1. (a) Disbursement required. No loan shall close unless the Applicant provides an outlay report requesting a disbursement at least seven days prior to the loan closing date.
2. (b) Applicability. This section contains loan closing requirements for a water supply corporation, an eligible NPNC, or an eligible private Applicant or other Applicant who is not authorized to issue bonds or other securities. This section applies to loans for either pre-design or construction funding.
3. (c) Use of consultants. The executive administrator may recommend, but not require, that the entity engage the services of a financial adviser or other consultant to ensure the appropriateness of the proposed debt and to provide advice to the entity.

4. (d) Documents required for loan closing. The executive administrator shall ensure that the following documents have been submitted prior to loan closing:

   1. (1) evidence that applications have been filed for all licenses, permits, registrations, and other authorizations required by local, state and federal laws and rules that are necessary for planning, design, acquisition and construction of the authorized project;
   2. (2) an executed promissory note and loan agreement in a form approved by the executive administrator;
   3. (3) a Deed of Trust and Security Agreement that shall contain a first mortgage lien evidenced by a deed of trust on all the real and personal property of the water system;
   4. (4) an owner's title insurance policy for the benefit of the Board covering all the real property identified in the deed of trust;
   5. (5) evidence that the rates on which the Applicant intends to rely for repayment of the financial assistance have received final and binding approval from the commission and, for Applicants required to utilize a surcharge account, evidence that the approval of the commission was conditioned on the creation of a surcharge account;
   6. (6) a certified copy of the resolution adopted by the governing body authorizing the indebtedness and a certificate from the secretary of the governing body attesting to adoption of the resolution in accordance with the by-laws or rules of the governing body and in compliance with the Open Meetings Act, if applicable;

   7. (7) in the event that loan or grant proceeds are to be released into an escrow account, trust account or investment pool account at the closing on all or a portion of the loan or grant, an escrow trust or investment pool account shall be created that shall be separate from all other funds, as follows:

      1. (A) the account shall be maintained at a designated state depository institution, a properly chartered and licensed trust institution or an investment pool approved by the executive administrator;
      2. (B) funds shall not be released from the escrow account trust account or investment pool without prior approval of the executive administrator who shall issue written authorization for the release of funds;
      3. (C) escrow account trust account and investment pool account statements shall be provided on a monthly basis to the executive administrator;
      4. (D) the investment of any loan or grant proceeds deposited into an approved escrow or trust account, including any proceeds invested with an investment pool, shall be handled in a manner that complies with the Public Funds Investment Act, Government Code, Chapter 2256, as amended; and
      5. (E) the escrow or trust account shall be adequately collateralized in a manner sufficient to protect the Board's interest in the project and that complies with the Public Funds Collateral Act, Government Code, Chapter 2257, as amended;

   8. (8) a legal opinion from Applicant's counsel that provides:

      1. (A) that the entity has the legal authority to enter into the loan agreement and to execute a promissory note and a statement that the entity is in good standing;
      2. (B) that the entity is not in breach or default of any State of Texas or United States order, judgment, decree or other instrument which would have a material effect on the loan transaction;
      3. (C) that there is no pending suit, action, proceeding or investigation by a public entity that would materially adversely affect the enforceability or validity of the required loan documents;
      4. (D) evidence that the entity is in good standing with the Office of the Secretary of State; and
      5. (E) a statement relating to any other issues deemed relevant by the executive administrator.
   9. (9) evidence that an approved water conservation plan has been adopted and will be implemented through the life of the project;
   10. (10) evidence of the Applicant's agreement to comply with special environmental conditions contained in the Board's environmental determination;
   11. (11) evidence that TCEQ has approved the entity's water rates;
   12. (12) copies of executed service and revenue contracts;
   13. (13) evidence that the Applicant has the technical, managerial, and financial capacity to maintain the system unless the use of the funds will be to ensure that the system has the technical, managerial, and financial capacity to comply with the national primary or applicable state drinking water regulations over the long term;
   14. (14) if the project will result in the development of surface or groundwater resources, the Applicant shall demonstrate that it has the right to use the quantity of water necessary for project effectiveness and efficiency. Upon receipt of the information, the executive administrator shall prepare a finding that the Applicant has a reasonable expectation of obtaining the water rights necessary for project implementation prior to any release of funds for planning, land acquisition and design activities. A written water rights certification must be prepared by the executive administrator before funds can be released for construction activities based upon a showing by the Applicant that the necessary water rights have been acquired; and
   15. (15) any other documents relevant to the particular transaction.

5. (e) Phased closing. The executive administrator may determine that closing a loan in phases is appropriate when:

   1. (1) the project has distinct phases for planning, design, acquisition and for construction or if any one of the phases can be logically and practically divided into discrete sections;
   2. (2) the project utilizes the design-build or construction manager-at-risk process or any process wherein there is simultaneous design and construction;
   3. (3) there are limitations on the availability of funds;
   4. (4) additional oversight is required due to the financial condition of the Applicant or the complexity of the project; or
   5. (5) due to any unique facts arising from the particular transaction.

Source Note:The provisions of this §371.71 adopted to be effective August 4, 2010, 35 TexReg 6680; amended to be effective October 26, 2010, 35 TexReg 9510.