1. (1) Eligible Activities of the SRF.

   Funds within the SRF may be used for loans and other authorized forms of financial assistance. Funds may be used for construction of publicly or privately owned works or facilities, or any work that is an eligible project cost as defined by Section 73-10c-2 or as allowed by 42 U.S.C.A. 300f et seq. Project costs which meet the criteria of Subsection R309-705-4(1) that are incurred after the applicant's funding application has been approved by the Board and before the financial assistance agreement is executed are eligible for reimbursement from the proceeds of the financial assistance agreement.

2. (2) Types of Financial Assistance Available for Eligible Water Systems.

   1. (a) Loans.

      1. (i) Loan Origination Fee (LOF) is a fee assessed to the loan recipient as a percentage of the principal balance of the loan. This fee will not be charged to any disadvantaged community receiving a loan subsidy as part of DWSRF financial assistance.

      2. (ii) Hardship Grant Assessment.

         The assessment will be calculated based on the procedures and formulas shown in Section R309-705-6.

      3. (iii) Repayment.

         Annual repayments of principal, interest, fees or Hardship Grant Assessment generally commence 18 months after project completion. Project completion is defined as the date the funded project is capable of operation and a notice of beneficial occupancy is given to the general contractor. Where a project has been phased or segmented, the repayment requirement applies to the completion of individual phases or segments.

         The loan must be fully amortized 30 years after project completion or 40 years after project completion if the community served by the water system is determined to be a disadvantaged community. The yearly amount of the principal repayment is set at the discretion of the Board.

      4. (iv) Principal Forgiveness.

         Eligible water systems meeting the definition of disadvantaged community may qualify for financial assistance in the form of forgiveness of a portion of the principal loan amount. Terms for principal forgiveness will be determined by Board resolution.

         Eligible applicants for principal forgiveness financial assistance will be considered by the Board on a case-by-case basis. The Board will consider the type of community served by the system, the economic condition of the community, the population characteristics of those served by the system, factors relating to costs, charges and operation of the water system, and such other information as the Board determines relevant to making the decision to recognize the system as a disadvantaged community.

      5. (v) Negative Interest Rate.

         Eligible water systems meeting the definition of "disadvantaged community" may qualify for financial assistance in the form of a loan with a negative interest rate, as determined by Board resolution.

         Eligible applicants for "negative interest" financial assistance will be considered by the Board on a case-by-case basis. The Board will consider the type of community served by the system, the economic condition of the community, the population characteristics of those served by the system, factors relating to costs, charges and operation of the water system, and such other information as the Board determines relevant to making the decision to recognize the system as a disadvantaged community.

      6. (vi) Dedicated Repayment Source and Security.

         Loan recipients must establish one or more dedicated sources of revenue for repayment of the loan. As a condition of financial assistance, the applicant must demonstrate a revenue source and security, as required by the Board.

      To qualify for negative interest or principal forgiveness, the system must qualify as a disadvantaged community as defined in Section R309-705-3. Upon application, the Board will make a case-by-case determination whether the system is a disadvantaged community. To be eligible to be considered as a disadvantaged community, the system must meet the definition provided in Section R309-705-3. Additionally, the Board will consider the type of community served by the system, the economic condition of the community, the population characteristics of those served by the system, factors relating to costs, charges and operation of the water system, and other such information as the Board determines relevant to making the decision to recognize the system as a disadvantaged community.

   2. (b) Refinancing Existing Debt Obligations.

      The Board may use funds from the SRF to buy or refinance debt obligations of municipal, inter-municipal or interstate agencies, where the initial debt was incurred and construction started after July 1, 1993. Refinanced projects must comply with the requirements imposed by SDWA as though they were projects receiving initial financing from the SRF.

   3. (c) Credit Enhancement Agreements and Interest Buy-Down Agreements.

      1. (i) A financing agreement between the Board and applicant whereby a specified sum is loaned to the applicant. The loaned funds shall be placed in a trust account, which shall be used exclusively to reduce the cost of financing for the project.
      2. (ii) A financing agreement between the Board and the applicant whereby the proceeds of bonds purchased by the Board is combined with proceeds from publicly issued bonds to finance the project. The rate of interest on bonds purchased by the Board may carry an interest rate lower than the interest rate on the publicly issued bonds, which when blended together will provide a reduced annual debt service for the project.
      3. (iii) Any other legal method of financing which reduces the annual payment amount on publicly issued bonds. The financing alternative chosen should be the one most economically advantageous for the State and the applicant.

      The Board will determine whether a project's funding may receive all or part of a loan, credit enhancement agreement or interest buy-down agreement. To provide security for project obligations, the Board may agree to purchase project obligations of applicants, or make loans to the applicants. The Board may also consider making loans to the applicants to pay the cost of obtaining letters of credit from various financial institutions, municipal bond insurance, or other forms of insurance or security for project obligations. The Board may also consider other methods of assistance to applicants to properly enhance the marketability of or security for project obligations.

      Interest buy-down agreements may consist of any of the following:

   4. (d) Technical Assistance.

      1. (i) The Board may establish a fee to be assessed against loans authorized under the Federal SRF Loan Program. The revenue generated by this fee will be placed in a new fund called the SRF Technical Assistance Fund.
      2. (ii) The amount will be assessed as a percentage of the Principal Balance of the loan on an annual basis, the same as the annual interest and hardship grant assessment are assessed. The borrower will pay the fee annually when paying the principal and interest or hardship grant assessments.
      3. (iii) The Board may set or change the amount of the fee from time to time as it determines the needs of the program.
      4. (iv) This fee will be part of the effective rate calculated for the loan using Table 2, Section R309-705-6. This fee may be charged in lieu of or in addition to the interest rate or hardship grant assessment, but in no case will the total of the technical assistance fee, the interest rate, and hardship grant assessment exceed the effective rate.
      5. (v) The proceeds of the fund will be used as defined Subsection R309-705-4(2)(d) or as modified by the Board in compliance with the federal SDWA.

      The Board may establish a fund or account into which the proceeds of an annual fee on loans will be placed. These funds will be used to finance technical assistance for eligible water systems.

      This fund will provide low interest loans for technical assistance and any other eligible purpose as defined by SDWA to water systems that are eligible for Federal SRF loans. The Board may forgive the principal amount of a technical assistance loan, in whole or in part, for any eligible water system whether the system qualifies as a disadvantaged community or not.

3. (3) Ineligible Projects.

   1. (a) Any project for a water system in significant non-compliance, measured by a not approved rating defined in Rule R309-400, unless the project will resolve the issues causing the non-compliance.
   2. (b) Any project where the Board determines that the applicant lacks the technical, managerial, or financial capability to achieve or maintain SDWA compliance, unless the Board determines that the financial assistance will allow or cause the system to maintain long-term capability to stay in compliance.
   3. (c) Any project meant to finance the expansion of a drinking water system to supply or attract future population growth. Eligible projects, however, can be designed and funded at a level which will serve the population that a system expects to serve over the useful life of the facility.

   4. (d) Projects which are specifically prohibited from eligibility by Federal guidelines. These include the following:

      1. (i) Dams, or rehabilitation of dams;
      2. (ii) Reservoirs, except for finished water reservoirs and those reservoirs that are part of the treatment process and are located on the property where the treatment facility is located;
      3. (iii) Laboratory fees for monitoring;
      4. (iv) Operation and maintenance costs;
      5. (v) Projects needed mainly for fire protection.

   Projects ineligible for financial assistance include the following.

KEY: SDWA, financial assistance, loans

Date of Last Change: May 22, 2023

Notice of Continuation: February 10, 2025

Authorizing, and Implemented or Interpreted Law: 19-4-104; 73-10c