HB 1020 Amendments Include A Planned Bailout of WAWS February 20th, 2017 In October of 2014, we declared the Western Area Water Supply (WAWS) to be

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HB 1020 Amendments Include A Planned Bailout of WAWS


February 20th, 2017


In October of 2014, we declared the Western Area Water Supply (WAWS) to be "too big to fail".

Last week, the House Appropriations Committee decided to make it official policy that WAWS is too big to fail.

In a set of amendments to House Bill 1020 (the Water Commission bill), a provision was created that will require the State Water Commission to pay loans on behalf of WAWS if WAWS does not have the money to do so themselves.

WAWS Bailout Section

Amendment to HB 1020 in the 2017 Legislature

The amendment specifically states that if WAWS cannot pay its loan payments to the Bank of North Dakota, the Water Commission will cover those payments.

In an era of tight budgets, this sort of provision could end up preventing other water projects around the state from being funded

As those who have followed this issue know, we have long been critical of this project due to the fact it represents a socialistic attack on private business in the way it was supposed to be funded by industrial water sales.

This bailout provision is proof that the state needs to find a way out of the industrial water business.

House Appropriations Committee Approves A New Tax On Water

In 2013, there was an effort in the House to create a Water Extraction Tax targeting private industrial water producers.

There was considerable push-back on that issue.

From the Bismarck Tribune Editorial Board in 2013:

Water is an essential resource in semi-arid North Dakota. An extraction tax on water from aquifers for industrial use needs to be reviewed within the context of the state overall water polices. It also must be seen within the context of the state’s energy and economic development policies. Further, it must be weighed in view of a desire to reduce taxes in general.

We need not tax water just because we can.

Now, that idea has reared its head again and is included in amendment approved by the House Appropriations Committee for HB 1020:

Water Ryoalty 2017

In 2013, the plan was to tax water at the same 11.5% rate oil was taxed at.

That was defeated by a vote of 36 Yeas and 57 Nays.

However, that was of course when the state had plenty of money and WAWS was doing fine.

Now, the state is out of money and WAWS is in serious financial trouble.

How Bad Is WAWS Financially?

For the House Appropriations Committee to bring back the idea of a Water Tax (calling it a royalty now) and to write into state law a way for there to be a permanent bailout provision with the Water Commission, the finances of WAWS have to be pretty lousy, and they are.

WAWS Monthlys As of Dec 2016

WAWS has two separate loans with the bank of North Dakota. When the oil was booming, they managed to get ahead of their loans for quite some time, but as the oil markets have cratered and leveled off, the business plan of WAWS has proven to be faulty.

On Loan # 1, there have been 11 out of the last 18 months where WAWS simply paid nothing on the principal of the loan; and 2 more months where less than the "full payment" was made.

On Loan #2, all but 1 month were paid.

But through the wonders of fuzzy government accounting, WAWS booked those missed payments not as "defaulted debt" but as something called a "deferred expense asset".

This would be like if you stop paying your credit cards, let them default, and then call the cash you saved by not paying your bills an "asset".

This is house government financing works.

It would be hilarious if it wasn't the public's money.

WAWS Balance Sheet

Also on the subject of fuzzy accounting, according to the balance sheet of WAWS, they broke even because they list "deferred expenses" as an asset.

Again, when you charge up your credit card, you too are deferring expenses.

You call that "debt", WAWS calls that an "asset".

It is little wonder that WAWS needs a bailout at this point.

What Should Happen?

WAWS Revenue Sheet

The legislature needs to find a way to phase WAWS out of the industrial water business. What was to be a cash-cow is now a loss-leader for the state.

An analysis of the revenues by location for industrial water sales shows that when the oil business is having trouble, WAWS as a business cannot manage the market.

An effort needs to be made to find a way to privatize the management of these facilities to the private sector.

How that would work is yet to be determined.

Reject the Bailout and New Tax

The North Dakota House of Representative should reject this new tax on water and the bailout provision. The Water Commission budget is not the right vehicle for this sort of policy.


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network