No. 26974: R309-700. Financial Assistance: State Drinking Water Project Revolving Loan Program

DAR File No.: 26974
Filed: 06/15/2004, 06:05
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

Minor changes are made addressing comments received by Kent Bishop, research consultant for the Legal Review section of the Governor's Office of Planning and Budget.

 

Summary of the rule or change:

Wording considered regulatory rather than defining is moved out of definitions to initiation procedures. An example of insufficient data relating to local income data is presented which may result in the Board accepting other measures. Some points in Table 2 were changed to match changes made in Rule R309-705. (DAR NOTES: The proposed changes to Rule R309-705 are under DAR No. 26975 in this issue. This change in proposed rule has been filed to make additional changes to a proposed amendment that was published in the March 15, 2004, issue of the Utah State Bulletin, on page 31. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the change in proposed rule and the proposed amendment together to understand all of the changes that will be enforceable should the agency make this rule effective.)

 

State statutory or constitutional authorization for this rule:

Section 19-4-104 and Title 73, Chapter 10c

 

Anticipated cost or savings to:

the state budget:

None--Since the proposed changes only clarify certain issues raised by review, they will not add or reduce the cost to State Budget.

 

local governments:

Little to None--As indicated in the original amendments, changes simply clarify costs for which reimbursement is eligible and changes in calculated interest are intended to more closely match that calculated by Rule R309-705.

 

other persons:

Little to None--As indicated in the original amendments, clarification of issues to be addressed by applicants concerning alternatives and justification for the chosen project as well as financial alternatives may slightly increase the work load for engineering companies and financial consultants.

 

Compliance costs for affected persons:

Little to None--As indicated in the original amendments, some applicants may see slightly increased costs from engineers and financial consultants as a result of the clarification of items required from the applicant at the time of application.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

The department agrees that the proposed changes to this rule will have little to no detrimental impact on water systems applying for or receiving financial assistance, nor will it adversely impact any of the affiliated businesses such as engineering firms, escrow agents, bond counselors, or financial advisors which provide service to the applicants.

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Environmental Quality
Drinking Water
150 N 1950 W
SALT LAKE CITY UT 84116-3085

 

Direct questions regarding this rule to:

Bill Birkes at the above address, by phone at 801-536-4201, by FAX at 801-536-4211, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

08/02/2004

 

This rule may become effective on:

08/03/2004

 

Authorized by:

Kevin Brown, Director

 

 

RULE TEXT

R309. Environmental Quality, Drinking Water.

R309-700. Financial Assistance: State Drinking Water Project Revolving Loan Program.

R309-700-3. Definitions and Eligibility.

Title 73, Chapter 10c, subsection 4(2)(a) limits eligibility for financial assistance under this section to political subdivisions.

Definitions for terms used in this rule are given in R309-110. Definitions for terms specific to this rule are given below.

"Board" means the Drinking water Board.

"Drinking Water Project" means any work or facility necessary or desirable to provide water for human consumption and other domestic uses. Its scope includes collection, treatment, storage, and distribution facilities.

"Project Costs" include the cost of acquiring and constructing any project including, without limitation: the cost of acquisition and construction of any facility or any modification, improvement, or extension of such facility; any cost incident to the acquisition of any necessary project, easement or right of way, engineering or architectural fees, legal fees, fiscal agents' and financial advisors' fees; any cost incurred for any preliminary planning to determine the economic and engineering feasibility of a proposed project; costs of economic investigations and studies, surveys, preparation of designs, plans, working drawings, specifications and the inspection and supervision of the construction of any facility; interest accruing on loans made under this program during acquisition and construction of the project; and any other cost incurred by the Board or the Department of Environmental Quality, in connection with the issuance of obligation to evidence any loan made to it under the law.[ Those costs incurred subsequent to the submission of a funding application to the Board and prior to the execution of a financial assistance agreement and which meet the above criteria are eligible for reimbursement from the proceeds of the financial assistance agreement.]

"Drinking Water Project Obligation" means any bond, note or other obligation issued to finance all or part of the cost of acquiring, constructing, expanding, upgrading or improving a drinking water project, including, but not limited to, preliminary planning, studies, surveys, engineering or architectural fees, and preparation of plans and specifications.

"Credit Enhancement Agreement" means any agreement entered into between the Board, on behalf of the State, and an eligible water system for the purpose of providing methods and assistance to eligible water systems to improve the security for and marketability of drinking water project obligations.

"Eligible Water System" means any community drinking water system owned by a political subdivision of the State.

"Interest Buy-Down Agreement" means any agreement entered into between the Board, on behalf of the State, and an eligible water system, for the purpose of reducing the cost of financing incurred by an eligible water system on bonds issued by the subdivision for project costs.

"Financial Assistance" means a project loan, credit enhancement agreement, interest buy-down agreement, or technical assistance.

"Interest" means an assessment applied to loan recipients. The assessment shall be calculated as a percentage of principal.

"Emergency" means an unexpected, serious occurrence or situation requiring urgent or immediate action resulting from the failure of equipment or other infrastructure, or contamination of the water supply, threatening the health and / or safety of the public / water users.

 

R309-700-4. Application and Project Initiation Procedures.

The following procedures must normally be followed to obtain financial assistance from the Board:

(1) It is the responsibility of the applicant to obtain the necessary financial, legal and engineering counsel to prepare its application and an effective and appropriate financial assistance agreement.

(2) A completed application form, engineering report listing the project alternatives considered and including a justification for the chosen alternative, a project financing plan including an evaluation of credit enhancement, interest buy-down and loan methods applicable to the project, and financial capability assessment are submitted to the Board. Comments from the local health department and/or district engineer may accompany the application. Comments from other interested parties such as an association of governments will also be accepted. Those costs incurred subsequent to the submission of a completed funding application form to the Board and prior to the execution of a financial assistance agreement and which meet the criteria for project costs are eligible for reimbursement from the proceeds of the financial assistance agreement.

(3) An engineering and financial feasibility report is prepared by Division staff for the Board's consideration.

(4) The Board may authorize financial assistance for the project on the basis of the staff's feasibility report and designate whether a loan, credit enhancement agreement, interest buy-down agreement, hardship grant or any combination thereof, is to be entered into, and approve the project schedule (see R309-700-13). The Board shall authorize a hardship grant only if it determines that other financing alternatives are unavailable or unreasonably expensive to the applicant (see R309-700-5). If the applicant seeks financial assistance in the form of a loan of amounts in the security account established pursuant to Chapter 10c, Title 73 "Utah Code", which loan is intended to provide direct financing of projects costs, then the Board shall authorize such loan only if it determines that credit enhancement agreements, interest buy-down agreements and other financing alternatives are unavailable or unreasonably expensive to the applicant or that a loan represents the financing alternative most economically advantageous to the state and the applicant; provided, that for purposes of this paragraph and for purposes of Section 73-10c-4(2), Utah Code, the term "loan" shall not include loans issued in connection with interest buy-down agreements as described in R309-700-11(2) or in connection with any other interest buy-down arrangement.

(5) Planning Grant - The applicant must submit an application provided by the Division and attach a scope of work, project schedule, cost estimates, and a draft contract for planning services.

(6) Planning Loan - The applicant requesting a Planning Loan must complete an application for a Planning Loan, prepare a plan of study, satisfactorily demonstrate procurement of planning services, and prepare a draft contract for planning services including financial evaluations and a schedule of work.

(7) Design Grant or Loan - The applicant requesting a Design Grant or Loan must have completed an engineering plan meeting program requirements.

(8) The project applicant must demonstrate public support for the project. As a minimum, for a loan to be secured by a revenue bond, the Sponsor must mail notices to each water user in the Sponsor's service area informing them of a public hearing. In addition to the time and location of the public hearing the notice shall inform water users of the Sponsor's intent to issue a non-voted revenue bond to the Board, shall describe the face amount of the bond, the rate of interest, the repayment schedule and shall describe the impact of the project on the user including: user rates, impact and connection fees. The notice shall state that water users may respond to the Sponsor in writing or in the public hearing within ten days after the date of the notice. A copy of all written responses and a certified record of a public hearing shall be forwarded to the Division of Drinking Water.

(9) For financial assistance mechanisms when the applicant's bond is purchased by the Board, the project applicant's bond documentation, including an opinion from legal counsel experienced in bond matters that the drinking water project obligation is a valid and binding obligation of the applicant (see R309-700-14(3)), must be submitted to the Assistant Attorney General for preliminary approval and the applicant shall publish a Notice of Intent to issue bonds in a newspaper of general circulation pursuant to the Utah Code, Section 11-14-21. For financial assistance mechanisms when the applicant's bond is not purchased by the Board, the applicant shall submit a true and correct copy of an opinion from legal counsel experienced in bond matters that the drinking water project obligation is a valid and binding obligation of the applicant.

(10) Hardship Grant - The Board or its designee executes a grant agreement setting forth the terms and conditions of the grant.

(11) The Board, through its Executive Secretary, shall issue a Plan Approval for plans and specifications.

(12) If a project is designated to be financed by the Board through a loan or an interest buy-down agreement as described in R309-700-11(2) to cover any part of project costs an account supervised by the applicant and the Board will be established by the applicant to assure that loan funds are used only for qualified project costs. If financial assistance for the project is provided by the Board in the form of a credit enhancement or interest buy-down agreement as described in R309-700-11(1) all project funds will be maintained in a separate account and a quarterly report of project expenditures will be provided to the Board.

(13) If a revenue bond is to be used to secure a loan, a User Charge Ordinance must be submitted to the Board for review and approval to insure adequate provisions for debt retirement and/or operation and maintenance. If a general obligation bond is to be used to secure a loan, a User Charge Ordinance must be submitted to the Board for review and approval to insure the system will have adequate resources to provide acceptable service.

(14) A plan of operation for the completed project, including staffing with an appropriately certified (in accordance with R309-300) operator, staff training, and procedures to assure efficient start-up, operation and maintenance of the project, must be submitted by the applicant and approved by the Board, its Executive Secretary or other designee.

(15) The applicant's contract with its engineer must be submitted to the Board for review to determine that there will be adequate engineering involvement, including project supervision and inspection, to successfully complete the project.

(16) The applicant's attorney must provide an opinion to the Board regarding legal incorporation of the applicant, valid legal title to rights-of-way and the project site, and adequacy of bidding and contract documents.

(17) CREDIT ENHANCEMENT AGREEMENT AND INTEREST BUY-DOWN AGREEMENT ONLY - The Board executes the credit enhancement agreement or interest buy-down agreement setting forth the terms and conditions of the security or other forms of assistance provided by the agreement and notifies the applicant to sell the bonds (See R309-700-10 and -11).

(18) CREDIT ENHANCEMENT AGREEMENT AND INTEREST BUY-DOWN AGREEMENT ONLY - The applicant sells the bonds and notifies the Board of the terms of sale. If a credit enhancement agreement is utilized, the bonds shall contain the legend required by Section 73-10c-6(3)(d), Utah Code. If an interest buy-down agreement is utilized, the bonds shall bear a legend which makes reference to the interest buy-down agreement and states that such agreement does not constitute a pledge of or charge against the general revenues, credit or taxing powers of the state and that the holder of any such bond may look only to the applicant and the funds and revenues pledged by the applicant for the payment of interest and principal on the bonds.

(19) The applicant opens bids for the project.

(20) LOAN ONLY - The Board approves purchase of the bonds and executes the loan contract (see R309-700-4(24)).

(21) LOAN ONLY - The loan closing is conducted.

(22) A preconstruction conference shall be held.

(23) The applicant issues a written notice to proceed to the contractor.

(24) The applicant must have adopted a Water Management and Conservation Plan prior to executing the loan agreement.

 

R309-700-5. Loan, Credit Enhancement, Interest Buy-Down, and Hardship Grant Consideration Policy.

(1) Board Priority Determination. In determining the priority for financial assistance the Board shall consider:

(a) The ability of the applicant to obtain funds for the drinking water project from other sources or to finance such project from its own resources;

(b) The ability of the applicant to repay the loan or other project obligations;

(c) Whether a good faith effort to secure all or part of the services needed from the private sector through privatization has been made; and

(d) Whether the drinking water project:

(i) meets a critical local or state need;

(ii) is cost effective;

(iii) will protect against present or potential hazards;

(iv) is needed to comply with the minimum standards of the Federal Safe Drinking Water Act, 42 USC, 300f, et. seq. or similar or successor statute;

(v) is needed to comply with the minimum standards of the Utah Safe Drinking Water Act, Title 19, Chapter 4 or similar or successor statute.

(vi) is needed as a result of an Emergency.

(e) The overall financial impact of the proposed project on the citizens of the community, including direct and overlapping indebtedness, tax levies, user charges, impact or connection fees, special assessments, etc., resulting from the proposed project, and anticipated operation and maintenance costs versus the median income of the community;

(f) Consistency with other funding source commitments which may have been obtained for the project;

(g) The point total from an evaluation of the criteria listed in Table 1;

 

TABLE 1

NEED FOR PROJECT

                                          POINTS

1. PUBLIC HEALTH AND WELFARE (SELECT ONE)



A. There is evidence that waterborne

   illnesses have occurred                     15

B. There are reports of illnesses which

   may be waterborne                           10

C. No reports of waterborne illness, but

   high potential for such exists               5

D. No reports of possible waterborne

   illness and low potential for such exists    0



2. WATER QUALITY RECORD (SELECT ONE)



A. Primary Maximum Contaminant Level (MCL)

   violation more than 6 times in
preceding

   12 months                                    15

B. In the past 12 months violated a primary

   MCL 4 to 6 times                             12

C. In the past 12 months violated a primary

   MCL 2 to 3 times or exceeded the Secondary

   Drinking Water Standards by double            9

D. In the past 12 months violated MCL 1 time     6

E. Violation of the Secondary Drinking Water

   Standards                                     5

F. Does not meet all applicable MCL goals        3

G. Meets all MCLs and MCL goals                  0



3. VERIFICATION OF POTENTIAL SHORTCOMINGS (SELECT ONE)



A. Has had sanitary survey within the last

   year                                          5

B. Has had sanitary survey within the last

   five years                                    3

C. Has not had sanitary survey within last

   five years                                    0



4. GENERAL CONDITIONS OF EXISTING FACILITIES (SELECT ALL

   THOSE WHICH ARE TRUE AND PROJECT WILL REMEDY)

A. The necessary water treatment facilities do

   not exist, not functioning, functioning but

   do not meet the requirements of the Utah

   Public Drinking Water Rules (UPDWR)          10

B. Sources are not developed or protected

   according to UPDWR                           10

C. Source capacity is not adequate to meet

   current demands and system occasionally

   goes dry or suffers from low pressures       10

D. Significant areas within distribution

   system have inadequate fire protection        8

E. Existing storage tanks leak excessively

   or are structurally flawed                    5

F. Pipe leak repair rate is greater than

   4 leaks per 100 connections per year          2

G. Existing facilities are generally sound

   and meeting existing needs                    0



5. ABILITY TO MEET FUTURE DEMANDS (Select One)



A. Facilities have inadequate capacity and

   cannot reliably meet current demands         10

B. Facilities will become inadequate within

   the next three years                          5

C. Facilities will become inadequate within

   the next five to ten years                    3



6. OVERALL URGENCY  (Select One)



A. System is generally out of water.  There

   is no fire protection or water for

   flushing toilets                             10

B. System delivers water which cannot be

   rendered safe by boiling                     10

C. System delivers water which can be

   rendered safe by boiling                      8

D. System is occasionally out of water           5

E. Situation should be corrected, but is

   not urgent                                    0



TOTAL POSSIBLE POINTS FOR NEED FOR

PROJECT                                        100

 

(h) Other criteria that the Board may deem appropriate.

(2) Drinking Water Board Financial Assistance Determination. The amount and type of financial assistance offered will be based on the following considerations:

(a) An evaluation based upon the criteria in Tables 2 and 3 of the applicant's financial condition, the project's impact on the community, and the applicant's commitment to operating a responsible water system.

The interest rate to be charged by the Board for its financial assistance will be computed using the number of points assigned to the project from Table 2 to reduce, in a manner determined by Board resolution from time to time, the most recent Revenue Bond Buyer Index (RBBI) as published by the Bond Buyer's Guide. The interest rate so calculated will be assigned to the financial assistance. To encourage rapid repayment of a loan the Board will increase the interest rate 0.02 per cent (0.02%) for each year the repayment period exceeds five (5.0) years.

For hardship grant consideration, exclusive of planning and design grants or loans described in Sections R309-700-6, 7 and 8, the estimated annual cost of drinking water service for the average residential user should exceed 1.75% of the median adjusted gross household income from the most recent available State Tax Commission records. If, in the judgment of the Board, the State Tax Commission data is insufficient the Board may accept other measurements of the water users' income (i.e. local income survey or questionnaire when there is a significant difference between the number of service connections for a system and the number of tax filings for a given zip code or city). The Board will also consider the applicant's level of contribution to the project.

 

TABLE 2

FINANCIAL CONSIDERATIONS

                                                  POINTS

1. COST EFFECTIVENESS RATIO (SELECT ONE)

A. Project cost $0 to $500 per benefitting

   connection                                       [15]13

B. $501 to $1,500                                   [12]11

C. $1,501 to $2,000                                  9

D. $2,001 to $3,000                                  6

E. $3,001 to $5,000                                  3

F. $5,001 to $10,000                                 1

G. Over $10,000                                      0



2. PRIVATE SECTOR OR OTHER FUNDING, BUT NOT OWN CONTRIBUTION (SELECT ONE)



A. A reasonable search for it has been made without

   success                                          10

B. Will provide greater than 50% of project cost    10

C. Will provide 25 to 49% of project cost            8

D. Will provide 10 to 24% of project cost            5

E. Will provide 1 to 9% of project cost              3

F. Has not been investigated                         0



3. CURRENT LOCAL MEDIAN ADJUSTED GROSS INCOME (AGI) (SELECT ONE)



A. Less than 70% of State Median AGI                15

B. 71 to 90% of State Median AGI                    12

C. 91 to 115% of State Median AGI                    9

D. 116 to 135% of State Median AGI                   6

E. 136 to 160% of State Median AGI                   3

F. Greater than 161% of State Median AGI             0



4. APPLICANT'S COMMITMENT TO PROJECT

PROJECT FUNDING CONTRIBUTED BY APPLICANT (SELECT ONE)



a. Greater than 25% of project funds                15

b. 10 to 25% of project funds                       12

c. 5 to 9% of project funds                          9

d. 2 to 4% of project funds                          6

e. Less than 2% of project funds                     0



5. ABILITY TO REPAY LOAN

5A. WATER BILL (INCLUDING TAXES) AFTER PROJECT IS

    BUILT RELATIVE TO LOCAL MEDIAN ADJUSTED GROSS

    INCOME (SELECT ONE)



a. Greater than 2.50% of local median AGI           15

b. 2.01 to 2.50% of local median AGI                11

c. 1.51 to 2.00% of local median AGI                 7

d. 1.01 to 1.50% of local median AGI                 3

e. 0 to 1.00% of local median AGI                    0



5B. TOTAL DEBT LOAD (PRINCIPAL ONLY) OF APPLICANT

    AFTER PROJECT IS CONSTRUCTED (INCLUDING WATER

    AND SEWER DEBT, LIGHTING DEBT, SCHOOL DEBT,

    ETC.) (SELECT ONE)



a. Greater than 12% of fair market value            15

b. 8.1 to 12% of fair market value                  12

c. 4.1 to 8.0% of fair market value                  9

d. 2.1 to 4.0% of fair market value                  6

e. 1.0 to 2.0% of fair market value                  3

f. Less than 1% of fair market value                 0



6.  SPECIAL INCENTIVES

    Applicant:



A. is using a master plan which includes

   water management & conservation                  4

B. has a replacement fund receiving annual

   deposits of 5% of drinking water budget          4

C. is creating or enhancing a regionalization

   Plan                                             4

D. has a rate structure encouraging conservation    4

E. has received a Quality Community designation     4



TOTAL POSSIBLE POINTS FOR FINANCIAL NEED           100

 

(b) Optimizing return on the security account while still allowing the project to proceed.

(c) Local political and economic conditions.

(d) Cost effectiveness evaluation of financing alternatives.

(e) Availability of funds in the security account.

(f) Environmental need.

(g) Other criteria the Board may deem appropriate.

 

KEY: loans, interest buy-downs, credit enhancements, hardship grants

2004

Notice of Continuation September 16, 2002

19-4-104

73-10c