No. 32028 (Amendment): R309-700. Financial Assistance: State Drinking Water Project Revolving Loan Program

DAR File No.: 32028
Filed: 10/13/2008, 09:18
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this rule change is to: 1) add changes to the State SRF (State Revolving Fund) program made by the State Legislature in 2007 (H.B. 99) which amended Sections 73-10c-2, 73-10c-4, 73-10c-4.5, and 73-10c-5 and enacted Section 73-10c-10; 2) make the rule more consistent with Rule R309-705 (Federal SRF program); 3) clarify rule language; 4) modify the point system used to determine the terms of the loan; and 5) update and correct terminology and grammar. (DAR NOTES: H.B. 99 (2007) is found at Chapter 142, Laws of Utah 2007, and was effective 04/30/2007. The proposed amendment to Rule R309-705 is under DAR No. 32029 in this issue, November 1, 2008, of the Bulletin.)

Summary of the rule or change:

This will allow the Division of Drinking Water to improve compliance with Title R309 rules and better help protect the public against water borne health risks through funding of studies, planning, educational activities, and design of facilities. The changes will also encourage and promote regionalization of water system in order to improve their financial, managerial, and technical capabilities to serve their customers.

State statutory or constitutional authorization for this rule:

Sections 19-4-104, 63G-4-202, and Title 73, Chapter 10c

Anticipated cost or savings to:

the state budget:

These changes are not anticipated to affect the state cost of administering the state loan program. The change will allow the state to charge the state SRF program a loan origination fee to those systems borrowing funds. There will be a slight cost savings because the state will no longer have to bill the borrowers for loan administration costs.

local governments:

These changes will not increase the costs of the operation and maintenance for any public water system. It should provide more money (grants and low interest loans) that could directly or indirectly promote safe drinking water. The system will be charged a loan origination fee instead of being billed for loan administration costs.

small businesses and persons other than businesses:

A community might have to pay a higher interest rate when borrowing money from the Drinking Water Board, if it refuses to regionalize its water system when regionalization is a feasible alternative.

Compliance costs for affected persons:

This will allow the Division of Drinking Water to improve compliance with Title R309 rules and better help protect the public against water borne health risks through funding of studies, planning, educational activities, and design of facilities. The changes will also encourage and promote regionalization of water systems in order to improve their financial, managerial, and technical capabilities to serve their customers. The system will be charged a loan origination fee instead of being billed for loan administration costs.

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

The department agrees with the comments made in the cost and compliance summaries above. Rick Sprott, Executive Director

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:

Kenneth E. Wilde at the above address, by phone at 801-536-0048, 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:

12/01/2008

This rule may become effective on:

12/08/2008

Authorized by:

Ken Bousfield, Director

RULE TEXT

R309. Environmental Quality, Drinking Water.

R309-700. Financial Assistance: State Drinking Water [Project]State Revolving Fund (SRF) Loan Program.

R309-700-2. Statutory Authority.

The authority for the Department of Environmental Quality acting through the Drinking Water Board to issue loans to political subdivisions to finance all or part of drinking water project costs and to enter into "credit enhancement agreements", "interest buy-down agreements", and "Hardship Grants" is provided in Title 73, Chapter 10c, [Title 73, ]Utah Code.

 

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 [w]Water Board.

"Drinking Water Project" means any work or facility that is necessary or desirable to provide water for human consumption and other domestic uses. Its scope includes collection, treatment, storage, and distribution facilities; and also includes studies, planning, education activities, and design work that will promote protecting the public from waterborne health risks.

"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; costs for studies, planning, education activities, and design work that will promote protecting the public from waterborne health risks; 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.

"Disadvantaged Communities" are defined as those communities located in an area which has a median adjusted gross income less than or equal to 80% of the State's median adjusted gross income, as determined by the Utah State Tax commission from federal individual income tax returns excluding zero exemption returns, or where the estimated annual cost, including loan repayment costs, of drinking water service for the average residential user exceeds 1.75% of the median adjusted gross income. 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 filing for a given zip code or city).

"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) The applicant is required to submit a[A] completed application form, an engineering report listing the project alternatives considered and including a justification for the chosen alternative, a project financing plan that includes[ing] an evaluation of credit enhancement, interest buy-down and loan methods applicable to the project, and documents necessary to perform a financial capability assessment (when requested), and capacity assessment (when determined to be beneficial for evaluating project feasibility)[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 will evaluate the application and supporting documentation, calculate proposed terms of financial assistance, prepare a report for review by the Board, and[for] present said report to the Board['s] for its 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]10(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]13(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) As authorized in 19-4-106(3) of the Utah Code, the Executive Secretary may review plans, specifications, and other data pertinent to proposed or expanded water supply systems to insure proper design and construction, as specified in rule R309-500-4 General. Construction of a public drinking water project shall not begin until complete plans and specifications have been approved in writing by the Executive Secretary.[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]10(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]10(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 R309-700-9 and -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 Table[s] 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 or the local median adjusted gross income (MAGI) is less than or equal to eighty-percent (80.0%) of the State's median adjusted gross income. When considering funding for planning and design grants and loans described in Sections R309-700-6, 7 and 8, the Board will consider whether or not the applicant's local MAGI meets the above criteria for hardship grant funding. 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                                       13

B. $501 to $1,500                                   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]2. CURRENT LOCAL MEDIAN ADJUSTED GROSS INCOME (AGI) (SELECT ONE)



A. Less than 70% of State Median AGI               [15]16

B. 71 to [90]80% of State Median AGI               [12]14

C. 81 to 95% of State Median AGI                    12

[C]D. [91]96 to [115]110% of State Median AGI        9

[D]E. [116]111 to [135]130% of State Median AGI      6

[E]F. [136]131 to [160]150% of State Median AGI      3

[F]G. Greater than [161]150% of State Median AGI     0



[4]3. APPLICANT'S COMMITMENT TO PROJECT

PROJECT FUNDING CONTRIBUTED BY APPLICANT (SELECT ONE)



[a]A. Greater than 25% of project funds               15

[b]B. [10]15 to 25% of project funds                  12

C. 10 to 15% of project funds                       9

[c]D. 5 to 9% of project funds                         [9]6

[d]E. 2 to 4% of project funds                         [6]3

[e]F. Less than 2% of project funds                    0



4 and 5. ABILITY TO REPAY LOAN:



[5A]4. WATER BILL (INCLUDING TAXES) AFTER PROJECT IS

    BUILT RELATIVE TO LOCAL MEDIAN ADJUSTED GROSS

    INCOME (SELECT ONE)



[a]A. Greater than 2.50% of local median AGI           15

[b]B. 2.01 to 2.50% of local median AGI                11

[c]C. 1.51 to 2.00% of local median AGI                 7

[d]D. 1.01 to 1.50% of local median AGI                 3

[e]E. 0 to 1.00% of local median AGI                    0



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

    AFTER PROJECT IS CONSTRUCTED (INCLUDING WATER

    AND SEWER DEBT, LIGHTING DEBT, SCHOOL DEBT,

    ETC.) (SELECT ONE)



[a]A. Greater than 12% of fair market value            15

[b]B. 8.1 to 12% of fair market value                  12

[c]C. 4.1 to 8.0% of fair market value                  9

[d]D. 2.1 to 4.0% of fair market value                  6

[e]E. 1.0 to 2.0% of fair market value                  3

[f]F. Less than 1% of fair market value                 0



6.  SPECIAL INCENTIVES

    Applicant:



[A. is using a master plan which includes

   water management and conservation                4

][B]A. has a replacement fund receiving annual

   deposits of 5% of drinking water budget, and      [4]5

   has already accumulated a minimum of 25% of said

   annual DW budget in this reserve fund.

[C]B. is creating or enhancing a regionalization

   Plan                                              [4]16

[D]C. has a rate structure encouraging conservation  [4]5

[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.

 

R309-700-6. Planning Grant.

(1) A Planning Grant can only be made to a political subdivision with a population less than 10,000 people demonstrating an urgent need to evaluate its drinking water system's technical, financial and managerial capacity, and lacks the financial means to readily accomplish such an evaluation.[ A Planning Grant will be limited to $10,000 or the estimated cost of the planning effort, whichever is less unless otherwise approved by the Board].

(2) Qualifying for a Planning Grant will be based on the criteria listed in R309-700-5(2)(a).

(3) The applicant must demonstrate that all funds necessary to complete project planning will be available prior to commencing the planning effort. The Planning Grant will be deposited with these other funds into a supervised escrow account at the time the grant agreement between the applicant and the Board is executed or the Board may choose to provide the funds in incremental disbursements as the applicant incurs expenses on the project.

[(3)](4) Failure on the part of the recipient of a Planning Grant to implement the findings of the plan may prejudice any future applications for drinking water project funding.

[(4)](5) The recipient of a Planning Grant must first receive written approval for any cost increases or changes to the scope of work.

[(5)](6) The Planning Grant recipient must provide a copy of the planning project results to the Division. The planning effort shall conform to rules R309.

 

R309-700-12. Project Authorization (Reference R309-700-4(4)).

A project may be "Authorized" for a loan, credit enhancement agreement, interest buy-down agreement, or hardship grant in writing by the Board following submission and favorable review of an application form, engineering report (if required), financial capability assessment, [and ]staff feasibility report, and capacity assessment (when determined to be beneficial for evaluating project feasibility). The engineering report shall include a cost effectiveness analysis of feasible project alternatives capable of meeting State and Federal drinking water requirements. It shall include consideration of monetary costs including the present worth or equivalent annual value of all capital costs, operation, maintenance, and replacement costs. The alternative selected must be the most economical means of meeting applicable State and Federal drinking water requirements over the useful life of the facility while recognizing environmental and other nonmonetary considerations. If it is anticipated that a project will be a candidate for financial assistance from the Board, the Staff should be contacted, and the plan of study for the engineering report (if required) should be approved before the planning is initiated.

Once the application form[,] and other related documents have been reviewed and assessments made[plan of study, engineering report, and financial capability assessment are reviewed], the staff will prepare a project feasibility report for the Board's consideration in Authorizing a project. The project feasibility report will include a detailed evaluation of the project with regard to the Board's funding priority criteria, and will contain recommendations for the type of financial assistance which may be extended (i.e., for a loan, credit enhancement agreement, interest buy-down agreement, or hardship grant).

Project Authorization is not a contractual commitment and is conditioned upon the availability of funds at the time of loan closing or signing of the credit enhancement, interest buy-down, or grant agreement and upon adherence to the project schedule approved at that time. If the project is not proceeding according to the project schedule the Board may withdraw the project Authorization so that projects which are ready to proceed can obtain necessary funding. Extensions to the project schedule may be considered by the Board, but any extension requested must be fully justified.

 

R309-700-13. Financial Evaluations.

(1) The Board considers it a proper function to assist and give direction to project applicants in obtaining funding from such State, Federal or private financing sources as may be available to achieve the most effective utilization of resources in meeting the needs of the State. This may also include joint financing arrangements with several funding agencies to complete a total project.

(2) Hardship Grants will be evidenced by a grant agreement.

(3) In providing any form of financial assistance in the form of a loan, the Board may purchase bonds of the applicant only if the bonds are accompanied by a legal opinion of recognized municipal bond counsel to the effect that the bonds are legal and binding under applicable Utah law (including, if applicable, the Utah Municipal Bond Act). For bonds of $150,000 or less the Board will not require this opinion.

(a) In providing any form of financial assistance in the form of a loan, the Board may purchase either a taxable or non-taxable bonds; provided that it shall be the general preference of the Board to purchase bonds issued by the applicant only if the bonds are tax exempt and are accompanied by a legal opinion of recognized municipal bond counsel to the effect that interest on the bonds is exempt from federal income taxation. Such an opinion must be obtained by the applicant in the following situations:

(i) Bonds which are issued to finance a project which will also be financed in part at any time by the proceeds of other bonds which are exempt from federal income taxation.

(ii) Bonds which are not subject to the arbitrage rebate provisions of Section 148 of the Internal Revenue Code of 1986 (or successor provision of similar intent), including, without limitation, bonds covered by the "small governmental units" exemption contained in Section 148(f)(4)(c) of the Internal Revenue Code of 1986 (or any successor provision of similar intent) and bonds which are not subject to arbitrage rebate because the gross proceeds from the loan will be completely expended within six months after the issuance of such bonds.

(b) In any other situations, the Board may purchase taxable bonds if it determines, after evaluating all relevant circumstances including the applicant's ability to pay, that the purchase of the taxable bonds is in the best interests of the State and applicant.

(c) If more than 25 percent of the project is to serve industry, bond counsel must evaluate the loan to ensure the tax exempt status of the loan fund.

(d) Revenue bonds purchased by the Board shall be secured by a pledge of water system revenues, and it is the general policy of the Board that the pledge of water revenues for the payment of debt service (principal and/or interest) on a particular revenue bond be on a parity with the pledge of those water revenues as security for the debt service payments on all other bonds or other forms of indebtedness which are secured by the water revenues.

(4) The Board will consider the financial feasibility and cost effectiveness [evaluation ]of the project in detail. The financial capability assessment must be completed as a basis for the review. The Board may require that a full capacity assessment be made for a given project. The Board will generally use these reports and assessments to determine whether a project will be Authorized to receive a loan, credit enhancement agreement, interest buy-down agreement, or hardship grant (Reference R309-700-9, -10 and -11). If a project is Authorized to receive a loan, the Board will establish the portion of the construction cost to be included in the loan and will set the terms for the loan. The Board will require the applicants to repay the loan as rapidly as is reasonably consistent with the financial capability of the applicant. It is the Board's intent to avoid repayment schedules which would exceed the design life of the project facilities.

(5) Normal engineering and investigation costs incurred by the Department of Environmental Quality or Board during preliminary project investigation and prior to Board Authorization will not become a charge to the applicant if the project is found infeasible, denied by the Board, or if the applicant withdraws the Application prior to the Board's Authorization. If the credit enhancement agreement or interest buy-down agreement does not involve a loan of funds from the Board, then administrative costs will not be charged to the project. However, if the project is Authorized to receive a loan or grant of funds from the Board, all costs from the beginning of the project will be charged to the project and paid by the applicant as a part of the total project cost. If the applicant decides not to build the project after the Board has Authorized the project, all costs accruing after the Authorization will be reimbursed by the applicant to the Board.

(6) The Board shall determine the date on which the scheduled payments of principal and interest will be made. In fixing this date, all possible contingencies shall be considered, and the Board may allow the system one year of actual use of the project facilities before the first repayment of principal is required.

(7) The applicant shall furnish the Board with acceptable evidence that the applicant is capable of paying its share of the construction costs during the construction period.

(8) LOANS AND INTEREST BUY-DOWN AGREEMENTS ONLY - The Board may require, as part of the loan or interest buy-down agreement, that any local funds which are to be used in financing the project be committed to construction prior to or concurrent with the committal of State funds.

(9) The Board will not forgive the applicant of any payment after the payment is due.

(10) The Board will require a debt service reserve account be established by the applicant at or before the loan is closed. Deposits to that account shall be made at least annually in the amount of one-tenth of the annual payment on the bond(s) purchased by the Board and shall continue until the total amount in the debt service reserve fund is equal to the annual payment. The debt service reserve account shall be continued until the bond is retired. Annual reports/statements will be required. Failure to maintain the reserve account will constitute a technical default on the bond(s) and may result in penalties being assessed. Annual reports/statements will be required.

(11) The Board will require a capital facilities replacement reserve account be established at or before the loan is closed. Deposits to that account shall be made at least annually in the amount of five percent (5%) of the applicant's annual drinking water system budget, including depreciation, unless otherwise specified by the Board at the time of loan authorization, until the loan is repaid. This fund shall not serve as security for the payment of principal or interest on the loan. The applicant shall adopt such resolutions as necessary to limit the use of the fund to construct capital facilities for its water system and to notify the Board prior to making any disbursements from the fund so the Board can confirm that any expenditure is for an acceptable purpose. The applicant will not need the consent of the Board prior to making any expenditure from the fund. Failure to maintain the reserve account will constitute a technical default on the bond(s) and may result in penalties being assessed. Annual reports/statements will be required.

(12) If the Board is to purchase a revenue bond, the Board will require that the applicant's water rates be established such that sufficient net revenue will be raised to provide at least 125% or such other amount as the Board may determine of the total annual debt service.

 

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

Date of Enactment or Last Substantive Amendment: [August 6, 2004]2008

Notice of Continuation: April 2, 2007

Authorizing, and Implemented or Interpreted Law: 19-4-104; 73-10c