Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO: KRS Chapter 224
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
224A.070(1) and
224A.113
authorize the Kentucky Infrastructure Authority to promulgate administrative
regulations in accordance with KRS Chapter 13A, to govern the application for
and provision of financial assistance to governmental agencies for the
construction or acquisition of water resources projects from the Drinking Water
Loan Fund.
Section 1. Definitions. For
the purposes of this administrative regulation the words and terms used shall
have the same meaning as in
KRS
224A.011, with the following additions:
(1) "Applicant" shall mean any governmental
agency that has submitted an application to the authority for a loan from the
Water Resources Loan Fund.
(2)
"Application" shall mean the application submitted by an applicant for a loan
from the Water Resources Loan Fund.
(3) "State clearinghouse review" shall mean a
review conducted within the Department of Local Government pursuant to federal
or state law or regulations.
(4)
"Authority staff" shall mean the Office of Financial Management and Economic
Analysis.
(5) "Conditional
commitment letter" shall mean a letter delivered to the applicant issuing the
authority's commitment to provide a loan under specific terms and subject to
the satisfaction of certain conditions by the applicant on or before the
closing date.
(6) "Department"
shall mean the Department of Local Government.
(7) "Closing date" shall mean the date
established by the authority for execution of the assistance agreement upon
satisfaction of the conditions contained in the conditional commitment
letter.
(8) "Water Resources Loan
Fund" shall mean the Water Resources Loan Fund established pursuant to the
authority of KRS Chapter 224A.
(9)
"Capital investment plan" shall mean the plan developed by the applicant for
investment in capital projects as required by
KRS
224A.112(6)(b).
(10) "Index rate" shall mean the average of
the Bond Buyer's Index of twenty (20) G.O. Bonds as published weekly in the
Bond Buyer (a financial newspaper published in New York) calculated based on
the weeks falling within each calendar quarter. This average shall be rounded
the nearest one-tenth (.1) of one (1) percent.
(11) "Special Depreciation Fund" shall mean
the Special Depreciation Fund required to be established by an applicant by
Section 6 of this administrative regulation in connection with a loan from the
Water Resources Loan Program.
Section
2. General Eligibility Requirements and Conditions to Financial
Assistance.
(1) Applications shall only be
submitted by applicants for water resources projects located in the Big Sandy,
Cumberland Valley, Kentucky River, or Gateway Area Development
Districts.
(2) Only applicants that
certify in writing that they are unable to finance the entire water resources
project from their own resources shall be eligible for a loan. Documentation
evidencing such inability shall include the following:
(a) Letters from local lending
institutions.
(b) Letters from
financial advisors, accountants or fiscal agents, if applicable.
(c) If the applicant is in an area which
qualifies for assistance through the Farmer's Home Administration, (FmHA), a
statement stating either:
1. The applicant
will not qualify for funding;
2.
The applicant has previously applied for FmHA funding and has failed to receive
assistance in two (2) consecutive attempts; or
3. The applicant needs to supplement the FmHA
funds with Water Resources Loan Funds.
(d) Statements from any other sources or
other certifications having a bearing on the application which the authority in
its discretion deems relevant for purposes of making the determination that an
applicant is unable to finance the entire water resources project from its own
resources.
(3) Each
applicant shall have or shall attain the legal authority necessary for
constructing, operating and maintaining the proposed water resources
project.
Section 3.
Eligible Water Resources Projects. Monies in the Water Resources Loan Fund
shall be used for water resources projects which shall enhance the health,
safety and welfare, and encourage economic development opportunities in local
communities as determined by the authority based upon each
application.
Section 4. Submission
Requirements and Review Process.
(1) The
original and two (2) copies of each application shall be submitted to:
Department of Local Government, Capital Plaza Tower, 2nd Floor, Frankfort,
Kentucky 40601, Attention: Director, Division of Community Programs.
(2) The application form, substantially in
the form as in effect on April 15, 1991, which is incorporated by reference and
is made a part hereof as if fully set forth herein, may be obtained at the
Department of Local Government from 8 a.m. to 4:30 p.m., Monday through Friday.
Only a completed application, including all supporting documentation, shall be
submitted before an application will be considered for assistance from the
Water Resources Loan Fund.
(3)
Applications shall be subject to Kentucky state clearinghouse review, shall be
reviewed by the Department of Local Government, and shall be subject to
authority credit review. Extensions of any review periods that are established
may be necessary if the applicable reviewing agency determines that additional
time is required for a more thorough review, or if any such agency determines
that additional information or clarification is required to complete review of
the application. Applicants may supplement their applications during the review
process to:
(a) Clarify or explain the water
resources project scope;
(b) To
provide additional information or clarification concerning the funds pledged as
repayment of the loan; or
(c) To
make adjustments in the application to enhance the programmatic or financial
feasibility of the water resources project.
Section 5. Criteria for Selecting Eligible
Water Resources Projects.
(1) The Department
of Local Government shall select and determine eligible water resources
projects for loans. The department shall take into consideration the following:
(a) Unemployment data, which shall be
specific to the county or counties from which the application originates and
shall reflect the most recent figures available from each county.
(b) The extent to which the water resources
project fits into the economic development strategy of the community. A water
resources project which relates to economic development is one that stimulates
the potential for economic growth. A water resources project shall be
considered based on the degree to which it enhances economic development
efforts and its level of priority in the community's capital investment
plan.
(c) The extent of the need
for the water resources project and the impact which the water resources
project will have on the local economic development efforts.
(d) Whether the proposed costs of completing
the water resources project are reasonable given the geographic location of the
water resources project, current pricing trends, required professional
services, and any other factors that may have a bearing on the water resources
project. Cost figures submitted in the application will be reviewed to
determine whether the proposed budget is sound. Any costs considered
questionable will be analyzed to determine whether the integrity of the water
resources project is suspect.
(e)
Whether, based upon the department's evaluation of the overall water resources
project effectiveness, the most beneficial water resources project has been
designed for the use of the Water Resources Loan Fund.
(2) The department shall review applications
and assign a priority ranking based on the selection criteria. Water resources
projects shall be ranked as Priority I, Priority II, or Priority III.
(a) A Priority I ranking shall be assigned
when, having considered all of the criteria, the water resources project will
have a significant economic impact on the community; is well designed; cost
effective; and, generally, determined by the department to be the most suitable
solution to the community's needs.
(b) Priority II shall be assigned when one
(1) or more factors exist which would limit the success or feasibility of the
water resources project.
(c)
Priority III shall be assigned when, having considered all the criteria, the
department finds that the water resources project is premature, is not
feasible, or is inappropriate for assistance from the Water Resources Loan
Fund.
(d) The department shall
recommend Priority I rankings to the authority's staff for financial
review.
(3) Authority
staff shall conduct a financial review of the Priority I designated water
resources project applications.
(a) The
financial review shall include an analysis of:
1. The adequacy and quality of the revenues
pledged for the repayment of the loan;
2. The validity of the assumptions used to
project new revenues resulting from the water resources project;
3. Whether monies other than the water
resources loan have been committed and shall be available to fund the cost of
the water resources project;
4. The
ability of the applicant to provide for maintenance and operations cost of the
water resources project and related public service system;
5. The ability of the applicant to service
existing debt of the system related to the water resources project;
6. The nature of any funds pledged or
committed by entities, other than the applicant, to repay the water resources
loan; and
7. The ability of the
authority to finance the applicant's water resources project using the
financing programs permitted by Kentucky and federal laws or
regulations.
(b) At any
time during the financial analysis, an applicant may be notified of a
deficiency. If the problem cannot be resolved through negotiation, the
authority may remove the application from consideration.
Section 6. Loan Process.
(1) Upon completion of the credit review by
the authority's staff, the application shall be submitted to the authority for
final action.
(2) If the authority
approves the application, a conditional commitment letter shall be issued to
the applicant. This letter shall set forth the conditions and documentation
required by the authority prior to execution of an assistance agreement. No
funds shall be provided until the assistance agreement is fully executed. The
commitment shall be made upon the authority's satisfaction that the water
resources project proposed is financially feasible, the applicant is credit
worthy and that the water resources project will comply with all technical and
program requirements set forth in state and federal laws and
regulations.
(3) The authority
shall establish the interest rate quarterly based on prevailing market
conditions. The rate of interest on each loan shall be set forth in the
conditional commitment letter. There shall be one (1) rate of interest offered
which will be the index rate less four (4) percent. If the nature of a water
resources project financed by the authority's loan causes interest on any
authority bonds issued to fund the water resources project to become taxable,
the authority may consider adjustments in the interest rate to reflect the
additional costs of authority funds.
(4) Loan repayment shall not exceed thirty
(30) years, and principal shall be payable annually and interest semiannually
unless the authority establishes a more frequent payment schedule due to credit
concerns. The loan repayment period may be less than thirty (30) years upon
election of the authority. Loan repayment shall commence within six (6) months
after the start of construction, unless repayment is dependent upon revenues
generated from the specific water resources project. In such cases, loan
repayment shall begin within six (6) months after the water resources project
is operational, and interest to cover the authority's cost of money during the
construction period may be added to the amount of the loan.
(5) The principal amount of each loan shall
be equal to the amount approved by the authority. The final loan amount may be
adjusted by up to ten (10) percent of the commitment without further action by
the authority, subject to availability of funds to service the debt.
(6) Upon certification by the water resources
project engineer of construction of the water resources project as eighty (80)
percent complete, and submission by the applicant of evidence of the exact cost
of the water resources project, an inspection shall be conducted by the
authority staff to provide for any adjustments in the loan amount.
(7) To assure adequate funds for major
maintenance and replacement of the water resources projects funded by this
program, the applicant shall be required to set aside annually, to a Special
Depreciation Fund, from current revenues, after taking into account costs of
operations and maintenance and debt service requirements, an amount to be
determined by the authority. Monies may be withdrawn from the account when
major maintenance or replacements of equipment in excess of budgeted amounts
are required.
(8) The assistance
agreement between the authority and applicant shall contain such terms and
conditions as the authority deems necessary to maintain the integrity of the
Water Resources Loan Fund according to the circumstances of each water
resources project.
Section
7. Applicant's Management Capacity. The department and the
authority's staff shall require as a condition of any loan that the applicant
perform any or all of the following:
(1)
Document compliance with statutory mandates for financial accountability and
personnel management.
(2)
Demonstrate the ability to operate, as well as maintain, the water resources
project in a proper manner through the final maturity date of the
loan.
(3) Document compliance with
any other state or federal laws or regulations.
Section 8. Loan Closing and Extensions. An
applicant shall meet all conditions of the conditional commitment letter and
take bids for the water resources project within not more than eleven (11)
calendar months after the date of the conditional commitment letter, otherwise,
the loan commitment shall expire. (For example, if an application was approved
on January 1, 1992, bids for the project must be accepted and the assistance
agreement signed by November 30, 1992.) One (1) extension period of up to six
(6) months may be granted upon request of the applicant, if the authority
determines that circumstances warrant the granting of the extension. If the
extension is denied, the loan commitment shall be rescinded. If a request for a
time extension is granted, but all the conditions still cannot be met during
the extension period, the loan commitment may be rescinded. The applicant may
reapply for any water resources project for which the loan commitment has
expired or been rescinded under this section.
Section 9. Authority to Administer the
Program. The authority shall monitor the assistance agreements and require that
financial reports be made available to the authority by the applicant at such
intervals as shall be deemed necessary by the authority. The authority shall
monitor the economic impact on the community, the cash flows of the project,
and perform all actions that shall be required to assure that the agreements
continuously meet the program standards established by this administrative
regulation. There shall be an annual administrative fee of two-tenths (.2) of
one (1) percent charged on the unpaid balance of all loans. This fee shall be
applied to the servicing costs of the loans and necessary operating expenses of
the program.
STATUTORY AUTHORITY: KRS Chapter 13A, 224A.070(1), 224A.113,
Part I, OPERATING BUDGET, sec. E. -Finance and Administration Cabinet, 44. a.
General Administration, Part II, CAPITAL PROJECTS BUDGET, sec. D. -Finance and
Administration Cabinet, 4. a. Ky. Infrastructure Authority of Chapter 514 of
the 1990 Ky. Acts, provides for funds-administer the Water Resources Loan
Fund.