(1) Counties, in consultation with cities and towns within the county, may make loans to local governments from funds established under RCW 36.135.020 for the purpose of assisting local governments in funding public works projects. Counties may require terms and conditions and may charge rates of interest on its loans as they deem necessary or convenient to carry out the purposes of this chapter. Counties may not pledge any amount greater than the sum of money in their local public works assistance fund plus money to be received from the payment of the debt service on loans made from that fund. Money received from local governments in repayment of loans made under this chapter must be paid into the fund of the lending county for uses consistent with this chapter.

(2) Prior to receiving moneys from a fund established under RCW 36.135.020, a local government applying for financial assistance under this chapter must demonstrate to the lending county:

(a) Utilization of all local revenue sources that are reasonably available for funding public works projects;

(b) Compliance with applicable requirements of chapter 36.70A RCW; and

(c) Consistency between the proposed project and applicable capital facilities plans.

(3) Counties may not make loans under this chapter prior to completing the initial collaboration and prioritization requirements of RCW 36.135.040(1).