Subd. 1. Creation of account.

A small community wastewater treatment account is created in the special revenue fund. The authority shall make loans and grants from the account as provided in this section. Money in the fund is annually appropriated to the authority and does not lapse. The account shall be credited with all loan repayments and investment income from the account and servicing fees assessed under section 446A.04, subdivision 5. The authority shall manage and administer the small community wastewater treatment account and for these purposes, may exercise all powers provided in this chapter.

Subd. 1a. Technical assistance grants.

If requested, and if it is an eligible use of funds, the authority shall provide technical assistance grants to governmental units as provided in this section to analyze possible solutions to problems from noncomplying subsurface sewage treatment systems. A grant under this subdivision shall equal $10,000 plus $500 per household, not to exceed a total of $40,000. Technical assistance grant funds may be used to:

1. (1) contract with a licensed subsurface sewage treatment system professional for a preliminary analysis of the feasibility of installing new systems meeting the requirements of section 115.55; and
2. (2) to contract for services from the University of Minnesota Extension Service to advise the governmental unit on the feasibility of possible wastewater treatment alternatives and help the governmental unit develop the technical, managerial, and financial capacity necessary to build, operate, and maintain individual wastewater treatment systems.

Subd. 2. Construction loans and grants.

1. (a) The authority shall award loans and grants as provided in this subdivision to governmental units from the small community wastewater treatment account for projects to replace noncomplying subsurface sewage treatment systems with a subsurface sewage treatment system or systems meeting the requirements of section 115.55. A governmental unit receiving a loan or grant from the account shall own the individual wastewater treatment systems built under the program and shall be responsible, either directly or through a contract with a private vendor, for all inspections, maintenance, and repairs necessary to ensure proper operation of the systems.
2. (b) Loans may be awarded for up to 100 percent of eligible project costs as described in this section.
3. (c) When the area to be served by a project has a median household income below the state average median household income, the governmental unit may receive 50 percent of the funding provided under this subdivision in the form of a grant. An applicant may submit income survey data collected by an independent party if it believes the most recent United States census does not accurately reflect the median household income of the area to be served.

Subd. 3. Project priority list.

Governmental units seeking loans or grants from the small community wastewater treatment program shall first submit a project proposal to the Pollution Control Agency on a form prescribed by the Pollution Control Agency. A project proposal shall include the compliance status for all subsurface sewage treatment systems in the project area. The Pollution Control agency shall rank project proposals on its project priority list used for the clean water revolving fund under section 446A.07.

Subd. 4. Applications.

Governmental units with projects on the project priority list shall submit applications for loans or grants under this program to the authority on forms prescribed by the authority. An application for technical assistance funds shall include the number of households served by subsurface sewage treatment systems in the community and the proposed use of funds. An application for construction funds shall include:

1. (1) a list of the subsurface sewage treatment systems proposed to be replaced over a period of up to three years;
2. (2) a project schedule and cost estimate for each year of the project;
3. (3) a financing plan for repayment of the loan; and
4. (4) a management plan providing for the inspection, maintenance, and repairs necessary to ensure proper operation of the systems.

Subd. 5. Awards.

The authority shall award loans and grants as provided in this section to governmental units with approved applications based on their ranking on the Pollution Control Agency's project priority list. Prior to the award of construction loans or grants under subdivision 2, paragraph (b), the Pollution Control Agency shall certify that the subsurface sewage treatment systems to be built appear to meet the criteria set forth in section 115.55 and rules of the Pollution Control Agency. The total amount awarded for construction loans and grants under subdivision 2, paragraph (b), shall be based on the estimated project costs for the portion of the project expected to be completed within one year, up to an annual maximum of $500,000. For projects expected to take more than one year to complete, the authority may make a multiyear commitment for a period not to exceed three years, contingent on the future availability of funds. Each year of a multiyear commitment must be funded by a separate loan or loan and grant agreement meeting the terms and conditions in subdivision 6. A governmental unit receiving a loan or loan and grant under a multiyear commitment shall have priority for additional loan and grant funds in subsequent years.

Subd. 6. Loan terms and conditions.

Loans from the small community wastewater treatment account shall comply with the following terms and conditions:

1. (1) principal and interest payments must begin no later than two years after the loan is awarded;
2. (2) loans shall carry an interest rate of one percent;
3. (3) loans shall be fully amortized within ten years of the first scheduled payment or, if the loan amount exceeds $10,000 per household, shall be fully amortized within 20 years but not to exceed the expected design life of the system;
4. (4) a governmental unit receiving a loan must establish a dedicated source or sources of revenues for repayment of the loan and must issue a general obligation note to the authority for the full amount of the loan; and
5. (5) each property owner voluntarily seeking assistance for repair or replacement of an individual treatment system under this program must provide a utility easement to the governmental unit to allow access to the system for management and repairs.

Subd. 7. Special assessment deferral.

1. (a) A governmental unit receiving a loan under this section that levies special assessments to repay the loan may defer payment of the assessments under the provisions of sections 435.193 to 435.195.
2. (b) A governmental unit that defers payment of special assessments for one or more properties under paragraph (a) may request deferral of that portion of the debt service on its loan, and the authority shall accept appropriate amendments to the general obligation note of the governmental unit. If special assessment payments are later received from properties that received a deferral, the funds received shall be paid to the authority with the next scheduled loan payment.

Subd. 8. Eligible costs.

1. (a) Eligible costs for technical assistance grants as provided in subdivision 1a shall include the cost of soil borings.
2. (b) Eligible costs for construction loans and grants shall include the costs for design, construction, related legal fees, and land acquisition.

Subd. 9. Disbursements.

Loan and grant disbursements by the authority under this section must be made for eligible project costs as incurred by the recipients, and must be made in accordance with the project loan or grant and loan agreement and applicable state law.

Subd. 10. Audits.

A governmental unit receiving a loan under this section must annually provide to the authority for the term of the loan a copy of its annual independent audit or, if the governmental unit is not required to prepare an independent audit, a copy of the annual financial reporting form it provides to the state auditor.