DALLAS -- Since the Depression, people living just outside the border town of Edinburg, Tex., have been lucky to own a septic tank when their neighbors had to get by with privies or nothing at all.

All of that will change next year.

Because of a new bond-financed state program, the 1,200 people who have lived in the Lull neighborhood within two miles of Edinburg soon will have low-cost city water and sewers.

The Lull area is one of scores of colonials -- economically distressed, unincorporated areas scatered along the Texas-Mexico border. Their estimated 300,000 residents face what many consider the state's worst infrastructure crisis: a lack of clean water and sewers.

After nearly a decade of grassroots politics, Texas next year expects to begin providing heavily subsidized bond financing for projects to correct the problem. The expected price tag is at least $750 million.

State Takes on Problem

Perhaps most remarkable is that the program puts the state in charge of what is generally considered a local problem.

Further, voters statewide have agreed to subsidize up to $250 million of bonds to benefit what is arquably the poorest 2% of the Texas population.

Already, 17 projects totaling about $130 million are expected to be ready for financing early next year.

"It didn't take long to line up projects to spend our first $100 million," said Todd Chenoweth, director of the colonias program, called the Economically Distressed Areas Program, for the Texas Water Development Board.

Edinburg is one of the first places expected to receive money. For years, the city of 31,000 has discussed annexing the Lull area and extending water and sewers to its families.

The problem was always money.

"These places have been in existence for many years. As you grow, you try to grow into them," said Juan R. Lopez, city planner in Edinburg.

"Without this [colonias] program, it would make it very difficult for us to annex the area, he added."

But under the program, the city is being given strong financial incentives to incorporate Lull and give it water, sewer, and other services. Later, it plans street work and other improvements that will not be subsidized.

In January, the city expects to sell bonds to cover 39% of the $1.4 million improvement project. Those junior lein revenue bonds will be puchased and held by the state water board, which will give the city the balance of 61% as a nocost grant.

The state can do that because Texans voted to use up to half the $500 million state general obligation bond program approved in 1989 to make grants and low-cost loans for such projects to the state's economically distressed areas.

Up to 75% of the $250 million program can be used for grants, which means the cost of debt service will be paid from state general revenues.

Mr. Chenoweth said the loangrant program was developed after earlier attempts to finance such projects failed.

Using the regular low-cost loan program, the water board tried to induce cities with 100% financing, but found even that was not enough.

"We saw that it was going to take a larger subsidy to induce the cities to do this," he said.

Low Cost Financing Key

Charles J. Hall Jr., a vice president at Rauscher Pierce Refsnes Inc. in San Antonio, the financial adviser to Edinburg, said the key was to provide attractive enough financing so the low-income residents of the colonias could afford water and sewer services.

"Now," he said, "the cities have a financial incentive to do this."

Ironically, the colonias program is meant to clean up a problem created largely by unscrupulous developers and profiteers.

Beginning in the 1920s and again the 1960s, developers converted farmland for low-cost housing developments.

"The people who developed the colonias didn't set up water and wastewater systems," said Mr. Chenoweth. "We are having to come in and do what they didn't do."

Often, the properties were sold on a bond-for-deed basis to poor Mexicans who were promised that clean water, sewers, and streets would follow as soon as the colonias lots were sold.

"The developer sold the land and often made a verbal promise to put in the water and sewer and roads later," said Sister Maribeth Larkin, a Catholic church organizer in El Paso. "But that never happened."

In El Paso County alone, developers started projects southeast of the city along the Rio Grande River that became home for 60,000 people -- about one in five all residents of the colonias.

Because of failed promises of safe water and sewers, people have been forced to draw water from the Rio Grande or other waterways that tests show are heavily contaminated. Even those who can afford to drill wells are forced to drink unsafe groundwater.

Mrs. Larkin blames the problem on industrial polluters in the El Paso area and on the recycled use of already polluted water for drinking and waste disposal.

Perhaps the biggest contributor to the contamination is a colonia on the Mexico side of the Rio Grande River. The settlement has 1 million residents, but no sewage treatment plants. The sister notes, "They use an 18-mile long open trench for sewage."

The situation has most recently been blamed for a severe cholera outbreak in the border areas, including El Paso. She said public health nightmare has been her most convincing argument to persuade state officials that they had a long-term stake in solving the colonias problem.

But winning political support did not happen overnight.

Beginning in 1983, a statewide coalition known as the Texas Industrial Areas Foundation met with then-Lieut. Gov. Bill Hobby to urge action.

By 1987, state leaders were convinced something needed to be done. But the state had money to offer that year because the oil and real estate bust peaked, causing the greatest financial crisis the state has faced in modern times.

"There were just no funds available," said Ms. Larkin.

When the Texas Legislature met two years later, the community groups were dealt a setback not by state finances, but by then-Gov. William Clements, who opposed a large-scale program.

The Compromise

A compromise was struck: The state would ask voters to approve a $500 million GO bond program with $100 million earmarked for the colonias.

Voters approved it and earlier this month agreed to amend the plan to dedicate up to $250 million of the original bond program on the colonias.

Politically, it was a remarkable achievement.

The grass-roots campaign had persuaded voters -- mostly in Houston and Dallas -- to support bonds to give water and sewer to nearly 300,000 people, about 2% of the state's population.

Timothy McCluskey, the lead organizer for Valley Interfaith, a community group based in the South Texas region known as the Valley, said business and political leaders did not oppose the bond program because they were convinced it was a good long-term investment.

Advocates of the colonias program have also been helped by the ongoing negotiations for a U.S.-Mexico free trade agreement. They hope federal agencies will make more funds available to finance the project.

Even though the state's $250 million bond program is considerable, it still only accoutns for one-third of the expected cost of helping the colonias.

"We began hammering at people that it wasn't in the interest of the state to have an unproductive work force in the Valley," he said. "We told them that they could pay now or pay later. I've always talked about it in terms of a Marshall Plan for the border."

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