(5) [(6) ]  navigation;

(6) [(7) ]  recreation and pleasure; and

(7) [(8) ]  other beneficial uses.

SECTION 2.04.  Section 11.038, Water Code, is amended to read as follows:

Sec. 11.038.  RIGHTS OF OWNERS OF LAND ADJOINING CANAL, ETC. (a)  A person who owns or holds a possessory interest in land adjoining or contiguous to a canal, ditch, flume, lateral, dam, reservoir, or lake constructed and maintained under the provisions of this chapter and who has secured a right to the use of water in the canal, ditch, flume, lateral, dam, reservoir, or lake is entitled to be supplied from the canal, ditch, flume, lateral, dam, reservoir, or lake with water [for irrigation of the land and ] for agricultural uses, mining, milling, manufacturing, development of power, and stock raising, in accordance with the terms of the person's [his ] contract.

(b)  If the person, association of persons, or corporation owning or controlling the water and the person who owns or holds a possessory interest in the adjoining land

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cannot agree on a price for a permanent water right or for the use of enough water for irrigation of the person's land or for agricultural uses, mining, milling, manufacturing, development of power, or stock raising, then the party owning or controlling the water, if the person [he ] has any water not contracted to others, shall furnish the water necessary for these purposes at reasonable and nondiscriminatory prices.

SECTION 2.05.  Section 11.085(p), Water Code, is amended to read as follows:

(p)  [For the purposes of this section, a basin is designated as provided in accordance with Section 16.051 of this code. ] A river basin may not be redesignated in order to allow a transfer or diversion of water otherwise in violation of this section.

SECTION 2.06.  Section 11.088, Water Code, is amended to read as follows:

Sec. 11.088.  DESTRUCTION OF WATERWORKS. No person may wilfully cut, dig, break down, destroy, or injure or open a gate, bank, embankment, or side of any ditch, canal, reservoir, flume, tunnel or feeder, pump or machinery, building, structure, or other work which is the property of another, or in which another owns an interest, or which is lawfully possessed or being used by another, and which is used for [irrigation, ] milling, mining, manufacturing, the development of power, domestic purposes, agricultural uses, or stock raising, with intent to:

(1)  maliciously injure a person, association, corporation, water improvement or irrigation district;

(2)  gain advantage for himself; or

(3)  take or steal water or cause water to run out or waste out of the ditch, canal, or reservoir, feeder, or flume for his own advantage or to the injury of a person lawfully entitled to the use of the water or the use or management of the ditch, canal, tunnel, reservoir, feeder, flume, machine, structure, or other irrigation work.

SECTION 2.07.  Section 11.122(a), Water Code, is amended to read as follows:

(a)  All holders of permits, certified filings, and certificates of adjudication issued under Section 11.323 of this code shall obtain from the commission authority to change the place of use, purpose of use, point of diversion, rate of diversion, acreage to be irrigated, or otherwise alter a water right. Without obtaining an amendment, the holder of a permit, certified filing, or certificate of adjudication that includes industrial or irrigation use may use or supply water for an agricultural use that was classified as industrial or irrigation before September 1, 2001.

SECTION 2.08.  Section 11.134(b), Water Code, is amended to read as follows:

(b)  The commission shall grant the application only if:

(1)  the application conforms to the requirements prescribed by this chapter and is accompanied by the prescribed fee;

(2)  unappropriated water is available in the source of supply;

(3)  the proposed appropriation:

(A)  is intended for a beneficial use;

(B)  does not impair existing water rights or vested riparian rights;

(C)  is not detrimental to the public welfare;

(D)  considers the assessments performed under Sections 11.147(d) and (e) and Sections 11.150, 11.151, and 11.152 [effects of any hydrological connection between surface water and groundwater ]; and

(E)  addresses a water supply need in a manner that is consistent with the state water plan and the relevant [an approved ] regional water plan for any area in which the proposed appropriation is located, unless the commission determines that conditions warrant waiver of this requirement; and

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(4)  the applicant has provided evidence that reasonable diligence will be used to avoid waste and achieve water conservation as defined by Subdivision (8)(B), Section 11.002[, of this code ].

SECTION 2.09.  Section 11.142, Water Code, is amended to read as follows:

Sec. 11.142.  PERMIT EXEMPTIONS. (a)  Without obtaining a permit, a person may construct on the person's [his ] own property a dam or reservoir with normal storage of not more than 200 acre-feet of water for domestic and livestock purposes.

(b)  Without obtaining a permit, a person may construct on the person's property a dam or reservoir with normal storage of not more than 100 acre-feet of water for commercial and noncommercial fish and wildlife purposes, other than aquaculture, if the property on which the dam or reservoir will be constructed is qualified open-space land, as defined by Section 23.51, Tax Code, on the basis of its use for wildlife management. In this subsection, "aquaculture" has the meaning assigned by Section 134.001, Agriculture Code.

(c)  Without obtaining a permit, a person who is drilling and producing petroleum and conducting operations associated with drilling and producing petroleum may take for those purposes state water from the Gulf of Mexico and adjacent bays and arms of the Gulf of Mexico in an amount not to exceed one acre-foot during each 24-hour period.

(d) [(c) ]  Without obtaining a permit, a person may construct or maintain a reservoir for the sole purpose of sediment control as part of a surface coal mining operation under the Texas Surface Coal Mining and Reclamation Act (Chapter 134, Natural Resources Code [Article 5920-11, Vernon's Texas Civil Statutes ]).

SECTION 2.10.  Section 11.146, Water Code, is amended by adding Subsection (g) to read as follows:

(g)  This section does not apply to a permit for construction of a reservoir designed for the storage of more than 50,000 acre-feet of water.

SECTION 2.11.  Section 11.147(b), Water Code, is amended to read as follows:

(b)  In its consideration of an application for a permit to store, take, or divert water, the commission shall assess the effects, if any, of the issuance of the permit on the bays and estuaries of Texas. For permits issued within an area that is 200 river miles of the coast, to commence from the mouth of the river thence inland, the commission shall include in the permit, to the extent practicable when considering all public interests and the studies mandated by Section 16.058 as evaluated under Section 11.1491, those conditions considered necessary to maintain beneficial inflows to any affected bay and estuary system.

SECTION 2.12.  Section 11.173(b), Water Code, is amended to read as follows:

(b)  A permit, certified filing, or certificate of adjudication or a portion of a permit, certified filing, or certificate of adjudication is exempt from cancellation under Subsection (a) [of this section ]:

(1)  to the extent of the owner's participation in the Conservation Reserve Program authorized by the Food Security Act, Pub.L. No. 99-198, Secs. 1231-1236, 99 Stat. 1354, 1509-1514 (1985) or a similar governmental program; [or ]

(2)  if a significant [any ] portion of the water authorized to be used pursuant to a permit, certified filing, or certificate of adjudication has been used in accordance with a specific recommendation for meeting a water need included in the regional water plan approved pursuant to Section 16.053;

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(3)  if the permit, certified filing, or certificate of adjudication:

(A)  was obtained to meet demonstrated long-term public water supply or electric generation needs as evidenced by a water management plan developed by the holder; and

(B)  is consistent with projections of future water needs contained in the state water plan; or

(4)  if the permit, certified filing, or certificate of adjudication was obtained as the result of the construction of a reservoir funded, in whole or in part, by the holder of the permit, certified filing, or certificate of adjudication as part of the holder's long-term water planning [of this code ].

SECTION 2.13.  Section 11.177(b), Water Code, is amended to read as follows:

(b)  In determining what constitutes reasonable diligence or a justified nonuse as used in Subsection (a)(2) [of this section ], the commission shall give consideration to:

(1)  whether sufficient water is available in the source of supply to meet all or part of the appropriation during the 10-year period of nonuse;

(2)  whether the nonuse is justified by the holder's participation in the federal Conservation Reserve Program or a similar governmental program as provided by Section 11.173(b)(1) [of this code ];

(3)  [whether the permit, certified filing, or certificate of adjudication was obtained to meet demonstrated long-term public water supply or electric generation needs as evidenced by a water management plan developed by the holder and consistent with projections of future water needs contained in the state water plan;

[(4)  whether the permit, certified filing, or certificate of adjudication was obtained as the result of the construction of a reservoir funded, in whole or in part, by the holder of the permit, certified filing, or certificate of adjudication as part of the holder's long-term water planning;

[(5) ]  whether the existing or proposed authorized purpose and place of use are consistent with an approved regional water plan as provided by Section 16.053 [of this code ];

(4) [(6) ]  whether the permit, certified filing, or certificate of adjudication has been deposited into the Texas Water Bank as provided by Sections 15.7031 and 15.704 [of this code ] or whether it can be shown that the water right or water available under the right is currently being made available for purchase through private marketing efforts; or

(5) [(7) ]  whether the permit, certified filing, or certificate of adjudication has been reserved to provide for instream flows or bay and estuary inflows.

SECTION 2.14.  Section 15.701(2), Water Code, is amended to read as follows:

(2)  "Depositor" means a person who deposits or has on deposit a water right in the water bank or trust.

SECTION 2.15.  Section 16.012, Water Code, is amended by adding Subsections (l) and (m) to read as follows:

(l)  The executive administrator shall obtain or develop groundwater availability models for major and minor aquifers in coordination with groundwater conservation districts and regional water planning groups created under Section 16.053 that overlie the aquifers. Modeling of major aquifers shall be completed not later than October 1, 2004. On completing a groundwater availability model for an aquifer, the executive administrator shall provide the model to each groundwater conservation district and each regional water planning group created under Section 16.053 overlying that aquifer.

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(m)  The executive administrator may conduct surveys of entities using groundwater and surface water at intervals determined appropriate by the executive administrator to gather data to be used for long-term water supply planning. Recipients of the survey shall complete and return the survey to the executive administrator. A person who fails to timely complete and return the survey is not eligible for funding from the board for board programs and is ineligible to obtain permits, permit amendments, or permit renewals from the commission under Chapter 11. A person who fails to complete and return the survey commits an offense that is punishable as a Class C misdemeanor. Surveys obtained by the board from nongovernmental entities are excepted from the requirements of Section 552.021, Government Code, unless otherwise directed in writing by the person completing the survey. This subsection does not apply to survey information regarding windmills used for domestic and livestock use.

SECTION 2.16.  Sections 16.051(a), (d), (f), (g), and (h), Water Code, are amended to read as follows:

(a)  Not [No ] later than January 5, 2002, and before the end of each successive five-year period after that date [every five years thereafter ], the board shall adopt a comprehensive state water plan that incorporates the regional water plans approved under Section 16.053. The state water plan shall provide for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions, in order that sufficient water will be available at a reasonable cost to ensure public health, safety, and welfare; further economic development; and protect the agricultural and natural resources of the entire state.

(d)  The board, in coordination with the commission, the Department of Agriculture, and the Parks and Wildlife Department, shall adopt by rule guidance principles for the state water plan which reflect the public interest of the entire state. When adopting guidance principles, due consideration shall be given to the protection of agriculture and the natural resources of the state, the construction and improvement of surface water resources, and the application of principles that result in voluntary redistribution of water resources. The board shall review and update the guidance principles, with input from the commission, the Department of Agriculture, and the Parks and Wildlife Department, as necessary but at least every five years to coincide with the five-year cycle for adoption of a new water plan as described in Subsection (a).

(f)  The legislature may designate a[:

[(1) ]  river or stream segment of unique ecological value. This designation solely means that a state agency or political subdivision of the state may not finance the actual construction of a reservoir in a specific river or stream segment designated by the legislature under this subsection.

(g)  The legislature may designate a[; or

[(2) ]  site of unique value for the construction of a reservoir.

[(g) ]  A state agency or political subdivision of the state may not obtain a fee title or an easement that would[:

[(1)  destroy the unique ecological value of a river or stream segment designated by the legislature under Subsection (f) of this section; or

[(2) ]  significantly prevent the construction of a reservoir on a site designated by the legislature under [Subsection (f) of ] this subsection [section ].

(h)  The board, the commission, or the Parks and Wildlife Department or a political subdivision affected by an action taken in violation of Subsection (f) or (g) [of

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this section ] may bring a cause of action to remedy or prevent the violation. A cause of action brought under this subsection must be filed in a district court in Travis County or in the county in which the action is proposed or occurring.

SECTION 2.17.  Sections 16.053(d) and (e), Water Code, are amended to read as follows:

(d)  The board shall provide guidelines for the consideration of existing regional planning efforts by regional water planning groups. The board shall provide guidelines for the format in which information shall be presented in the regional water plans. The board by rule shall require a holder of a surface water permit, a certified filing, or a certificate of adjudication for surface water, a holder of a permit for the export of groundwater from a groundwater conservation district, a retail public water supplier, a wholesale water provider, an irrigation district, and any other person who is transporting groundwater or surface water 20 miles or more to report to the board information on certain water pipelines and other facilities that can be used for water conveyance. Nothing in the initial planning effort shall prevent development of a management plan or project where local or regional needs require action prior to completion of the initial regional water plan under this section.

(e)  Each regional water planning group shall submit to the board a regional water plan that:

(1)  is consistent with the guidance principles for the state water plan adopted by the board under Section 16.051(d);

(2)  provides information based on data provided or approved by the board in a format consistent with the guidelines provided by the board under Subsection (d);

(3)  identifies:

(A)  each source of water supply in the regional water planning area in accordance with the guidelines provided by the board under Subsections (d) and (f);

(B)  factors specific to each source of water supply to be considered in determining whether to initiate a drought response; [and ]

(C)  actions to be taken as part of the response; and

(D)  information on water pipelines and other facilities that can be used for water conveyance, including, but not limited to, currently used and abandoned oil, gas, and water pipelines, as provided by board rules and guidelines;

(4)  has specific provisions for water management strategies to be used during a drought of record;

(5)  includes but is not limited to consideration of the following:

(A)  any existing water or drought planning efforts addressing all or a portion of the region;

(B)  certified groundwater conservation district management plans and other plans submitted under Section 16.054;

(C)  all potentially feasible water management strategies, including but not limited to improved conservation, reuse, and management of existing water supplies, acquisition of available existing water supplies, and development of new water supplies;

(D)  protection of existing water rights in the region;

(E)  opportunities for and the benefits of developing regional water supply facilities or providing regional management of water supply facilities;

(F)  appropriate provision for environmental water needs and for the effect of upstream development on the bays, estuaries, and arms of the Gulf of Mexico and the effect of plans on navigation;

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(G)  provisions in Section 11.085(k)(1) if interbasin transfers are contemplated;

(H)  voluntary transfer of water within the region using, but not limited to, regional water banks, sales, leases, options, subordination agreements, and financing agreements; and

(I)  emergency transfer of water under Section 11.139, including information on the part of each permit, certified filing, or certificate of adjudication for nonmunicipal use in the region that may be transferred without causing unreasonable damage to the property of the nonmunicipal water rights holder; [and ]

(6)  identifies river and stream segments of unique ecological value and sites of unique value for the construction of reservoirs that the regional water planning group recommends for protection under Section 16.051;

(7)  assesses the impact of the plan on unique river and stream segments identified in Subdivision (6) if the regional water planning group determines that a site of unique ecological value exists; and

(8)  describes the impact of proposed water projects on water quality.

SECTION 2.18.  Section 16.053(h)(7), Water Code, is amended to read as follows:

(7)  The board may approve a regional water plan only after it has determined that:

(A)  [that ] all interregional conflicts involving that regional water planning area have been resolved;

(B)  the plan includes water conservation practices and drought management measures incorporating, at a minimum, the provisions of Sections 11.1271 and 11.1272; and

(C)  the plan is consistent with long-term protection of the state's water resources, agricultural resources, and natural resources as embodied in the guidance principles adopted under Section 16.051(d).

SECTION 2.19.  Section 16.053, Water Code, is amended by amending Subsection (j) and adding Subsections (p) and (q) to read as follows:

(j)  The board may provide financial assistance to political subdivisions under Subchapters E and F of this chapter, Subchapters C, D, E, F, [and ] J, O, and P, Chapter 15, and Subchapters D, I, K, and L, Chapter 17, for water supply projects only if:

(1)  the board determines that the needs to be addressed by the project will be addressed in a manner that is consistent with the state water plan; and

(2)  beginning January 5, 2002, the board:

(A)  has approved a regional water plan as provided by Subsection (i), and any required updates of the plan, for the region of the state that includes the area benefiting from the proposed project; and

(B)  determines that the needs to be addressed by the project will be addressed in a manner that is consistent with that regional water plan.

(p)  If a groundwater conservation district files a petition with the board stating that a conflict requiring resolution may exist between the district's certified groundwater conservation district management plan developed under Section 36.1071 and the approved regional water plan, the board shall facilitate coordination between the district and the involved region to resolve the conflict. If conflict remains, the board shall resolve the conflict. If the board determines that resolution of conflict

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requires a revision of an approved regional water plan, the board shall suspend the approval of that plan and provide information to the regional water planning group. The regional water planning group shall prepare any revisions to its plan specified by the board and shall hold, after notice, at least one public hearing at some central location within the regional water planning area. The regional water planning group shall consider all public and board comments, prepare, revise, and adopt its plan, and submit the revised plan to the board for approval and inclusion in the state water plan. If the board determines that resolution of conflict requires a revision of the district's certified groundwater conservation district management plan, the board shall suspend the certification of that plan and provide information to the district. The groundwater district shall prepare any revisions to its plan specified by the board and shall hold, after notice, at least one public hearing at some central location within the district. The groundwater district shall consider all public and board comments, prepare, revise, and adopt its plan, and submit the revised plan to the board for certification. On the request of the involved region or groundwater conservation district, the board shall include discussion of the conflict and its resolution in the state water plan that the board provides to the governor, the lieutenant governor, and the speaker of the house of representatives under Section 16.051(e).

(q)  Each regional planning group shall examine the financing needed to implement the water management strategies and projects identified in the group's most recent approved regional plan and, not later than June 1, 2002, shall report to the board regarding:

(1)  how local governments, regional authorities, and other political subdivisions in the region propose to pay for water infrastructure projects identified in the plan; and

(2)  what role the regional planning group proposes for the state in financing projects identified in the plan, giving particular attention to proposed increases in the level of state participation in funding for regional projects to meet needs beyond the reasonable financing capability of local governments, regional authorities, and other political subdivisions involved in building water infrastructure.

SECTION 2.20.  Sections 16.054(a), (c), and (d), Water Code, are amended to read as follows:

(a)  Notwithstanding the provisions of this subsection, groundwater districts are the state's preferred method of managing groundwater resources. It is the policy of the state that water resource management, water conservation, and drought planning should occur on an ongoing basis. The board, commission, and Parks and Wildlife Department shall make available where appropriate technical and financial assistance for such planning. In addition, the Department of Agriculture may provide input and assistance, as appropriate, for local water [such ] planning.

(c)  When preparing a plan to be submitted under this section, a person shall consider the implementation of a desalination program if practicable.

(d)  The regional water planning group shall consider any plan submitted under this section when preparing the regional water plan under Section 16.053 of this code. A political subdivision, including a groundwater conservation district, in the regional water planning area may request a regional water planning group to consider specific changes to a regional water plan based on changed conditions or new information. The regional water planning group shall consider the request and shall amend its regional water plan if it determines that an amendment is warranted. If the entity requesting the

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change is dissatisfied with the decision of the regional planning group, the entity may request that the board review the decision and consider changing the state-approved regional plan.

(e)  After January 5, 2002, when [(d)  When ] preparing individual water plans that address drought or the development, management, or conservation of water resources from the holders of existing permits, certified filings, or certificates of adjudication, the water suppliers, [groundwater districts, ] special districts, irrigation districts, and other water users should ensure that the plan is not in conflict with the applicable approved regional water plan for their region.

SECTION 2.21.  Section 35.002(11), Water Code, is amended to read as follows:

(11)  "Management area" means an area designated and delineated by the Texas Water Development Board [commission ] as an area suitable for management of groundwater resources.

SECTION 2.22.  Section 35.004, Water Code, is amended to read as follows:

Sec. 35.004.  DESIGNATION OF GROUNDWATER MANAGEMENT AREAS. (a)  The Texas Water Development Board, with assistance and cooperation from the commission, shall designate groundwater management areas covering all major and minor aquifers in the state. The initial designation of groundwater management areas shall be completed not later than September 1, 2003 [On its own motion from time to time, or on receiving a petition, the commission may designate groundwater management areas ]. Each groundwater management area shall be designated with the objective of providing the most suitable area for the management of the groundwater resources. To the extent feasible, the groundwater management area shall coincide with the boundaries of a groundwater reservoir or a subdivision of a groundwater reservoir. The Texas Water Development Board [commission ] also may consider other factors, including the boundaries of political subdivisions.

(b)  The commission may designate a groundwater management area after September 1, 2001, for a petition filed and accepted by the commission according to its rules in effect before September 1, 2001. The commission shall act on the designation in accordance with this section [On the request of any person interested in the petition, or on the request of the commission, the executive director shall prepare available evidence relating to the configuration of a groundwater management area. Before making the designation, the commission shall consider the evidence prepared by the executive director and other evidence submitted at the hearing ].

(c)  The Texas Water Development Board [commission ] may alter the boundaries of designated management areas as required by future conditions and as justified by factual data. An alteration of boundaries does not invalidate the previous creation of any district.

(d)  The Texas Water Development Board [commission ] shall designate groundwater management areas using the procedures applicable to rulemaking under [the Administrative Procedure Act, Subchapter B, ] Chapter 2001, Government Code.

SECTION 2.23.  Sections 35.007(a) and (f), Water Code, are amended to read as follows:

(a)  The executive director and the executive administrator shall meet periodically [at least once a year ] to identify, based on information gathered by the commission and the Texas Water Development Board, those areas of the state that are experiencing or that are expected to experience, within the immediately following 25-year period, critical groundwater problems, including shortages of surface water or groundwater,

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land subsidence resulting from groundwater withdrawal, and contamination of groundwater supplies. Not later than September 1, 2005, the commission, with assistance and cooperation from the Texas Water Development Board, shall complete the initial designation of priority groundwater management areas across all major and minor aquifers of the state for all areas that meet the criteria for that designation. The studies may be prioritized considering information from the regional planning process, information from the Texas Water Development Board groundwater management areas and from groundwater conservation districts, and any other information available. After the initial designation of priority groundwater management areas, the commission and the Texas Water Development Board shall annually review the need for additional designations as provided by this subsection.

(f)  The report shall include:

(1)  the recommended delineation of the boundaries of any proposed priority groundwater management area in the form of an order to be considered for adoption by the commission;

(2)  the reasons and supporting information for or against designating the area as a priority groundwater management area;

(3)  a recommendation regarding whether one or more districts [a district ] should be created in the priority groundwater management area, [or ] whether the priority groundwater management area should be added to an existing district, or whether a combination of those actions should be taken;

(4)  a recommendation as to actions that should be considered to conserve natural resources;

(5)  an evaluation of information or studies submitted to the executive director under Subsection (c); and

(6)  any other information that the executive director considers helpful to the commission.

SECTION 2.24.  Section 35.008, Water Code, is amended to read as follows:

Sec. 35.008.  PROCEDURES FOR DESIGNATION OF PRIORITY GROUNDWATER MANAGEMENT AREA; CONSIDERATION OF CREATION OF NEW DISTRICT OR ADDITION OF LAND IN PRIORITY GROUNDWATER MANAGEMENT AREA TO EXISTING DISTRICT; COMMISSION ORDER. (a)  The commission shall designate priority groundwater management areas using the procedures provided by this chapter in lieu of those provided by Subchapter B, Chapter 2001, Government Code.

(b)  The commission shall call an evidentiary hearing to consider:

(1)  the designation of a priority groundwater management area; and

(2)  whether one or more districts [a district ] should be created over all or part of a priority groundwater management area,[; or

[(3) ]  whether all or part of the land in the priority groundwater management area should be added to an existing district, or whether a combination of those actions should be taken.

(c)  Evidentiary hearings shall be held at a location in one of the counties in which the priority groundwater management area is located, or proposed to be located, or in the nearest convenient location if adequate facilities are not available in those counties.

(d)  At the hearing, the commission shall hear testimony and receive evidence from affected persons. Affected persons include landowners and well owners in the proposed priority groundwater management area. The commission shall consider the

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executive director's report and supporting information and the testimony and evidence received at the hearing. If the commission considers further information necessary, the commission may request such information from any source.

(e)  An evidentiary hearing shall be concluded not later than the 75th day after the date notice of the hearing is published.

(f)  At the conclusion of the hearing and the commission's considerations, the commission shall issue an order stating its findings and conclusions, including whether a priority groundwater management area should be designated in the area and recommendations regarding district creation required by Subsection (g).

(g)  The commission's order designating a priority groundwater management area must recommend that the area be covered by a district in one of the following ways, according to which action is most feasible and practicable:

(1)  creation of one or more new districts;

(2)  addition of the land in the priority groundwater management area to one or more existing districts; or

(3)  a combination of actions under Subdivisions (1) and (2).

(h)  In recommending the boundaries of a district or districts under Subsection (g), the commission shall give preference to boundaries that are coterminous with those of the priority groundwater management area, but may recommend district boundaries along existing political subdivision boundaries at the discretion of the commission to facilitate district creation and confirmation.

(i) [(e) ]  The designation of a priority groundwater management area may not be appealed nor may it be challenged under Section 5.351 of this code or [the Administrative Procedure Act, ] Section 2001.038, Government Code.

SECTION 2.25.  Sections 35.009(a) and (b), Water Code, are amended to read as follows:

(a)  The commission shall have notice of the hearing published in at least one newspaper with general circulation in the county or counties in which the area proposed for designation as a priority groundwater management area [or the area within a priority groundwater management area being considered for district creation or for addition to an existing district ] is located. Notice must be published not later than the 30th day before the date set for the hearing [commission to consider the designation of the priority groundwater management area, the creation of a district in a priority groundwater management area, or the addition of land in a priority groundwater management area to an existing district ].

(b)  The notice must include:

(1)  if applicable, a statement of the general purpose and effect of designating the proposed priority groundwater management area;

(2)  if applicable, a statement of the general purpose and effect of creating a new district in the priority groundwater management area;

(3)  if applicable, a statement of the general purpose and effect of adding all or part of the land in the priority groundwater management area to an existing district;

(4)  a map generally outlining the boundaries of the area being considered for priority groundwater management area designation [or the priority groundwater management area being considered for district creation or for addition to an existing district, ] or notice of the location at which a copy of the map may be examined or obtained;

(5)  a statement that the executive director's report concerning the priority groundwater management area or proposed area is available at the commission's main

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office in Austin, Texas, and at regional offices of the commission for regions which include territory within the priority groundwater management area or proposed priority groundwater management area and that the report is available for inspection during regular business hours;

(6)  a description or the name of the locations in the affected area at which the commission has provided copies of the executive director's report to be made available for public inspection;

(7)  the name and address of each public library, each county clerk's office, and each district to which the commission has provided copies of the executive director's report; and

(8)  the date, time, and place of the hearing.

SECTION 2.26.  Section 35.012, Water Code, is amended to read as follows:

Sec. 35.012.  CREATION OF DISTRICT IN PRIORITY GROUNDWATER MANAGEMENT AREA [COMMISSIONER ORDER ]. (a)  [At the conclusion of its hearing and considerations, the commission shall issue an order stating its findings and conclusions.

[(b)  If the commission finds that the land and other property in the priority groundwater management area would benefit from the creation of one or more districts, that there is a public need for one or more districts, and that the creation of one or more districts would further the public welfare, the commission shall issue an order stating that the creation of one or more districts is needed.

[(c) ]  Following the issuance of a commission order under Section 35.008 designating a priority groundwater management area and recommending the creation of one or more districts, or the addition of land to an existing district [Subsection (b) ], the landowners in the priority groundwater management area may:

(1)  create one or more districts under Subchapter B, Chapter 36;

(2)  have the area annexed to a district that adjoins the area; or

(3)  create one or more districts through the legislative process.

(b)  Within two years, but not sooner than the 120th day after the date on which the commission issues an order under Section 35.008 designating a priority groundwater management area, for those areas that are not within a district the commission shall:

(1)  create one or more new districts under Section 36.0151;

(2)  recommend that the areas, or a portion of the areas, be added to an existing district under Section 35.013; or

(3)  take any combination of the actions under Subdivisions (1) and (2).

(c)  Following the issuance of a commission order under Section 35.008 [(d)  The commission shall identify the areas subject to the order of the commission issued under Subsection (b) that have not been incorporated into a district and shall delineate proposed boundaries of a district to include those areas. If the commission proposes the creation of one or more districts ], the Texas Agricultural Extension Service shall begin an educational program within such areas with the assistance and cooperation of the Texas Water Development Board, the commission, the Department of Agriculture, other state agencies, and existing districts to inform the residents of the status of the area's water resources and management options including possible formation of a district[, before beginning the procedures for creation of a district provided in Subchapter B, Chapter 36 ]. The county commissioners court of each county in the priority groundwater management area shall form a steering committee to provide assistance to the Texas Agricultural Extension Service in accomplishing the goals of the education program within the area.

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[(e)  If the commission fails to find that the district would be a benefit to the land and other property within the priority groundwater management area, that there is a public need for the district, or that creation of the district will further the public welfare, the commission shall issue an order stating that a district should not be created within the boundaries of the priority groundwater management area.

[(f)  An order of the commission issued under this section may not be appealed. ]

SECTION 2.27.  Section 35.013, Water Code, is amended to read as follows:

Sec. 35.013.  ADDING PRIORITY GROUNDWATER MANAGEMENT AREA TO EXISTING DISTRICT. (a)  [If land in a priority groundwater management area is located adjacent to one or more existing districts, the commission, instead of issuing an order under Section 35.012, may issue an order recommending that the priority groundwater management area be added to the existing district designated by the commission. In its order, the commission must find that the land and other property in the priority groundwater management area and the land in the existing district will benefit from the addition of the area, that there is a public need to add the priority groundwater management area to the existing district, and that the addition of the land to the existing district would further the public welfare.

[(b) ]  If the commission in its order under Section 35.008 [executive director ] recommends that the priority groundwater management area or a portion of the priority groundwater management area be added to an existing district [or if the commission considers it possible to add the priority groundwater management area to an adjacent existing district ], the commission shall give notice to the board of the existing district recommended in its order [by the executive director or considered by the commission to possibly serve the area ] and to any other existing districts adjacent to the priority groundwater management area.

(b) [(c) ]  The commission shall submit a copy of the order to the board of the district to which it is recommending the priority groundwater management area be added. The board shall vote on the addition of the priority groundwater management area to the district and shall advise the commission of the outcome.

(c) [(d) ]  If the board votes to accept the addition of the priority groundwater management area to the district, the board:

(1)  may request the Texas Agricultural Extension Service, the commission, and the Texas Water Development Board, with the cooperation and assistance of the Department of Agriculture and other state agencies, to administer an educational program to inform the residents of the status of the area's water resources and management options including possible annexation into a district;

(2)  shall call an election within the priority groundwater management area, or portion of the priority groundwater management area, as delineated by the commission to determine if the priority groundwater management area will be added to the district; and

(3)  shall designate election precincts and polling places for the elections in the order calling an election under this subsection.

(d) [(e) ]  The board shall give notice of the election and the proposition to be voted on. The board shall publish notice of the election at least one time in one or more newspapers with general circulation within the boundaries of the priority groundwater management area. The notice must be published before the 30th day preceding the date set for the election.

(e) [(f) ]  The ballots for the election shall be printed to provide for voting for or against the proposition: "The inclusion of _________________________ (briefly

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describe priority groundwater management area) in the ______________ District." If the district has outstanding debts or taxes, the proposition shall include the following language: "and assumption by the described area of a proportional share of the debts or taxes of the district."

(f) [(g) ]  Immediately after the election, the presiding judge of each polling place shall deliver the returns of the election to the board, and the board shall canvass the returns for the election within the priority groundwater management area and declare the results. If a majority of the voters in the priority groundwater management area voting on the proposition vote in favor of the proposition, the board shall declare that the priority groundwater management area is added to the district. If a majority of the voters in the priority groundwater management area voting on the proposition vote against adding the priority groundwater management area to the district, the board shall declare that the priority groundwater management area is not added to the district. The board shall file a copy of the election results with the commission.

(g) [(h) ]  If the voters approve adding the priority groundwater management area to the district, the board of the district to which the priority groundwater management area is added shall provide reasonable representation on that board compatible with the district's existing scheme of representation. Not later than the 30th day after the date on which the board declares that the priority groundwater management area is added to the district, the board of the existing district shall appoint a person or persons to represent the area until the next regularly scheduled election or appointment of directors.

(h) [(i) ]  If the proposition is defeated, or if the board of the existing district votes not to accept the addition of the area to the district, then the commission shall, except as provided under Subsection (i), create under Section 36.0151 one or more districts covering the priority groundwater management area not later than the first anniversary of the date on which the proposition is defeated or the board votes not to accept the area.

(i)  For an area that is not feasible for the creation of one or more districts as determined in the commission's findings under Section 35.008, the commission shall include in its report under Section 35.018 recommendations for the future management of the priority groundwater management area.

(j)  Another [another ] election to add the priority groundwater management area to an existing district may not be called before the first anniversary of the date on which the election on the proposition was held.

SECTION 2.28.  Section 35.018(c), Water Code, is amended to read as follows:

(c)  If the commission determines that a district created under Chapter 36 is not appropriate for, or capable of, the protection of the groundwater resources for a particular management area or priority groundwater management area, the commission may recommend in its report to the legislature the creation of a special district or amendment of an existing district. [(1)  If voters fail to create a groundwater district in a priority groundwater management area or if voters fail to add the priority groundwater management area to an existing groundwater district, the report shall include recommendations for the future management of the priority groundwater management area. The recommendations may include but are not limited to the following:

[(A)  creation of a groundwater district by the legislature;

[(B)  annexation of a priority groundwater management area into an existing district by the legislature; or

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[(C)  management of the priority groundwater management area by the nearest regional office of the commission. The commission may be authorized to:

[(i)  adopt spacing and annual per acre pumping restrictions;

[(ii)  issue well permits in accordance with Sections 36.113 and 36.1131;

[(iii)  prevent waste and protect the quality of groundwater in accordance with Sections 36.001(8)(A)-(G);

[(iv)  levy administrative penalties for violations; and

[(v)  collect fees in accordance with Sections 36.206(a) and (b).

[(2)  If the commission is required by the legislature to manage the priority groundwater management area, a new election may not be called for three years from the date of the last election. ]

SECTION 2.29.  Section 36.001, Water Code, is amended by amending Subdivision (13) and adding Subdivisions (18) through (22) to read as follows:

(13)  "Management area" means an area designated and delineated by the Texas Water Development Board [commission ] under Chapter 35 as an area suitable for management of groundwater resources.

(18)  "River basin" means a river or coastal basin designated as a river basin by the board under Section 16.051. The term does not include waters of the bays or arms originating in the Gulf of Mexico.

(19)  "Agriculture" means any of the following activities:

(A)  cultivating the soil to produce crops for human food, animal feed, or planting seed or for the production of fibers;

(B)  the practice of floriculture, viticulture, silviculture, and horticulture, including the cultivation of plants in containers or nonsoil media, by a nursery grower;

(C)  raising, feeding, or keeping animals for breeding purposes or for the production of food or fiber, leather, pelts, or other tangible products having a commercial value;

(D)  planting cover crops, including cover crops cultivated for transplantation, or leaving land idle for the purpose of participating in any governmental program or normal crop or livestock rotation procedure;

(E)  wildlife management; and

(F)  raising or keeping equine animals.

(20)  "Agricultural use" means any use or activity involving agriculture, including irrigation.

(21)  "Conjunctive use" means the combined use of groundwater and surface water sources that optimizes the beneficial characteristics of each source.

(22)  "Nursery grower" means a person who grows more than 50 percent of the products that the person either sells or leases, regardless of the variety sold, leased, or grown. For the purpose of this definition, "grow" means the actual cultivation or propagation of the product beyond the mere holding or maintaining of the item prior to sale or lease and typically includes activities associated with the production or multiplying of stock such as the development of new plants from cuttings, grafts, plugs, or seedlings.

SECTION 2.30. Section 36.0015, Water Code, is amended to read as follows:

Sec. 36.0015.  PURPOSE. In order to provide for the conservation, preservation, protection, recharging, and prevention of waste of groundwater, and of groundwater reservoirs or their subdivisions, and to control subsidence caused by withdrawal of

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water from those groundwater reservoirs or their subdivisions, consistent with the objectives of Section 59, Article XVI, Texas Constitution, groundwater conservation districts may be created as provided by this chapter. Groundwater conservation districts created as provided by this chapter are the state's preferred method of groundwater management through rules developed, adopted, and promulgated by a district in accordance with the provisions of this chapter.

SECTION 2.31.  Section 36.002, Water Code, is amended to read as follows:

Sec. 36.002.  OWNERSHIP OF GROUNDWATER. The ownership and rights of the owners of the land and their lessees and assigns in groundwater are hereby recognized, and nothing in this code shall be construed as depriving or divesting the owners or their lessees and assigns of the ownership or rights, except as those rights may be limited or altered by [subject to ] rules promulgated by a district.

SECTION 2.32.  Section 36.011(b), Water Code, is amended to read as follows:

(b)  The commission has exclusive jurisdiction over the [delineation of management areas and the ] creation of districts.

SECTION 2.33.  Section 36.012, Water Code, is amended by adding Subsection (f) to read as follows:

(f)  This section does not apply to districts created under Section 36.0151.

SECTION 2.34.  Section 36.013, Water Code, is amended to read as follows:

Sec. 36.013.  PETITION TO CREATE DISTRICT. (a)  A petition requesting creation of a district must be filed with the commission [executive director ] for review and certification under Section 36.015 [submission to the commission ].

(b)  The petition filed pursuant to this section must be signed by:

(1)  a majority of the landowners within the proposed district, as indicated by the county tax rolls; or

(2)  if there are more than 50 landowners in the proposed district, at least 50 of those landowners.

(c)  The petition must include:

(1)  the name of the proposed district;

(2)  the area and boundaries of the proposed district, including a map generally outlining the boundaries of the proposed district;

(3)  the purpose or purposes of the district;

(4)  a statement of the general nature of any projects proposed to be undertaken by the district, the necessity and feasibility of the work, and the estimated costs of those projects according to the persons filing the projects if the projects are to be funded by the sale of bonds or notes; [and ]

(5)  the names of at least five individuals qualified to serve as temporary directors; and

(6)  financial information, including the projected maintenance tax or production fee rate and a proposed budget of revenues and expenses for the district [any additional terms or conditions that restrict the powers of the district from those provided in this chapter ].

[(d)  If a part of the proposed district is not included within either a management area or a priority groundwater management area, the petition to create a district may also contain a request to create a management area. A request to create a management area must comply with the requirements for a petition in Section 35.005, and may be acted on by the commission separately from the petition to create the district. ]

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SECTION 2.35.  Section 36.014, Water Code, is amended to read as follows:

Sec. 36.014.  NOTICE AND PUBLIC MEETING [HEARING ] ON DISTRICT CREATION. (a)  If a petition is filed under Section 36.013, the commission shall give notice of the [an ] application [as required by Section 49.011(a) ] and shall [may ] conduct a public meeting in a central location within the area of the proposed district [hearing ] on the application not later than the 60th day after the date the commission issues notice [if the commission determines that a hearing is necessary under Section 49.011 ]. The notice must contain the date, time, and location of the public meeting and must be published in one or more newspapers of general circulation in the area of the proposed district.

(b)  At the public meeting, the commission shall receive comments from interested persons. [If the petition contains a request to create a management area in all or part of the proposed district, the notice must also be given in accordance with the requirements in Section 35.006 for the designation of management areas. ]

SECTION 2.36.  Section 36.015, Water Code, is amended to read as follows:

Sec. 36.015.  COMMISSION CERTIFICATION AND ORDER. (a)  Not later than the 90th day after the date the commission holds a public meeting on a petition under Section 36.014, the commission shall certify the petition if the petition is administratively complete. A petition is administratively complete if it complies with the requirements of Sections 36.013(b) and (c).

(b)  The commission may not certify a petition if the commission finds that the boundaries of the proposed district may not allow for effective management of the groundwater resources. The commission shall give preference to boundary lines that are coterminous with those of a groundwater management area but may also consider boundaries along existing political subdivision boundaries if those boundaries would facilitate district creation and confirmation.

(c)  If a petition proposes the creation of a district in an area, in whole or in part, that has not been designated as a management area, the commission shall provide notice to the Texas Water Development Board. On the receipt of notice from the commission, the Texas Water Development Board shall initiate the process of designating a management area for the area of the proposed district not included in a management area. The commission may not certify the petition until the Texas Water Development Board has adopted a rule whereby the boundaries of the proposed district are coterminous with or inside the boundaries of a management area.

(d)  If the commission does not certify the petition, the commission shall provide to the petitioners, in writing, the reasons for not certifying the petition. The petitioners may resubmit the petition, without paying an additional fee, if the petition is resubmitted within 90 days after the date the commission sends the notice required by this subsection.

(e)  If the commission certifies the petition as administratively complete, the commission shall issue an order, notify the petitioners, and appoint temporary directors as provided by Section 36.016.

(f)  Refusal by the commission to certify a petition to create a district does not invalidate or affect the designation of any management area. [FINDINGS. (a)  If the commission finds that a district is feasible and practicable, that it would be a benefit to the land in the district, and that it would be a public benefit or utility, the commission shall issue an order containing these findings granting the petition.

[(b)  If the commission finds that a district is not feasible and practicable, that it would not be a benefit to the land in the district, that it would not be a public benefit or utility, or that it is not needed, the commission by order shall deny the petition.

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[(c)  The commission may adjust the boundaries of the proposed district to exclude any land that would not be benefited by inclusion in the district and is not necessary to the district for proper regulation of the groundwater reservoir.

[(d)  If the commission grants the petition to create the district, it shall direct in its order creating the district that an election be called by the temporary directors to confirm the creation of the district and to elect permanent directors.

[(e)  The refusal to grant a petition to create a district does not invalidate or affect the designation of any management area requested in the same petition.

[(f)  The commission shall act on the petition within a reasonable amount of time. ]

SECTION 2.37.  Section 36.0151(a), Water Code, is amended to read as follows:

(a)  If the commission is required to create [proposes that ] a district [be created ] under Section 35.012(b) [35.012(d) ], it shall, without an evidentiary hearing, issue an order creating the district and shall provide in its order [creating the district provide ] that temporary directors be appointed under Section 36.016 and that an election be called by the temporary directors to authorize the district to assess taxes [confirm the creation of the district ] and to elect permanent directors.

SECTION 2.38.  Section 36.016(a), Water Code, is amended to read as follows:

(a)  If the commission certifies [grants ] a petition to create a district under Section 36.015, the commission shall appoint the temporary directors named in the petition. If [or after ] the commission dissolves a district's board under Section 36.303, it shall appoint five temporary directors.

SECTION 2.39.  Section 36.017, Water Code, is amended by amending the section heading and Subsections (a), (d), and (g) and adding Subsection (i) to read as follows:

Sec. 36.017.  CONFIRMATION AND DIRECTORS' ELECTION FOR DISTRICT IN A MANAGEMENT AREA. (a)  For a district created under Section 36.015, not [Not ] later than the 120th [60th ] day after the date all temporary directors have been appointed and have qualified, the temporary directors shall meet and order an election to be held within the boundaries of the proposed district to approve the creation of the district and to elect permanent directors.

(d)  The ballot for the election must be printed to provide for voting for or against the proposition: "The creation of the _________________ Groundwater Conservation District." If the district levies a maintenance tax for payment of its expenses, then an additional [the ] proposition shall be included with [include ] the following language: "The [and the ] levy of a maintenance tax at a rate not to exceed ______ cents for each $100 of assessed valuation." The same ballot or another ballot must provide for the election of permanent directors, in accordance with Section 36.059.

(g)  If a majority of the votes cast at the election are against the creation of the district, the temporary board shall declare the district defeated and shall enter the result in its minutes. The temporary board shall continue operations in accordance with Subsection (h).

(i)  If a majority of the votes cast at the election are against the levy of a maintenance tax, the district shall set production fees to pay for the district's regulation of groundwater in the district, including fees based on the amount of water to be withdrawn from a well.

SECTION 2.40.  Subchapter B, Chapter 36, Water Code, is amended by adding Section 36.0171 to read as follows:

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Sec. 36.0171.  TAX AUTHORITY AND DIRECTORS' ELECTION FOR DISTRICT IN A PRIORITY GROUNDWATER MANAGEMENT AREA. (a)  For a district created under Section 36.0151, not later than the 120th day after the date all temporary directors have been appointed and have qualified, the temporary directors shall meet and order an election to be held within the boundaries of the proposed district to authorize the district to assess taxes and to elect permanent directors.

(b)  In the order calling the election, the temporary directors shall designate election precincts and polling places for the election. In designating the polling places, the temporary directors shall consider the needs of all voters for conveniently located polling places.

(c)  The temporary directors shall publish notice of the election at least once in at least one newspaper with general circulation within the boundaries of the proposed district. The notice must be published before the 30th day preceding the date of the election.

(d)  The ballot for the election must be printed to provide for voting for or against the proposition: "The levy of a maintenance tax by the ___________________ Groundwater Conservation District at a rate not to exceed ______ cents for each $100 of assessed valuation." The same ballot or another ballot must provide for the election of permanent directors, in accordance with Section 36.059.

(e)  Immediately after the election, the presiding judge of each polling place shall deliver the returns of the election to the temporary board, and the board shall canvass the returns, declare the result, and turn over the operations of the district to the elected permanent directors. The board shall file a copy of the election result with the commission.

(f)  If a majority of the votes cast at the election favor the levy of a maintenance tax, the temporary board shall declare the levy approved and shall enter the result in its minutes.

(g)  If a majority of the votes cast at the election are against the levy of a maintenance tax, the temporary board shall declare the levy defeated and shall enter the result in its minutes.

(h)  If the majority of the votes cast at the election are against the levy of a maintenance tax, the district shall set permit fees to pay for the district's regulation of groundwater in the district, including fees based on the amount of water to be withdrawn from a well.

SECTION 2.41.  Section 36.019, Water Code, is amended to read as follows:

Sec. 36.019.  CONFIRMATION ELECTION IN DISTRICT INCLUDING LAND IN MORE THAN ONE COUNTY. (a)  A district, the major portion of which is located in one county, may not be organized to include land in another county unless the election held in the other county to confirm and ratify the creation of the district is approved by a majority of the voters of the other county voting in an election called for that purpose.

(b)  This section does not apply to districts created under Section 36.0151.

SECTION 2.42. Section 36.060(a), Water Code, is amended to read as follows:

(a)  A director is entitled to receive fees of office of not more than $150 [$100 ] a day for each day the director actually spends performing the duties of a director. The fees of office may not exceed $9,000 [$6,000 ] a year.

SECTION 2.43.  Section 36.066(g), Water Code, is amended to read as follows:

(g)  If the district prevails in any suit other than a suit in which it voluntarily intervenes, the district may seek and the court shall grant [it may ], in the same action, recovery [recover reasonable fees ] for attorney's fees [attorneys ], costs for expert

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witnesses, and other costs incurred by the district before the court. The amount of the attorney's fees shall be fixed by the court.

SECTION 2.44.  Section 36.101(a), Water Code, is amended to read as follows:

(a)  A district may make and enforce rules to provide for conserving, preserving, protecting, and recharging of the groundwater or of a groundwater reservoir or its subdivisions in order to control subsidence, prevent degradation of water quality, or prevent waste of groundwater and to carry out the powers and duties provided by this chapter.

SECTION 2.45.  Sections 36.102(b) and (d), Water Code, are amended to read as follows:

(b)  The board by rule may set reasonable civil penalties for breach of any rule of the district [that shall ] not to exceed $5,000 per day per violation, and each day of a continuing violation constitutes a separate violation [the jurisdiction of a justice court as provided by Section 27.031, Government Code ]. In addition to this penalty or any other penalty provided by law, the district may seek and the court shall grant a penalty equal to 115 percent of the economic benefit gained from the violation.

(d)  If the district prevails in any suit to enforce its rules, the district may seek and the court shall grant [it may ], in the same action, recovery [recover reasonable fees ] for attorney's fees [attorneys ], costs for expert witnesses, and other costs incurred by the district before the court. The amount of the attorney's fees shall be fixed by the court.

SECTION 2.46.  Section 36.1071, Water Code, is amended by amending Subsections (a) and (b) and adding Subsection (h) to read as follows:

(a)  Following notice and hearing, the district shall, in coordination with surface water management entities on a regional basis, develop a comprehensive management plan which addresses the following management goals, as applicable:

(1)  providing the most efficient use of groundwater;

(2)  controlling and preventing waste of groundwater;

(3)  controlling and preventing subsidence;

(4)  addressing conjunctive surface water management issues; [and ]

(5)  addressing natural resource issues;

(6)  addressing drought conditions; and

(7)  addressing conservation.

(b)  After January 5, 2002, a [A ] district management plan, or any amendments to a district management plan, shall be developed by the district using the district's best available data and forwarded to the regional water planning group for consideration in their planning process [adopted after the Texas Water Development Board approval of a regional water plan for the region in which the district is located shall be consistent with the regional water plan ].

(h)  In developing its management plan, the district shall use the groundwater availability modeling information provided by the executive administrator in conjunction with any available site-specific information provided by the district and acceptable to the executive administrator.

SECTION 2.47.  Section 36.1072, Water Code, is amended by adding Subsection (g) to read as follows:

(g)  In this subsection, "board" means the Texas Water Development Board. A person with a legally defined interest in groundwater in a district or the regional water planning group may file a petition with the board stating that a conflict requiring resolution may exist between the district's certified groundwater conservation district management plan developed under Section 36.1071 and the state water plan. If a

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conflict exists, the board shall facilitate coordination between the involved person or regional water planning group and the district to resolve the conflict. If conflict remains, the board shall resolve the conflict. The board action under this provision may be consolidated, at the option of the board, with related action under Section 16.053(p). If the board determines that resolution of the conflict requires a revision of the certified groundwater conservation district management plan, the board shall suspend the certification of the plan and provide information to the district. The district shall prepare any revisions to the plan specified by the board and shall hold, after notice, at least one public hearing at some central location within the district. The district shall consider all public and board comments, prepare, revise, and adopt its plan, and submit the revised plan to the board for certification. On the request of the district or the regional water planning group, the board shall include discussion of the conflict and its resolution in the state water plan that the board provides to the governor, the lieutenant governor, and the speaker of the house of representatives under Section 16.051(e).

SECTION 2.48.  Section 36.108, Water Code, is amended to read as follows:

Sec. 36.108.  JOINT PLANNING IN MANAGEMENT AREA. (a)  If two or more districts are located within the boundaries of the same management area, each district shall prepare a comprehensive management plan as required by Section 36.1071 covering that district's respective territory. On completion and certification of the plan as required by Section 36.1072, each district shall forward a copy of the new or revised management plan to the other districts in the management area. The boards of the districts shall consider the plans individually and shall compare them to other management plans then in force in the management area.

(b)  The board of directors of each district in the management area may, by resolution, call for [a ] joint planning [meeting ] with [the boards of directors of ] the other districts in the management area to review the management plans and accomplishments for the management area. [The boards shall meet to consider the plans individually and shall compare them to other management plans then in force in the management area. ] In reviewing the management plans, the boards shall consider:

(1)  the goals of each management plan and its impact on planning throughout the management area;

(2)  the effectiveness of the measures established by each management plan for conserving and protecting groundwater and preventing waste, and the effectiveness of these measures in the management area generally; and

(3)  any other matters that the boards consider relevant to the protection and conservation of groundwater and the prevention of waste in the management area.

(c)  If a [A ] joint meeting of the boards of directors is called, the meeting must be held in accordance with [the Open Meetings Act, ] Chapter 551, Government Code. Notice of the meeting shall be given in accordance with the requirements for notice of district board of directors meetings under that Act. In addition, notice of the meeting shall be published not later than the 30th day before the date of the scheduled meeting in a newspaper with general circulation in each county in the management area.

(d)  A district in the management area may file with good cause a petition with the commission requesting an inquiry if the petitioner district adopted a resolution calling for joint planning and the other district or districts refused to join in the planning process or the process failed to result in adequate planning, and the petition provides evidence [believes ] that:

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(1)  another district in the management area has failed to adopt rules;

(2)  the groundwater in the management area is not adequately protected by the rules adopted by another district; or

(3)  the groundwater in the management area is not adequately protected due to the failure of another district to enforce substantial compliance with its rules.

(e)  Not later than the 90th day after the date the petition is filed, the commission shall review the petition and either:

(1)  dismiss it if it finds that the evidence is not adequate to show that any of the conditions alleged in the petition exist; or

(2)  select a review panel as provided in Subsection (f).

(f)  If the petition is not dismissed under Subsection (e), the [The ] commission shall [may ] appoint a review panel consisting of a chairman and four other members. A director or general manager of a district located outside the management area that is the subject of the petition may be appointed to the review panel. The commission may not appoint more than two members of the review panel from any one district. The commission also shall appoint a disinterested person to serve as a nonvoting recording secretary for the review panel. The recording secretary may be an employee of the commission. The recording secretary shall record and document the proceedings of the panel.

(g)  Not later than the 120th day after appointment, the review panel shall review the petition and any evidence relevant to the petition and, in a public meeting, consider and adopt [prepare ] a report to be submitted to the commission. The commission may direct the review panel to conduct public hearings at a location in the management area to take evidence on the petition. The review panel may attempt to negotiate a settlement or resolve the dispute by any lawful means.

(h)  In its report, the review panel shall include:

(1)  a summary of all evidence taken in any hearing on the petition;

(2)  a list of findings and recommended actions appropriate for the commission to take and the reasons it finds those actions appropriate; and

(3)  any other information the panel considers appropriate.

(i)  The review panel shall submit its report to the commission.

(j)  Districts located within the same management areas or in adjacent management areas may contract to jointly conduct studies or research, or to construct projects, under terms and conditions that the districts consider beneficial. These joint efforts may include studies of groundwater availability and quality, aquifer modeling, and the interaction of groundwater and surface water; educational programs; the purchase and sharing of equipment; and the implementation of projects to make groundwater available, including aquifer recharge, brush control, weather modification, desalination, regionalization, and treatment or conveyance facilities. The districts may contract under their existing authorizations including those of Chapter 791, Government Code, if their contracting authority is not limited by Sections 791.011(c)(2) and (d)(3) and Section 791.014, Government Code.

SECTION 2.49.  Section 36.113, Water Code, is amended by amending Subsection (d), adding a new Subsection (e), and relettering existing Subsections (e) and (f) as Subsections (f) and (g) to read as follows:

(d)  Before granting or denying a permit, the district shall consider whether:

(1)  the application conforms to the requirements prescribed by this chapter and is accompanied by the prescribed fees;

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(2)  the proposed use of water unreasonably affects existing groundwater and surface water resources or existing permit holders;

(3)  the proposed use of water is dedicated to any beneficial use;

(4)  the proposed use of water is consistent with the district's certified water management plan;

(5)  the applicant has agreed to avoid waste and achieve water conservation; and

(6)  the applicant has agreed that reasonable diligence will be used to protect groundwater quality and that the applicant will follow well plugging guidelines at the time of well closure.

(e)  The district may impose more restrictive permit conditions on new permit applications and increased use by historic users if the limitations:

(1)  apply to all subsequent new permit applications and increased use by historic users, regardless of type or location of use;

(2)  bear a reasonable relationship to the existing district management plan; and

(3)  are reasonably necessary to protect existing use.

(f)  Permits may be issued subject to the rules promulgated by the district and subject to terms and provisions with reference to the drilling, equipping, completion, or alteration of wells or pumps that may be necessary to prevent waste and achieve water conservation, minimize as far as practicable the drawdown of the water table or the reduction of artesian pressure, lessen interference between wells, or control and prevent subsidence.

(g) [(f) ]  A district may require that changes in the withdrawal and use of groundwater under a permit not be made without the prior approval of a permit amendment issued by the district.

SECTION 2.50.  Section 36.116, Water Code, is amended to read as follows:

Sec. 36.116.  REGULATION OF SPACING AND PRODUCTION. (a) In order to minimize as far as practicable the drawdown of the water table or the reduction of artesian pressure, to control subsidence, to prevent interference between wells, to prevent degradation of water quality, or to prevent waste, provided that agriculture, municipal and the natural resources are protected, a district by rule may regulate:

(1)  [provide for ] the spacing of water wells by:

(A)  requiring all water wells to be spaced a certain distance from property lines or adjoining wells;

(B)  requiring wells with a certain production capacity, pump size, or other characteristic related to the construction or operation of and production from a well to be spaced a certain distance from property lines or adjoining wells; or

(C)  imposing spacing requirements adopted by the board; and

(2)  the production of groundwater by:

(A)  setting production limits on wells;

(B)  limiting the amount of water produced based on acreage or tract size;

(C)  limiting the amount of water that may be produced from a defined number of acres assigned to an authorized well site;

(D)  limiting the maximum amount of water that may be produced on the basis of acre-feet per acre or gallons per minute per well site; or

(E)  any combination of the above [and may regulate the production of wells ].

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(b)  In promulgating any rules limiting groundwater production, the district may preserve historic use before the effective date of the rules to the maximum extent practicable consistent with the district's comprehensive management plan under Section 36.1071.

(c)  In regulating the production of groundwater based on tract size or acreage, a district may consider the service area or service needs of a retail water utility. For purposes of this subsection, "retail water utility" shall have the meaning provided at Section 13.002.

SECTION 2.51.  Section 36.117, Water Code, is amended to read as follows:

Sec. 36.117.  EXEMPTIONS; EXCEPTION; LIMITATIONS. (a)  A district may exempt wells from the requirement of obtaining [requirements to obtain ] a drilling permit, an operating permit, or any other permit required by this chapter or the district's rules.

(b)  A district may not require any [a ] permit issued by the district for:

(1)  [drilling or producing from ] a well used solely for domestic use or for providing water for livestock or poultry on a tract of land larger than 10 acres that is either drilled, completed, or equipped so that it is incapable of producing more than 25,000 gallons of groundwater a day;

(2)  the drilling of a water well used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the Railroad Commission of Texas provided that the person holding the permit is responsible for drilling and operating the water well and the well is located on the same lease or field associated with the drilling rig; or [alteration of the size of a well or to restrict the production of a well if the water produced or to be produced from the well is used or to be used to supply the domestic needs of 10 or fewer households and a person who is a member of each household is either the owner of the well, a person related to the owner or a member of the owner's household within the second degree by consanguinity, or an employee of the owner; ]

(3)  the drilling of a water well authorized under a permit issued by the Railroad Commission of Texas under Chapter 134, Natural Resources Code, or for production from such a well to the extent the withdrawals are required for mining activities regardless of any subsequent use of the water. [or alteration of the size of a well or to restrict the production from the well if the water produced or to be produced from the well is used or to be used to provide water for feeding livestock and poultry connected with farming, ranching, or dairy enterprises; or

[(4)  water wells to supply water for hydrocarbon production activities, regardless of whether those wells are producing, that are associated with any well permitted by the Railroad Commission of Texas drilled before September 1, 1985.

[(b)  The board shall adopt rules determining the applicability of Subsection (a)(3) to facilities used primarily for feeding livestock. ]

(c)  [The district shall not deny the owner of a tract of land, or his lessee, who has no well equipped to produce more than 25,000 gallons a day on the tract, either a permit to drill a well on his land or the privilege to produce groundwater from his land, subject to the rules of the district.

[(d) ]  A district may not restrict the production of any well that is exempt from permitting under Subsection (b)(1) [equipped to produce 25,000 gallons or less a day ].

(d)  Notwithstanding Subsection (b), a district may require a well to be permitted by the district and to comply with all district rules if:

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(1)  the purpose of a well exempted under Subsection (b)(2) is no longer solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the Railroad Commission of Texas; or

(2)  the withdrawals from a well exempted under Subsection (b)(3) are no longer necessary for mining activities or are greater than the amount necessary for mining activities specified in the permit issued by the Railroad Commission of Texas under Chapter 134, Natural Resources Code.

(e)  An entity holding a permit issued by the Railroad Commission of Texas under Chapter 134, Natural Resources Code, that authorizes the drilling of a water well shall report monthly to the district:

(1)  the total amount of water withdrawn during the month;

(2)  the quantity of water necessary for mining activities; and

(3)  the quantity of water withdrawn for other purposes. [Nothing in this chapter applies to wells drilled for oil, gas, sulphur, uranium, or brine, or for core tests, or for injection of gas, saltwater, or other fluid, or for any other purpose, under permits issued by the Railroad Commission of Texas. A district may not require a drilling permit for a well to supply water for drilling any wells permitted by the Railroad Commission of Texas. Any well that ceases to be used for these purposes and is then used as an ordinary water well is subject to the rules of the district. Water wells drilled after September 1, 1997, to supply water for hydrocarbon production activities must meet the spacing requirements of the district unless no space is available within 300 feet of the production well or the central injection station. ]

(f)  Notwithstanding Subsection (d), a district may not require a well exempted under Subsection (b)(3) to comply with the spacing requirements of the district. [Water wells exempted under this section shall be equipped and maintained so as to conform to the district's rules requiring installation of casing, pipe, and fittings to prevent the escape of groundwater from a groundwater reservoir to any reservoir not containing groundwater and to prevent the pollution or harmful alteration of the character of the water in any groundwater reservoir. ]

(g)  A district may not deny an application for a permit to drill and produce water for hydrocarbon production activities if the application meets all applicable rules as promulgated by the district.

(h)  A [shall require ] water well [wells ] exempted under Subsection (a) or (b) shall:

(1)  [this section to ] be registered in accordance with rules promulgated by the district; and

(2)  [before drilling. All exempt water wells shall ] be equipped and maintained so as to conform to the district's rules requiring installation of casing, pipe, and fittings to prevent the escape of groundwater from a groundwater reservoir to any reservoir not containing groundwater and to prevent the pollution or harmful alteration of the character of the water in any groundwater reservoir.

(i)  The driller of a well exempted under Subsection (a) or (b) shall file the drilling log with the district.

(j) [(h) ]  A well to supply water for a subdivision of land for which a plat approval is required by Chapter 232, Local Government Code, [law ] is not exempted under Subsection (b) [this section ].

(k)  Groundwater withdrawn from a well exempt from permitting or regulation under this section and subsequently transported outside the boundaries of the district is subject to any applicable production and export fees under Sections 36.122 and 36.205.

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(l)  This section applies to water wells, including water wells used to supply water for activities related to the exploration or production of hydrocarbons or minerals. This section does not apply to production or injection wells drilled for oil, gas, sulphur, uranium, or brine, or for core tests, or for injection of gas, saltwater, or other fluids, under permits issued by the Railroad Commission of Texas.

SECTION 2.52.  Section 36.122, Water Code, is amended to read as follows:

Sec. 36.122.  TRANSFER OF GROUNDWATER OUT OF DISTRICT. (a)  If an application for a permit or an amendment to a permit under Section 36.113 proposes the transfer of groundwater outside of a district's boundaries, the district may also consider the provisions of this section in determining whether to grant or deny the permit or permit amendment.

(b)  A district may promulgate rules requiring a person to obtain a permit or an amendment to a permit under Section 36.113 from the district for the transfer of groundwater out of the district to:

(1)  increase, on or after March 2, 1997, the amount of groundwater to be transferred under a continuing arrangement in effect before that date; or

(2)  transfer groundwater out of the district on or after March 2, 1997, under a new arrangement.

(c)  Except as provided in Section 36.113(e), the district may not impose more restrictive permit conditions on transporters than the district imposes on existing in-district users.

(d) [(b) ]  The district may impose a reasonable fee for processing an application [for a permit ] under this section. The fee may not exceed fees that the district imposes for processing other applications under Section 36.113. An application filed to comply with this section shall be considered and processed under the same procedures as other applications for permits under Section 36.113 and shall be combined with applications filed to obtain a permit for in-district water use under Section 36.113 from the same applicant.

(e)  The district may impose a reasonable fee or surcharge for an export fee using one of the following methods:

(1)  a fee negotiated between the district and the transporter;

(2)  a rate not to exceed the equivalent of the district's tax rate per hundred dollars of valuation for each thousand gallons of water transferred out of the district or 2.5 cents per thousand gallons of water, if the district assesses a tax rate of less than 2.5 cents per hundred dollars of valuation; or

(3)  for a fee-based district, a 50 percent export surcharge, in addition to the district's production fee, for water transferred out of the district.

(f) [(c)  Before issuing a permit under this section, the district must give notice of the application and hold a public hearing.

[(d) ]  In reviewing a proposed transfer of groundwater out of the district [determining whether to issue a permit under this section ], the district shall consider:

(1)  the availability of water in the district and in the proposed receiving area during the period for which the water supply is requested;

(2)  [the availability of feasible and practicable alternative supplies to the applicant;

[(3)  the amount and purposes of use in the proposed receiving area for which water is needed;

[(4) ]  the projected effect of the proposed transfer on aquifer conditions, depletion, subsidence, or effects on existing permit holders or other groundwater users within the district; and

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(3) [(5) ]  the approved regional water plan and certified district management plan.

(g) [(e) ]  The district may not deny a permit based on the fact that the applicant seeks to transfer groundwater outside of the district but may limit a permit issued under this section if conditions in Subsection (f) [(d) ] warrant the limitation, subject to Subsection (c).

(h) [(f) ]  In addition to conditions provided by Section 36.1131, the permit shall specify:

(1)  the amount of water that may be transferred out of the district; and

(2)  the period for which the water may be transferred.

(i)  The period specified by Subsection (h)(2) shall be:

(1)  at least three years if construction of a conveyance system has not been initiated prior to the issuance of the permit; or

(2)  at least 30 years if construction of a conveyance system has been initiated prior to the issuance of the permit.

(j)  A term of five years under Subsection (i) shall automatically be extended to 30 years if construction of a conveyance system is begun before the expiration of the initial five-year term.

(k)  Notwithstanding the period specified in Subsections (i) and (j) during which water may be transferred under a permit, a district may periodically review the amount of water that may be transferred under the permit and may limit the amount if additional factors considered in Subsection (f) warrant the limitation, subject to Subsection (c). The review described by this subsection may take place not more frequently than the period provided for the review or renewal of regular permits issued by the district. In its determination of whether to renew a permit issued under this section, the district shall consider relevant and current data for the conservation of groundwater resources and shall consider the permit in the same manner it would consider any other permit in the district.

(l)  A district is prohibited from using revenues obtained under Subsection (e) to prohibit the transfer of groundwater outside of a district. A district is not prohibited from using revenues obtained under Subsection (e) for paying expenses related to enforcement of this chapter or district rules.

(m) [(g) ]  A district may not prohibit the export of groundwater if the purchase was in effect on or before June 1, 1997.

(n) [(h) ]  This section applies only to a transfer of water that is initiated or increased after September 1, 1997 [the effective date of this section ].

(o) [(i) ]  A district shall adopt rules as necessary to implement this section but may not adopt rules expressly prohibiting the export of groundwater.

(p)  Subsection (e) does not apply to a district that is collecting an export fee or surcharge on March 1, 2001.

(q)  For the purposes of this subsection, "retail public utility" and "retail public utilities" are defined by Section 13.002. A district may determine that a transfer of groundwater produced within the district's boundaries for use outside the district's boundaries will not be considered a transfer outside of district if:

(1)  the transfer is for agricultural use on a tract located in a county contiguous to the district's boundaries;

(2)  the transfer is for use as a potable water supply by a retail public utility and is within an authorized service area of which an appropriate portion, as determined by the district, is located inside the district's boundaries;

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(3)  the transfer involves an emergency potable water interconnect between retail public utilities; or

(4)  the transfer is for use on a contiguous oil and gas field or unit.

SECTION 2.53.  Section 36.205, Water Code, is amended to read as follows:

Sec. 36.205.  AUTHORITY TO SET FEES. (a)  A district may set fees for administrative acts of the district, such as filing applications. Fees set by a district may not unreasonably exceed the cost to the district of performing the administrative function for which the fee is charged.

(b)  A district shall set and collect fees for all services provided outside the boundaries of the district. The fees may not unreasonably exceed the cost to the district of providing the services outside the district.

(c)  A district may assess production fees based on the amount of water authorized by permit to be withdrawn from a well or the amount actually withdrawn. A district may assess the fees in lieu of, or in conjunction with, any taxes otherwise levied by the district. A district may use revenues generated by the fees for any lawful purpose. Production fees [Fees based on the amount of water to be withdrawn from a well ] shall not exceed:

(1)  $1 [one dollar ] per acre-foot payable annually [acre foot ] for water used for agricultural use [the purpose of irrigating agricultural crops ]; or

(2)  $10 per acre-foot payable annually [17 cents per thousand gallons ] for water used for any other purpose.

(d)  The Barton Springs-Edwards Aquifer Conservation District and the Guadalupe County Groundwater Conservation District may not charge production fees for an annual period greater than $1 per acre-foot for water used for agricultural use or 17 cents per thousand gallons for water used for any other purpose. The Barton Springs-Edwards Aquifer Conservation District [A district affected by Subsection (c)(2) that also ] may assess a water use fee against a specific municipality in [shall assess ] an amount not to exceed 60 percent of the total funding of the district received from water use fees assessed against that municipality and other nonexempt users in the district. This subsection shall take precedence over all prior enactments.

(e)  Subsection (c) does not apply to the following districts:

(1)  the Edwards Aquifer Authority;

(2)  the Fort Bend Subsidence District; [or ]

(3)  the Harris-Galveston Coastal Subsidence District;

(4)  the Barton Springs-Edwards Aquifer Conservation District; or

(5)  any district that collects a property tax and that was created before September 1, 1999, unless otherwise authorized by special law.

(f)  A district, including a district described under Subsection (d), may assess a production fee under Subsection (c) for any water produced under an exemption under Section 36.117 if that water is subsequently sold to another person.

(g)  A district may assess a transportation fee under Section 36.122.

SECTION 2.54.  Section 36.206, Water Code, is amended by amending Subsection (b) and adding Subsection (c) to read as follows:

(b)  The rate of fees set for [crop or livestock production or other ] agricultural uses shall be no more than 20 percent of the rate applied to municipal uses.

(c)  District fees may be used to purchase groundwater rights if the purchased rights are acquired for conservation purposes.

SECTION 2.55.  Subchapter I, Chapter 36, Water Code, is amended by adding Section 36.3011 to read as follows:

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Sec. 36.3011.  FAILURE OF A DISTRICT TO CONDUCT JOINT PLANNING. (a)  If the board of a district within a common management area fails to forward a copy of its new or revised certified management plan under Section 36.108, the commission shall take appropriate action under Section 36.303.

(b)  Not later than the 45th day after receiving the review panel's report under Section 36.108, the executive director or the commission shall take action to implement any or all of the panel's recommendations. If the commission finds that a district in the joint planning area has failed to adopt rules, the groundwater in the management area is not adequately protected by the rules adopted by the district, or the groundwater in the management area is not adequately protected because of the district's failure to enforce substantial compliance with its rules, the commission may take any action it considers necessary in accordance with Section 36.303.

SECTION 2.56.  Section 36.303(a), Water Code, is amended to read as follows:

(a)  If Section 36.108, 36.301, or 36.302(f) applies, the commission, after notice and hearing in accordance with Chapter 2001, Government Code, shall take action the commission considers appropriate, including:

(1)  issuing an order requiring the district to take certain actions or to refrain from taking certain actions;

(2)  dissolving the board in accordance with Sections 36.305 and 36.307 and calling an election for the purpose of electing a new board;

(3)  requesting the attorney general to bring suit for the appointment of a receiver to collect the assets and carry on the business of the groundwater conservation district [removing the district's taxing authority ]; or

(4)  dissolving the district in accordance with Sections 36.304, 36.305, and 36.308.

SECTION 2.57.  Subchapter I, Chapter 36, Water Code, is amended by adding Section 36.3035 to read as follows:

Sec. 36.3035.  APPOINTMENT OF A RECEIVER. (a)  If the attorney general brings a suit for the appointment of a receiver for a district, a district court shall appoint a receiver if an appointment is necessary to protect the assets of the district.

(b)  The receiver shall execute a bond in an amount to be set by the court to ensure the proper performance of the receiver's duties.

(c)  After appointment and execution of bond, the receiver shall take possession of the assets of the district specified by the court.

(d)  Until discharged by the court, the receiver shall perform the duties that the court directs to preserve the assets and carry on the business of the district and shall strictly observe the final order involved.

(e)  On a showing of good cause by the district, the court may dissolve the receivership and order the assets and control of the business returned to the district.

SECTION 2.58.  Section 51.149, Water Code, is amended to read as follows:

Sec. 51.149.  CONTRACTS. (a)  No approvals other than those specified in Subsection (c) and in Section 1, Chapter 778, Acts of the 74th Legislature, Regular Session, 1995, need be obtained in order for a contract between a district and a municipality to be valid, binding, and enforceable against all parties to the contract. After approval by a majority of the electors voting at an election conducted in the manner of a bond election, a district may make payments under a contract from taxes for debt that does not exceed 30 years.

(b) [(d) ]  A contract may provide that the district will make payments under the contract from proceeds from the sale of notes or bonds, from taxes, from any other income of the district, or from any combination of these.

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(c) [(e) ]  A district may make payments under a contract from taxes, other than maintenance taxes, after the provisions of the contract have been approved by a majority of the electors voting at an election held for that purpose.

(d) [(f) ]  Any contract election may be held at the same time as and in conjunction with an election to issue bonds, and the procedure for calling the election, giving notice, conducting the election, and canvassing the returns shall be the same as the procedure for a bond election.

(e)  A district created pursuant to Chapter 628, Acts of the 68th Legislature, Regular Session, 1983, is defined as a municipal corporation and political subdivision pursuant to Chapter 405, Acts of the 76th Legislature, Regular Session, 1999, and is authorized to take action accordingly.

SECTION 2.59. Section 1.03, Chapter 626, Acts of the 73rd Legislature, Regular Session, 1993, is amended by adding Subdivisions (26) and (27) to read as follows:

(26)  "Agricultural use" means any use or activity involving any of the following activities:

(A)  cultivating the soil to produce crops for human food, animal feed, or planting seed or for the production of fibers;

(B)  the practice of floriculture, viticulture, silviculture, and horticulture, including the cultivation of plants in containers or nonsoil media, by a nursery grower;

(C)  raising, feeding, or keeping animals for breeding purposes or for the production of food or fiber, leather, pelts, or other tangible products having a commercial value;

(D)  wildlife management;

(E)  raising or keeping equine animals; and

(F)  planting cover crops, including cover crops cultivated for transplantation, or leaving land idle for the purpose of participating in any governmental program or normal crop or livestock rotation procedure.

(27)  "Nursery grower" means a person who grows more than 50 percent of the products that the person either sells or leases, regardless of the variety sold, leased, or grown. For the purpose of this definition, "grow" means the actual cultivation or propagation of the product beyond the mere holding or maintaining of the item before sale or lease and typically includes activities associated with the production or multiplying of stock, such as the development of new plants from cuttings, grafts, plugs, or seedlings.

SECTION 2.60. Section 1.29(e), Chapter 626, Acts of the 73rd Legislature, Regular Session, 1993, is amended to read as follows:

(e)  In developing an equitable fee structure under this section, the authority may establish different fee rates on a per acre-foot basis for different types of use. The fees must be equitable between types of uses. The fee rate for agricultural use shall be based on the volume of water withdrawn and may not be more than $2 per acre-foot [20 percent of the fee rate for municipal use ]. The authority shall assess the fees on the amount of water a permit holder is authorized to withdraw under the permit.

SECTION 2.61. Sections 4.03(a) and (b), Chapter 1029, Acts of the 76th Legislature, Regular Session, 1999, are amended to read as follows:

(a)  The authority may establish fees, rates, and charges, and classifications of fee payers and ratepayers, as necessary to enable the authority to fulfill the authority's purposes and regulatory obligations provided by this Act.

(b)  The authority may charge against the owner of a well located in the authority's boundaries a fee on the amount of water pumped from the well. The board shall

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establish the rate of a fee under this subsection only after a special meeting on the fee. The board shall by rule exempt from the fee under this subsection those classes of wells that are not subject to groundwater reduction requirements imposed by the subsidence district, except that if any of those classes of wells become subject at a future date to a groundwater reduction requirement imposed by the subsidence district, then the authority may after that date charge the fee under this subsection to those affected classes of wells. The board by rule may exempt any other classes of wells from the fee under this subsection. The board may not apply the fee to a well:

(1)  with a casing diameter of less than five inches that serves a single-family dwelling;

(2)  regulated under Chapter 27, Water Code;

(3)  used for irrigation of agricultural crops; or

(4)  [that produces 10 million gallons or less annually; or

[(5) ]  used solely for electric generation.

SECTION 2.62. Notwithstanding Section 26.028(c), Water Code, a public hearing on an application by a political subdivision for a commission permit under Section 26.027, Water Code, for effluent composed of sewage or municipal waste proposing secondary or greater treatment and no discharge of pollutants into any water in the state shall be in the same manner as provided by Section 382.0561, Health and Safety Code.

ARTICLE 3. DISTRICT RATIFICATIONS

PART 1. COW CREEK GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0101.  RATIFICATION OF CREATION. (a)  The creation of the Cow Creek Groundwater Conservation District in Kendall County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0108 of this part. The district is a governmental agency and a body politic and corporate.

(b)  The district may develop and implement regulatory, conservation, and recharge programs that preserve and protect groundwater resources located in the district.

SECTION 3.0102.  DEFINITIONS. In this part:

(1)  "District" means the Cow Creek Groundwater Conservation District.

(2)  "Retail public utility" means a retail public utility as defined by Section 13.002, Water Code, that is providing service in the district on September 1, 2001.

(3)  "Well" means any excavation drilled or dug into the ground that may intercept or penetrate a water-bearing stratum or formation.

SECTION 3.0103.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Kendall County.

SECTION 3.0104.  POWERS. Except as otherwise provided by this part, the district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

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SECTION 3.0105.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors.

(b)  Temporary directors serve until initial directors are elected under Sections 3.0108 and 3.0109 of this part or until this part expires under Section 3.0108 of this part, whichever occurs first.

(c)  Initial directors serve until permanent directors are elected under Section 3.0110 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  A director serves until the director's successor has qualified.

(f)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(g)  A vacancy in the office of director is filled by appointment of the board until the next election for directors. At the next election for directors, a person shall be elected to fill the position. If the position is not scheduled to be filled at the election, the person elected to fill the position shall serve only for the remainder of the unexpired term.

SECTION 3.0106.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the commissioners precinct method as provided by this part.

(b)  One director shall be elected by the qualified voters of the entire district and one director shall be elected from each county commissioners precinct by the qualified voters of that precinct.

(c)  A person shall indicate on the application for a place on the ballot the precinct that the person seeks to represent or that the person seeks to represent the district at large.

(d)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

(e)  To be eligible to be a candidate for or to serve as director from a county commissioners precinct, a person must be a registered voter in the precinct from which the person is elected or appointed. To be eligible to be a candidate for or to serve as director at large, a person must be a registered voter in the district.

SECTION 3.0107.  TEMPORARY DIRECTORS. (a)  The temporary board of directors shall be appointed by the county commissioners court. One temporary director shall be appointed from each commissioners precinct, and one temporary director shall be a director at large.

(b)  If a temporary director fails to qualify for office, the temporary directors who have qualified shall appoint a person to fill the vacancy. If at any time there are fewer than three qualified temporary directors, the Texas Natural Resource Conservation Commission shall appoint the necessary number of persons to fill all vacancies on the board.

SECTION 3.0108.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect five initial directors.

(b)  A person who wishes to be a candidate for the office of initial director may file an application with the temporary board of directors to have the candidate's name printed on the ballot as provided by Section 3.0106 of this part.

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(c)  At the confirmation and initial directors election, the temporary board of directors shall have the names of the five persons serving as temporary directors placed on the ballot by commissioners precinct and as at-large director, together with the name of any candidate filing for the office of director as provided by this section.

(d)  If a majority of the votes cast at the election favor the creation of the district, the temporary directors shall declare the district created. If a majority of the votes cast at the election are against the creation of the district, the temporary directors shall declare the district defeated. The temporary directors shall file a copy of the election results with the Texas Natural Resource Conservation Commission.

(e)  If a majority of the votes cast at the election are against the creation of the district, the temporary directors may call and hold subsequent elections to confirm establishment of the district and to elect initial directors. A subsequent election may not be held earlier than the first anniversary of the date on which the previous election was held. If the district is not created before September 1, 2006, this part expires on that date.

(f)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held under this section.

(g)  Section 36.017(a), Water Code, does not apply to the district.

(h)  Except as provided by this section, a confirmation and directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.0109.  INITIAL DIRECTORS. (a)  If the district is created at the election, the temporary directors, at the time the vote is canvassed, shall declare the candidate receiving the most votes for each commissioners precinct or for the at-large director to be elected as the initial directors.

(b)  The initial directors for Precincts 2 and 3 serve until the first regular meeting of the board of directors held after the first permanent directors election under Section 3.0110 of this part. The initial directors for Precincts 1 and 4 and the initial director representing the district at large serve until the first regular meeting of the board of directors held after the second permanent directors election under Section 3.0110 of this part.

SECTION 3.0110.  ELECTION OF PERMANENT DIRECTORS. Beginning in the second year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district on the first Saturday in May every two years to elect the appropriate number of directors to the board.

SECTION 3.0111.  ADDITIONAL AUTHORITY. (a)  The district may contract with one or more state agencies or other governmental bodies, including a county, a river authority, or another district, to carry out any function of the district.

(b)  The district may require a drilling permit before a new well is drilled or an existing well is substantially altered. Notwithstanding an exemption for a well under Section 36.117, Water Code, written authorization granted by the district must be received before a new well is drilled or an existing well is substantially altered.

(c)  The district may participate in the construction, implementation, and maintenance of best management practices for water resource management in the district and may engage in and promote the acceptance of best management practices through education efforts sponsored by the district. Construction, implementation, and maintenance of best management practices must address water quantity and quality practices such as brush management, prescribed grazing, recharge structures, water and silt detention and retention structures, plugging of abandoned wells, rainwater harvesting, and other treatment measures for the conservation of water resources.

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(d)  Reasonable fees, as determined by the district, may be imposed on an annual basis on each nonexempt well. The district shall adopt any rules necessary for the assessment and collection of fees under this subsection.

(e)  The district may use money collected from fees:

(1)  in any manner necessary for the management and operation of the district;

(2)  to pay all or part of the principal of and interest on district bonds or notes; and

(3)  for any purpose consistent with the district's certified water management plan.

(f)  The district shall grant an exemption or other relief from ad valorem taxes on property on which a water conservation initiative has been implemented. The district shall adopt rules to implement this subsection. A retail public utility shall receive the same exemption or relief from ad valorem taxes on property as any other customer of the district would receive.

(g)  As a water conservation initiative to encourage retail public utilities to obtain water supplies from sources other than groundwater, the district shall grant an exemption or other relief from ad valorem taxes on property served by a retail public utility based on:

(1)  the percentage of potable water supplied within the district by the retail public utility from sources other than groundwater compared to the total water supplied by the retail public utility for the preceding year; and

(2)  the percentage of wastewater effluent produced by the retail public utility that is used as reclaimed water within the district compared to the total wastewater effluent produced by the retail public utility for the preceding year. The district may consider the impact of floods and equipment breakage on the retail public utility's ability to supply water from sources other than groundwater.

(h)  The total amount of the exemption or other relief from ad valorem taxes may not exceed one-half of the tax levied by the district.

SECTION 3.0112.  PROHIBITED ACTS. The district may not:

(1)  impose an ad valorem property tax for administrative, operation, or maintenance expenses that exceeds the lesser of the rate approved by the majority of the qualified voters voting in the election authorizing the tax, or three cents per $100 valuation;

(2)  require the owner of a well used solely for domestic or livestock purposes to install a meter or measuring device on the well;

(3)  enter into any contract or engage in any action to supply water to any person in the service area of any municipality or retail public utility located in the district, except with the consent of the municipality or retail public utility; or

(4)  issue any bonds secured by ad valorem taxes before September 1, 2004.

PART 2. CROSSROADS GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0201.  RATIFICATION OF CREATION. The creation of the Crossroads Groundwater Conservation District in Victoria County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0210 of this part.

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SECTION 3.0202.  DEFINITIONS. In this part:

(1)  "Board" means the district's board of directors.

(2)  "Commissioners court" means the Victoria County Commissioners Court.

(3)  "District" means the Crossroads Groundwater Conservation District.

SECTION 3.0203.  LEGISLATIVE FINDINGS. The legislature finds that:

(1)  the organization of the district is feasible and practicable;

(2)  all of the land to be included in, and the residents of, the district will benefit from the creation of the district;

(3)  there is a public necessity for the district; and

(4)  the creation of the district will provide a benefit and utility to the public.

SECTION 3.0204.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Victoria County.

SECTION 3.0205.  APPLICATION OF CHAPTER 36, WATER CODE; GENERAL POWERS AND DUTIES. (a)  Except to the extent of any conflict with this part or as specifically limited by this part, the district is governed by and subject to Chapter 36, Water Code, and may exercise all of the powers contained in that chapter, including the power to issue bonds and levy and collect taxes and the power of eminent domain. The district may exercise all of the duties provided by Chapter 36, Water Code.

(b)  This part prevails over any conflicting or inconsistent provision of Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999.

SECTION 3.0206.  BOARD OF DIRECTORS. (a)  The district is governed by a board of seven directors.

(b)  The directors for Places 1-4 are appointed by the commissioners court. The directors for Places 5-7 are appointed by the city council of the City of Victoria.

(c)  The directors shall select from their members persons to serve as chairman, vice chairman, and secretary.

SECTION 3.0207.  QUALIFICATIONS OF BOARD MEMBERS. To be qualified for appointment as a director, a person must be a resident of the district and must be at least 18 years of age.

SECTION 3.0208.  TERM OF OFFICE. (a)  Except for the temporary and initial directors of the district, directors serve staggered four-year terms.

(b)  A vacancy in the office of director is filled for the remainder of the term by appointment by the commissioners court or the city council of the City of Victoria, as appropriate.

SECTION 3.0209.  TEMPORARY DIRECTORS. (a)  On September 1, 2001, the following persons are designated as temporary directors of the district:

(1)  Place 1: Mark Dierlam

(2)  Place 2: Rocky Sanders

(3)  Place 3: S. F. Ruschhaupt III

(4)  Place 4: Joseph Dial

(5)  Place 5: Stephen Diebel

(6)  Place 6: Jerry James

(7)  Place 7: Denise McCue

(b)  If a temporary director fails to qualify for office or if a vacancy occurs in the office of temporary director for any reason, the commissioners court shall appoint a person to fill a vacancy in Place 1, 2, 3, or 4, and the city council of the City of Victoria shall appoint a person to fill a vacancy in Place 5, 6, or 7.

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(c)  The temporary directors shall select from their members persons to serve as chairman, vice chairman, and secretary.

(d)  The temporary directors serve until they declare the district created, at which time they become the initial directors of the district under Section 3.0211 of this part.

(e)  To be qualified to serve as a temporary director, a person must be a resident of Victoria County and at least 18 years of age.

SECTION 3.0210.  CONFIRMATION ELECTION. (a)  Not later than October 1, 2001, and without the necessity of having a petition presented, the temporary directors shall meet and call an election to be held not later than January 1, 2002, within the boundaries of the proposed district to confirm the creation of the district.

(b)  Section 41.001(a), Election Code, does not apply to an election called under this section.

(c)  The ballot for the election shall be printed to provide for a vote for or against the following propositions:

(1)  the creation of the Crossroads Groundwater Conservation District in Victoria County; and

(2)  the levy and collection of a property tax in the district.

(d)  The temporary board may include other propositions on the ballot that it considers necessary.

(e)  If a majority of votes cast at the election favor the creation of the district, the temporary directors shall declare the district created. If a majority of the votes cast at the election are against the creation of the district, the temporary directors shall declare the district defeated. The temporary directors shall file a copy of the election results with the Texas Natural Resource Conservation Commission.

(f)  If the creation of the district is defeated, further elections may be called and held after the first anniversary of the most recent confirmation election. If the district is not created by September 1, 2006, this part expires.

SECTION 3.0211.  INITIAL DIRECTORS. (a)  On confirmation of the creation of the district under Section 3.0210 of this part, the temporary directors become the initial directors of the district and serve terms as provided by Subsection (b) of this section, except that not later than the 60th day after the date on which the temporary directors declare the district created, the commissioners court may replace any director in Places 1-4 and the city council of the City of Victoria may replace any director in Places 5-7.

(b)  The initial directors for Places 1, 3, 5, and 7 serve for four years following the confirmation of the district. The initial directors for Places 2, 4, and 6 serve for two years following the confirmation of the district.

(c)  If, for any reason, an appointed director is not qualified to take office at the first regular meeting of the board following the director's appointment, the director for that place shall continue to serve until a successor has qualified.

SECTION 3.0212.  LIMITATION ON TAXATION. The district may not impose an ad valorem tax at a rate that exceeds two cents on the $100 valuation of taxable property in the district.

PART 3. HAYS TRINITY GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0301.  RATIFICATION OF CREATION. The creation of the Hays Trinity Groundwater Conservation District in a portion of Hays County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0309 of this part.

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SECTION 3.0302.  DEFINITIONS. In this part:

(1)  "Commissioners court" means the Hays County Commissioners Court.

(2)  "District" means the Hays Trinity Groundwater Conservation District.

SECTION 3.0303.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Hays County, Texas, excluding any area in Hays County that on the effective date of this part is within another groundwater conservation district and that has authority to require a permit for the drilling or alteration of wells for the withdrawal of groundwater. Within 30 days of its initial meeting and prior to holding any confirmation election, the board of directors of the district shall prepare a description of the district boundaries and shall file the description with the county clerk of Hays County and the Texas Natural Resource Conservation Commission.

SECTION 3.0304.  POWERS. (a)  Except as provided by this part, the district has all the rights, powers, privileges, authority, functions, and duties provided by the general law of this state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

(b)  The rights, powers, privileges, authority, functions, and duties of the district are subject to the continuing right of supervision of the state to be exercised by and through the Texas Natural Resource Conservation Commission.

(c)  The district may not enter property to inspect an exempt well without the property owner's permission.

(d)  The commissioners court, by resolution, may require an election to be conducted within six months to affirm or reverse a decision of the board of directors of the district.

(e)  The district may not require well construction standards for residential wells more stringent than state standards for those wells.

SECTION 3.0305.  EXEMPTIONS. (a)  The following wells are exempt from Chapter 36, Water Code, rules and may not be regulated, permitted, or metered by the district:

(1)  a well used to satisfy the domestic needs of a single private residential household and producing less than 25,000 gallons per day;

(2)  a well used for conventional farming and ranching activities, excluding intensive operations such as aquaculture, livestock feedlots, and poultry operations.

(b)  A well used for conventional farming and ranching activities, excluding intensive operations such as aquaculture, livestock feedlots, and poultry operations, is not required to obtain construction authorization.

SECTION 3.0306.  FISCAL RESPONSIBILITIES. (a)  The district each year shall prepare a budget showing the proposed expenditures and disbursements and the estimated receipts and collections for the following fiscal year and shall hold a public hearing on the proposed budget after publication of a notice of hearing in a newspaper of general circulation in the county at least once not less than 10 days prior to the date set for the hearing. A person who is a taxpayer of the district has the right to appear at the time and place designated in the notice and be heard with reference to any item shown in the proposed budget. The proposed budget must also show the amount of revenues expected to be collected during such fiscal year.

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(b)  At the written request of the commissioners court, the county auditor shall audit the performance of the district. The commissioners court may request a general audit of the performance of the district or may request an audit of only one or more particular duties, practices, functions, or other district matters.

SECTION 3.0307.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors appointed by the commissioners court.

(b)  A director must reside in the district.

(c)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(d)  Directors serve staggered two-year terms.

(e)  A director serves until the director's successor has qualified.

(f)  If there is a vacancy on the board, the commissioners court shall appoint a director to serve the remainder of the term.

(g)  The commissioners court shall appoint a director to succeed a director on or before the date the director's term expires.

(h)  A director may not receive a salary or other compensation for service as a director but may be reimbursed for actual expenses of attending meetings at the rate in effect for employees of Hays County.

SECTION 3.0308.  APPOINTMENT AND TERMS OF INITIAL DIRECTORS. Not later than the 31st day after the effective date of this part, the commissioners court shall appoint:

(1)  two directors to serve terms expiring February 1, 2003; and

(2)  three directors to serve terms expiring February 1, 2004.

SECTION 3.0309.  CONFIRMATION ELECTION. (a)  The initial directors shall call and hold an election to confirm establishment of the district not later than the second Saturday in May 2002.

(b)  Section 41.001(a), Election Code, does not apply to a confirmation election held as provided by this section.

(c)  Except as provided by this section, a confirmation election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

(d)  If the establishment of the district has not been confirmed at an election held under this section before the second anniversary of the effective date of this part, this part expires on that date.

SECTION 3.0310.  FUNDING AUTHORITY. (a)  The district may levy or collect a fee not to exceed $300 for construction authorization for new wells completed after the effective date of this part, except as prohibited by Section 3.0305(b) of this part.

(b)  The district may levy or collect a water utility service connection fee not to exceed $300 for all new water service connections made after the effective date of this part. The fee may not be charged on connection fees to a water utility that has surface water as its sole source of water.

PART 4. LONE WOLF GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0401.  RATIFICATION OF CREATION. The creation of the Lone Wolf Groundwater Conservation District in Mitchell County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0407 of this part.

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SECTION 3.0402.  DEFINITION. In this part, "district" means the Lone Wolf Groundwater Conservation District.

SECTION 3.0403.  GENERAL POWERS. The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

SECTION 3.0404.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.0407 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.0408 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

SECTION 3.0405.  COMPENSATION OF DIRECTORS. A director is not entitled to fees of office but is entitled to reimbursement of actual expenses reasonably and necessarily incurred while engaging in activities on behalf of the district.

SECTION 3.0406.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the commissioners precinct method as provided by this section.

(b)  One director shall be elected by the voters of the entire district, and one director shall be elected from each county commissioners precinct by the voters of that precinct.

(c)  To be eligible to be a candidate for or to serve as director at large, a person must be a registered voter in the district. To be eligible to be a candidate for or to serve as director from a county commissioners precinct, a person must be a registered voter of that precinct.

(d)  A person shall indicate on the application for a place on the ballot:

(1)  the precinct that the person seeks to represent; or

(2)  that the person seeks to represent the district at large.

(e)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

SECTION 3.0407.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the name of any candidate filing for an initial director position and blank spaces to write in the names of other persons. A temporary director who is eligible to be a candidate under Section 3.0406 of this part may file for an initial director position.

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(c)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

(d)  Except as provided by this section, a confirmation and initial directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.0408.  ELECTION OF DIRECTORS. (a)  On the first Saturday in May of the first even-numbered year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district for the election of three directors to serve four-year terms and two directors to serve two-year terms.

(b)  On the first Saturday in May of each subsequent second year following the election, the appropriate number of directors shall be elected.

SECTION 3.0409.  LIMITATION ON TAXATION. The district may levy property taxes at a rate not to exceed 20 cents on each $100 of assessed valuation to pay any part of the bonds or notes issued by the district if the authority to impose property taxes under this part is approved by a majority of the voters voting at a confirmation election under Section 3.0407 of this part or at a separate election called for that purpose by the board of directors.

SECTION 3.0410.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.0407 of this part before September 1, 2003, the district is dissolved and this part expires on that date.

PART 5. LOST PINES GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0501.  RATIFICATION OF CREATION. The creation of the Lost Pines Groundwater Conservation District in Bastrop and Lee counties by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0507 of this part.

SECTION 3.0502.  DEFINITIONS. In this part:

(1)  "District" means the Lost Pines Groundwater Conservation District.

(2)  "Public utility" means any person, corporation, public utility, water supply or sewer service corporation, municipality, political subdivision, or agency operating, maintaining, or controlling facilities in the state for providing potable water service for compensation.

SECTION 3.0503.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Bastrop and Lee counties, Texas.

SECTION 3.0504.  POWERS. (a)  The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

(b)  The district may not impose a tax. The district may assess regulatory pumping fees for water produced in or exported from the district. The regulatory pumping fees the district assesses for water for crop or livestock production or other agricultural uses may not exceed 20 percent of the rate applied to water for municipal uses. Regulatory pumping fees based on the amount of water withdrawn from a well may not exceed:

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(1)  $1 per acre-foot for water used for the purpose of irrigating agricultural crops; or

(2)  17 cents per thousand gallons for water used for any other purpose.

(c)  The district may adopt a rule exempting a well that is not capable of producing more than 50,000 gallons of groundwater a day from a permit requirement, a fee, or a restriction on production.

SECTION 3.0505.  GROUNDWATER WELLS UNDER JURISDICTION OF RAILROAD COMMISSION. (a)  Groundwater wells drilled or operated within the district under permits issued by the Railroad Commission of Texas are under the exclusive jurisdiction of the railroad commission and are exempt from regulation by the district.

(b)  Groundwater produced in an amount authorized by a railroad commission permit may be used within or exported from the district without obtaining a permit from the district.

(c)  To the extent groundwater production exceeds railroad commission authorization, the holder of the railroad commission permit must apply to the district for appropriate permits for the excess production and is subject to the applicable regulatory fees.

(d)  Groundwater produced from wells under the jurisdiction of the railroad commission is generally exempt from water district fees. However, the district may impose either a pumping fee or an export fee on groundwater produced from an otherwise exempt mine well that is used for municipal purposes or by a public utility. Any fee imposed by the district under this subsection may not exceed the fee imposed on other groundwater producers in the district.

SECTION 3.0506.  BOARD OF DIRECTORS. (a)  The district is governed by a board of 10 directors.

(b)  Five directors shall be appointed from Bastrop County by the county judge of Bastrop County and five directors shall be appointed from Lee County by the county judge of Lee County.

(c)  Temporary directors serve until their successors are appointed and have qualified.

(d)  The temporary directors shall draw lots to determine:

(1)  which three directors from each county will serve four-year terms that expire December 31, 2005; and

(2)  which two directors from each county will serve two-year terms that expire December 31, 2003.

(e)  In each subsequent second year following the initial appointment of directors, the appropriate number of directors shall be appointed.

(f)  Except as provided by Subsection (d) of this section, directors serve staggered four-year terms.

(g)  Directors may serve consecutive terms.

(h)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(i)  A director serves until the director's successor has qualified.

(j)  If a vacancy occurs on the board of directors, the board may appoint a director to serve the remainder of the term.

(k)  A director may receive fees of office as provided by Section 36.060, Water Code, and is entitled to reimbursement for reasonable actual expenses incurred in performing duties as a director.

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SECTION 3.0507.  INITIAL MEETING AND CONFIRMATION ELECTION. (a)  As soon as practicable after September 1, 2001, the temporary directors shall meet to set the date for and call the confirmation election. The directors shall hold the meeting in conjunction with the regularly scheduled meeting of the directors.

(b)  The election shall be held on the authorized election date in November if the United States Department of Justice has precleared this part by that time. If this part has not been precleared by the November election date, the confirmation election shall be held at the next authorized election date. The district shall contract with the county clerks of Bastrop and Lee counties to conduct the election.

(c)  Except as provided by this section, the confirmation election must be conducted as provided by Sections 36.017 and 36.018, Water Code, and the Election Code.

(d)  If a majority of the votes cast at an election held under this section is against the confirmation of the district, the temporary directors may not call another election under this section before the first anniversary of that election.

SECTION 3.0508.  REGIONAL COOPERATION. The district shall:

(1)  adopt a management plan detailing proposed efforts of the district to cooperate with other groundwater conservation districts;

(2)  participate as needed in coordination meetings with adjacent groundwater conservation districts that share one or more aquifers with the district;

(3)  coordinate the collection of data with adjacent groundwater conservation districts in such a way as to achieve relative uniformity of data type and quality;

(4)  provide groundwater level information to adjacent groundwater conservation districts;

(5)  investigate any groundwater pollution to identify the pollution's source;

(6)  notify adjacent groundwater conservation districts and all appropriate agencies of any groundwater pollution detected and the source of pollution identified;

(7)  provide to adjacent groundwater conservation districts annually an inventory of water wells in the district and an estimate of groundwater production within the district; and

(8)  include adjacent groundwater conservation districts on mailing lists for district newsletters and information regarding seminars, public education events, news articles, and field days.

SECTION 3.0509.  EXPIRATION. If the creation of this district is not confirmed at a confirmation election held under Section 3.0507 of this part before September 1, 2005, this part expires on that date.

PART 6. MCMULLEN GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0601.  RATIFICATION OF CREATION. The creation of the McMullen Groundwater Conservation District in McMullen County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0607 of this part.

SECTION 3.0602.  DEFINITION. In this part, "district" means the McMullen Groundwater Conservation District.

SECTION 3.0603.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of McMullen County.

SECTION 3.0604.  GENERAL POWERS. (a)  The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the

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state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

(b)  The rights, powers, privileges, authority, functions, and duties of the district are subject to the continuing right of supervision of the state to be exercised by and through the Texas Natural Resource Conservation Commission.

SECTION 3.0605.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.0607 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.0608 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

(g)  If there is a vacancy on the board, the remaining directors shall appoint a director to serve the remainder of the term.

SECTION 3.0606.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the commissioners precinct method as provided by this section.

(b)  One director shall be elected by the voters of the entire district and one director shall be elected from each county commissioners precinct by the voters of that precinct.

(c)  To be qualified as a candidate for or to serve as director at large, a person must be a registered voter in the district. To be a candidate for or to serve as director from a county commissioners precinct, a person must be a registered voter of that precinct.

(d)  A person shall indicate on the application for a place on the ballot:

(1)  the precinct that the person seeks to represent; or

(2)  that the person seeks to represent the district at large.

(e)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

SECTION 3.0607.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the names of the persons serving as temporary directors who intend to run for an initial director position and are qualified to be a candidate under Section 3.0606 of this part together with the name of any candidate filing for an initial director position and blank spaces to write in the names of other persons.

(c)  If the district is created at the election, the temporary board of directors, at the time the vote is canvassed, shall:

77th Legislature — Regular Session 79th Day

(1)  declare the qualified person who receives the most votes for each position to be elected as the initial director for that position; and

(2)  include the results of the initial directors election in the district's election report to the Texas Natural Resource Conservation Commission.

(d)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

(e)  Except as provided by this section, a confirmation and initial directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

(f)  If a majority of the votes cast at an election held under this section is against the confirmation of the district, the temporary directors may not call another election under this section before the first anniversary of that election.

SECTION 3.0608.  ELECTION OF PERMANENT DIRECTORS. (a)  On the first Saturday in October of the second year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district for the election of directors from county commissioners precincts one and three, each of whom serves a two-year term, and directors from county commissioners precincts two and four and the director at large, each of whom serves a four-year term.

(b)  On the first Saturday in October of each subsequent second year following the election, the appropriate number of directors shall be elected to the board, each of whom serves a four-year term.

SECTION 3.0609.  LIMITATION ON TAXATION. The district may not impose an ad valorem tax at a rate that exceeds five cents on the $100 valuation of taxable property in the district.

SECTION 3.0610.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.0607 of this part before September 1, 2003, this part expires on that date.

PART 7. MIDDLE PECOS GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0701.  RATIFICATION OF CREATION. The creation of the Middle Pecos Groundwater Conservation District in Pecos County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0707 of this part.

SECTION 3.0702.  DEFINITION. In this part, "district" means the Middle Pecos Groundwater Conservation District.

SECTION 3.0703.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Pecos County.

SECTION 3.0704.  GENERAL POWERS. (a)  The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of this state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

(b)  The rights, powers, privileges, authority, functions, and duties of the district are not subject to the continuing right of supervision of the state through the Texas Natural Resource Conservation Commission.

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SECTION 3.0705.  BOARD OF DIRECTORS. (a)  The district is governed by a board of 11 directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.0707 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.0708 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

(g)  If there is a vacancy on the board, the remaining directors shall appoint a director to serve the remainder of the term. If at any time there are fewer than three qualified directors, the Pecos County Commissioners Court shall appoint the necessary number of persons to fill all the vacancies on the board.

(h)  A director may not receive a salary or other compensation for service as a director but may be reimbursed for actual expenses of attending meetings at the rate in effect for employees of Pecos County.

SECTION 3.0706.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the method provided by this section.

(b)  One director shall be elected by the qualified voters of the entire district, two directors shall be elected from each county commissioners precinct by the qualified voters of that precinct, one director shall be elected from the city of Iraan by the qualified voters of that city, and one director shall be elected from the city of Fort Stockton by the qualified voters of that city.

(c)  To be qualified to be a candidate for or to serve as a director at large, a person must be a registered voter in the district. To be a candidate for or to serve as director from a county commissioners precinct or a city, a person must be a registered voter of that precinct or city, as applicable.

(d)  A person shall indicate on the application for a place on the ballot:

(1)  the precinct or city that the person seeks to represent; or

(2)  that the person seeks to represent the district at large.

(e)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

SECTION 3.0707.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the name of any candidate filing for an initial director position and blank spaces to write in the names of other persons. A temporary director who is qualified to be a candidate under Sections 3.0705 and 3.0706 of this part may file for an initial director position.

(c)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

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(d)  Except as provided by this section, a confirmation and initial directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

(e)  The elected initial directors shall draw lots to determine their terms. One director from each county commissioners precinct and the director from the district at large serve terms that expire on the date of the first election held under Section 3.0708 of this part. The remaining directors serve terms that expire on the date of the second election held under Section 3.0708 of this part.

(f)  If the majority of the votes cast at an election held under this section is against the confirmation of the district, the temporary directors may call another election under this section to be held not later than August 31, 2003.

SECTION 3.0708.  ELECTION OF DIRECTORS. On the first Saturday in May of the first even-numbered year after the year in which the district is authorized to be created at a confirmation election and on the first Saturday in May of each subsequent second year, an election shall be held in the district to elect the appropriate number of directors.

SECTION 3.0709.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.0707 of this part before September 1, 2003, the district is dissolved and this part expires on that date.

PART 8. RED SANDS GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0801.  RATIFICATION OF CREATION. The creation of the Red Sands Groundwater Conservation District in Hidalgo County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0808 of this part.

SECTION 3.0802.  DEFINITION. In this part, "district" means the Red Sands Groundwater Conservation District.

SECTION 3.0803.  BOUNDARIES. The district includes all of the territory contained in the following described area:

A 19,232 acre tract more or less out of San Salvador Del Tule Grant as recorded in Volume 10, Page 58 of the Hidalgo County, Texas map records and out of the Santa Anita Grant as recorded in Volume 7, Page 38 of the Hidalgo County, Texas map records.

Commencing at the Southeast Corner of this here in described boundary tract, said point being the intersection of the centerline of U.S. Highway 281 and the centerline of Farm to Market Road number 490 (F.M. 490) (West Hargill Road) as shown in the map of San Salvador Del Tule Grant as recorded in Volume 10, Page 58 of the Hidalgo County map records. Said point is also the point of beginning.

Thence, Westerly along the center line of the F.M. 490, an approximate distance of 18,400 feet to a point on the West line of San Salvador Del Tule Grant, said point also being the intersection of the centerline of F.M. 490 and the West line of the San Salvador Del Tule Grant,

Thence, Northerly along the West line of the San Salvador Del Tule Grant and the East line of the Santa Anita Grant at an approximate distance of 21,300 feet to a point, said point being an inside corner of this herein described tract, and also being the Southeast corner of Redland Vineyards Subdivision as recorded in Volume 4, Page 51 of the Hidalgo County map records,

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Thence, Westerly along the South line of the Redland Vineyards Subdivision, an approximate distance of 4,238 feet to a point, said point being an outside corner of this herein described tract, said point also being the Southwest corner of the Redland Vineyard Subdivision,

Thence, Northerly with the West line of Redland Vineyards Subdivision, at approximately 4,590.50 feet past a point, said point being the Northwest corner of Redland Vineyard Subdivision, and the Southwest corner of Delbridge Subdivision as recorded in Volume 5, Page 11, Hidalgo County map records, and continuing Northerly along the West line of Delbridge Subdivision for an approximate total distance of 6,646 feet to a point, said point being an inside corner of this herein described tract, and also being the Northwest corner of Delbridge Subdivision,

Thence, Westerly along the South line of a 196.37 acres tract, known as the A.B. De Kock Tract, an approximate distance of 3,500 feet past the Southeast corner of share 4, out of the 8,374.70 acre tract partition out of the Santa Anita Grant as recorded in Volume 7, Page 38, in the Hidalgo County map records and continuing Westerly for an approximate total distance of 6,500 feet to a point, said point being an outside corner of this herein described tract and also being the Southwest corner of share 4,

Thence, Northerly along the West line of share 4, an approximate total distance of 19,143 feet to a point, said point being the Northwest corner of this herein described tracts and, the intersection of the West line of share 4 and the centerline of Farm to Market Road number 1017, (F.M. 1017)

Thence, in a Southeasterly direction, with the Right-of-Way centerline of Farm to Market Road number 1017 (F.M. 1017) an approximate total distance of 27,800 feet to a point, said point being the Northeast corner of this herein described tract, and also being the intersection of the centerline of F.M. 1017 Right-of-Way and the center line of the U.S. Highway 281 Right-Of-Way,

Thence, in a Southerly direction, with the centerline of U.S. Highway 281 Right-Of-Way, an approximate distance of 7,500 feet past Floral Road, and at approximate 21,700 feet past Red Gate Road and at approximate 29,700 feet past Laguna Seca Road and for an approximate total distance of 39,300 feet to the point of beginning of this here in described tract, said tract contains 19,232 Acres, More or Less.

SECTION 3.0804.  FINDINGS RELATIVE TO BOUNDARIES. The legislature finds that the boundaries and field notes of the district form a closure. A mistake in the field notes or in the copying of the field notes in the legislative process does not affect the organization, existence, or validity of the district, the right of the district to levy and collect taxes, or the legality or operation of the district or its governing body.

SECTION 3.0805.  GENERAL POWERS. (a)  Except as provided by this part, the district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

(b)  The rights, powers, privileges, authority, functions, and duties of the district are subject to the continuing right of supervision of the state, to be exercised by and through the Texas Natural Resource Conservation Commission.

SECTION 3.0806.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors, each elected at large to one of five numbered places.

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(b)  To be eligible to serve as a director, an individual must reside in the district.

(c)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(d)  Permanent directors serve staggered three-year terms.

(e)  A director serves until the director's successor has qualified.

(f)  A vacancy in the office of director shall be filled by appointment of the board of directors until the next election of directors, at which election a person shall be elected to fill the position. If the position is not scheduled to be filled at the election, the person elected to fill the position serves only the remainder of the unexpired term.

(g)  An appointed director who is qualified to serve as a director under Subsection (b) of this section is eligible to run for election to the board of directors.

SECTION 3.0807.  TEMPORARY DIRECTORS. (a)  The temporary board of directors is composed of:

(1)  Lucas Hinojosa;

(2)  Becky Guerra;

(3)  Arcadio Guerra;

(4)  Elizabeth Ann Sweet; and

(5)  John Cozad.

(b)  The temporary directors are not required to meet the eligibility requirements of permanent directors.

(c)  Temporary directors serve until permanent directors are elected at the confirmation election under Section 3.0808 of this part.

SECTION 3.0808.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the names of the candidates for each of the five numbered positions and blank spaces to write in the names of other persons. Names on the ballot may include persons serving as temporary directors who intend to run for an initial director position together with the name of any candidate filing for an initial director position.

(c)  If a majority of the votes cast at the election are in favor of the creation of the district, the temporary board of directors shall declare the district created. If a majority of the votes cast at the election are against the creation of the district, the temporary board of directors shall declare the district defeated. The temporary board of directors shall file a copy of the election results with the Texas Natural Resource Conservation Commission.

(d)  If a majority of the votes cast at the election are against the creation of the district, the temporary board of directors may not call another election under this section before the first anniversary of the date of the election.

(e)  If the creation of the district is confirmed at the election, the temporary board of directors, at the time the vote is canvassed, shall:

(1)  declare the qualified person who receives the most votes for each position to be elected as the initial director for that position; and

(2)  include the results of the initial directors election in the district's election report to the Texas Natural Resource Conservation Commission.

(f)  The initial directors shall draw lots to determine their terms so that:

(1)  one director serves a one-year term that expires on the anniversary of the date the initial directors were elected;

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(2)  two directors serve two-year terms that expire on the anniversary of the date the initial directors were elected; and

(3)  two directors serve three-year terms that expire on the anniversary of the date the initial directors were elected.

(g)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

(h)  Except as provided by this section, a confirmation election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.0809.  ELECTION OF PERMANENT DIRECTORS. Beginning in the first year after the year in which the district is authorized to be created at a confirmation election, the board of directors shall call an election to be held in the district on the first Saturday of the month in which the initial directors were elected under Section 3.0808 of this part and every year after that date to elect the appropriate number of directors to the board.

SECTION 3.0810.  ELIGIBLE DISTRICT VOTERS. Any person qualified to vote under the Election Code who resides in the district is eligible to vote in district elections.

SECTION 3.0811.  TAXATION AUTHORITY. (a)  The board of directors shall impose taxes in accordance with Subchapter G, Chapter 36, Water Code.

(b)  Notwithstanding Section 36.201, Water Code, the board of directors may annually impose an ad valorem tax at a rate not to exceed two cents on each $100 of assessed valuation unless a higher rate is approved by a majority of the voters of the district voting at an election called and held for that purpose.

SECTION 3.0812.  TRANSPORTATION OF GROUNDWATER. (a)  The board of directors may adopt rules under Section 36.122, Water Code, requiring a permit to transport district groundwater outside the district. The board of directors shall authorize the transportation of groundwater for use outside the district if the board determines that the use is in the public interest. The board of directors may:

(1)  designate uses of water that are in the public interest; and

(2)  establish criteria for permits issued under the rules.

(b)  Transportation projects for the use of groundwater outside the district that began before September 1, 2001, may continue without a permit if the use of groundwater is on land contiguous to the district's boundaries and is for domestic or livestock purposes.

SECTION 3.0813.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.0808 of this part before September 1, 2003, this part expires on that date.

PART 9. REFUGIO GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0901.  RATIFICATION OF CREATION. The creation of the Refugio Groundwater Conservation District in Refugio County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.0907 of this part.

SECTION 3.0902.  DEFINITION. In this part, "district" means the Refugio Groundwater Conservation District.

SECTION 3.0903.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Refugio County.

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SECTION 3.0904.  GENERAL POWERS. The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of this state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

SECTION 3.0905.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.0907 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.0908 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

(g)  If a director fails to qualify for office or if there is at any time a vacancy on the temporary board of directors, the commissioners court shall appoint a person to fill the vacancy.

SECTION 3.0906.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the commissioners precinct method as provided by this section.

(b)  One director shall be elected by the qualified voters of the entire district, and one director shall be elected from each county commissioners precinct by the qualified voters of that precinct.

(c)  To be qualified to be a candidate for or to serve as director at large, a person must be a registered voter in the district. To be a candidate for or to serve as director from a county commissioners precinct, a person must be a registered voter of that precinct.

(d)  A person shall indicate on the application for a place on the ballot:

(1)  the precinct that the person seeks to represent; or

(2)  that the person seeks to represent the district at large.

(e)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

SECTION 3.0907.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the name of any candidate filing for an initial director position and blank spaces to write in the names of other persons. A temporary director who is qualified to be a candidate under Sections 3.0905 and 3.0906 of this part may file for an initial director position.

(c)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

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(d)  Except as provided by this section, a confirmation and initial directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.0908.  ELECTION OF DIRECTORS. (a)  On the first Saturday in May of the first even-numbered year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district for the election of three directors to serve four-year terms and two directors to serve two-year terms.

(b)  On the first Saturday in May of each subsequent second year following the election, the appropriate number of directors shall be elected.

SECTION 3.0909.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.0907 of this part before September 1, 2003, the district is dissolved and this part expires on that date.

PART 10. SOUTHEAST TRINITY GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.1001.  PURPOSE. The purpose of this part is to ratify the Southeast Trinity Groundwater Conservation District, a locally controlled groundwater district, to protect, recharge, and prevent the waste of groundwater and to control subsidence of water from the groundwater reservoirs.

SECTION 3.1002.  RATIFICATION OF CREATION. The creation of the Southeast Trinity Groundwater Conservation District by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that Act, subject to a confirmation election under Section 3.1008 of this part.

SECTION 3.1003.  DEFINITIONS. In this part:

(1)  "Board" means the board of directors of the district.

(2)  "Commission" means the Texas Natural Resource Conservation Commission.

(3)  "District" means the Southeast Trinity Groundwater Conservation District.

SECTION 3.1004.  BOUNDARIES. The boundaries of the district are as follows:

BEGINNING at the point of intersection of the Bexar County - Comal County - Kendall County line:

THENCE following the meanders of the Cibolo Creek, the Bexar County - Comal County line in an Easterly direction to the point of intersection with latitude 29° 40':

THENCE along 29° 40' in a Southeasterly direction to the point of intersection with Farm to Market Road 3009:

THENCE with the centerline of Farm to Market Road 3009 in a Southerly direction to the point of intersection with the centerline of Schoenthal Road:

THENCE with the centerline of Schoenthal Road in a Northeasterly direction to the point of intersection with the centerline of Farm to Market Road 1863:

THENCE with the centerline of Farm to Market Road 1863 in an Easterly direction to the point of intersection with the centerline of Mission Valley Road:

THENCE with the centerline of Mission Valley Road in a Northeasterly direction to the point of intersection with the centerline of State Highway 46;

THENCE with the centerline of State Highway 46 in a Northwesterly direction to the point of intersection with the centerline of Hueco Springs Loop Road:

THENCE with the centerline of Hueco Springs Loop Road in a Northeasterly then Easterly direction to the point of intersection with the centerline of River Road:

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THENCE with the centerline of River Road in a Northeasterly direction to the point of intersection with the Guadalupe River at the First Crossing:

THENCE following the meanders of the Guadalupe River in a Northerly direction to the point of intersection of the centerlines of the Guadalupe River and Deep Creek:

[Note: the next four paragraphs coincide with the Southern boundary of Comal County Voters Precinct 18]

THENCE along the meanders of Deep Creek in a Northeasterly direction to the point of intersection of the centerline of Deep Creek and the South line of the G. F. Lawrence Survey No. 33, Abstract No. 358:

THENCE with the South line of the G. F. Lawrence Survey No. 33, Abstract No. 358 in a Northeasterly, Southeasterly, and Northeasterly direction to the point of intersection of the South centerline of Farm to Market Road 306 being at approximately Engineers Station 397+98.3:

THENCE with the centerline of Farm to Market Road 306 in a Southeasterly direction to the point of intersection of the centerlines of Farm to Market Road 306 and the William Pfeuffer private ranch road:

THENCE with the approximate bearing N 69° E and approximate distance 5,000 feet to an angle point in the Comal County - Hays County Line:

THENCE with the Comal County - Hays County line in a Northwesterly direction to the point of intersection of the Comal County - Hays County line with the Comal County - Blanco County line:

THENCE with the Comal County - Blanco County line in a Southwesterly direction to the point of intersection of the Comal County - Blanco County - Kendall County line, continuing with the Comal County - Kendall County line in a Southwesterly direction to point of intersection of the Kendall County - Comal County - Bexar County line being the Point of Beginning.

SECTION 3.1005.  FINDINGS RELATIVE TO BOUNDARIES. The legislature finds that the boundaries and field notes of the district form a closure. A mistake in the field notes or in copying the field notes in the legislative process does not affect the organization, existence, or validity of the district, the right of the district to levy and collect taxes, or the legality or operation of the district or its governing body.

SECTION 3.1006.  AUTHORITY OF DISTRICT. (a)  Except as provided by this section or otherwise by this part, the district has the same permitting and general management powers as those granted under Chapter 36, Water Code.

(b)  The district has no regulatory jurisdiction over the Edwards Aquifer or any surface water supply.

(c)  The board by rule may impose reasonable fees, including fees for groundwater transported out of the district, on each groundwater well in the district that is not exempt from regulation by the district, based on the amount of water withdrawn from the well. The fees may be assessed annually, based on the size of column pipe used in the wells, pump capacity, or actual, authorized, or anticipated pumpage, to pay the maintenance and operating expenses of the district's regulation of groundwater.

(d)  Section 36.205(c), Water Code, does not apply to the district.

(e)  The district may assess an ad valorem property tax not to exceed seven cents per $100 valuation for administrative, operation, and maintenance expenses if approved by a majority of the qualified voters voting in an election authorizing the tax.

(f)  Any district conservation fee paid by a retail public utility to the district shall be:

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(1)  collected by the retail public utility directly as a regulatory fee from the customers of the utility and paid to the district; and

(2)  shown as a separate line item on the customer's bill.

(g)  Fees may not be assessed for groundwater withdrawn from the Edwards Aquifer.

(h)  The district shall determine which classes of wells are exempt from permitting requirements.

(i)  The district may not require a permit for:

(1)  the drilling of or producing from a well either drilled, completed, or equipped so that it is capable of producing less than 10,000 gallons of water per day; or

(2)  the drilling of or alteration of the size of a well or to restrict the production of a well if the water produced or to be produced from the well is or will be used to supply the domestic needs of five or fewer households in which a person who is a member of each household is either the owner of the well, a person related to the owner or to a member of the owner's household within the second degree by consanguinity, or an employee of the owner.

(j)  The district may construct according to, implement, and maintain best management practices in the district and may engage in and promote acceptance of best management practices through education efforts sponsored by the district for the purposes of water quality and water availability practices such as brush management, recharge enhancement, water and silt detention and retention structures, plugging of abandoned wells, and other treatment measures for the conservation of groundwater resources.

SECTION 3.1007.  BOARD OF DIRECTORS. (a)  The district is governed by a board of five directors.

(b)  Temporary directors have been appointed by Comal County Commissioners Court and shall serve until initial directors are elected under Section 3.1008 of this part.

(c)  The temporary directors are:

(1)  Cal Perrine;

(2)  Ernest T. Lee;

(3)  Jill Sondeen;

(4)  Larry Hull; and

(5)  Stovy Bowlin.

(d)  Initial directors shall be elected at a confirmation election and serve until permanent directors are elected under Section 3.1009 of this part.

(e)  Permanent directors serve staggered four-year terms.

(f)  The directors shall be elected from four precincts, and one director will represent the district at large. No more than two precincts may be in a single municipality.

(g)  A member of the board must reside in and be a registered voter in the precinct from which the person is elected or appointed if representing a precinct or must reside and be registered to vote in the district if representing the district at large.

(h)  Directors may serve consecutive terms.

(i)  In an election for board members, a write-in vote may not be counted unless the name written in appears on the list of write-in candidates. A declaration of write-in candidacy must be filed not later than 5 p.m. of the 45th day before election day.

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(j)  Vacancies in the office of director are filled by appointment of the board. If the vacant office is not scheduled for election within the next two years at the time of the appointment, the board shall order an election for the unexpired term to be held as part of the next regularly scheduled directors election. The appointed director's term ends on qualification of the director elected at that election.

(k)  The district may not issue bonds before September 1, 2004.

SECTION 3.1008.  CONFIRMATION ELECTION AND ELECTION OF INITIAL DIRECTORS. (a)  As soon as practicable after September 1, 2001, the temporary board of directors may set the date for, call, and hold an election:

(1)  to confirm establishment of the district;

(2)  to elect five initial directors; and

(3)  to authorize the district to impose a tax.

(b)  The election may be held on the first authorized election date after the United States Department of Justice has precleared this part. The district shall contract with the county clerk of Comal County to conduct the election.

(c)  The elected initial directors shall draw lots to determine their terms so that:

(1)  two of the initial directors serve two-year terms that expire on the uniform election date in November of the second year after the date the initial directors were elected; and

(2)  the remaining three initial directors serve four-year terms that expire on the uniform election date in November of the fourth year after the year in which the initial directors were elected.

(d)  Section 41.001(a), Election Code, does not apply to a confirmation and directors election held as provided by this section.

(e)  Except as provided by this section, a confirmation and directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

(f)  The Comal County Commissioners Court shall pay the expenses of conducting the confirmation and initial directors election, subject to reimbursement from the district if the establishment of the district is confirmed or from available revenues, including funds allocated under Section 36.160, Water Code, if the establishment of the district is defeated.

(g)  If the district is defeated, the temporary directors may call and hold subsequent elections to confirm establishment of the district. A subsequent election may not be held earlier than the first anniversary of the date on which the previous election was held. If the district has not been confirmed at an election held under this section before the fourth anniversary of the effective date of this part, the district is dissolved on that date, except that any debts incurred shall be paid and the organization of the district shall be maintained until all debts are paid.

SECTION 3.1009.  ELECTION OF PERMANENT DIRECTORS. (a)  On the uniform election date in November of the second year after the year in which initial directors are elected, an election shall be held in the district to elect two permanent directors for the positions of the two initial directors serving two-year terms.

(b)  On the uniform election date in November of each subsequent second year following the election held under Subsection (a) of this section, an election shall be held to elect the appropriate number of permanent directors to the board.

SECTION 3.1010.  COORDINATION WITH OTHER DISTRICTS. The district may coordinate activities with other groundwater districts that regulate the Trinity Aquifer for the purposes of conjunctively managing the common resource.

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SECTION 3.1011.  MODIFICATION OF DISTRICT. The district may be modified only under Subchapter J, Chapter 36, Water Code, and by subsequent acts of the legislature.

SECTION 3.1012.  STATUTORY INTERPRETATION. Except as otherwise provided by this part, if there is a conflict between this part and Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, this part controls.

PART 11. TEXANA GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.1101.  RATIFICATION OF CREATION. The creation of the Texana Groundwater Conservation District in Jackson County by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.1107 of this part.

SECTION 3.1102.  DEFINITION. In this part, "district" means the Texana Groundwater Conservation District.

SECTION 3.1103.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Jackson County.

SECTION 3.1104.  GENERAL POWERS. The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

SECTION 3.1105.  BOARD OF DIRECTORS. (a)  The district is governed by a board of seven directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.1107 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.1108 of this part.

(d)  Permanent directors serve staggered four-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

(g)  If there is a vacancy on the board, the remaining directors shall appoint a director to serve the remainder of the term.

(h)  A director may not receive a salary or other compensation for service as a director but may be reimbursed for actual expenses of attending meetings at the rate in effect for employees of Jackson County.

SECTION 3.1106.  METHOD OF ELECTING DIRECTORS: COMMISSIONERS PRECINCTS. (a)  The directors of the district shall be elected according to the commissioners precinct method as provided by this section.

(b)  Three directors shall be elected by the qualified voters of the entire district, and one director shall be elected from each county commissioners precinct by the qualified voters of that precinct.

(c)  To be qualified to be a candidate for or to serve as a director at large, a person must be a registered voter in the district. To be a candidate for or to serve as director from a county commissioners precinct, a person must be a registered voter of that precinct.

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(d)  A person shall indicate on the application for a place on the ballot:

(1)  the precinct that the person seeks to represent; or

(2)  that the person seeks to represent the district at large.

(e)  When the boundaries of the commissioners precincts are changed, each director in office on the effective date of the change or elected to a term of office beginning on or after the effective date of the change serves in the precinct to which the director was elected for the entire term to which the director was elected, even though the change in boundaries places the person's residence outside the precinct for which the person was elected.

SECTION 3.1107.  CONFIRMATION AND INITIAL DIRECTORS ELECTION. (a)  The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors election, the temporary board of directors shall have placed on the ballot the name of any candidate filing for an initial director position and blank spaces to write in the names of other persons. A temporary director who is qualified to be a candidate under Sections 3.1105 and 3.1106 of this part may file for an initial director position.

(c)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors election held as provided by this section.

(d)  Except as provided by this section, a confirmation and initial directors election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

(e)  If the majority of the votes cast at an election held under this section is against the confirmation of the district, the temporary directors may not call another election under this section before the first anniversary of that election.

SECTION 3.1108.  ELECTION OF DIRECTORS. (a)  On the first Saturday in May of the first even-numbered year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district for the election of two directors at large and two directors representing precincts to serve four-year terms and one director at large and two directors representing precincts to serve two-year terms.

(b)  On the first Saturday in May of each subsequent second year following the election, the appropriate number of directors shall be elected.

SECTION 3.1109.  LIMITATION ON TAXATION. The district may not levy or collect an ad valorem tax at a rate that exceeds two cents on each $100 valuation of taxable property in the district.

SECTION 3.1110.  CONTRACTS WITH GOVERNMENT ENTITIES. (a)  The district may contract with other government entities.

(b)  The district may contract with other governmental entities, including river authorities located in the district, for the performance of any or all district functions. A river authority with which the district contracts under this section may perform district functions as provided by the contract.

PART 12. TRI-COUNTY GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.1201.  RATIFICATION OF CREATION. The creation of the Tri-County Groundwater Conservation District in Foard, Hardeman, and Wilbarger counties by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, is ratified as required by Section 15(a) of that chapter, subject to approval at a confirmation election under Section 3.1207 of this part.

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SECTION 3.1202.  DEFINITION. In this part, "district" means the Tri-County Groundwater Conservation District.

SECTION 3.1203.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Foard, Hardeman, and Wilbarger counties.

SECTION 3.1204.  GENERAL POWERS. The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of the state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law, including Chapter 36, Water Code, or Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999, that is in conflict or inconsistent with this part.

SECTION 3.1205.  BOARD OF DIRECTORS. (a)  The district is governed by a board of six directors. Two directors are appointed by the commissioners court of each county in the district.

(b)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(c)  Directors other than initial directors serve staggered four-year terms.

(d)  A director serves until the director's successor has qualified.

(e)  If there is a vacancy on the board, the appropriate commissioners court shall appoint a director to serve the remainder of the term.

(f)  The appropriate commissioners court shall appoint a director to succeed a director on or before the date the director's term expires.

(g)  A director may not receive a salary or other compensation for service as a director but may be reimbursed for actual expenses of attending meetings.

SECTION 3.1206.  APPOINTMENT AND TERMS OF INITIAL DIRECTORS. (a)  As soon as practicable after September 1, 2001, the commissioners courts of Foard, Hardeman, and Wilbarger counties shall each appoint two initial directors.

(b)  The initial directors serve terms as follows:

(1)  the two initial directors appointed by the Foard County Commissioners Court serve terms expiring February 1, 2002;

(2)  the two initial directors appointed by the Hardeman County Commissioners Court serve terms expiring February 1, 2004; and

(3)  the two initial directors appointed by the Wilbarger County Commissioners Court serve terms expiring February 1, 2006.

SECTION 3.1207.  CONFIRMATION ELECTION. (a)  The board of directors shall call and hold an election to confirm the establishment of the district.

(b)  Section 41.001(a), Election Code, does not apply to a confirmation election held as provided by this section.

(c)  Except as provided by this section, a confirmation election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.1208.  TAXING AUTHORITY. The district may levy and collect an ad valorem tax in the district at a rate not to exceed one cent on each $100 of assessed valuation.

SECTION 3.1209.  EXPIRATION. If the creation of the district is not confirmed at a confirmation election held under Section 3.1207 of this part before September 1, 2003, the district is dissolved and this part expires on that date.

ARTICLE 4. WATER INFRASTRUCTURE FINANCING

SECTION 4.01.  Chapter 15, Water Code, is amended by adding Subchapter O to read as follows:

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SUBCHAPTER O. WATER INFRASTRUCTURE FUND

Sec. 15.901.  DEFINITIONS. In this subchapter:

(1)  "Eligible political subdivision" means:

(A)  a municipality;

(B)  a county; or

(C)  an entity created under the authority of Sections 52(b)(1) and (2), Article III, or Section 59, Article XVI, Texas Constitution.

(2)  "Fund" means the water infrastructure fund.

(3)  "Metropolitan statistical area" means an area so designated by the United States Office of Management and Budget.

(4)  "Political subdivision bonds" means bonds or other obligations issued by a political subdivision to fund a project and purchased by the board from money in the fund.

(5)  "Project" means any undertaking or work, including planning and design activities and work to obtain regulatory authority, to conserve, mitigate, convey, and develop water resources of the state, including any undertaking or work done outside the state that the board determines will result in water being available for use in or for the benefit of the state.

Sec. 15.902.  FINDINGS. The legislature finds that:

(1)  the creation of the fund and the administration of the fund by the board will encourage the conservation and development of the water resources of the state;

(2)  the use of the fund is in furtherance of the public purpose of conserving and developing the water resources of the state; and

(3)  the use of the fund for the purposes provided by this subchapter is for the benefit of both the state and the political subdivisions to which the board makes financial assistance available in accordance with this subchapter and constitutes a program under, and is in furtherance of the public purposes set forth in, Section 52-a, Article III, Texas Constitution.

Sec. 15.903.  WATER INFRASTRUCTURE FUND. (a)  The water infrastructure fund is a special account in the general revenue fund to be administered by the board under this subchapter and rules adopted by the board under this subchapter. Money in the fund may be used to pay for the implementation of water projects recommended through the state and regional water planning processes under Sections 16.051 and 16.053.

(b)  The fund consists of:

(1)  appropriations from the legislature;

(2)  any other fees or sources of revenue that the legislature may dedicate for deposit to the fund;

(3)  repayments of loans made from the fund;

(4)  interest earned on money credited to the fund;

(5)  depository interest allocable to the fund in the general revenue fund;

(6)  money from gifts, grants, or donations to the fund;

(7)  money from revenue bonds or other sources designated by the board; and

(8)  proceeds from the sale of political subdivision bonds or obligations held in the fund and not otherwise pledged to the discharge, repayment, or redemption of revenue bonds or other bonds, the proceeds of which were placed in the fund.

Sec. 15.904.  USE OF WATER INFRASTRUCTURE FUND. (a)  The board may use the fund:

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(1)  to make loans to political subdivisions at or below market interest rates for projects;

(2)  to make grants, low-interest loans, or zero interest loans to political subdivisions for projects to serve areas outside metropolitan statistical areas in order to ensure that the projects are implemented, or for projects to serve economically distressed areas;

(3)  to make loans at or below market interest rates for planning and design costs, permitting costs, and other costs associated with state or federal regulatory activities with respect to a project;

(4)  as a source of revenue or security for the payment of principal and interest on bonds issued by the board if the proceeds of the sale of the bonds will be deposited in the fund; and

(5)  to pay the necessary and reasonable expenses of the board in administering the fund.

(b)  Funding under Subsection (a)(2) or under Subsection (a)(3) may not exceed 10 percent of the amount of financial assistance budgeted by the board to be made available from the fund in a fiscal year.

(c)  Principal and interest payments on loans made under Subsection (a)(3) may be deferred for a maximum of 10 years or until construction of the project is completed, whichever is earlier.

Sec. 15.905.  APPROVAL OF APPLICATIONS. (a)  On review and recommendation by the executive administrator, the board by resolution may approve an application if the board finds that:

(1)  the application and the assistance applied for meet the requirements of this subchapter and board rules;

(2)  the revenue or taxes, or both the revenue and taxes, pledged by the applicant will be sufficient to meet all the obligations assumed by the political subdivision; and

(3)  the project will meet water needs in a manner consistent with the state and regional water plans as required by Section 16.053(j), unless otherwise specified by an act of the legislature.

(b)  For an application under this subchapter, a program of water conservation through a more effective use of water shall be required in the same manner as for approval of an application for financial assistance under Section 15.106.

(c)  The board may deliver funds for the part of a loan or grant for a project relating to surface water development, other than for planning and design costs, permitting costs, and other costs associated with federal and state regulatory activities with respect to a project, only if the executive administrator makes a written finding that the applicant:

(1)  has the necessary water rights authorizing the applicant to appropriate and use the water that the project will provide, if the applicant is proposing surface water development; or

(2)  has the right to use water that the project will provide, if the applicant is proposing groundwater development.

Sec. 15.906.  APPLICABLE LAW. Subchapter E, Chapter 17, applies to financial assistance made available from the fund, except that the board may also execute contracts as necessary to evidence grant agreements.

Sec. 15.907.  RULES. The board shall adopt rules necessary to carry out this subchapter, including rules establishing procedures for application for and for the

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award of financial assistance, for the investment of funds, and for the administration of the fund.

Sec. 15.908.  SALE OF POLITICAL SUBDIVISION BONDS. (a)  The board may sell or dispose of political subdivision bonds at the price and under the terms that the board determines to be reasonable.

(b)  The board may sell political subdivision bonds without making a previous offer to the political subdivision that issued the bonds and without advertising, soliciting, or receiving bids for sale.

(c)  Notwithstanding other provisions of this chapter, the board may sell to the Texas Water Resources Finance Authority any political subdivision bonds purchased with money in the fund and may apply the proceeds of a sale in the manner provided by this section.

(d)  Proceeds from the sale of political subdivision bonds under this section shall be deposited in the fund for use as provided by Section 15.904.

(e)  As part of a sales agreement with the Texas Water Resources Finance Authority, the board by contract may agree to perform the functions required to ensure that the political subdivision pays the debt service on political subdivision bonds sold and observes the conditions and requirements stated in those bonds.

(f)  The board may exercise any powers necessary to carry out the authority granted by this section, including the authority to contract with any person to accomplish the purposes of this section.

SECTION 4.02.  Chapter 15, Water Code, is amended by adding Subchapter P to read as follows:

SUBCHAPTER P. RURAL WATER ASSISTANCE FUND

Sec. 15.951.  PURPOSE. The legislature finds that the rural areas of the state, characterized by small populations extended over disproportionately large service areas, require a means of financing water projects in addition to those established by other provisions of this chapter.

Sec. 15.952.  DEFINITIONS. In this subchapter:

(1)  "District" means a conservation or reclamation district created under Section 52, Article III, or Section 59, Article XVI, Texas Constitution.

(2)  "Federal agency" means an agency or other entity of the United States Department of Agriculture or an agency or entity that is acting through or on behalf of that department.

(3)  "Fund" means the rural water assistance fund.

(4)  "Rural political subdivision" means:

(A)  a nonprofit water supply or sewer service corporation, district, or municipality with a service area of 10,000 or less in population or that otherwise qualifies for financing from a federal agency; or

(B)  a county in which no urban area exceeds 50,000 in population.

(5)  "State agency" means an agency or other entity of the state, including the Department of Agriculture and the Texas Department of Housing and Community Affairs and any agency or authority that is acting through or on behalf of the Department of Agriculture or the Texas Department of Housing and Community Affairs.

Sec. 15.953.  FUND. The rural water assistance fund is a special account in the general revenue fund. The fund consists of:

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(1)  money directly appropriated to the board;

(2)  repayment of principal and interest from loans made from the fund not otherwise needed as a source of revenue pursuant to Section 17.9615(b);

(3)  money transferred by the board from any sources available; and

(4)  interest earned on the investment of money in the fund and depository interest allocable to the fund in the general revenue fund.

Sec. 15.954.  USE OF FUND. The fund may be used:

(1)  to provide low-interest loans to rural political subdivisions for water or water-related projects, including the purchase of well fields, the purchase or lease of rights to produce groundwater, and interim financing of construction projects;

(2)  to enable a rural political subdivision to obtain water supplied by larger political subdivisions or to finance the consolidation or regionalizing of neighboring political subdivisions, or both;

(3)  to contract for an outreach and technical assistance program to assist rural political subdivisions in obtaining assistance through the fund;

(4)  to buy down interest rates on loans; or

(5)  to be used as a source of revenue for the payment of principal and interest on water financial assistance bonds issued by the board if the proceeds of the sale of these bonds will be deposited into the rural water assistance fund.

Sec. 15.955.  FINANCIAL ASSISTANCE. (a)  The board shall adopt rules necessary to administer this subchapter, including rules establishing procedures for the application for and award of loans, the distribution of loans, the investment of funds, and the administration of loans and the fund.

(b)  A rural political subdivision may enter into an agreement with a federal agency or a state agency to submit a joint application for financial assistance under this subchapter.

(c)  The board may not release from the fund money for the construction phase of parts of projects proposing surface water or groundwater development until the executive administrator makes a written finding that a rural political subdivision:

(1)  has the necessary water right authorizing it to appropriate and use the water that the project will provide, if the rural political subdivision is proposing surface water development; or

(2)  has the right to use water that the project will provide, if the rural political subdivision is proposing groundwater development.

(d)  In passing on an application from a rural political subdivision for financial assistance, the board shall consider:

(1)  the needs of the area to be served by the project, the benefit of the project to the area, the relationship of the project to the overall state water needs, and the relationship of the project to the state water plan; and

(2)  the availability of revenue to the rural political subdivision from all sources for the ultimate repayment of the cost of the water supply project, including all interest.

(e)  The board by resolution may approve an application if, after considering the factors listed in Subsection (d) and other relevant factors, the board finds that:

(1)  the public interest is served by state assistance for the project; and

(2)  the revenue or taxes pledged by the rural political subdivision will be sufficient to meet all the obligations assumed by the rural political subdivision during the succeeding period of not more than 50 years.

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(f)  A program of water conservation for the more efficient use of water shall be required in the same manner as is required for approval of an application for financial assistance under Section 15.106.

(g)  Sections 17.183-17.187 apply to the construction of projects funded pursuant to this subchapter.

(h)  A nonprofit water supply or sewer service corporation is exempt from payment of any sales tax that may be incurred under other law or ordinance for any project financed by the fund.

SECTION 4.03.  Section 5.235(j), Water Code, is amended to read as follows:

(j)  The fee for other uses of water not specifically named in this section is $1 per acre-foot, except that no political subdivision may be required to pay fees to use water for recharge of underground freshwater-bearing sands and aquifers or for abatement of natural pollution. This fee is waived for applications for instream-use water rights deposited into the Texas Water Trust.

SECTION 4.04.  Section 15.001, Water Code, is amended by adding Subdivision (12) to read as follows:

(12)  "Regionalization" means development of a water supply or wastewater collection and treatment system that incorporates multiple service areas into an areawide service facility or any such system that serves an area that includes more than a single county, city, special district, or other political subdivision of the state.

SECTION 4.05.  Section 15.002(a), Water Code, is amended to read as follows:

(a)  The legislature finds that it is in the public interest and to the benefit of the general public of the state to encourage and to assist in the planning and construction of projects to develop and conserve the storm water and floodwater as well as the ordinary flows of the rivers and streams of the state, to maintain and enhance the quality of the water of the state, to provide protection to the state's citizens from the floodwater of the rivers and streams of the state, to provide drainage, subsidence control, public beach nourishment, recharge, chloride control, brush control, weather modification, regionalization, and desalination [desalinization ], to provide for the management of aquatic vegetation, and other purposes as provided by law or board rule.

SECTION 4.06.  Section 15.011(b), Water Code, is amended to read as follows:

(b)  After notice and hearing and subject to any limitations established by the General Appropriations Act, the board may transfer money from the fund to the loan fund created under Subchapter C [of this chapter ], the storage acquisition fund created under Subchapter E [of this chapter ], the research and planning fund created under Subchapter F [of this chapter ], the hydrographic survey account created under Subchapter M [of this chapter ], provided the hydrographic survey account transfer does not exceed $425,000, [and ] the aquatic vegetation management fund created under Subchapter N, and the rural water assistance fund created under Subchapter P [of this chapter ].

SECTION 4.07.  Sections 15.102(a) and (b), Water Code, are amended to read as follows:

(a)  The loan fund may be used by the board to provide loans of financial assistance to political subdivisions, federal agencies, or both political subdivisions and federal agencies acting jointly for the construction, acquisition, improvement, or enlargement of projects involving water conservation, water development, or water quality enhancement, providing nonstructural and structural flood control, or

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drainage, project recreation lands and revenue-generating recreational improvements within any watershed, or providing recharge, chloride control, subsidence control, brush control, weather modification, regionalization, or desalination [desalinization ] as provided by legislative appropriations, this chapter, and the board rules.

(b)  The loan fund may also be used by the board to provide grants for:

(1)  projects that include supplying water and wastewater services in economically distressed areas, including projects involving retail distribution of those services; and

(2)  desalination, brush control, weather modification, regionalization, and projects providing regional water quality enhancement services as defined by board rule, including regional conveyance systems.

SECTION 4.08.  Section 15.105, Water Code, is amended to read as follows:

Sec. 15.105.  CONSIDERATIONS IN PASSING ON APPLICATION. (a) In passing on an application for financial assistance from the loan fund, the board shall consider but is not limited to:

(1)  the needs of the area to be served by the project and the benefit of the project to the area in relation to the needs of other areas requiring state assistance in any manner and the benefits of those projects to the other areas;

(2)  the availability of revenue to the applicant from all sources for the ultimate repayment of the cost of the project, including all interest;

(3)  the relationship of the project to overall statewide needs;

(4)  the ability of the applicant to finance the project without state assistance; [and ]

(5)  for applications for grants for economically distressed areas, the regulatory efforts by the county in which the project is located to control the construction of subdivisions that lack basic utility services; and

(6)  for applications for grants under Section 15.102(b)(2), the ability of the applicant to construct the project without the grant and the benefits of the project to water and wastewater needs of the state.

(b)  The board by rule shall further define eligibility for grants under this subchapter.

SECTION 4.09.  Section 15.106(a), Water Code, is amended to read as follows:

(a)  The board, by resolution, may approve an application for financial assistance [a loan ] if after considering the factors listed in Section 15.105 of this code and any other relevant factors, the board finds:

(1)  that the public interest requires state participation in the project; and

(2)  that in its opinion the revenue or taxes pledged by the political subdivision will be sufficient to meet all the obligations assumed by the political subdivision.

SECTION 4.10.  Section 15.107, Water Code, is amended to read as follows:

Sec. 15.107.  METHOD OF MAKING [LOANS OF ] FINANCIAL ASSISTANCE AVAILABLE. (a)  The board may make financial assistance available to successful applicants in any manner that it considers economically feasible including:

(1)  contracts or agreements with a political subdivision for the payment of the principal of or interest on or both the principal of and interest on bonds or other obligations issued or to be issued by the political subdivision;

(2)  contracts or agreements with a political subdivision for the purpose of providing the political subdivision's share of any cost-sharing required as a participant in or local sponsor of any federal project; [or ]

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(3)  purchase of the bonds or other obligations of a political subdivision for the purpose of completely or partially financing the project for which the application is being submitted; or

(4)  contracts or agreements for the receipt of funds and performance of obligations in relation to any grant of funds provided by the board.

(b)  Contracts or agreements entered into under Subdivision (1) of Subsection (a) of this section may cover all or any part of the debt service requirements in a given year and may cover debt service requirements in as many years of an issue as the board considers appropriate.

(c)  In a determination on a loan for financial assistance, the board may approve interest deferral or the capitalization of interest costs and may approve periods of repayment for the loans of up to 50 years.

SECTION 4.11.  Section 15.434, Water Code, is amended to read as follows:

Sec. 15.434.  USE OF MONEY IN FUND. Money deposited to the credit of the agricultural soil and water conservation fund, on appropriation by the legislature to the board, the Department of Agriculture, the State Soil and Water Conservation Board, the Texas Agricultural Experiment Station, the Texas Agricultural Extension Service, public colleges and universities, and other state agencies shall be used for the following purposes:

(1)  agricultural water conservation technical assistance programs;

(2)  agricultural water conservation, education, and demonstration programs;

(3)  purchase of equipment, including demonstration and educational equipment;

(4)  grants made to groundwater [underground water ] conservation districts and political subdivisions for the purchase of equipment under programs established by Subchapter H of this chapter;

(5)  research in water utilization and conservation including artificial recharge and secondary recovery of groundwater [underground water ];

(6)  desalination [desalinization ];

(7)  weather modification;

(8)  technical assistance programs for developing on-farm soil and water conservation plans developed jointly by landowners and operators and local soil and water conservation districts, as provided by Subchapter H, Chapter 201, Agriculture Code;

(9)  research and demonstration relating to the production of native and low-water-use plants and water-efficient crops;

(10)  a pilot program for low-interest loans for the purchase of agricultural water conservation systems established by Subchapter I of this chapter; [and ]

(11)  research, demonstration, and education relating to brush control; and

(12)  regionalization designed to promote agricultural water conservation.

SECTION 4.12.  Section 15.471, Water Code, is amended to read as follows:

Sec. 15.471.  GRANTS; PURPOSES. The board may make grants of money to groundwater [underground water ] conservation districts, to political subdivisions, and to other districts created under Article III, Sections 52(b)(1) and (2), or Article XVI, Section 59, of the Texas Constitution for purchasing equipment required for:

(1)  measurement and evaluation of irrigation systems and agricultural water conservation practices on irrigated land, dryland, and rangeland;

(2)  demonstration of efficient irrigation systems and agricultural water conservation practices on irrigated land, dryland, and rangeland;

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(3)  testing and evaluation of water quality and the suitability of water from groundwater or surface water resources for irrigation, rural domestic use, livestock, or agricultural industry use;

(4)  demonstration of efficient or sound chemical application and evaluation or demonstration of systems which will prevent contamination of groundwater and surface water from chemicals and other substances used in agriculture; or

(5)  measurement and data collection related to the conservation of groundwater resources.

SECTION 4.13.  Section 15.602, Water Code, is amended by adding a new Subdivision (8) and redesignating existing Subdivisions (8) through (14) to read as follows:

(8)  "Person" means an individual, corporation, partnership, association, state, municipality, commission, or political subdivision of a state or any interstate body, as defined by Section 502 of the federal act, including a political subdivision as defined by this subchapter, if the person is eligible for financial assistance under federal law establishing the revolving fund.

(9)  "Political subdivision" means a municipality, intermunicipal, interstate, or state agency, any other public entity eligible for assistance under this subchapter, or a nonprofit water supply corporation created and operating under Chapter 67, if such entity is eligible for financial assistance under federal law establishing the state revolving fund or an additional state revolving fund.

(10) [(9) ]  "Public water system" means a system that is owned by any person and that meets the definition of public water system in the Safe Drinking Water Act.

(11) [(10) ]  "Public works" means any project to acquire, construct, improve, repair, or otherwise provide any buildings, structures, facilities, equipment, or other real or personal property or improvements designed for public use, protection, or enjoyment undertaken by a political subdivision and paid for, in whole or in part, out of public funds.

(12) [(11) ]  "Revolving fund" means the state water pollution control revolving fund.

(13) [(12) ]  "Safe Drinking Water Act" means Title XIV of the federal Public Health Service Act, commonly known as the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f et seq.).

(14) [(13) ]  "Safe drinking water revolving fund" means the fund established by the board as an additional state revolving fund to provide financial assistance in accordance with the federal program established pursuant to the provisions of the Safe Drinking Water Act.

(15) [(14) ]  "Treatment works" has the meaning established by the federal act and the eligible components of the management programs established by Sections 319 and 320 of the federal act.

SECTION 4.14.  Section 15.603(a), Water Code, is amended to read as follows:

(a)  The revolving fund is held separately from other funds by the board outside the State Treasury to provide financial assistance to political subdivisions for construction of treatment works and to persons for nonpoint source pollution control and estuary management projects.

SECTION 4.15.  Section 15.604(a), Water Code, is amended to read as follows:

(a)  The board may use the revolving fund for financial assistance only as provided by the federal act:

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(1)  to make loans, on the conditions that:

(A)  those loans are made at or below market interest rates, including interest-free loans, at terms not to exceed 20 years;

(B)  principal and interest payments will begin not later than one year after completion of any treatment works and all loans will be fully amortized not later than 20 years after completion of the treatment works;

(C)  the recipient of a loan will establish a dedicated source of revenue for repayment of loans; and

(D)  the revolving fund will be credited with all payments of principal of and interest on all loans;

(2)  to buy or refinance the debt obligation of political subdivisions at or below market rates if the debt obligations were incurred after March 7, 1985;

(3)  to guarantee or purchase insurance for political subdivisions if the guarantee or insurance would improve access to market credit or reduce interest rates;

(4)  as a source of revenue or security for the payment of principal and interest on bonds issued by the state if the proceeds of the sale of those bonds will be deposited in the revolving fund;

(5)  to provide loan guarantees to similar revolving funds established by municipalities or intermunicipal agencies;

(6)  to earn interest on revolving fund accounts;

(7)  for the reasonable costs of administering the revolving fund and conducting activities provided for by Title VI of the federal act, except that those amounts may not exceed the amount authorized under Title VI of the federal act; [and ]

(8)  to provide financial assistance to persons for a nonpoint source pollution control project under Section 319 of the federal act or for an estuary management project under Section 320 of the federal act; and

(9)  for other purposes as provided by the federal act.

SECTION 4.16.  Section 15.607, Water Code, is amended to read as follows:

Sec. 15.607.  APPROVAL OF APPLICATION. On review of recommendations by the executive administrator, the board by resolution may approve an application if the board finds that in its opinion the revenue or taxes or both revenue and taxes pledged by the applicant will be sufficient to meet all the obligations assumed by the applicant [political subdivision ] and that the application and assistance applied for meet the requirements of the federal act and state law. A program of water conservation for the more effective use of water shall be required in the same manner as required for approval of an application for financial assistance under Section 15.106 of this code.

SECTION 4.17.  Subchapter C, Chapter 16, Water Code, is amended by adding Section 16.059 to read as follows:

Sec. 16.059.  COLLECTION OF INSTREAM FLOW DATA; CONDUCT OF STUDIES. (a)  The Parks and Wildlife Department, the commission, and the board, in cooperation with other appropriate governmental agencies, shall jointly establish and continuously maintain an instream flow data collection and evaluation program and shall conduct studies and analyses to determine appropriate methodologies for determining flow conditions in the state's rivers and streams necessary to support a sound ecological environment. Any stream that consists only of floodwaters and is dry more than 75 percent of the year is exempt from this section.

(b)  The Parks and Wildlife Department, the commission, and the board shall each designate an employee to share equally in the oversight of the program studies.

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Other responsibilities shall be divided between the Parks and Wildlife Department, the commission, and the board to maximize present in-house capabilities of personnel and equipment and to minimize costs to the state.

(c)  The Parks and Wildlife Department, the commission, and the board shall each have reasonable access to all data, studies, analyses, information, and reports produced by the other agencies.

(d)  The priority studies shall be completed not later than December 31, 2010. The Parks and Wildlife Department, the commission, and the board shall establish a work plan that prioritizes the studies and that sets interim deadlines providing for publication of flow determinations for individual rivers and streams on a reasonably consistent basis throughout the prescribed study period. Before publication, completed studies shall be submitted for comment to the commission, the board, and the Parks and Wildlife Department.

(e)  Results of studies completed under this section shall be considered by the commission in its review of any management plan, water right, or interbasin transfer.

(f)  The board may authorize the use of money from the research and planning fund established under Chapter 15 to accomplish the purposes of this section. The money shall be used by the board in cooperation with the commission and the Parks and Wildlife Department for interagency contracts with cooperating agencies and universities and contracts with private sector establishments, as necessary, to accomplish the purposes of this section.

SECTION 4.18.  Section 17.853(c), Water Code, is amended to read as follows:

(c)  The board may use the fund only:

(1)  to provide state matching funds for federal funds provided to the state water pollution control revolving fund or to any additional state revolving fund created under Subchapter J, Chapter 15;

(2)  to provide financial assistance from the proceeds of taxable bond issues to water supply corporations organized under Chapter 67, and other participants;

(3)  to provide financial assistance to participants for the construction of water supply projects and treatment works;

(4)  to provide financial assistance for an interim construction period to participants for projects for which the board will provide long-term financing through the water development fund; [and ]

(5)  to provide financial assistance for water supply and sewer service projects in economically distressed areas as provided by Subchapter K, Chapter 17, to the extent the board can make that assistance without adversely affecting the current or future integrity of the fund or of any other financial assistance program of the board; and

(6)  to provide funds to the water infrastructure fund created under Section 15.903.

SECTION 4.19.  Sections 17.871(2) and (6), Water Code, are amended to read as follows:

(2)  "Borrower district" means a political subdivision, including a district or authority created under Article III, Sections 52(b)(1) and (2), or Article XVI, Section 59, of the Texas Constitution, that receives or is eligible to receive a conservation loan from the board for a purpose described by Section 17.895 or 17.8955 [improvement to district facilities ].

(6)  "Lender district" means a political subdivision, including a soil and water conservation district under Chapter 201, Agriculture Code, a groundwater [an

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underground water ] conservation district created under Article XVI, Section 59, of the Texas Constitution, or a district or authority created under Article III, Section 52(b)(1), or Article XVI, Section 59, of the Texas Constitution authorized to supply water for irrigation purposes, that is eligible to receive or that receives a loan from the board for the purpose of making conservation loans to individual borrowers.

SECTION 4.20.  Section 17.895, Water Code, is amended to read as follows:

Sec. 17.895.  CONSERVATION LOANS. (a)  This section applies only to a conservation loan from a lender district that is:

(1)  a soil and water conservation district under Chapter 201, Agriculture Code;

(2)  a groundwater conservation district created under Section 59, Article XVI, Texas Constitution; or

(3)  a district or authority created under Section 52(b)(1), Article III, or Section 59, Article XVI, Texas Constitution.

(b)  The board or a lender district [districts ] may make conservation loans for capital equipment or materials, labor, preparation costs, and installation costs:

(1)  to improve water use efficiency of water delivery and application on existing irrigation systems;

(2)  for preparing irrigated land to be converted to dryland conditions; and

(3)  for preparing dryland for more efficient use of natural precipitation[;

[(4)  for preparing and maintaining land to be used for brush control activities, including but not limited to activities conducted pursuant to Chapter 203, Agriculture Code; or

[(5)  for implementing precipitation enhancement activities in areas of the state where such activities would be, in the board's judgment, most effective ].

(c) [(b) ]  Conservation loans for the purposes listed in Subsection (b) [(a) ] may be made by lender districts to individual borrowers for use on private property or by the board to borrower districts [for use on district facilities ].

(d) [(c) ]  The board may make conservation loans to borrower districts for the cost of purchasing and installing devices, on public or private property, designed to indicate the amount of water withdrawn for irrigation purposes.

(e) [(d) ]  For purposes of this section, the board or lender districts may seek the advice of the Department of Agriculture regarding the feasibility of a project for which a conservation loan is sought.

SECTION 4.21.  Subchapter J, Chapter 17, Water Code, is amended by adding Section 17.8955 to read as follows:

Sec. 17.8955.  CONSERVATION LOANS FOR BRUSH CONTROL AND PRECIPITATION ENHANCEMENT. (a)  The board or a lender district may make a conservation loan for capital equipment or materials, labor, preparation costs, and installation costs for:

(1)  preparing and maintaining land to be used for brush control activities, including activities conducted under Chapter 203, Agriculture Code; or

(2)  implementing precipitation enhancement activities in areas of the state where those activities would be, in the board's judgment, most effective.

(b)  A conservation loan for a purpose listed in Subsection (a) may be made by a lender district to an individual borrower for use on private property or by the board to a borrower district.

SECTION 4.22.  Subchapter L, Chapter 17, Water Code, is amended by adding Section 17.9615 to read as follows:

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Sec. 17.9615.  TRANSFERS TO RURAL WATER ASSISTANCE FUND. (a)  The board may direct the comptroller to transfer amounts from the financial assistance account to the rural water assistance fund to provide financial assistance under this subchapter for the purposes provided in Section 15.954.

(b)  The board shall use the rural water assistance fund as a source of revenue to be deposited in accordance with this subchapter for the payment of principal and interest on water financial assistance bonds issued by the board, the proceeds of which are to be deposited into the rural water assistance fund and to be used to make payments under a bond enhancement agreement with respect to principal or interest on the water financial assistance bonds.

SECTION 4.23.  Subchapter L, Chapter 17, Water Code, is amended by adding Section 17.9616 to read as follows:

Sec. 17.9616.  TRANSFER TO WATER INFRASTRUCTURE FUND. (a)  The board may direct the comptroller to transfer amounts from the financial assistance account to the water infrastructure fund to provide financial assistance under this subchapter for the purposes provided in Section 15.904.

(b)  The board shall use the water infrastructure fund as a source of revenue to be deposited in accordance with this subchapter for the payment of principal and interest on water financial assistance bonds issued by the board, the proceeds of which are to be deposited into the water infrastructure fund and to be used to make payments under a bond enhancement agreement with respect to principal or interest on the water financial assistance bonds.

SECTION 4.24.  Section 11.32, Tax Code, is amended to read as follows:

Sec. 11.32.  CERTAIN WATER CONSERVATION INITIATIVES. The governing body of a taxing unit by official action of the governing body adopted in the manner required by law for official actions may exempt from taxation part or all of the assessed value of property on which approved water conservation initiatives, desalination projects, or brush control initiatives have been implemented. For purposes of this section, approved water conservation, desalination, and brush control initiatives shall be designated pursuant to an ordinance or other law adopted by the governing unit.

SECTION 4.25.  Subchapter H, Chapter 151, Tax Code, is amended by adding Section 151.355 to read as follows:

Sec. 151.355.  WATER-RELATED EXEMPTIONS. The following are exempted from taxes imposed by this chapter:

(1)  rainwater harvesting equipment or supplies, water recycling and reuse equipment or supplies, or other equipment, services, or supplies used to reduce or eliminate water use;

(2)  equipment, services, or supplies used for desalination of surface water or groundwater;

(3)  equipment, services, or supplies used for brush control designed to enhance the availability of water;

(4)  equipment, services, or supplies used for precipitation enhancement;

(5)  equipment, services, or supplies used to construct or operate a water or wastewater system or component of a system sponsored by a political subdivision, as defined by Section 15.001, Water Code, which is certified by the Texas Natural Resource Conservation Commission as providing regional water or wastewater service; and

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(6)  equipment, services, or supplies used to construct or operate a water supply or wastewater system by a private entity as a public-private partnership, as certified by the political subdivision, as defined by Section 15.001, Water Code, that is a party to the project.

ARTICLE 5. JOINT COMMITTEE

ON WATER RESOURCES

SECTION 5.01.  In this article, "committee" means the joint committee on water resources.

SECTION 5.02.  The committee shall conduct an interim study and make recommendations regarding:

(1)  increasing the efficient use of existing water resources;

(2)  developing sufficient long-term water financing strategies;

(3)  improving existing water conveyance systems;

(4)  the continuation of the Texas Water Advisory Council;

(5)  determining the appropriate role of environmental and wildlife concerns in water permitting and water development; and

(6)  protection of the natural condition of beds and banks of the state-owned watercourses.

SECTION 5.03.  The committee is composed of six members as follows:

(1)  the chair of the Senate Committee on Natural Resources and the chair of the House Committee on Natural Resources;

(2)  two members of the senate appointed by the lieutenant governor; and

(3)  two members of the house of representatives appointed by the speaker of the house of representatives.

SECTION 5.04.  The committee shall:

(1)  meet at least annually with the Texas Natural Resource Conservation Commission and the Texas Water Development Board; and

(2)  receive information relating to:

(A)  encouraging the effective development of water marketing and water movement;

(B)  prioritizing the use of state funds for financing the development and conservation of water resources; and

(C)  identifying reasonable mechanisms, including measures for encouraging donation of water rights, for protecting instream uses.

SECTION 5.05.  Not later than November 1, 2002, the committee shall make a final report to the lieutenant governor, the speaker of the house of representatives, and the 78th Legislature evaluating the issues described in Section 5.02 of this article.

SECTION 5.06.  The committee has the authority necessary to perform its duties and, in connection with those duties, may call and hold hearings.

SECTION 5.07.  The committee may request the assistance of state agencies, departments, or offices to carry out its duties.

SECTION 5.08.  The Senate Committee on Natural Resources and the House Committee on Natural Resources shall provide staff to the committee.

SECTION 5.09.  The committee shall submit a proposed budget to the appropriate committee on administration in each house of the legislature. The administration committees shall jointly approve the committee budget in an amount appropriate for the committee to accomplish its duties under this article.

SECTION 5.10.  The committee may travel around the state and hold hearings or public meetings as needed to fulfill its duties under this article.

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SECTION 5.11.  This article expires and the committee is abolished on January 1, 2003.

ARTICLE 6. RULEMAKING PROCEDURES

FOR THE EDWARDS AQUIFER AUTHORITY

SECTION 6.01. Chapter 626, Acts of the 73rd Legislature, Regular Session, 1993, is amended by adding Section 1.115 to read as follows:

Sec. 1.115.  RULEMAKING PROCEDURES. (a) The authority shall comply with the procedures provided by this section in adopting rules.

(b)  The authority shall provide, by using the United States mail, notice of a proposed rule to all applicants and permit holders. The authority shall publish in a newspaper of general circulation within the boundaries of the authority notice of a public hearing on a proposed rule at least 14 days before the date of the public hearing on the rule. The notice must include:

(1)  the date, time, and place of the public hearing;

(2)  a statement of the general subject matter of the proposed rule;

(3)  the procedures for obtaining copies of the proposed rule and for submitting comments; and

(4)  the deadline for submitting comments.

(c)  The board shall allow at least 45 days for comment on a proposed rule, other than an emergency rule, before the board adopts the rule. The board shall consider all written comments and shall, in the order adopting the rule, state the reasons and justification for the rule and the authority's responses to the written comments.

(d)  The meeting at which a proposed rule is adopted as a final rule must be an open meeting, and the public must be allowed to make comments on the proposed rule and the agency responses. A proposed rule becomes final and effective on the 10th day after the date the rule is adopted by the board.

(e)  Notwithstanding Subsections (b)-(d) of this section, the board may adopt emergency rules to prevent imminent harm to human health, safety, or welfare, or if compliance with the procedures provided in Subsections (b)-(d) would prevent an effective response to emergency aquifer or springflow conditions. The board may adopt emergency rules at an emergency meeting called for that purpose. Emergency rules are effective immediately on adoption for a period of 120 days and may be renewed once for not more than 60 days.

(f)  Subsections (b)-(d) of this section do not apply to the adoption of bylaws or internal procedures of the board and authority.

SECTION 6.02. Section 1.15, Chapter 626, Acts of the 73rd Legislature, Regular Session, 1993, is amended by adding Subsections (e) and (f) to read as follows:

(e)  The authority shall conduct a contested case hearing on a permit application if a person with a personal justiciable interest related to the application requests a hearing on the application.

(f)  The authority shall adopt rules establishing procedures for contested case hearings consistent with Subchapters C, D, and F, Chapter 2001, Government Code.

SECTION 6.03. Sections 1.11(h) and 1.41(e), Chapter 626, Acts of the 73rd Legislature, Regular Session, 1993, are repealed.

SECTION 6.04. A rule adopted by the Edwards Aquifer Authority before the effective date of this Act remains in effect until repealed, amended, or readopted.

SECTION 6.05. The rules in 31 Texas Administrative Code Part 20 have no effect. Notwithstanding any other law, the secretary of state shall delete 31 Texas Administrative Code Part 20 from the Texas Administrative Code as if the rules included in that part were repealed.

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ARTICLE 7. LIMITED LIABILITY FOR

AQUATIC HERBICIDE APPLICATION

SECTION 7.01. Subchapter B, Chapter 26, Water Code, is amended by adding Section 26.050 to read as follows:

Sec. 26.050.  LIMITED LIABILITY FOR AQUATIC HERBICIDE APPLICATION. (a)  In this section, "commercially licensed aquatic herbicide applicator" means a person who holds a commercial applicator license issued by the Department of Agriculture under Chapter 76, Agriculture Code, to apply aquatic herbicides.

(b)  Except as provided by Chapter 12, Parks and Wildlife Code, a commercially licensed aquatic herbicide applicator working under contract with a river authority organized pursuant to Article XVI, Section 59, Texas Constitution, is not liable for damages in excess of $2 million for all types for personal injury, property damage, or death resulting directly or indirectly from the application of aquatic herbicide in compliance with such contract, applicable law, and the license terms or permit.

(c)  The control and elimination of noxious weeds, grasses, and vegetation in the rivers, tributaries, impoundments, and reservoirs of the state through the application by river authorities or their agents, employees, or contractors, in compliance with applicable law, licenses, and permits, of aquatic herbicides are essential governmental functions, and except to the extent provided in Chapter 101, Civil Practice and Remedies Code, nothing herein shall be deemed or construed to waive, limit, or restrict the governmental immunity of river authorities in the performance of such governmental functions.

ARTICLE 8. CONCENTRATED

ANIMAL FEEDING OPERATIONS

SECTION 8.01. Section 26.0286, Water Code, is amended to read as follows:

Sec. 26.0286.  PROCEDURES APPLICABLE TO PERMITS FOR CERTAIN CONCENTRATED ANIMAL FEEDING OPERATIONS. (a) In this section:

(1)  "Sole-source[, "sole-source ] surface drinking water supply" means a body of surface water that[:

[(1) ]  is designated as a sole-source surface drinking [public ] water supply in rules adopted by the commission [under Section 26.023; and

[(2)  is the single source of supply of a public water supply system, exclusive of emergency water interconnections ].

(2)  "Protection zone" means an area so designated by commission rule under Subsection (c).

(b)  The commission shall process an application for authorization to construct or operate a concentrated animal feeding operation as a specific permit under Section 26.028 subject to the procedures provided by Subchapter M, Chapter 5, if, on the date the commission determines that the application is administratively complete, any part of a pen, lot, pond, or other type of control or retention facility or structure of the concentrated animal feeding operation is located or proposed to be located within the protection zone of a sole-source surface drinking water supply. For the purposes of this subsection, a land application area is not considered a control or retention facility[:

[(1)  in the watershed of a sole-source surface drinking water supply; and

[(2)  sufficiently close, as determined by the commission by rule, to an intake of a public water supply system in the sole-source surface drinking water supply that

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contaminants discharged from the concentrated animal feeding operation could potentially affect the public drinking water supply ].

(c)  For the purposes of this section only, the commission by rule shall designate a surface water body as a sole-source surface drinking water supply if that surface water body is identified as a public water supply in rules adopted by the commission under Section 26.023 and is the sole source of supply of a public water supply system, exclusive of emergency water connections. At the same time, the commission shall designate as a protection zone any area within the watershed of a sole-source surface drinking water supply that is:

(1)  within two miles of the normal pool elevation of a body of surface water that is a sole-source surface drinking water supply;

(2)  within two miles of that part of a perennial stream that is:

(A)  a tributary of a sole-source surface drinking water supply; and

(B)  within three linear miles upstream of the normal pool elevation of a sole-source surface drinking water supply; or

(3)  within two miles of that part of a stream that is a sole-source surface drinking water supply, extending three linear miles upstream from the water supply intake.

SECTION 8.02. Not later than the 45th day after the effective date of this Act, the Texas Natural Resource Conservation Commission by order shall identify surface water bodies that are considered "sole-source surface drinking water supplies" for purposes of Section 26.0286(b), Water Code, as amended by this Act, and shall designate the protection zones for those identified water bodies. The order expires on the date on which the commission adopts final rules under Section 26.0286(c), Water Code, as added by this Act.

ARTICLE 9. REPORTS; REPEALER;

TRANSITION; VALIDATION; EFFECTIVE DATE

SECTION 9.01.  BOARD STUDY AND REPORT ON FINANCING WATER INFRASTRUCTURE PROJECTS. The Texas Water Development Board shall consider the reports submitted by the regional planning groups under Section 16.053(q), Water Code, as added by this Act, relating to financing water infrastructure projects and shall consult with potentially impacted groups and other interested persons regarding the information reported and the recommendations made by the regional planning groups. Not later than October 1, 2002, the board shall submit to the legislature a report consisting of the regional planning groups' reports and the board's analysis of and recommendations regarding those reports.

SECTION 9.02.  REPEALER. Sections 35.005, 35.006, and 36.121, Water Code, are repealed.

SECTION 9.03.  TRANSITIONS. (a)  The changes in law made by this Act by amending Section 17.895, Water Code, and adding Section 17.8955, Water Code, apply only to a conservation loan for which an application is filed on or after the effective date of this Act. A conservation loan for which an application was filed before the effective date of this Act is governed by the law in effect immediately before that date, and that law is continued in effect for that purpose.

(b)  Not later than January 1, 2002, the Texas Water Development Board shall adopt rules to administer Subchapter O, Chapter 15, Water Code, as added by this Act, including rules establishing procedures for applications for and the award of financial assistance for water projects, for the investment of funds, and for the administration of the water infrastructure fund created by this Act.

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(c)  Not later than January 1, 2002, the Texas Water Development Board shall adopt rules to administer Subchapter P, Chapter 15, Water Code, as added by this Act, including establishing procedures for the application for and award of loans, the distribution of loans, the investment of funds, and the administration of loans and the rural water assistance fund.

(d)  Not later than January 1, 2002, the Texas Water Development Board shall adopt rules requiring a holder of a surface water permit, certified filing, or certificate of adjudication for surface water, a holder of a permit for the export of groundwater from a groundwater conservation district, a retail public water supplier, a wholesale water provider, and an irrigation district to report to the board information on certain water pipelines and other facilities that can be used for water conveyance.

(e)  The changes in law made by this Act by amending Sections 11.023 and 11.122, Water Code, shall not change the existing priority of any industrial water right holder on the mainstem of the Rio Grande below Amistad Reservoir who uses or supplies water to a nursery grower.

SECTION 9.04.  FINDINGS RELATED TO PROCEDURAL REQUIREMENTS. (a)  The proper and legal notice of the intention to introduce this Act, setting forth the general substance of this Act, has been published as provided by law, and the notice and a copy of this Act have been furnished to all persons, agencies, officials, or entities to which they are required to be furnished by the constitution and other laws of this state, including the governor, who has submitted the notice and Act to the Texas Natural Resource Conservation Commission.

(b)  The Texas Natural Resource Conservation Commission has filed its recommendations relating to this Act with the governor, lieutenant governor, and speaker of the house of representatives within the required time.

(c)  All requirements of the constitution and laws of the state and the rules and procedures of the legislature with respect to the notice, introduction, and passage of this Act are fulfilled and accomplished.

SECTION 9.05.  EFFECTIVE DATE. This Act takes effect September 1, 2001.

Floor Amendment No. 1

Amend CSSB 2 (House committee printing) in SECTION 1.01 of the bill, proposed Section 9.012, Water Code (page 8, lines 22-25), by striking the first sentence of that proposed section.

Floor Amendment No. 2

Amend CSSB 2 (House committee printing) as follows:

(1)  In SECTION 2.01 of the bill, in proposed Subdivision (11), Section 11.002, Water Code (page 10, lines 3 and 4), strike the last sentence and substitute "The term does not include waters originating in bays or arms of the Gulf of Mexico."

(2)  In SECTION 2.29 of the bill, in proposed Subdivision (18), Section 36.001, Water Code (page 44, lines 21 through 23), strike the last sentence and substitute "The term does not include waters originating in bays or arms of the Gulf of Mexico."

Floor Amendment No. 4

Amend CSSB 2 as follows:

On page 20, line 20, strike "A person" and insert "An entity".

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Floor Amendment No. 5

Amend CSSB 2 by deleting the following sentence on page 20, lines 23 through 25, of the substitute in its entirety:

"A person who fails to complete and return the survey commits an offense that is punishable as a Class C misdemeanor."

Floor Amendment No. 6

Amend CSSB 2 as follows:

Strike 36.001(19)(E) on page 45, line 12 in its entirety.

Floor Amendment No. 7

Amend CSSB 2 by inserting the following new Section 36.001(23), Water Code, after line 27 on page 45 of the substitute to read as follows:

(23) "Public water supply well" means, for purposes of a district governed by this chapter, a well that produces the majority of its water for use by a public water system.

Floor Amendment No. 8

Amend CSSB 2, on page 56 between lines 4 and 5, by adding the following text:

(d) If there is conflict between this section and Section 26.359, this section governs.

Floor Amendment No. 9

Amend CSSB 2 by inserting the following new Section 36.102(e), Water Code, between lines 20 and 21 on page 56 of the substitute to read as follows:

(e) The board shall not assess a penalty for breach of a district rule regulating the production of groundwater against a person for producing groundwater for the generation of electricity if such production is necessary to protect public safety and welfare, no reasonable alternative water supply is available to the producer for the generation of the electricity, and the rule or production regulation that was breached by the person was adopted or set by the board less than two years prior to the date of the rule violation."

Floor Amendment No. 10

Amend CSSB 2 as follows:

On page 64, lines 8 and 9, strike "provided that agriculture, municipal, and the natural resources are protected,".

Floor Amendment No. 11

Amend CSSB 2 as follows:

On page 65, line 3, after "site", insert ", per acre".

Floor Amendment No. 12

Amend CSSB 2 as follows:

On page 65, line 13, after "utility" insert ", if that utility may, either by statute or contract, prevent groundwater production by others within that utility's service area".

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Floor Amendment No. 13

Amend CSSB 2 as follows:

Amend Section 2.51 on page 69, line 26

Strike "section" and replace with "chapter"

On page 70, line 2

Strike "section" and replace with "chapter"

Floor Amendment No. 14

Amend CSSB 2 as follows:

(1) On page 72, line 27, strike "of five years".

(2) On page 72, line 27, after "(i)" insert "(1)".

Floor Amendment No. 15

Amend CSSB 2 as follows:

(1) On page 73, line 1, strike "30 years" and insert "the terms agreed to under (i)(2)".

(2) On page 73, line 3, strike "five-year".

Floor Amendment No. 16

Amend CSSB 2 as follows:

On page 74, line 22, insert a new subsection (r) to read as follows:

(r) Subsections (b), (e)(2), (e)(3), (f) and (g) apply only to a transfer of water that is initiated or increased after March 2, 1997.

Floor Amendment No. 17

Amend CSSB 2 by inserting the following after the word "District" on page 75, line 18, of the substitute:

", the Lone Star Groundwater Conservation District,"

Floor Amendment No. 18

Amend CSSB 2 as follows:

On page 80, strike line 16 in its entirety.

Floor Amendment No. 21

Amend CSSB 2 in ARTICLE 2 of the bill (House committee printing, page 82, lines 14-20) by striking SECTION 2.62 and renumbering any subsequent SECTIONS accordingly.

Floor Amendment No. 23

Amend CSSB 2 (Committee Printing), in ARTICLE 3 of the bill by striking PART 3 and substituting the following:

PART 3. HAYS TRINITY GROUNDWATER

CONSERVATION DISTRICT

SECTION 3.0301.  RATIFICATION OF CREATION. The creation by Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999 (SB 1911), of the Hays Trinity Groundwater Conservation District in Hays County is ratified as required by Section 15(a) of that Act, subject to approval at a confirmation election under Section 3.0309 of this part.

SECTION 3.0302.  DEFINITION. In this part, "district" means the Hays Trinity Groundwater Conservation District.

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SECTION 3.0303.  BOUNDARIES. The boundaries of the district are coextensive with the boundaries of Hays County, Texas, excluding any area in Hays County that is, on the effective date of this Act, within another groundwater conservation district with authority to require a permit to drill or alter a well for the withdrawal of groundwater. Not later than the 30th day after the date of the first meeting of the board of directors of the district, and before a confirmation election is held, the board shall prepare and file a description of district boundaries with the Hays County clerk and the Texas Natural Resource Conservation Commission.

SECTION 3.0304.  GENERAL POWERS. (a)  The district has all of the rights, powers, privileges, authority, functions, and duties provided by the general law of this state, including Chapter 36, Water Code, applicable to groundwater conservation districts created under Section 59, Article XVI, Texas Constitution. This part prevails over any provision of general law that is in conflict or inconsistent with this part, including any provision of Chapter 1331, Acts of the 76th Legislature, Regular Session, 1999 (SB 1911).

(b)  Notwithstanding Subsection (a) of this section, the following provisions prevail over a conflicting or inconsistent provision of this part:

(1)  Sections 36.1071-36.108, Water Code;

(2)  Sections 36.159-36.161, Water Code; and

(3)  Subchapter I, Chapter 36, Water Code.

(c)  The district may not enter property to inspect an exempt well without the property owner's permission.

(d)  The Hays County Commissioners Court by resolution may require an election to affirm or reverse a decision of the board of directors of the district not later than six months after the date of the decision.

(e)  The district may not adopt standards for the construction of a residential well that are more stringent than state standards for a residential well.

SECTION 3.0305.  EXEMPT WELLS. (a)  The following wells are exempt from the requirements of Chapter 36, Water Code, and may not be regulated, permitted, or metered by the district:

(1)  a well used for domestic use by a single private residential household and producing less than 25,000 gallons per day; and

(2)  a well used for conventional farming and ranching activities, including such intensive operations as aquaculture, livestock feedlots, or poultry operations.

(b)  The district may not require a permit to construct a well described by Subsection (a)(2) of this section.

(c)  A well used for dewatering and monitoring in the production of coal or lignite is exempt from permit requirements, regulations, and fees imposed by the district.

SECTION 3.0306.  FISCAL RESPONSIBILITIES. (a)  The district annually shall prepare a budget showing proposed expenditures and disbursements and estimated receipts and collections for the next fiscal year and shall hold a public hearing on the proposed budget. The district must publish notice of the hearing at least once in a newspaper of general circulation in the county not later than the 10th day before the date of the hearing. A taxpayer of the district is entitled to appear at the hearing to be heard regarding any item in the proposed budget.

(b)  At the written request of the Hays County Commissioners Court, the county auditor shall audit the performance of the district. The court may request a general audit of the performance of the district or may request an audit of only one or more district matters.

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SECTION 3.0307.  BOARD OF DIRECTORS. (a) The district is governed by a board of five directors.

(b)  Temporary directors serve until initial directors are elected under Section 3.0309 of this part.

(c)  Initial directors serve until permanent directors are elected under Section 3.0310 of this part.

(d)  Permanent directors serve staggered two-year terms.

(e)  Each director must qualify to serve as director in the manner provided by Section 36.055, Water Code.

(f)  A director serves until the director's successor has qualified.

(g)  If there is a vacancy on the board, the Hays County Commissioners Court shall appoint a director to serve the remainder of the term.

(h)  A director may not receive a salary or other compensation for service as a director but may be reimbursed for actual expenses of attending meetings at the rate in effect for employees of Hays County.

SECTION 3.0308.  METHOD OF ELECTING DIRECTORS: SINGLE-MEMBER DISTRICTS. (a) The temporary directors shall draw five numbered, single-member districts for electing directors.

(b)  For the conduct of an election under Section 3.0309 or Section 3.0310 of this part, the board shall provide for one director to be elected from each of the single-member districts. A director elected from a single-member district represents the residents of that single-member district.

(c)  To be qualified to be a candidate for or to serve as director, a person must be a registered voter in the single-member district that the person represents or seeks to represent.

(d)  The initial or permanent directors may revise the districts as necessary or appropriate. The board of directors shall revise each single-member district after each federal decennial census to reflect population changes. At the first election after the single-member districts are revised, a new director shall be elected from each district. The directors shall draw lots to determine which two directors serve one-year terms and which three directors serve two-year terms.

SECTION 3.0309.  CONFIRMATION AND INITIAL DIRECTORS' ELECTION. (a) The temporary board of directors shall call and hold an election to confirm establishment of the district and to elect initial directors.

(b)  At the confirmation and initial directors' election, the temporary board of directors shall have placed on the ballot the name of any candidate filing for an initial director's position and blank spaces to write in the names of other persons. A temporary director who is qualified to be a candidate under Section 3.0308 of this part may file for an initial director's position.

(c)  Section 41.001(a), Election Code, does not apply to a confirmation and initial directors' election held as provided by this section.

(d)  Except as provided by this section, a confirmation and initial directors' election must be conducted as provided by Sections 36.017(b)-(h), Water Code, and the Election Code.

SECTION 3.0310.  ELECTION OF DIRECTORS. (a) On the first Saturday in May or the first Tuesday after the first Monday in November of the first even-numbered year after the year in which the district is authorized to be created at a confirmation election, an election shall be held in the district for the election of three directors to serve two-year terms and two directors to serve one-year terms.

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(b)  On the first Saturday in May or the first Tuesday after the first Monday in November, as applicable, of each subsequent second year following the election held under Subsection (a) of this section, the appropriate number of directors shall be elected.

SECTION 3.0311.  OTHER ELECTIONS. An election held by the district, other than an election under Section 3.0309 or 3.0310 of this part, must be scheduled to coincide with a general election in May or November.

SECTION 3.0312.  FUNDING AUTHORITY. (a)  Except as provided by Sections 3.0305(b) and (c) of this part, the district may require a permit for the construction of a new well completed after the effective date of this Act and may charge and collect a construction permit fee not to exceed $300.

(b)  The district may levy and collect a water utility service connection fee not to exceed $300 for each new water service connection made after the effective date of this Act. This subsection does not apply to a water utility that has surface water as its sole source of water.

(c)  Notwithstanding Section 3.0304(a) of this part or Subchapter G, Chapter 36, Water Code, the district may not impose a tax or assess or collect any fees except as authorized by Subsection (a) or (b) of this section.

SECTION 3.0313.  EXPIRATION DATE. If the creation of the district is not confirmed at a confirmation election held under Section 3.0309 of this part before September 1, 2003, this part expires on that date.

Floor Amendment No. 24

Amend CSSB 2 as follows and renumber the subsequent section accordingly:

(1) Strike Article 3, Part 7 (page 112, line 8 through page 116, line 8).

Floor Amendment No. 27

Amend CSSB 2 (House committee printing) as follows:

On page 179, after line 20, add new subsection (f) as follows:

(f) If any changes made by this Act to Chapter 36, Water Code, conflict with changes made to Chapter 36, Water Code, by any other Act passed this legislative session, this Act shall prevail.

Floor Amendment No. 30

Amend CSSB 2 (House Committee Printing) as follows:

(1)  In SECTION 9.02 of the bill (House Committee Printing, page 178, lines 12-13) strike "35.005, 35.006, and 36.121" and substitute "35.005 and 35.006".

(2)  Add the following appropriately numbered ARTICLE and SECTION to the bill and renumber subsequent ARTICLES and SECTIONS of the bill accordingly:

ARTICLE _____. MISCELLANEOUS PROVISIONS

SECTION _____.  Section 36.121, Water Code, is amended to read as follows:

Sec. 36.121.  LIMITATION ON RULEMAKING POWER OF DISTRICTS OVER WELLS IN CERTAIN COUNTIES. Except as provided by Section 36.117, a district that is created under this chapter on or after September 1, 1991, shall exempt from regulation under this chapter a well and any water produced or to be produced by a well that is located in a county that has a population of 14,000 or less if the water is to be used solely to supply a municipality that has a population of 121,000 [115,000 ] or less and the rights to the water produced from

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the well are owned by a political subdivision that is not a municipality, or by a municipality that has a population of 100,000 [93,000 ] or less, and that purchased, owned, or held rights to the water before the date on which the district was created, regardless of the date the well is drilled or the water is produced. The district may not prohibit the political subdivision or municipality from transporting produced water inside or outside the district's boundaries.

Floor Amendment No. 31

Amend CSSB 2 on page 175, line 3 by striking "for all types for" and substituting "for each occurence of"

Floor Amendment No. 32

Amend CSSB 2 by adding a new appropriately numbered SECTION to read as follows:

SECTION _____. Section 4.06(a), Chapter 1029, Acts of the 76th Legislature, Regular Session, 1999, is amended to read as follows:

(a) The authority may:

(1) acquire and provide by purchase, gift, [or ] lease, contract, or any other legal means, a water treatment or supply system, or any other works, plants, improvements, or facilities necessary or convenient to accomplish the purposes of the authority, or any interest in those assets, inside of or outside of the authority's boundaries;

(2) design, finance, or construct a water treatment or supply system, or any other supply systems, or any other works, plants, improvements, or facilities necessary or convenient to accomplish the purposes of the authority, and provide water services inside of or outside of the authority's boundaries;

(3) maintain, operate, lease, or sell a water treatment or supply system, or any other works, plants, improvements, or facilities necessary or convenient to accomplish the purposes of the authority, that the authority constructs or acquires inside of or outside of the authority's boundaries; and

(4) contract with any person to operate or maintain a water treatment or supply system the person owns.

Floor Amendment No. 33

Amend CSSB 2 by adding the following appropriately numbered ARTICLE and renumbering subsequent ARTICLES and SECTIONS accordingly:

ARTICLE _____. NORTH HARRIS COUNTY

REGIONAL WATER AUTHORITY

SECTION _____. Section 1.03, Chapter 1029, Acts of the 76th Legislature, Regular Session, 1999, is amended by adding Subsections (e) and (f) to read as follows:

(e)  The governing body of the city of Jersey Village may call a special election before December 31, 2001, to allow the voters of the city to determine whether the area that on September 1, 2001, was inside the municipal limits of the city should be excluded from the authority's territory. If a majority of the voters voting at that election vote to exclude that area from the authority's territory, then, notwithstanding Subsections (a) and (b) of this section, that area is excluded.

(f)  If the territory of the city is excluded under Subsection (e) of this section, the city may not petition to rejoin the authority for a period of five years. If the city

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petitions to rejoin the authority after the five year period of ineligibility expires, the authority may require the city to pay:

(1)  the amount the city would have paid had the territory of the city remained within the authority, plus interest; and

(2)  any additional costs determined by the authority's board to be equitable in light of the costs incurred by other districts and entities within the authority to support the expenses of the authority and establish a groundwater protection plan and provide alternative water supplies, including a pro rata share of any debt service or principal payments made by the authority.

Floor Amendment No. 34

Amend CSSB 2 by adding the following article, numbered appropriately, and renumbering subsequent articles and sections accordingly:

ARTICLE _____. WATER UTILITY SYSTEMS

SECTION _____. Section 13.137, Water Code, is amended to read as follows:

Sec. 13.137.  OFFICE AND OTHER BUSINESS LOCATIONS OF UTILITY; RECORDS; REMOVAL FROM STATE. (a) Every utility shall:

(1)  make available and notify its customers of a business location where its customers may make payments to prevent disconnection of or to restore service:

(A)  in each county in which the utility provides service; or

(B)  not more than 20 miles from the residence of any residential customer if there is no location to receive payments in the county; and

(2)  have an office in a county of this state or in the immediate area in which its property or some part of its property is located in which it shall keep all books, accounts, records, and memoranda required by the commission to be kept in this state.

(b)  The commission by rule may provide for waiving the requirements of Subsection (a)(1) for a utility for which meeting those requirements would cause a rate increase or otherwise harm or inconvenience customers. The rules must provide for an additional 14 days to be given for a customer to pay before a utility that is granted a waiver may disconnect service for late payment.

(c)  Books, accounts, records, or memoranda required by the regulatory authority to be kept in the state may not be removed from the state, except on conditions prescribed by the commission.

SECTION _____. Section 13.144, Water Code, is amended to read as follows:

Sec. 13.144.  NOTICE OF WHOLESALE WATER SUPPLY CONTRACT. A district or authority created under Section 52, Article III, or Section 59, Article XVI, Texas Constitution, a retail public utility, a wholesale water service, or other person providing a retail public utility with a wholesale water supply shall provide the commission with a certified copy of any wholesale water supply contract with a retail public utility within 30 days after the date of the execution of the contract. The submission must include the amount of water being supplied, term of the contract, consideration being given for the water, purpose of use, location of use, source of supply, point of delivery, limitations on the reuse of water, a disclosure of any affiliated interest between the parties to the contract, and any other condition or agreement relating to the contract.

SECTION _____. Subchapter E, Chapter 13, Water Code, is amended by adding Section 13.145 to read as follows:

Sec. 13.145.  MULTIPLE SYSTEMS CONSOLIDATED UNDER TARIFF. A utility may consolidate more than one system under a single tariff only if:

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(1)  the systems under the tariff are substantially similar in terms of facilities, quality of service, and cost of service; and

(2)  the tariff provides for rates that promote water conservation for single-family residences and landscape irrigation.

SECTION _____. Section 13.182, Water Code, is amended to read as follows:

Sec. 13.182.  JUST AND REASONABLE RATES. (a) The regulatory authority shall ensure that every rate made, demanded, or received by any utility or by any two or more utilities jointly shall be just and reasonable.

(b)  Rates shall not be unreasonably preferential, prejudicial, or discriminatory but shall be sufficient, equitable, and consistent in application to each class of consumers.

(c)  For ratemaking purposes, the commission may treat two or more municipalities served by a utility as a single class wherever the commission considers that treatment to be appropriate.

(d)  The commission by rule shall establish a preference that rates under a consolidated tariff be consolidated by region. The regions under consolidated tariffs must be determined on a case-by-case basis.

SECTION _____. Section 13.183, Water Code, is amended by amending Subsection (c) and adding Subsections (d) and (e) to read as follows:

(c)  To ensure that retail customers receive a higher quality, more affordable, or more reliable water or sewer service, to encourage regionalization, or to maintain financially stable and technically sound utilities, the regulatory authority, by rule or ordinance, as appropriate, may adopt specific alternative ratemaking [may develop ] methodologies for water or sewer rates based on factors other than rate of return and those specified in Section 13.185. Overall revenues determined according [pursuant ] to an alternative ratemaking [alternate ] methodology adopted [developed ] under this section must provide revenues to the utility that satisfy the requirements of Subsection (a). The regulatory authority may not approve rates under an alternative ratemaking methodology unless the regulatory authority adopts the methodology before the date the rate application was administratively complete.

(d)  A regulatory authority other than the commission may not approve an acquisition adjustment for a system purchased before the effective date of an ordinance authorizing acquisition adjustments.

(e)  In determining to use an alternative ratemaking methodology [alternate ratemaking methodologies ], the regulatory authority shall assure that rates, operations, and services are just and reasonable to the consumers and to the utilities.

SECTION _____. Section 13.187, Water Code, is amended to read as follows:

Sec. 13.187.  STATEMENT OF INTENT TO CHANGE RATES; HEARING; DETERMINATION OF RATE LEVEL. (a) A utility may not make changes in its rates except by delivering a statement of intent to each ratepayer and with the regulatory authority having original jurisdiction at least 60 [30 ] days before the effective date of the proposed change. The effective date of the new rates must be the first day of a billing period, and the new rates may not apply to service received before the effective date of the new rates. The statement of intent must include:

(1)  the information required by the regulatory authority's rules;

(2)  a billing comparison regarding the existing water rate and the new water rate computed for the use of: