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WRS-48
Financing Water Resources Development in Wyoming

Abstract

A question might arise as to the propriety of considering the scope of powers granted to a particular entity or the scope of projects authorized in a study of financing. The author's answer is that the question of what an entity can do and its ability to finance what it can do are integrally related. For example, one might find the ideal entity for doing what one wants to do, but that entity may be so limited in its financing ability that the project, although authorized, is simply impossible to achieve. Conversely, one may find an agency with the ideal financing powers, but its particular powers and scope of authority are so limited that the financing powers are simply wasted, so far as the particular project is concerned. Further, it would seem that the entity which is to be charged with operating and maintaining a particular project ought just as well be charged with solving the problems of obtaining the money and then returning it over time from the outset through the life of the project. Having the same agency responsible for building, operating, maintaining, financing and repaying of a project would seem to result in better and more coordinated planning and analysis from the outset. The author feels that in having the same entity charged with all these responsibilities, there is less likelihood of weak projects being built then there would be if one agency put together a proposal, then convinced another that the proposal was feasible, then had yet another agency operate and maintain the project (perhaps not in accordance with the assumptions made in considering the feasibility of the particular project). Further, this seems to be a better way to fix responsibility for success or failure of a particular project. Also, there would seem to be economy of expertise in this approach, i.e.. instead of having several agencies duplicating one another in expert personnel, one agency could do it all. Overall, however, this thinking may be due to the in-grained philosophical predilections of the author toward having fewer agencies in government rather than more. If the world cannot have the situation espoused by the phrase "that government governs best which governs least," then at least, we can have the situation where the government has responsibility best allocated. i.e., such that it is comparatively easy to determine who is to be blamed or credited. The fewer agencies charged with responsibilities, the easier it is to know to whom to charge blame or to give credit. In any event, for the foregoing reasons, this paper will consider both aspects.

Further, those with a great deal of expertise or familiarity with the problems of governmental finance, particularly with respect to water or general resource development, will probably find a great deal of the following information superfluous and will consider a great portion of the paper as worthless to them. However, this paper has the goal of providing a certain educational service in addition to serving as an advisory tract. For those coming fresh to the field, the educational aspects might be most helpful; those familiar with the area can skip over to the sections recommending particular action. Many of those who remain to be convinced that any sort of water development is desirable will probably be unfamiliar with the area. Perhaps it will help in the struggle to convince them that water development is desirable for them to have some of the general language and general problems of governmental finance available. It might also help to convince them that some of their pet ideas for preventing water resource development are not as strong as they thought and thus help to minimize the scope of their future action against such development.

Where, then, does one start in considering the problems of water development? One might start simply in the abstract, with no particular project in mind. In the abstract, a water development project could take one of several forms: 1) it could be a federal project; 2) it could be a state project; 3) it could be a local project (which includes all units of local government, other than the state itself); 4) it could be a private project; or 5) it conceivably could be some combination of any or all of the foregoing. To finance the project, one might look to one of the following for money: 1) federal funds; 2) state funds (or debt); 3) local funds (or debt); 4) private funds (not secured by any sort of public debt); or 5) some combination of any or all of the foregoing. In this paper, the federal alternatives will be ignored, at least in part on the assumption that the federal government has more or less left the business. This leaves the burden on the states, local governments and private enterprise to meet the challenge of providing the financing for and the implementation of water development projects.

At the outset, one faces the same questions, whether considering some governmental activity or some private activity. Those questions are: 1) does the entity considered have sufficient authority to engage in the activity (this involves both building the project and operating it after it is built); and 2) where does the entity obtain the money to build and, later, operate the project?

To some extent, the problems governmental and private entities face in answering these questions coincide. If the private entity is a person, he looks to the laws of the particular jurisdiction to determine if he is prohibited from engaging in the activity. If the private entity is a partnership, it looks to the partnership agreement to see if it authorizes the proposed activity and to the laws of the particular jurisdiction to see if the activity is prohibited. If the private entity is a corporation. It looks to its articles of incorporation, its by-laws and the laws of the jurisdiction to determine if the activity is authorized on the one hand or constrained on the other. In each instance, having determined that the laws of the jurisdiction allow individuals to engage in the particular activity and that the necessary authority is available in the documents (and laws) creating the entity (persons obviously do not have this problem), the entity faces the problem of where to get the money.

Similarly, the governmental entities have the same difficulties. If the entity is the state, it looks to the state Constitution (and more and more to the United States Constitution and congressional enactments) to determine if it can engage in the proposed activity. Within the state government itself, the questions will split. If the entity is the legislature, the question to be answered is whether it is prohibited from authorizing the proposed activity. If not, it enacts its legislation. If the entity is the executive branch, three questions arise: 1) has the legislature authorized it; 2) is the legislation constitutional (the same question which the legislature faced); and 3) if the legislature has not authorized it, can authority be found some other place (either in the Constitution itself, or as an implied or inherent power of the executive)? Having determined that authority is present to do what is desired, the next question is the same as that faced by the private individual, where does it find the money?

Local governmental entitles face almost the same questions which the executive faces at the state level. Has the legislature authorized what it wants to do? Is the legislation constitutional? If the legislature has not authorized what the local government wants to do, can authority be found elsewhere? Given that it can do what it wants, where does it get the money?

When considering where to find the money for the long range project, the sources for private and public entitles are conceptually similar. The private entity can seek participation by others (by creating some sort of equity in the enterprise and thereby allowing others to put up some of the money in exchange for a share in the profits to be derived). This route is not generally available to governmental entitles, although it is not completely unheard of (e.g., the various federal public corporations). Generally, however, the obtaining of financing is not the purpose for which such corporations are created; and the equity financing of such entitles is incidental to their real purpose.

Another approach available to both the private and governmental entity is to finance the particular activity out of current revenue or surplus revenue. In the instance of the private entity, this would be financing out of current earnings or out of surplus earnings. In the instance of a governmental entity, it generally would be financing out of current tax receipts or out of a general fund (or its equivalent) surplus. In this instance, the governing body simply appropriates the funds for the purpose in the traditional way.

Finally, both the private and governmental entity can borrow the necessary funds. This involves the issuance of instruments of debt on the part of either entity. In the case of the private entity, the debt can be unsecured or secured in a variety of ways. The public debt usually takes one of three or four forms. Short term debt, where authorized, can be in the form of warrants or some other form of instrument issued against short term anticipated tax revenues. Long term debt usually takes one of three forms (with variations and permutations): 1) general obligation bonds; 2) revenue bonds; or 3) mortgage bonds.

In the case of general obligation bonds, the debt is secured by the general taxing authority of the particular entity; or stated another way. It is secured by the full credit of the issuing body. In the case of revenue bonds, the debt is secured only by a pledge of the revenues to be derived from the particular activity (or project) for which the funds were borrowed. The marketability of such bonds is obviously influenced in large part by the prospective purchaser's evaluation of the project's ability to produce sufficient revenues (unless, of course, the entity has some sort of captive market, e.g., the state permanent land fund). A variation on the revenue bond is to secure the debt with a pledge of continuing income of the entity rather than with revenues to be derived from the project. For example, the University of Wyoming commonly secures bonds issued to raise funds for constructing buildings with a pledge of the income to be derived from its allotted portion of shared federal lands mineral royalties. In the case of mortgage bonds, the debt is secured by mortgaging some portion of the state's assets (e.g., a building).

The foregoing is a general discussion of the basic questions presented by a determination to engage in some sort of water development project, and of the approaches available. We must now turn to a specific consideration of the Wyoming statutes and Constitution to determine what, if any, authority and financing powers exist for water development by the state, by subdivisions of the state, or by private enterprise.

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