Safe Drinking Water In Oregon

Oregon Economic and Community Development Department Safe Drinking Water In Oregon Program Guidelines & Applicant s Handbook for the Federally-funded Safe Drinking Water Revolving Loan Fund & Drinking Water Protection Fund March 2009 Includes Guidance for the American Recovery and Reinvestment Act of 2009 (Economic Stimulus) Section # Contents Page Highlights... iv Part One Introduction 1.1 Program Purpose and Source of Funds...1 1.2 Program Administration...1 1.3 Organization of this Handbook...2 Safe Drinking Water Revolving Loan Fund (Infrastructure) Part Two Eligibility 1.4 Eligible Applicants...2 1.5 Eligible Activities...3 1.6 Ineligible Activities...4 1.7 Project Eligibility...5 1.8 Capacity Analysis...6 1.9 Letters of Interest, Statewide Ranking and Emergencies...7 Part Three Financial Benefits 1.10 General Financial Assistance by the Department...9 1.11 Loan Terms, Rates, Maximums and Principal Forgiveness...10 1.12 Disadvantaged Community Status...11 1.13 Technical Assistance...13

Safe Drinking Water in Oregon Part Four Application & Funding Process 1.14 Types of Infrastructure Projects...13 1.15 Public Notification of Application...15 1.16 Application Information...16 1.17 Application Review by Department...17 1.18 Notice of Decision...18 1.19 Contract Administration...18 1.20 Expenditure of Funds...20 Part Five Other Requirements and Issues 2.1 Federal Crosscutting Requirements...20 2.2 Disadvantaged Business Enterprises...20 2.3 Environmental Review Process...21 2.4 Generally Relevant State Requirements...21 2.5 Other Program Information...22 2.6 Department Remedies...22 2.7 Exceptions...22 Drinking Water Protection Fund Part Six Loans for Source water Protection 3.1 Purposes and Administration...23 3.2 Eligible Applicants...23 3.3 Qualified Applicants...23 3.4 Eligible Activities...24 3.5 Ineligible Activities...25 3.6 Letter of Interest and Scoring of Proposed Project...25 3.7 Application Process and Prioritization for Awards...26 3.8 Financial Benefits...26 3.9 Underwriting, Approval and Administration...27 3.10 Public Notification Process...27 3.11 Other Requirements and Issues...27 3.12 Other Program Information; Department Remedies and Exceptions...27 American Recovery and Reinvestment Act of 2009 (Economic Stimulus) Part Seven American Recovery and Reinvestment Act (ARRA) of 2009 4.1 Mandatory ARRA Criteria...23 4.2 Oregon SDWRLF ARRA Project Immediately Ready to Proceed Criteria...23 4.3 Other Oregon SDWRLF ARRA Considerations...23 4.4 Oregon SDWRLF ARRA Financing Terms...31 4.5 Oregon SDWRLF ARRA Other Financing Considerations...31 4.6 Summary of Critical Dates...32 4.7 Guidance Regarding Green Infrastructure...33 ii

Program Guidelines And Applicant s Handbook (March 2009) Appendices Appendix A OAR Chapter 123, Division 49 Appendix B Glossary Appendix C OAR 333-061-0060 (5) (Water Facilities Master Plans) Appendix D Example of Public Hearing Notice Appendix E Loan Underwriting Criteria Appendix F Federal Crosscutting Requirements Appendix G Disadvantaged Business Enterprises (with data forms) Appendix H State Environmental Review Process Appendix I Letter of Interest and Instructions Appendix J Development of Project Priority List for Intended Use Plan Appendix K Drinking Water Protection Fund Project Rating Criteria Appendix L Relevant State of Oregon Agencies (with hyperlinks) iii

Safe Drinking Water in Oregon Highlights Nature of the Fund: Ways & Means: Who Is Served: The Safe Drinking Water Revolving Loan Fund offers a long term, selfsustaining source of finance to build and upgrade public drinking water systems in Oregon communities. Compliance with federal and state health standards that ensure the safety of water for human consumption will often mean expensive investments in treatment and other facilities, for which financial assistance can be critical. Congress has appropriated the capital that makes this revolving fund possible. State resources are used to match a portion of this federal grant. The Oregon Department of Human Services (DHS) and the Oregon Economic and Community Development Department (OECDD) jointly prepare the Intended Use Plan and other matters that the U.S. Environmental Protection Agency needs for each year s grant award. Additionally the two departments work together to approve projects, administer the revolving loans and undertake related activities. The program s financing is available to all sizes of public drinking water systems, although 15 percent of the funds based in accordance with federal law are reserved for systems serving fewer than 10,000 population. Municipal, nonprofit and privately owned systems are eligible. Safe Drinking Water Revolving Loan Fund Revolving Loan Fund activities that may be funded range from project planning to acquiring land and equipment and constructing facilities for better water supply, filtration, storage, distribution, etc. These moneys may not be used for costs associated with constructing dams, acquiring water rights, paying for operations, maintenance and administration activities, or for projects primarily aimed at fire suppression or growth or purchases unrelated to requisite compliance problem. Drinking Water Protection Fund The Drinking Water Protection Fund provides financial assistance to drinking water systems to help implement strategies designed to minimize the risk that contaminants might enter the drinking water supply. iv

Program Guidelines And Applicant s Handbook (March 2009) What Is Offered: Safe Drinking Water Revolving Loan Fund Eligible water systems applying to the Revolving Loan Fund receive a direct loan, with the following attributes: Up to $6 million per project, based on reasonable and prudent ability to repay A 20 year term (but not longer than the project s useful life) Interest rate that is only 80 percent of state/local bond rate. Water systems, for which the average annual water rate will exceed an indicated affordability rate, may qualify for status as Disadvantaged Communities. The affordability rate will be determined based on an indexed percentage of local median household income. Eligible disadvantaged communities may qualify for loans with terms that range between 20 years 30 years and an interest rate below the standard rate of 80 percent of state/local bond rate but no less than 1 percent interest. For severely disadvantaged communities some principal forgiveness is also a possibility. Drinking Water Protection Fund Systems may request up to $100,000 per year from the Drinking Water Protection Fund. Projects seeking more than $100,000 from the Drinking Water Protection Fund will require additional review by DHS, OECDD and the Drinking Water Advisory Committee. Interest rate will be 80 percent of state/local municipal bond rate. The term of a Drinking Water Protection loan may not exceed 20 years or the life of the project, whichever is less. What to Do: Safe Drinking Water Revolving Loan Fund Each water system that is interested in receiving funding from the Safe Drinking Water Revolving Loan Fund must submit a Letter of Interest, to be rated and ranked for the Project Priority List, based on such criteria as health risks, environmental compliance, affordability, and readiness to proceed with the project. Letters of Interest will be evaluated and ranked once each year although the Project Priority List for a given year may be amended if sufficient demand exists for Letters of Interest to be added to the Project Priority List. The only other exception to this process is for a project for which a declaration of emergency has been issued by DHS. Once on this Project Priority list, project proponents may schedule a One-Stop Finance meeting with, and submit a Project Intake to, the Economic and Community Development Department. A Project Intake also will provide the department with the ability consider the project for any other department-funding sources. Drinking Water Protection Fund Each water system that is interested in receiving funding from the Drinking Water Protection Fund also must submit a Letter of Interest. v

Safe Drinking Water in Oregon Some Additional Requirements: Letters of Interest for Drinking Water Protection funds may be submitted on an on-going basis and will be evaluated in the order that they are received. Each applicant/water system must show the financial, managerial and technical capacity to maintain compliance and must pass a thorough underwriting analysis to ensure creditworthiness and the security of the loan. Every project requires an environmental review and adherence to state laws and regulations for prevailing wage rates, procurement and so forth. A number of cross-cutting federal policies, laws and authorities must also be satisfied. Summary of Changes The changes in this edition of the Safe Drinking Water Revolving Loan Funds Program Guidelines and Applicant s Handbook, in addition to various editorial, stylistic and similar changes, relate to the following: A. Expansion of Disadvantaged Communities eligibility to provide for the following additional activities: Consolidation/Elimination of Non-Viable Public Water Systems: Within the context of this activity, a Disadvantaged Community is defined as a community served by a public water system that lacks capacity as defined by the Safe Drinking Water Act, Section 1420 and 1452(a)(3). Principal forgiveness loans and reduced interest/expanded term loans will be made to the most appropriate public water system having capacity that is willing to take over a non-viable Disadvantaged Community water system. In most cases, this will consist of a project to run supply to and replace the distribution system in the Disadvantaged Community. These projects will be initiated by either DHS or OECDD, and thus no application will be involved nor will these be listed on the Project Priority List but will be reported in the Annual Report. Up to 10 percent of an annual Capitalization Grant may be utilized for this program depending on the ability of DHS or OECDD to identify these projects and secure agreements from all systems involved. This amount shall be considered as part of the funds for standard projects and will not be differentiated until committed (Section 3.3). Asset Management Training: Water systems qualifying as Disadvantaged Communities must participate in Asset Management training provided through the Oregon Drinking Water Program unless the system can demonstrate that it is already implementing an asset management program. This training will be funded through the DHS s Drinking Water Program Capacity Development Program (Section 3.3). B. New: Part 7 directly addresses economic stimulus funding assistance authorized by the American Recovery and Reinvestment Act of 2009 and transmitted through the Safe vi

Program Guidelines And Applicant s Handbook (March 2009) Drinking Water Revolving Loan Fund, for non-source and source, infrastructure projects, specifically as follows: Project Eligibility Criteria Immediately Ready to Proceed Other ARRA Project Funding Considerations Financing Terms Other Financing Considerations Summary of Critical Dates Guidance Regarding Green Infrastructure vii

Program Guidelines And Applicant s Handbook (March 2009) Part 1 Introduction 1.1 Program Purpose and Source of Funds Created by Congress in 1996, the Drinking Water State Revolving Fund (SRF) gives the states money to establish loan funds to assist in the improvement of local public water systems. Community drinking water systems (and non-community systems of nonprofits) use these resources in planning, designing and building facilities to correct noncompliance with current or future drinking water standards, and to further the public health protection goals of the federal (U.S.) Safe Drinking Water Act and Oregon s Drinking Water Quality Act. For these purposes, the state of Oregon may receive an annual grant from the U.S. Environmental Protection Agency (USEPA) based on submissions by the state for each year s grant. Most of this grant is used to capitalize the main Safe Drinking Water Revolving Loan Fund, for which a 20 percent match from the state is required. This match is currently met through state bonds to be repaid using Oregon State Lottery proceeds. The SRF is intended to provide a source of financial assistance to public water systems in perpetuity. The state of Oregon Safe Drinking Water Revolving Loan Fund is designed and operated to promote the efficient use of funds for this purpose. 1.2 Program Administration To benefit the public and Oregon communities, the Oregon Department of Human Services Health Services, Economic and Community Development Department and Department of Environmental Quality have formed a partnership to carry out the federal Drinking Water State Revolving Fund and the other financing mechanisms in the Safe Drinking Water Act Amendments of 1996 (P.L. 104 182). Oregon Health Services Drinking Water Program (part of Public Health Systems) acts as this state s lead agency for implementation of the Safe Drinking Water Act. The Department of Environmental Quality supports activities aimed at drinking water sources (e.g., wells, watersheds), consistent with it efforts to minimize and avoid degradation of groundwater, rivers, lakes and so forth under the federal Clean Water Act. The Economic and Community Development Department (hereinafter the department ) administers financial mechanisms for water system projects. Here, this principally means the Safe Drinking Water Revolving Loan Fund ( fund or SDWRLF ) ORS (Oregon Revised Statutes) 285A.213 authorizes the department s administration of the fund, for which Oregon Administrative Rules (OAR) in chapter 123, division 049 have been adopted. (see Appendix A) The department and Health Services will make decisions regarding any application or project situation that may not be covered by these program guidelines. 1

Safe Drinking Water in Oregon 1.3 Organization of this Handbook These Program Guidelines and Applicant s Handbook is published to inform project proponents about matters of eligibility, application for financial assistance and proper management of projects and of borrowed funds. Parts 2 through 5 directly address the Safe Drinking Water Revolving Loan Fund, for nonsource, infrastructure projects, specifically as follows: Eligibility Financial Benefits Application and Funding Process Other Requirements and Issues Part 6 addresses the Drinking Water Protection Fund (DWPF) for source-water protection projects. The DWPF is a separate financial mechanism, but allowed and funded under the same SRF federal laws. Part 7 directly addresses economic stimulus funding assistance authorized by the American Recovery and Reinvestment Act of 2009 and transmitted through the Safe Drinking Water Revolving Loan Fund, for non-source and source, infrastructure projects, specifically as follows: Project Eligibility Criteria Immediately Ready to Proceed Other ARRA Project Funding Considerations Financing Terms Other Financing Considerations Summary of Critical Dates Guidance Regarding Green Infrastructure At the end of this handbook are appendices that are referenced throughout the following text. SAFE DRINKING WATER REVOLVING LOAN FUND Part 2 Eligibility Infrastructure Projects 1.4 Eligible Applicants 1.4.1 Only the following types of entities are eligible to apply for funding: Community water system: a public water system that has 15 or more service connections used by year-round residents, or that regularly serves 25 or more year-round residents. Nonprofit non-community water system: a public water system that is not a community water system, but that regularly serves at least 25 people and is recognized under Oregon law as a nonprofit corporation. 2

Program Guidelines And Applicant s Handbook (March 2009) 1.4.2 A federally owned community or any non-community water system may not receive funding under this fund. 1.4.3 Privately owned, nonprofit and municipal community water systems. The term public does not refer to ownership, but rather to the conveyance and provision of water to the public as the system s users. Therefore, a community water system that is privately owned or is organized as a for-profit or nonprofit corporation is eligible, in common with non-federal, publicly owned systems. 1.4.4 Conditions on water systems. To be eligible to receive funding for final design and construction, a water system must already satisfy the following requirements or demonstrate satisfaction through the funded project. (A project serving only to do one or both of these is not eligible, in and of itself; the resolution of a health hazard/compliance problem would remain essential 1.7 below): 1.5 Eligible Activities A water system with 300 or more service connections must maintain a current water facilities master plan that evaluates the needs of the water system over a period of at least 20 years, and that includes the eight major elements in OAR 333-061-0060(5). (see Appendix C) Only an engineering feasibility analysis is needed for systems having fewer than 300 service connections. All water systems must have and maintain source meter(s) and service metering for all connections throughout the water system, as well as an operational program and resources for reading and upkeep of the meters (1.19.4 below). Eligible activities include the planning and preliminary engineering, design and specifications, and construction of improvements to drinking water systems. The following are considered eligible program activities: 1.5.1 Construction, reconstruction or modification of any drinking water facility necessary for source of supply, filtration, treatment, storage, transmission or metering. 1.5.2 The acquisition of real or personal property directly related to or necessary for the proposed project, including rights-of-way, easements, facility sites or equipment. 1.5.3 Preliminary and final engineering, surveying, legal review and other support activities necessary for actually constructing and upgrading the water system. 1.5.4 Construction contingencies, subject to review/qualification by the Department. 1.5.5 Costs necessary for recipients to contract for environmental review services directly related to the impacts and implications of the project. 1.5.6 Costs associated with the preparation and submission of an application for final design and/or construction, as contained in the scope of work for an approved planning and preliminary engineering award. 3

Safe Drinking Water in Oregon 1.5.7 Provision of capacity for future population growth, covering the useful life of an eligible project, but only if such growth satisfies all of the following stipulations: Expected population increases are based on current and reasonable projections accepted by local and state land use-planning authorities Expansion to satisfy future population is not the primary purpose for constructing the facilities, as opposed to protecting public health Provision of public drinking water systems to an unincorporated area does not trigger greater residential zoning density (2.4.4 below). 1.5.8 Development and provision of technical documentation, operations manual, computer software and similar information resources, including but not limited to customary contingency/emergency plans that are necessary or prudent for soundly and safely running plant and equipment that comprises a funded project, and for helping preserve that investment. 1.5.9 Expenditures associated with security measures pertaining to the facilities or infrastructure of the public water system, for which the amendment of any existing SDWRLF application or existing project is encouraged. 1.6 Ineligible Activities 1.6.1 Acquisition or creation of the following: Dams or rehabilitation of dams Purchase of water rights, including groundwater, except if the water rights are already owned by a system that is being acquired through consolidation Reservoirs, except for finished water reservoirs and those reservoirs or impoundments that are part of the drinking water treatment process. 1.6.2 Costs for ongoing activities or purchases not directly appurtenant or related to the principal project for resolving drinking-water noncompliance, such as: Laboratory fees for monitoring Administrative costs Incidental equipment, such as most types of motor vehicles Off-site property for purposes such as wetland mitigation Environmental assessments, such as source delineation or watershed analysis, unless directly undertaken as part of the required review of project impacts Operation and maintenance of new or existing facilities Management, legal and other services associated with seeking, receiving and administrating the SDWRLF award itself. (Note: Such services are eligible costs for: (1) preparation of a design/construction application pursuant to an award for a planning project, and (2) consolidation of systems to overcome a lack of technical, managerial or financial capability 1.8 below) 4

Program Guidelines And Applicant s Handbook (March 2009) 1.6.3 Costs incurred before an official award of funding by the department. The exception is that applicants may be reimbursed for the cost of pre-construction activities (e.g., engineering) but not expenses directly associated with physical investment in the new/improved water system, such as construction, contract bids, real estate/capital purchases and final design with prior department permission. 1.6.4 Projects for systems that do not otherwise qualify for assistance, because, for example: The system lacks adequate technical, managerial, and financial capacity unless the system agrees to undertake feasible and appropriate operational changes or restructuring to ensure adequate capacity (1.8 below). Improvements are for infrastructure that is or will be owned or operated by an ineligible water system, such as a publicly/privately owned, non-community system or any type of federally owned system (1.4 above). 1.6.5 Projects needed mainly or intended primarily for something other than correcting an environmental/health violation or risk, including but not limited to: Fire protection or suppression Supporting, supplying or attracting future growth for the community. 1.6.6 Projects for systems subject to significant regulatory noncompliance, if the funding does not directly lead to compliance (1.7 below). 1.7 Project Eligibility The intent of the Safe Drinking Water Revolving Loan Fund is financial assistance to comply with the Safe Drinking Water Act and to further public health protection goals of drinking water quality standards administered by the Oregon Health Services. 1.7.1 General. Eligibility is therefore limited to projects that are at least necessary to: Ensure that a water system satisfies or will continue to satisfy applicable requirements, and Alleviate risks or hazards to the drinking water public with the most serious health problems receiving highest priority. 1.7.2 Multiple Noncompliance Issues. If a water system suffers from multiple problems affecting different types of regulations under the Safe Drinking Water Act for example, source water contamination (such as nitrates), treatment plant deficiencies (such as corrosion control) and a distribution system breakdown (such as leaky pipes causing excessive water or pressure loss) then: The water system needs to submit a separate Letter of Interest for each project or system improvement that resolves each type of compliance problem, comparable to the above examples. Multiple Letters of Interest may be simultaneously submitted. (see Appendix I) Health Services ranks the projects on the Project Priority List of the state s Intended Use Plan according to several factors, but the more prominent criteria relate to the seriousness of the drinking water safety problem (1.9 below). 5

Safe Drinking Water in Oregon Before seeking a loan for any less serious project, the system needs to apply to the department for funding the project corresponding to the most serious problem and not for any activity that is not linked to that problem. 1.7.3 Multiple Phases/elements of Single Project. Given a project as defined above, the applicant may seek funds and apply to the department for any phase or combination of phases in a single application. For example, funding for final engineering, design and construction of the water system improvements may all comprise a single application, or it might seek only final engineering and design funds, with subsequent application to be made to pay for actual construction. 1.7.4 Planning/preliminary engineering. Eligibility for planning projects depends on the department, Health Services and the applicant determining that completion of planning and/or preliminary engineering (using the fund) before making application to pay for final engineering, design and/or construction is in the best interests of the water system. 1.8 Capacity Analysis 1.8.1 General. The state will review the overall financial, managerial and technical capacity of the applicant to maintain compliance with the Safe Drinking Water Act, such that: If a system does not have the technical, managerial or financial capacity to ensure compliance, or has a significant deficiency in one or more of these respects, then the system may receive assistance only if: The assistance will ensure sufficient capacity for compliance or The owner or operator of the system agrees to undertake appropriate changes or restructuring that will ensure the system has the technical, managerial and financial capacity to meet and maintain compliance with the Safe Drinking Water Act. The state will assist the applicant in correcting deficiencies in financial, managerial and technical capacity, when possible. Other resources may be allocated or available to the applicant that may ensure compliance in one or more of the three capacity review areas. Consolidation with another water system is a common alternative for resolving shortcomings with managerial, technical or financial capacity, where proximity or other factors offer opportunities to exploit economies or efficiencies. This can mean full physical or organizational consolidation of two or more systems, or the consolidation, sharing or contracting of management or other types of common services or resources. The requirements and review processes for managerial, technical and financial capacity are described below in more detail. This review will commence shortly after an application is submitted to the department. 1.8.2 Managerial Capacity Review. The managerial capacity review is the responsibility of Health Services. This review will look at the applicant s overall condition of system management. Assessment will include identification and evaluation of the following elements: 6

Program Guidelines And Applicant s Handbook (March 2009) Clear ownership identity and accountability of the system Capable personnel and adequate personnel policies Management s understanding of regulations, rules, ordinances and professional practices Adequate source protection and management (Part 6) Maintenance of a current facility/system master plan. 1.8.3 Technical Capacity Review. The technical capacity review is also a Health Services responsibility. This review will look at the overall condition of the applicant s infrastructure and staffing. Assessment will include identification and evaluation of the following elements: Appropriate infrastructure and technologies ( hardware ) A reliable water source of reasonable quality Adequate operation and maintenance practices Adequate infrastructure and planning for capacity System is adequately staffed and includes trained and certified operators. 1.8.4 Financial Capacity Review. Financial capacity of a system will be assessed by the Economic and Community Development Department, in connection with underwriting analysis for project approval purposes (1.10.1 below). This assessment will include identification and evaluation of the following elements: Appropriate budgeting, accounting and financial reporting A capital-financing plan Healthy financial ratios and ratings Adequate rates, charges and revenues Appropriate valuation of rate base (privately owned systems). 1.9 Letters of Interest, Statewide Ranking and Emergencies The final main element of eligibility is that the project to be funded is on the Project Priority List and ranked high enough to receive a loan award. This list is part of the Intended Use Plan annually submitted by Health Services to the U.S. Environmental Protection Agency, in order to receive the federal grant that capitalizes the SDWRLF. 1.9.1 Projects are included in the Intended Use Plan, if the water system has submitted a Letter of Interest with project and financial information (see Appendix I). The state conducts a call for these Letters of Interest on an annual cycle. 1.9.2 All projects are then reviewed, scored and ranked by Health Services, to form the Project Priority List (see Appendix J). This ranking dictates if the water system may submit an application for funding to the department, as follows: 7

Safe Drinking Water in Oregon A funding line is made in the ranking where projects with the same or more points would entirely exhaust all of the moneys estimated to be available during that annual funding cycle Only the projects above this funding line are allowed to submit an application. However, projects that are below the funding line but are ready to proceed may apply and, so long as no higher ranked projects are ready to proceed, will be evaluated for funding Available moneys include the applicable portion of that year s capitalization grant (and 20 percent state match), such funds remaining from prior years, and repayments of earlier loans i.e., revolving funds The ranking consists of projects from the most recent Letters of Interest and those submitted up to two years before After one year, a water system may replace its existing Letter of Interest with a new one, which will be re-scored, or rely on the prior year s submission/scoring In either case, the project will be re-ranked, and its position above or below the funding line may change as a result of the available amount of funds in the next year, as well as the quality and relative scores of newly proposed projects Projects may be removed from the list for one reason or another, thus allowing projects immediately below the funding line to bypass and be eligible to apply After at most two years, projects will be dropped from the Project Priority List, such that the water system will need to submit a new Letter of Interest for the project to be placed on a new Project Priority List The department and Health Services will strive to keep would-be applicants aware of their eligibility to submit final applications for funding. 1.9.3 Emergencies. The only way to be funded other than the annual process associated with submission of a new Intended Use Plan to USEPA (or amendment of the existing Plan) is an emergency project declaration by Health Services Administrator of Public Health Systems. The emergency must have the following characteristics: Entails a dangerous lack of potable drinking water for a community over what will otherwise be an extended time period Represents a severe threat to public health Occurred within 180 days before application is submitted to the department Arose from a reasonably unexpected occurrence, catastrophe, etc. i.e., a situation arising from preventable negligence will likely not qualify. 8

Program Guidelines And Applicant s Handbook (March 2009) 1.9.4 Increased Awards. Increases above the amount contained in the Letter of Interest will be awarded to projects to the extent necessary to fulfill the objectives of the project. 1.9.5 For both Emergencies and Increased Awards (1.9.3 above and 1.9.4 above): Loan underwriting guidelines must still be met (see Appendix E) Sufficient SDWRLF funds must be available at the state level, and The funding line s position in Project Priority List ranking may be affected. 1.9.6 Periodically, the state will assess whether at least 15 percent of SDWRLF moneys are being awarded to small public water systems each year, as required under federal law. In this context, small systems are ones serving 10,000 or fewer people. If there is any likelihood that less than 15 percent of these funds will be annually awarded to small systems, then only small systems will be considered until there is assurance that the 15 percent requirement will be satisfied. Part 2 Financial Benefits Infrastructure Projects 1.10 General Financial Assistance by the Department 1.10.1 Loans from the Safe Drinking Water Revolving Loan Fund (SDWRLF) will be awarded for eligible projects based on the loan underwriting criteria that are commonly employed by the department. (see Appendix E) 1.10.2 Prior to the consideration or preparation of an application, would-be applicants are encouraged to attend One-Stop Financing meetings, which the department convenes. These meetings offer discussion and review of various funding sources and development issues, and typically involve other state and federal officials. 1.10.3 The department will determine the amount and type of financing to be awarded to an applicant based on a complete staff analysis and recommendation, which may reflect comments from applicable federal and state agencies. 1.10.4 The department will require security pledges for all approved loan financing. The form and amount of security will be consistent with the nature of the project and the creditworthiness of the applicant. Subordination of the SDWRLF loan to other system liabilities will be considered on a case-by-case basis. Loan repayment may include pledges of utility revenues or other revenue funds. Recipients must make a pledge of full faith and credit, unless, by law, they may not (see Appendix E). 1.10.5 In assisting an applicant/water system, the department may structure a financing package comprised of various sources of funds administered by the department. Potential elements of this package, besides an SDWRLF loan, would be available for consideration: State lottery-funded Water/Wastewater Financial Assistance, administered by the department, may be used for cities, counties and other municipal districts. 9

Safe Drinking Water in Oregon When additional funds are needed for an especially large project to be feasible, the department can help some water systems with revenue-bond loans that are pooled and sold as part of the Oregon Bond Bank, under the Water/Wastewater Financing Program as noted above. Finally, in cases where keeping a public project affordable for residents and ratepayers is a challenge, grant awards may be possible from federal or lotteryfunded programs or other sources for certain systems, although principal forgiveness by this fund will usually be the first option (1.11.4 below). 1.11 Loan Terms, Rates, Maximums and Principal Forgiveness 1.11.1 Term. No SDWRLF loan shall exceed the useful life of the facility being built. Within this parameter the following maximum terms are allowed, with the first annual repayment beginning on December 1, following project completion: Twenty years for standard loans Up to thirty years for a Disadvantaged Community. 1.11.2 Annual Interest Rate. For standard loans, the rate is set at the time that the award is made, based on the prevailing rate for the current quarter, which is 80 percent of the annual yield for State and Local Bonds from the last week that ends in the preceding quarter, as reported in the Federal Reserve Statistical Release H.15 (519) [Note 16]. Loans to Disadvantaged Communities are assessed interest on a sliding scale between the interest rate for a standard loan and one percent. Loans will be based on loan affordability. The goal will be to offer the most affordable loan possible (within program constraints as noted) such that user rates are brought as close to the affordability rate as programmatically possible for the community. Determination of subsidy level will progress as follows: 1) Extension of loan amortization period from 20 years up to 30 years. If amortizing loan up to 30 years does not bring the user rate as close to the affordability rate as possible programmatically, reduced interest rates will be considered; 2) Interest rate level will be adjusted between standard loan rate (80% of 20- bond index) and fully subsidized rate of 1%. If reducing the interest rate to 1% does not bring the user rate close to the affordability rate, principal forgiveness may be considered. 3) Principal forgiveness will be awarded at a level sufficient to bring user rate as close to the affordability level, up to a maximum of $250,000. 1.11.3 Loan Limit. Loans may be awarded up to but not exceeding $6million per project, except with special approval of the Oregon Drinking Water Advisory Committee. (The small-system allocation could limit awards, too see 1.9.6 above) 10

Program Guidelines And Applicant s Handbook (March 2009) 1.11.4 Subsidy. Only for Disadvantaged Communities if, after following the process outlined in 3.2.2 above some amount of the loan principal is to be forgiven the following overarching programmatic parameters prevail: The amount used for principal forgiveness may not exceed 15 percent of each annual capitalization grant as awarded to Oregon by USEPA. For water facilities master plans and other planning studies the amount of forgiven principal may not exceed $20,000 or 33 percent of the total SDWRLF award whichever is less. For design and construction projects, all of the following must be met: The amount of forgiven principal may not exceed the lesser of $250,000 or 25 percent of the total SDWRLF award for project. No more than 33 percent of total project funding may be paid by grants or principal forgiveness, regardless of source i.e., at least 67 percent of the project budget must be borrowed or selfgenerated. The total amount of principal forgiven, in combination with subsidies/grants through the department or otherwise shall not be so much as to lower the average annual water rate below the level that determines status as a Disadvantaged Community (1.12.3 below). As appropriate, SDWRLF principal forgiveness or other grant-type subsidies that the Department or other sources may provide shall be reduced to adhere to the above restrictions in awarding the loan. The subsidy is intended to benefit the users of the drinking water system, and not the system s owner. This is a concern primarily in the case of privately owned systems. Consequently, in the event that the system is sold, the value of the subsidy shall not be part of the purchase price. This can be achieved by ensuring that any subsidy is treated as a contingent liability and not as (owner) equity in the financial statements of the water system. (see Appendix A OAR 123 049 0050) 1.12 Disadvantaged Community Status Oregon is expanding its Disadvantaged Communities Program to provide for the following additional eligibility activities: 1. Consolidation/Elimination of Non-Viable Public Water Systems: Within the context of this activity, a Disadvantaged Community is defined as a community served by a public water system that lacks capacity as defined by the Safe Drinking Water Act, Section 1420 and 1452(a)(3). Principal forgiveness loans and reduced interest/expanded term loans will be made to the most appropriate public water system having capacity that is willing to take over a failing Disadvantaged Community water system. In most cases, this will consist of a project to run supply to and replace the distribution system in the Disadvantaged Community. These projects will be initiated by either DHS or OECDD, and thus no application will be involved nor will these be listed on the Project Priority List but will be reported in the Annual Report. Up to 10% of the Capitalization Grant may be utilized for this program depending on the ability of DHS or OECDD to identify these projects and secure agreements from all systems involved. This amount shall be considered as part of 11

Safe Drinking Water in Oregon the funds for standard projects and will not be differentiated until committed. 2. Asset Management Training: Water systems qualifying as Disadvantaged Communities must participate in Asset Management training provided through the Oregon Drinking Water Program unless the system can demonstrate that it is already implementing an asset management program. This training will be funded through the DHS s Drinking Water Program Capacity Development Program (Section 3.3). The determination that a water system is a Disadvantaged Community depends on objective criteria measuring how affordable the future water rates are relative to the prevailing income of residents i.e., a community-wide ability-to-pay test. 1.12.1 Eligible Systems. Any water system that is normally eligible under the SDWRLF (1.4 above) may be a Disadvantaged Community, with the exception of a privately owned system that is not regulated under the jurisdiction of the Oregon Public Utility Commission (see Appendix A OAR 123 049 0050). 1.12.2 Additional Benefits. As indicated (1.11 above), a Disadvantaged Community is charged an interest rate below the standard loan rate but no less than 1 percent on its SDWRLF loan; its loan term may be as much as 30 years, and it may receive principal forgiveness to the extent that the Disadvantaged Community criterion will continue to be met after factoring in this or any other subsidy/grant that the project will receive. 1.12.3 Criterion. To be a Disadvantaged Community: The average annual residential rate for drinking water must be at or above the indicated affordability rate for the area generally served by the water system: The average annual water rate is 12 times the monthly fee that the water system would need to charge its residential service connections for 7,500 gallons of water consumption per month, as calculated by the applicant and verified by the department after taking account of operations, maintenance, replacement reserves, debt repayment and all other reasonable system expenses, including the funded project. As applicable, the water user rate will incorporate fee-equivalents derived from other local funding sources that are or will be used to pay for the water system, including any special levy on taxable property within the system s territory. The median household income is based on the corresponding 2000 Census figure for the city or other more appropriate census statistical unit (e.g., census block group) that contains or is representative of the system s residential users. A water system should consult with the department if the 2000 Census figure might significantly overstate the relative level of current household income in the local area. In such cases, a special survey that either exists already or is newly commissioned (consistent with the department s usual procedures) may be used to establish a comparable, up-to-date median income figure, which is then deflated to 2000 dollars. The median household income figure for the system area must be less than the corresponding figure for the state of Oregon (2000 Census), unless the average 12

Program Guidelines And Applicant s Handbook (March 2009) annual residential water rate is more than twice the affordability rate above, as adjusted for inflation. 1.12.4 Subsequent Adjustments for Price Inflation. Each year, the affordability rate will be adjusted based on an indexed percentage of local median household income. This will continue until the next decennial Census figures are available and/or changes are made to the computational factors described here. 1.12.5 Implementation of Sufficient Water Rates. Prior to complete disbursement of a loan award, the water system must take final administrative and legal action for instituting fees sufficient to satisfy the water user rate criterion that allowed for Disadvantaged Community status (1.19.4 below). 1.13 Technical Assistance For rather small water systems that face difficulty in undertaking basic planning or even the preparation of a loan application, assistance may be available from a variety of sources, with which the department or Health Division may be able to help in particular: 1.13.1 The Health Division provides resources or contract-consultants for application preparation and project planning by systems serving less than 3,300 residents. 1.13.2 City, county and certain other types of municipal water districts may also be able to work with the Department s Regional Coordinator for their County to access other department-administered funds, strictly for purposes of project or system planning. Part 2 Application and Funding Process 1.14 Types of Infrastructure Projects 1.14.1 Three main types: Planning and Preliminary Engineering Final Design and Specifications Construction 1.14.2 Note: An applicant may combine into a single application or may make a separate application for each of the three types of projects. 1.14.3 Planning and Preliminary Engineering. Loans may be used to pay for preliminary planning and for legal, fiscal or engineering investigations to determine the feasibility of a water project and so forth. Examples of eligible project components include: Capital improvement and facilities master plans Engineering studies Problem identification studies Preliminary engineering work 13

Safe Drinking Water in Oregon Water treatment pilot studies or corrosion control studies Preparation of a construction application to the SDWRLF program. Any comprehensive assessment of the water system must result in a plan that addresses the needs of the system and demonstrates revenues to meet future improvement costs over a time frame of 20 years or the loan term, whichever is greater. Any planning and preliminary engineering project must produce a report or plan document with at least the following elements: Characterization of area to be served by the eventual construction project/system improvements that are proposed and the need or problem to be resolved thereby Identification of existing water system facilities in the area to be served, including condition, adequacy and suitability for continued use Analysis of options to correct the problem Description of most cost-effective and environmentally sound alternative Cost estimate for proposed system and discussion of financing options Current and proposed annual operating budget and rate structure adequate for operation, maintenance and future indebtedness of the proposed system and long-term capital replacement reserves Appropriate maps, drawings, and sketches Discussion of all anticipated construction difficulties Conclusions and recommendations. The actual contents of the scope of work and final product will be determined for each project on a case-by-case basis by the recipient, Health Services and the department, but for a water system master plan, they must comply with OAR 333-061-0060(5) and relate to a specific improvement (see Appendix C). Any project identified in the plan document must be coordinated with local land use planning and capital improvement budgeting processes, in terms of the local timetable for future improvements, capital project priorities, estimations of cost, consideration of financing methods and so forth. For Planning and Preliminary Engineering loans, the financial contract will require that Health Services review draft reports and documents. The recipient must obtain Health Services comments before accepting the final product, and in the case of a water system master plan, pilot study for water treatment or corrosion control study, Health Services must find the draft report acceptable. 1.14.4 Final Design and Specifications. This phase of a project is often combined with a construction application, although funding can be awarded separately. An application for final design and specifications must include an engineering feasibility report stamped and signed by a professional engineer registered in Oregon. The report must contain the following: discussion of project feasibility, description of possible solutions and recommended option, a construction time line, estimate of 14

Program Guidelines And Applicant s Handbook (March 2009) project costs, and a plan for operation, maintenance and long-term replacement of the facilities. A project for final design and specifications must provide the applicant with all the elements necessary to proceed to a construction project, including: Project description, including an explanation about the rationale for the site and about the capacity of the proposed water system facility Pre-design reports Final engineering design and bid specifications Detailed cost estimates of everything necessary to complete project Identification of all permits and approvals necessary for the project with a schedule showing a realistic review and process for each Financial feasibility information, including information about the applicant s financial situation Maps showing locating tax lots or parcels in the project area, and the specific location of the project, including, if applicable, line sizes, etc. Environmental review of the proposed project conforming to State Environmental Review Program (SERP), other applicable federal authorities and USEPA implementing regulations (see PART 5, as well as Appendix F and Appendix H). 1.14.5 Construction. An application for construction must include an engineering feasibility report stamped and signed by a professional engineer registered in Oregon that includes the items in 1.14.4 above. Loan funds for construction may be used to pay for activities such as: Bid process in conformance with State Public Procurement Laws Federal requirements of Uniform Relocation and Acquisition Act Construction of improvements Construction management Construction contingencies Appraisal and acquisition of real property, easements or rights-of-way Project audits Installation of water metering equipment and systems (1.19.4 below) Acquisition and installation of water treatment equipment Cost to purchase property currently being leased by the applicant. 1.15 Public Notification of Application 1.15.1 Publicly Owned Water Systems. Each applicant of a publicly owned water system is encouraged to give the public notice and to hold a public hearing before submitting a final application. The hearing may be held in conjunction with a regularly scheduled meeting of the governing body. Local public notice should be given by the applicant through the news media customarily used within the community, explaining the purpose of the hearing (see Appendix D). A public 15