State water agency warns of multi-billion-dollar shortfall, endorses Deloitte's package to close funding gap

Reese Haas of the North Dakota Department of Water Resources told the LAWA board that state funding for water projects will be sharply constrained in coming years and the agency is planning conservatively for oil-extraction tax volatility.

Haas said the governor's Office of Management and Budget guidance projects roughly $394 million in available resources-trust-fund revenues for the next biennium. Using updated project requests, DWR and Deloitte estimated total asks of roughly $1.45 billion, producing a modeled shortfall of about $1.3 billion; after further updates DWR said the multi-year shortfall grows to about $2.0 billion over the next 12 years for known water-infrastructure needs.

Deloitte, hired to model policy options, validated the funding risk and offered a set of policy and governance changes that, if implemented in full, the consultant's model indicates could close the shortfall with a modest planning buffer. Key Deloitte recommendations Haas described include: tying cost-share percentages to project priority (for example, higher shares for high-priority projects and lower shares for lower-priority projects), capping replacement-project cost-share eligibility at $2 million per sponsor, and limiting eligibility for deferred-maintenance items; the firm also recommended exploring bonding for the two large core projects to remove them from the resources trust fund.

Haas said the option to bond the core Red River Valley Water Supply Project (and the Missouri River flood-control project) would give those projects funding certainty while freeing state trust funds for other needs. For cost-share policy, Deloitte suggested moving to a priority-based cost-share matrix (H/M/L) with illustrative shares such as roughly 50% for high-priority, 45% for medium and 40% for low priority projects.

Haas emphasized the work would not happen overnight: DWR plans a series of eight State Water Commission-hosted basin meetings (including Grand Forks and Fargo) to gather public feedback starting June 17, followed by draft implementation proposals in September and final deliberations ahead of the legislative session. He said the modeling also examined options such as delaying moderate- and low-priority projects and using State Revolving Fund capitalization or capital-repayment strategies to improve affordability.

Board members asked technical questions about loan interest rates and inflation indexing for revolving loan funds; Haas said interest-rate mechanics are a bank-level decision and that Deloitte's model assumes balancing revenue and cost growth rather than strict inflation indexing. He also said the DWR will present clearer draft program changes and cost-share details at the upcoming basin meetings and to the State Water Commission before the legislature considers statutory changes.

What happens next: DWR will continue public outreach through basin meetings, refine cost-share and governance proposals and work with legislative leaders on the timing and mechanics of any statutory changes. The agency left the board with a take-away that status quo is not sustainable and a suite of policy changes will be needed to make the program financially viable over the next decade.