Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
151.601,
151.603,
Chapter 224A,
42
U.S.C. 300f,
300g,
300j,
40 C.F.R. Part 25, Part 35 Subpart L
NECESSITY, FUNCTION, and CONFORMITY:
KRS
224A.070(1) and
224A.113
authorize the Kentucky Infrastructure Authority to promulgate administrative
regulations to implement
KRS
224A.1115. This administrative regulation
establishes requirements for applying for funding from the Drinking Water State
Revolving Fund for the planning, design, or construction of new and expanded
facilities to deliver potable water for public use and establishes requirements
and criteria to prioritize the projects to receive funds. This administrative
regulation conforms to federal requirements, except is more stringent in that
projects must be consistent with state drinking water planning requirements
contained in KRS Chapter 151.
Section
1. Definitions.
(1) "Applicant"
means any governmental agency, except a federal agency, that has submitted an
application to the authority for financial assistance from the Drinking Water
State Revolving Fund.
(2)
"Application" means the information submitted by an applicant to the authority
to obtain assistance, including the need for a specific project or
infrastructure, and including financial information necessary to determine
eligibility for assistance from the federally-assisted Drinking Water State
Revolving Fund.
(3) "Area water
management plan" means the community-based plan, as authorized by
KRS
224A.300(1), and
151.603,
identifying needs and service projects to address water supply and drinking
water with the goal of making potable water treatment available to all
Kentuckians.
(4) "Area water
management planning council" means the group of elected and appointed leaders,
utility representatives, health department representatives, and citizens at
large designated pursuant to
KRS
151.601 to develop an area water management
plan for water-related services in regions which are generally coterminus with
Kentucky's Area Development Districts.
(5) "Assistance agreement" is defined by
KRS
224A.011(3).
(6) "Authority" is defined by
KRS
224A.011(4).
(7) "Best practicable treatment and
distribution technology" means a treatment and distribution technology which,
in the best professional judgment of the cabinet's engineers, will adequately
treat and deliver the water from the raw water source to assure public health
and compliance with existing and future national drinking water standards, in a
cost effective manner.
(8)
"Cabinet" means the Environmental and Public Protection Cabinet established in
accordance with
KRS
224.10-100.
(9) "Capacity" means the financial,
managerial, and technical ability of a public water system to comply with all
applicable state and federal regulations.
(10) "Capacity development strategy" means
the strategic planning process used to determine how to assure the long-term
ability of public water systems to obtain or retain the capacity to comply with
all applicable state and federal requirements.
(11) "Clean Water Act" is defined by
KRS
224A.011(12) and is
otherwise known as the Federal Water Pollution Control Act.
(12) "Closing date" means the date
established by the authority for execution of the assistance agreement upon
satisfaction of the conditions contained in the conditional commitment
letter.
(13) "Conditional
commitment letter" means a letter delivered to the applicant stating the
authority's commitment to provide financial assistance under specifications and
subject to the satisfaction of certain conditions by the applicant on or before
the closing date.
(14)
"Disadvantaged community" means the service area of a public water system that
meets the affordability criteria established by the authority after public
review and comment and may qualify for additional subsidization of the
financial assistance terms.
(15)
"Drinking water project" means a drinking water project consistent with Section
3 of this administrative regulation.
(16) "Drinking Water State Revolving Fund"
means the federally-assisted water supply revolving fund created by
KRS
224A.1115.
(17) "Intended use plan" means the document
prepared annually by the cabinet and the authority, after public review and
comment, which identifies intended uses of all Drinking Water State Revolving
Fund Program funds and describes how those uses support the overall goals of
the Drinking Water State Revolving Fund Program and the Safe Drinking Water
Act.
(18) "Kentucky eClearinghouse"
means the automated Kentucky State Clearinghouse coordinating the federal
executive review process and the Kentucky intergovernmental review process, for
which the Governor's office for Local Development has been designated as the
single point of contact for federal or state financial assistance as required
by
KRS
147A.021(3)(k).
(19) "Kentucky State Data Center" means the
agency within the Urban Studies Institute of the University of Louisville
designated by the Commonwealth to serve as the repository and analyst of data
and information generated by the U.S. Census Bureau.
(20) "Median household income" means the
statistical middle value in household income, considering all households in
Kentucky with an equal number of households above and below the middle value,
as determined by the Kentucky State Data Center.
(21) "NEPA-like process" means the state
environmental review process that is functionally equivalent to the review
undertaken by the U.S. Environmental Protection Agency under the National
Environmental Policy Act,
42 U.S.C.
4321 et seq.
(22) "Project priority list" means a list of
all drinking water projects, with the exception of projects funded on an
emergency basis, that are scored using the cabinet's priority system, go
through a public review process prior to receiving financial assistance, and
are included in the intended use plan.
(23) "Public water system" means a water
system for the provision to the public of water for human consumption, if the
system has at least fifteen (15) service connections or regularly serves an
average of at least twenty-five (25) individuals daily at least sixty (60) days
of the year. The term includes collection, treatment, storage and distribution
facilities under the control of the operator of the system and used primarily
in connection with the system and collection and pretreat-ment storage
facilities not under the control of the operator of the water system which are
used primarily in connection with the water system.
(24) "Regionalization" means the creation of
expanded service areas which take in a large geographic area or multiple
systems; the creation of multijurisdictional utility commissions, special
districts, authorities or corporations; the utilization of interlocal
cooperation agreements; the consolidated operation or management of multiple
systems which may include regional facilities, smaller systems, or on-site
systems; or the merger, consolidation, or combination of two (2) or more
existing facilities or systems.
(25) "Replacement reserve fund" means the
special depreciation fund that may be established and funded by an applicant in
connection with financial assistance from the Drinking Water State Revolving
Fund.
(26) "Safe Drinking Water
Act" means the federal Safe Drinking Water Act, 33 U.S.C. 300f -j.
Section 2. Eligible Applicants.
(1) Any governmental agency, except a federal
agency, shall be eligible to apply for financial assistance for planning,
design and construction of eligible drinking water supply projects described in
Section 3 of this administrative regulation.
(2) Financial assistance under this
administrative regulation shall not be provided to an agency for a public water
system that:
(a) Does not have capacity to
insure compliance with the requirements of 401 KAR Chapter 8 and the Safe
Drinking Water Act; or
(b) Is not
in compliance with requirements of 401 KAR Chapter 8 or the Safe Drinking Water
Act, unless:
1. The use of the assistance will
insure compliance; and
2. The owner
or operator of the system agrees to undertake feasible and appropriate changes
in operations, including ownership, management, accounting, rates, maintenance,
consolidation, alternative water supply, or other procedures, that the cabinet
and the Authority determine are necessary to insure that the system has the
capacity to comply with the requirements of 401 KAR Chapter 8 and the Safe
Drinking Water Act.
Section 3. Eligible Drinking Water Projects.
(1) Funds in the Drinking Water State
Revolving Fund may be used for:
(a) Planning,
design, and construction of drinking water intake, treatment, and distribution
systems;
(b) Refinancing or buying
eligible debt obligations of a public water system;
(c) Purchasing water systems by other public
water systems;
(d) Guaranteeing or
purchasing insurance for a local obligation to improve credit market access or
reduce the interest rate of the obligation;
(e) Transferring fund assets between the
Clean Water State Revolving Fund and the Drinking Water State Revolving Fund as
allowed in the Clean Water Act and the Safe Drinking Water Act; and
(f) Providing a source of revenue or security
for the payment of principal and interest on revenue or general obligation
bonds issued by the state if the proceeds of the sale of the bonds will be
deposited in the fund.
(2) Drinking water projects shall address
Safe Drinking Water Act health goals, or situations where compliance standards
have been exceeded, or prevent future violations of the rules. The projects may
include:
(a) Drinking water treatment plants,
including basins for rapid mix, flocculation, coagulation, filtration,
pretreatment disinfection, and disinfection prior to entry to the distribution
system;
(b) Distribution
systems;
(c) Storage
tanks;
(d) Intake lines and
short-term raw water storage;
(e)
Clearwells;
(f) Drilled wells and
wellhead areas;
(g) Security
related facilities;
(h) Emergency
measures for the protection of public health; and
(i) Any other structure or facility that the
cabinet considers necessary to the efficient and sanitary operation of a public
water system.
(3) Funds
shall not be used for:
(a) Projects not
listed on the project priority list, except for emergency projects as provided
in subsection (2)(h) of this section.
(b) Dams or rehabilitation of dams.
(c) Water rights.
(d) Reservoirs, except for finished water
reservoirs and those reservoirs that are part of a treatment process and are
located on the property where the treatment facility is located.
(e) Laboratory fees and other monitoring
expenses.
(f) Operation and
maintenance expenses.
(g) Projects
needed mainly for fire protection.
(h) Projects for systems that lack adequate
capacity, unless financial assistance will assure capacity and
compliance.
(i) Land acquisition
where eminent domain is necessary.
(j) Projects primarily intended to finance
the expansion of any public water system in anticipation of future population
growth.
(k) Projects not favorably
considered by the area water management council unless the board finds
circumstances that justify overriding the council's recommendation.
Section 4. Process for
Selecting Eligible Drinking Water Projects.
(1) The cabinet shall develop the project
priority list once a year and shall provide public notice and seek public
comment of the contents of the project priority list in accordance with 40
C.F.R. Part 25 .
(2) The project
priority list may be divided into a fundable list of projects that are expected
to receive financial assistance from available funds designated for use in the
current intended use plan and a comprehensive list of projects that are
expected to receive financial assistance in the future, or the cabinet may
combine the fundable and comprehensive lists into one (1) list.
(3) The project priority list shall identify
the projects to be funded, both in the current year and in future
years.
(4) The order on the list
shall be determined by the priorities set forth in Section 5 of this
administrative regulation.
(5) If a
project is not ready to proceed, it shall be bypassed. The next highest
priority project which meets the requirements of this administrative regulation
shall be considered for funding.
(6) In accordance with
42 U.S.C.
300j-12 of the Safe Drinking Water Act and
this subsection, at least fifteen (15) percent of the funds available for
projects shall be awarded to projects for public water systems serving fewer
than 10,0000 people, unless all projects for systems serving fewer than 10,000
people have been funded, or are not ready to be funded, due to a failure to
comply with all of the requirements of this administrative
regulation.
(7) Funds may be
designated in the intended use plan to be used for financial assistance
pursuant to the provisions of
42
U.S.C. 300j-12(k) of the Safe Drinking Water
Act for land acquisition or a conservation easement for source water
protection. The Cabinet shall prioritize these projects separately from other
projects, based on public health protection and how the financial assistance
will aid compliance.
(8) All
projects shall be assessed in accordance with a NEPA-like review process, which
shall include consideration of regionalization, and shall be reviewed through
the Kentucky eClearing-house process.
Section 5. Criteria for Prioritization.
(1) Priority shall be given by the cabinet to
the projects that are necessary to:
(a)
Ensure compliance with the requirements of the Safe Drinking Water
Act;
(b) Address the most serious
risk to human health; and
(c)
Assist systems most in need on a per household basis.
(2) The cabinet shall make these
determinations based on the following factors:
(a) Resource development. Projects shall
include:
1. Projects that will improve a
public water system's ability to achieve capacity to comply with existing and
future national drinking water standards.
2. Projects to assure a sufficient quantity
and quality of raw water for treatment.
3. Projects which allow one (1) or more
public water systems to consolidate to achieve capacity to meet national
standards, such as intakes, wells, raw and finished water lines, and pump
stations.
(b) Improved
treatment. Projects to prevent or correct compliance problems and produce
potable water, such as presettling basins; aeration towers; full water
treatment plant processes such as rapid mix, coagulation, flocculation,
sedimentation, filtration, and clearwell; baffling; and chemical
feeders.
(c) Improved water
distribution systems, which includes projects to allow public water systems to
prevent and correct compliance problems and deliver potable water through the
existing distribution system, such as installation, refurbishment, or
replacement of finished water lines; storage facilities or pump stations;
elimination of constantly running or hydropneumatic pump stations; looping of
water lines; flushing devices; baffling of storage facilities; and disinfection
booster stations.
(d) Improving
public health through extension of new service lines and connections, including
projects where there is insufficient raw water available, or where the raw
water is of a quality that is unsuitable for an individual to treat to potable
water standards.
(e) Eligible
security-related projects such as fences, alarms, security cameras, or other
system improvements that will assist in preventing vandalism, terrorism, or
other deliberate adverse acts that will damage the system or pose a risk to
public health.
Section
6. Submission Requirements.
(1)
Projects proposed to be placed on the project priority list shall be submitted
to the local area water management planning council for inclusion in the area
water management plan. All project proposals shall be electronically forwarded
by the area water management planning council to the authority. The authority
shall electronically forward the necessary project information to the
cabinet.
(2) After inclusion on the
project priority list, a complete application package, including all supporting
documentation, shall be required for consideration for financial assistance
from the Drinking Water State Revolving Fund.
(3) The procurement of professional services
and construction contracts shall conform to KRS Chapter 45A or 424. Allowable
engineering service fees shall be determined using procedures similar to those
used by federal agencies conducting similar loan programs.
Section 7. Drinking Water Project
Requirements. In addition to other requirements stated in this administrative
regulation, the following specific requirements shall be met:
(1) The drinking water project shall use the
best practicable treatment and distribution technology.
(2) Any drinking water project with a related
distribution system shall assure that the distribution system is in good
repair, or shall include a component to address system problems, to assure that
water loss will be within acceptable ranges for the system.
(3) The drinking water project shall be
consistent with long range water supply plans developed pursuant to KRS Chapter
151, and with capacity development strategies developed pursuant to the Safe
Drinking Water Act.
(4) The
applicant shall demonstrate that the public water system that is to benefit
from the project, has capacity to operate in accordance with 401 KAR Chapter 8
and this administrative regulation; or, the applicant shall demonstrate that
the project will create capacity for the public water system to operate or be
operated in accordance with 401 KAR Chapter 8 and this administrative
regulation.
(5) The applicant shall
have an adequate revenue stream to assure the repayment of the financial
assistance while allowing capacity to efficiently operate the public water
system.
(6) The drinking water
project shall be cost effective.
(7) All construction contracts shall be
awarded to the lowest responsive responsible bidder.
Section 8. Provision for Financial
Assistance.
(1) Upon completion of the credit
review by the authority's staff, the application shall be submitted to the
authority's board for action, subject to the cabinet's priority ranking and
favorable recommendation of the project. The credit review shall include an
analysis of the applicant's ability to generate sufficient revenue based on
financial statements provided by the applicant to cover operating costs and to
repay the required principal, interest, fees, and reserves required by receipt
of the financial assistance. The cabinet's recommendation shall be based on the
project's compliance with the technical and environmental requirements of the
Safe Drinking Water Act.
(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. Funds shall not be provided until the assistance agreement is fully
executed and any special conditions included therein met.
(3)
(a) The
authority shall establish interest rates based on:
1. Prevailing market conditions;
2. Availability of funds; and
3. Demand for financial assistance.
(b) The executive director of the
authority shall recommend rates to the authority board for approval at least
annually.
(c) The rate of interest
on financial assistance shall be set forth in the conditional commitment
letter.
(d) Interest rates shall be
offered at the:
1. Standard rate;
and
2. A nonstandard rate, which
may be lower than the standard rate.
(e) Applicants shall receive the standard
rate of interest unless they qualify for the nonstandard rate.
(f) The authority may establish one (1) or
more nonstandard rates and shall use the following criteria in establishing a
nonstandard rate:
1. The median household
income of the applicant's jurisdiction or service area as published by the
Kentucky State Data Center:
2. The
median household income of the service area as identified by income
surveys;
3. Regionalization as set
out in Section 1(24) of this administrative regulation and verified by the
authority;
4. Qualification as a
disadvantaged community as set out in Section 1(14) of this administrative
regulation and verified by the authority;
5. The existence of an order or judgment
addressing environmental noncompliance; or
6. Other criteria relating to public health
or safety or financial considerations that the authority may
determine.
(g) If the
nature of a drinking water project financed by the authority's financial
assistance causes interest on any authority bonds issued to fund the drinking
water project to become taxable, the authority may consider adjustments in the
interest rate to reflect the additional costs of authority funds.
(4) Principal on any financial
assistance shall be repaid over a period not to exceed federal requirements or
the life of the facilities being financed. Repayment of principal shall
commence within one (1) year of the initiation of operation of the drinking
water project or upon another date as may be set forth in the assistance
agreement. Principal shall be payable semiannually, unless the authority
establishes a more frequent payment schedule based on the credit review. The
repayment period may be equal to or less than the federally-permitted maximum
at the discretion of the authority.
(5) Interest payments on the outstanding
principal amount of the financial assistance shall be paid semiannually and
shall commence within six (6) months of initial disbursement of financial
assistance proceeds, unless the interest payments are dependent upon revenues
generated from the drinking water project. If interest payments are directly
dependent upon revenues, interest payments shall begin within six (6) months
after the drinking water project is completed, and interest to cover the
authority's cost of money during the construction period may be added to the
amount of the financial assistance.
(6) The principal amount of financial
assistance shall be equal to the amount approved by the authority's board. The
financial assistance amount may be adjusted by the authority's executive
director up to ten (10) percent of the amount stated in the conditional
commitment letter without further action by the board, subject to the
availability of user fees sufficient to service the debt and authority funds to
provide the increase.
(7) To ensure
adequate funds for major maintenance and replacement of the drinking water
projects funded by this program, the applicant may be required to set aside
annually to a replacement reserve 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 if major maintenance or replacement of equipment in excess of budgeted
amounts is required.
(8) The
assistance agreement between the authority and applicant shall contain terms
and conditions as the authority deems necessary to maintain the financial
integrity of the Drinking Water State Revolving Fund.
Section 9. Applicants' Capacity. The cabinet
and the authority may require as a condition of any financial assistance that
the applicant perform any or all of the following:
(1) Document compliance with requirements for
adequate capacity to operate the public water system;
(2) Demonstrate the ability to operate as
well as maintain, the project in a proper manner through the final maturity
date of the financial assistance or the useful life of the project, whichever
is greater; and
(3) Document
compliance with any other state or federal requirements that apply to this
program.
Section 10.
Submission and Review of Requisition for Funds.
(1) The original requisition for funds with
the required invoices attached shall be submitted to the authority and one (1)
copy of each requisition for funds with the required invoices attached shall be
submitted to the cabinet.
(2) The
cabinet shall review requisitions for funds for compliance with federal and
state requirements as defined in the conditional commitment letter and
assistance agreement before approving payment by the authority.
Section 11. Financial Assistance
Closing.
(1) If an applicant does not meet
all conditions for financial assistance closing and take action to award
contracts for the drinking water project as outlined in the conditional
commitment letter, the financial assistance commitment shall expire.
(2) An extension may be granted upon request
of the applicant if the authority staff, after consultation with the cabinet,
determines that circumstances warrant the granting of the extension. If the
extension is denied, the loan commitment shall be rescinded.
(3) 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 a loan for
any project for which the loan commitment has expired or has been rescinded
under this section. An applicant that reapplies for a loan for substantially
the same project shall be given, at the authority's discretion, the standard or
hardship interest rate applicable when reapplying or the initial rate assigned,
depending on affordability. Except, the interest rate shall not be lower than
the initial rate assigned to the project.
Section 12. Financial Assistance Conditions.
(1) In order to establish and maintain or
improve capacity, the applicant shall:
(a)
Adopt a uniform system of accounting, consistent with nationally-recognized
standards and approved by the authority, which includes an annual budget, a
chart of accounts, and a monthly management reporting;
(b) Certify that rates and charges for
drinking water services are, or will be adjusted to be adequate to cover costs
and that they are based upon the cost of providing the service; and
(c) Comply with other financial, managerial,
and technical conditions as established by the authority's board.
(2) If an applicant is found by an
administrative or court order to have violations which were cited by the
cabinet or other regulatory agency, the applicant shall be subject to a
financial review by the authority, and may be subject to a management
assessment or other review by the authority and shall comply with the
recommendations contained in the review or assessment.
Section 13. Authority to Administer the
Program. The authority staff shall monitor the assistance agreements and
require that financial reports be made available to the authority by the
governmental agency at intervals as shall be deemed necessary by the authority
based on financial performance or the compilation of a program report. The
authority staff shall monitor 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.
Section 14. Administrative Fees. At the
beginning of each state fiscal year, the authority shall set an administrative
fee to be charged for all financial assistance approved during that year. The
fee shall apply to the unpaid balance of the financial assistance and shall be
used to defray the authority's expenses of servicing the financial assistance
and necessary operating expenses of the program.
Section 15. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) "Fund F Loan Form", 2006;
and
(b) "Request for Payment",
2006.
(2) This material
may be inspected, copied, or obtained, subject to applicable copyright law, at
Kentucky Infrastructure Authority, 1024 Capital Center Drive, Suite 340,
Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This
material may also be obtained on the Kentucky Infrastructure Authority internet
Web site at
http://www.kia/ky.gov.
STATUTORY AUTHORITY:
KRS 224A.070,
224A.1115,
224A.113,
224A.300