Opponents of the city of San Antonio’s Vista Ridge water supply project scored a minor win this week when Texas Water Development Board staff announced the 142-mile pipeline was ineligible to seek an $885 million low-interest construction loan.

Abengoa Vista Ridge, the Spanish subsidiary company that San Antonio’s water utility contracted with in 2014 to build the pipeline, had agreed to finance construction and assume all financial risk if the project fell through. San Antonio Water System officials repeatedly cited that pledge in advocating for a project city leaders say is key to securing the city’s long-term water supply. As soon as 2020, the pipeline could send up to 16.3 billion gallons of water per year to San Antonio from Burleson County in Central Texas.

But earlier this year, as the deteriorating financial position of Abengoa Vista Ridge’s parent company threatened to derail the project, the subsidiary sought a low-interest loan from the water development board. The company's initial application, submitted by a nonprofit water supply corporation it formed to acquire easements and rights of way for the pipeline, was co-signed by San Antonio Water System staff. 

The utility’s chief, Robert Puente, told the Tribune last month that the loan application was submitted in case Abengoa Vista Ridge ever wanted to refinance and get a better rate. It has since struck a deal for its primary construction contractor, Garney Construction, to buy 80 percent of the project and take the lead on the design, construction and financing.

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But the move angered Vista Ridge opponents, including several environmental groups, who argued in a letter to the water development board last week that it would put San Antonio water ratepayers on the hook for paying back the loan if the pipeline financier happened to default. They also argued that it would set a “dangerous precedent” of private entities forming water supply corporations simply so they could get low-interest state loans.

In addition to overseeing statewide water planning, the state agency also awards low-interest loans to utilities and other subdivisions of the state to finance water supply projects — a responsibility that has expanded greatly since 2013 when voters overwhelmingly approved a proposition creating a revolving state water fund known as the State Water Implementation Fund for Texas (SWIFT).

On Wednesday, though, water development staff released a memo detailing projects it thinks should be able to submit final loan applications, and Vista Ridge was not among them “due to lack of information sufficient to establish eligibility."

The agency’s executive administrator attempted to secure the needed information “but has not received responses,” the memo said.

Lauren Ice, an attorney for the environmental group Save Our Springs Alliance, praised the agency staff's decision.

“While this alone may not mean the failure of Vista Ridge, the project has obviously faced some serious financial difficulties already, this just being the latest," she said. "With the new partner set to take control, it is still unknown how they plan to build the expensive infrastructure necessary to move massive amounts of groundwater across 142 miles.”

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Water development staff did give its blessing to a $127 million loan to the San Antonio Water System to finance upgrades to integrate Vista Ridge water into the municipal water system.

Garney Construction said last month it still planned to pursue the water development board loan, even though it planned to finance construction through “a consortium of banks being led by Sumitomo (SMBC)" because "access to those funds could benefit SAWS ratepayers."

Company President and CEO Mike Heitmann said in a statement Wednesday that the company “will continue to explore all options for long-term financing that may be beneficial to SAWS and its ratepayers.”

“The Texas Water Development Board and SWIFT funding are not part of the current approach for construction of the Vista Ridge project,” the statement said. 

Puente said Abengoa Vista Ridge didn't respond to the water development board's request for information because it was too busy trying to find someone to take over the project but that "it’s probably best that it happened this way" as Garney will have to appoint new members to the water supply corporation's governing board if it takes over the project. 

If that happens, Puente said he will encourage the company to re-apply for the loan in case it ever wants to refinance and get a lower rate.

While that loan "would be backed up by the ratepayer, the taxpayer," he said he believes "the ratepayer would be fully protected" because the water development board has such stringent requirements.

"The Texas Water Development Board has a long history of rejecting applications, and the ones that they do accept are very secure, very well documented," he said, criticizing opponents. 

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"Whatever they can think of, they will throw at this project because they fundamentally do not want growth in this community," he said.

In a briefing Thursday, Puente told the San Antonio City Council that the utility still was carrying out "due diligence" to ensure Garney is good to finance the project, again describing the company's proposed takeover as "a very positive step." The utility's board of trustees is expected to vote on the deal in the coming weeks.

If that pans out, Puente told the Tribune that utility staff will recommend that the board approve the change.

However, he also told council that the board has the option of rejecting the deal and directing the utility to take over the project, which he said "would cost much less."

While that would involve assuming the risk if the water doesn't come through for whatever reason, he said, "This risk is a manageable risk, so the question would be: How much is that worth?"

Several residents urged the council on Thursday to intervene and pull the plug on the project, which they described as unnecessary. Opponents believe the city doesn't really need the water and that the groundwater conservation district in Burleson County could end up halting pumping, anyway, if it adversely impacts the Carrizo-Wilcox Aquifer. A hydrologist opponents hired to study the issue has concluded that will happen.

Disclosure: The San Antonio Water System is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.