WSR 98-19-119

PROPOSED RULES

DEPARTMENT OF ECOLOGY

[Order 98-10--Filed September 23, 1998, 9:47 a.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 98-12-044.

Title of Rule: Chapter 173-98 WAC, Uses and limitations of the water pollution control revolving fund.

Purpose: Update and modify rule to reflect changed conditions, provide greater detail, and improve service to local governments and Indian tribes.

Statutory Authority for Adoption: Chapter 90.50A RCW.

Statute Being Implemented: Chapter 90.50A RCW.

Summary: The rule became effective in 1989 and needs to be updated in order to improve ecology's flexibility in providing effective and efficient financial assistance to local governments and Indian tribes. Changes relate to an ongoing effort to achieve a high level of consistency between the SRF and the state-funded centennial clean water fund, and to insure the perpetuity of the fund. Other changes are simply "housekeeping" or are intended to clarify the existing rule or put existing policy into rule form.

Reasons Supporting Proposal: Clarifies issues, simplifies procedures for recipients of assistance, and updates rule to reflect current situation.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Brian Howard, Lacey, (360) 407-6510.

Name of Proponent: Department of Ecology, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The rule outlines management of Washington state water pollution control revolving fund, which provides low-interest loans to local governments and Indian tribes for water pollution control facilities and activities. The rule, with proposed amendments, covers funding cycles, how the state manages federal funds, interest rates, security, hardship determination, eligible and ineligible projects and project elements, and other aspects of managing the fund.

Proposal Changes the Following Existing Rules: Adds loan security provisions, increases flexibility for local governments and Indian tribes in loan negotiation, clarifies eligibility of specific proposed projects and project elements, removes outdated sections including design allocation and 55% benefit limitations, updates language to reflect organizational changes.

No small business economic impact statement has been prepared under chapter 19.85 RCW. Review by agency economist and financial assistance staff showed no relationship to small business.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. This rule does not subject a violator to a penalty or sanction; does not establish, alter or revoke a qualification or standard for the issuance, suspension or revocation of a license or permit; and does not make a new or significant amendment to a policy or regulatory program. This rule is entirely related to financial assistance to local governmental entities.

Hearing Location: Department of Ecology Building, Room 1-S-17, 300 Desmond Drive, Lacey, WA, on October 29, 1998, at 10 a.m. to 12 a.m. [p.m.].

Assistance for Persons with Disabilities: Contact Brian Howard by October 23, 1998, TDD (360) 407-6006, or voice (360) 407-6510.

Submit Written Comments to: Brian Howard, Department of Ecology, P.O. Box 47600, Olympia, WA 98504-7600, fax (360) 407-6426, by November 6, 1998.

Date of Intended Adoption: November 24, 1998.

September 22, 1998

Dan Silver

Deputy Director

OTS-2536.1

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-010  What is the purpose((.)) of this chapter? The purpose of this chapter is to set forth limitations on the allocation and uses of moneys administered by the department of ecology from a special fund within the state treasury known as the state water pollution control revolving fund (SRF), as authorized by chapter 90.50A RCW. This fund ((shall)) provides financial assistance to applicants throughout the state of Washington ((which)) who need such assistance to meet high priority water quality management needs.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-010, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-020  What are the definitions((.)) of key terms? Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Act" means the Federal Water Pollution Control Act (33 U.S.C. 4661 et seq.).

(2) (("Allowance" means a specific portion of the financial assistance agreement for the purpose of defraying the costs of planning, design, or both.

(3))) "Applicant" means a public ((bodies)) body requesting financial assistance for ((wastewater)) water pollution control facilities projects authorized in section 212 of the act. "Applicant" can also mean ((entities)) an entity other than a public ((bodies)) body which requests financial assistance authorized by sections 319 and 320 of the act. ((These entities)) An entity must be financially stable and clearly have the capacity to repay their loans.

(3) "Approvable" means:

All major department comments on the draft document (i.e., facilities plan or plans and specifications) have been addressed.

Preliminary State Environmental Policy Act (SEPA) review checklists have been prepared for the project or the project is in compliance with SEPA.

The SRF State Environmental Review Process (SERP) review checklists have been prepared for the project or the project is in compliance with SERP. Only the final written department approval remains.

(4) "Construction" means the erection, installation, expansion, or improvement of ((a)) water pollution control ((facility)) facilities or ((activity)) activities.

(5) "Cost-effective alternative" means that alternative with the lowest present worth or equivalent annual value that achieves the requirements of the project while recognizing the environmental and other nonmonetary considerations.

(6) "Coverage requirement" means annual net revenue, together with utility local improvement district assessments (if applicable), at least equal to one hundred twenty-five percent of annual debt service on all senior lien obligations plus annual debt service on the loan.

(7) "Defeasance" means the setting aside in escrow or other special fund or account of sufficient investments and money dedicated to pay all principal of and interest on all or a portion of an obligation as it comes due.

(8) "Department" means the Washington state department of ecology.

(((7))) (9) "Design" means the plans and specifications for ((a)) water pollution control ((facility)) facilities or ((activity)) activities.

(((8))) (10) "Director" means the director of the Washington state department of ecology or his((/)) or her authorized designee.

(((9))) (11) "The effective date of the loan agreement" means the date the loan agreement is signed by the department's water quality program manager.

(12) "EPA" means the United States Environmental Protection Agency.

(((10))) (13) "Existing residential need" means work required on the recipient's water pollution control facilities for the existing residential population in order to meet the recipient's National Pollution Discharge Elimination System or state waste discharge permit.

(14) "Facilities plan((s))" means ((those necessary)) plans and studies necessary for treatment works ((needed)) to comply with enforceable requirements of the act and with state statutes. Facilities plans must include a systematic evaluation of alternatives that are feasible in light of the unique demographic, environmental or ecological, topographic, hydrologic and institutional characteristics of the area((, and)). Facilities plans must also demonstrate that the selected alternative is cost-effective.

(((11))) (15) "Federal capitalization grant" means a federal grant awarded by ((the Environmental Protection Agency ())EPA(())) to the state as seed money to help establish the state water pollution control revolving fund.

(((12))) (16) "Financial assistance" means each of the four types of assistance specified in WAC 173-98-030 (1)(b) through (((e))) (f) and other assistance authorized by Title VI of the act and chapter 90.50A RCW.

(((13))) (17) "((Financial assistance)) SRF loan agreement" means a legal contract between a recipient and the state, enforceable under state law, and specifying the terms and schedules under which assistance is provided. (("Financial assistance agreements" are referred to as "binding commitments" by EPA.

(14))) (18) "Fund" means the state water pollution control revolving fund.

(((15))) (19) "General obligation debt" means an obligation of the recipient secured by annual ad valorem taxes levied by the recipient and by the full faith, credit, and resources of the recipient.

(20) "Initiation of operation" means the actual date the ((facility)) water pollution control facilities initiates operation and ((is being used)) the entity begins using the facilities for its intended purpose. This date may occur prior to final inspection and will be determined by the department after consultation with the recipient. This date may be the same or earlier than the date of project completion.

(((16))) (21) "Intended use plan (IUP)" means a plan identifying the intended uses by the department of the amount of funds available for financial assistance from the state water pollution control revolving fund (SRF) for that fiscal year as described in section 606(c) of the act. The projects on the IUP will be ranked by environmental and financial need.

(((17))) (22) "Nonpoint source water pollution" means pollution that enters any waters of the state from any dispersed water-based or land-use activities, including, but not limited to((,)):

(a) Atmospheric deposition, surface water runoff from agricultural lands, urban areas, forest lands, subsurface or underground sources((,)); and

(b) Discharges from boats or other marine vessels.

(((18))) (23) "Plans and specifications" means the construction contract documents and supporting engineering documents prepared in sufficient detail to allow contractors to bid on and construct water pollution control facilities. "Plans and specifications" and "design" may be used interchangeably.

(((19))) (24) "Project" means the scope of work for which financial assistance is issued.

(((20))) (25) "Project completion" means the date the project is ((certified)) determined by the department as being complete ((after the final inspection.

(21) "Project priority list" means a list of projects required by section 216 of the act. The project priority list will be the intended use plan for funds issued in fiscal year 1990 and thereafter)).

(((22))) (26) "Public body" means the state of Washington or any agency, county, city or town, other political subdivision, municipal corporation or quasi-municipal corporation, and those Indian tribes ((now or hereafter)) recognized as such by the federal government at the time the SRF loan agreement is signed.

(((23))) (27) "Public health emergency" means a situation declared by the Washington state department of ((social and)) health ((services)) in which illness or exposure known to cause illness is occurring or is imminent.

(((24))) (28) "Recipient" means an applicant for financial assistance which has signed ((a financial assistance)) an SRF loan agreement.

(((25))) (29) "Revenue-secured debt" means an obligation of the recipient secured by a pledge of the revenue of a utility and one not of a general obligation of the recipient.

(30) "Senior lien obligations" means all revenue bonds and other obligations of the recipient outstanding on the date of execution of this agreement (or subsequently issued on a parity therewith, including refunding obligations) or issued after the date of execution of this agreement having a claim or lien on the gross revenue of the utility prior and superior to the claim or lien of the loan, subject only to maintenance and operation expense.

(31) "Severe public health hazard" means a situation declared by the state department of ((social and)) health ((services)) and the department in which the potential for illness exists, ((but)) even if the illness is not currently occurring or imminent. For the purposes of this chapter there must be contamination of drinking water or contamination must be present on the surface of the ground in such quantities and locations to create a potential for public contact. The problem must generally involve a serviceable area including, but not limited to, a subdivision, town, city, or county. Also, the problem must be one which cannot be corrected through more efficient operation and maintenance of the wastewater disposal system(s).

(((26))) (32) "State water pollution control revolving fund (SRF)" means the water pollution control revolving fund established by RCW 90.50A.020.

(((27))) (33) "Water pollution" means such contamination, or other alteration of the physical, chemical, or biological properties of any waters of the state, including, but not limited to, change in:

(a) Temperature((,));

(b) Taste((,));

(c) Color((,));

(d) Turbidity((,)); or

(e) Odor ((of the waters, or such)).

It also means a discharge of any liquid, gaseous, solid, radioactive, or other substance into any waters of the state ((as)) that will or is likely to create a nuisance or render ((such)) those waters harmful, detrimental, or injurious to the public health, safety, or welfare, or injurious to domestic, commercial, industrial, agricultural, recreational, or other legitimate beneficial uses, or to livestock, wild animals, birds, fish, or other aquatic life.

(((28))) (34) "Water pollution control activities" means actions ((for)) taken by a public body to achieve the following purposes:

(a) To control nonpoint sources of water pollution;

(b) To develop and implement a comprehensive conservation and management plan for estuaries; and

(c) To maintain, improve, or protect water quality through the use of water pollution control facilities, management programs, or other means.

(((29))) (35) "Water pollution control ((facility" or "water pollution control)) facilities" means any facilities or systems for the control, collection, storage, treatment, disposal, or recycling of wastewater((, including)). Wastewater includes, but is not limited to, sanitary sewage, storm water, combined sewer overflows, residential, commercial, industrial, and agricultural wastes, which are causing water quality degradation due to concentrations of conventional, nonconventional, or toxic pollutants. Water pollution control facilities include all equipment, utilities, structures, real property integral to the treatment process, and interests in and improvements on real property necessary for or incidental to such purpose. Water pollution control facilities also include ((such)) facilities, equipment, and collection systems ((as)) which are necessary to protect federally designated sole source aquifers.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-020, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-030  ((Uses of the money and policies for establishing terms of assistance.)) How, and under what conditions, can money from the state water pollution control revolving fund be used? (1) Uses of the money. The state water pollution control revolving fund (SRF) may be used for the following purposes:

(a) To accept and retain funds from capitalization grants provided by the federal government, state matching funds appropriated in accordance with chapter 90.50A RCW, payments of principal and interest, and any other funds earned or deposited;

(b) To make loans ((at or below market interest rates)) to applicants in order to finance the planning, design, and/or the construction of water pollution control facilities, make loans to applicants for the implementation of nonpoint source pollution control management programs (which includes planning and implementing elements of the nonpoint source pollution assessment and management program), and make loans to applicants for the development and implementation of a comprehensive estuary conservation and management plan, subject to the requirements of the act;

(c) To provide loans for up to twenty years reserve capacity for water pollution control facilities;

(d) To buy or refinance((, at or below market interest rates,)) the debt obligations incurred by applicants after March 7, 1985, for the construction of water pollution control facilities. (March 7, 1985, was the date that the amendments adding Title VI to the act were first considered by Congress. Any refinancing agreements must be for construction initiated after that date according to federal and state law);

(((d))) (e) To guarantee or purchase insurance for local obligations where such an action would improve credit market access or reduce interest rates;

(((e))) (f) As 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 ((such)) those bonds will be deposited in the fund; and

(((f))) (g) To finance the reasonable costs incurred by the department in the administration of the account as authorized by the act and chapter 90.50A RCW.

(2) Policies for establishing the terms of financial assistance. ((Loans may be made at or below market interest rates and may include zero percent interest loans. The specific terms established in the program guidelines will receive complete public review. These terms shall not be changed without full public review and opportunity for public comment, and any such changes shall not affect existing financial assistance agreements. Terms shall be established in the guidelines based on the needs to provide substantive financial assistance to projects, to consider unique individual economic circumstances such as financial hardship conditions, to award loans in a timely manner and to maintain a financially sound revolving loan fund in perpetuity. Loan repayments shall be in accordance with WAC 173-98-110.)) Recipients' interest rates will be based on the average market interest rate. The average market interest rate will be based on the daily market rate published in the Bond Buyer's Index for tax exempt municipal bonds. The average market rate will be calculated three months before the SRF funding cycle begins using the daily market interest rate for those months. The average market interest rate will be recalculated three months before the Draft IUP is issued, based on the daily market interest rate for those months. If that interest rate is at least 0.1 percent below the previously calculated average market interest rate, recipients' interest rates will be based on the lower average market interest rate rounded to the nearest 0.1 percent. Recipients will not receive an interest rate higher than the interest rate established at the beginning of the funding cycle.

Loan terms and interest rates are as follows:

(3) Financial hardship assistance for facilities construction.

(a) Financial hardship assistance may be available to loan recipients for the existing residential need portion of a water pollution control facilities construction project if the project will cause a residential sewer user charge in excess of 1.5 percent of the median household income. Median household income is based on census data. Median household income data is updated yearly based on inflation. If median household income data is not available for a community the department will allow a local government to conduct a scientific survey to determine the median household income.

(b) The need for hardship assistance is calculated on water pollution control facilities construction costs associated with existing residential need at the time an application for funding is received by the department. The analysis does not include costs for growth. For example, if an applicant applies for ten million dollars to finance facilities construction costs, where six million dollars is for existing residential need and the remaining four million dollars is for growth, the hardship analysis would be based on the six million dollars for existing residential need.

(c) If the department determines that financial hardship exists, it may structure loan agreements with terms to help keep residential user charges below the financial hardship level for the existing residential need, if possible. Hardship terms may include lengthening the repayment period to a maximum of twenty years, lowering the interest rate, or a combination of a lower interest rate and an extended term.

(d) For some facilities projects, financial hardship cannot be established using residential user fees as a percent of median household income. In these situations, financial hardship determinations will be made on a case-by-case basis.

(e) If an applicant is requesting financial hardship assistance, it should submit a completed financial hardship analysis form with its application for financial assistance.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-030, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-040  ((Provisions of guidelines.)) Where can I obtain more detail about the application, review, and issuance processes for funds from state water pollution control revolving fund? The department ((will publish)) publishes guidelines which ((will)) describe in greater detail the financial assistance application, review and issuance processes, the terms of assistance, and other elements of this program.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-040, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-050  What are the limitations on the use of funds and ((establishment of categories.)) how are the funds categorized? (1) The fund may be used to provide financial assistance to applicants for the construction of water pollution control facilities which are identified in the intended use plan((/project priority list)) and activities eligible for assistance under sections 319 and 320 of the act.

(2) Unless the demand for funding is limited((, financial assistance agreements (binding commitments) which are signed within one hundred twenty days of the award of the federal capitalization grant or issuance of the final intended use plan when federal capitalization grants are not awarded,)) SRF loan agreements are subject to the following funding category limitations:

(a) Not more than eighty percent of the fund will be available for the construction of facilities as established under section 212 of the act((,)) and subject to the requirements of ((the)) that act. ((These)) Those projects will be under the water pollution control facilities category.

(b) Not more than ten percent of the fund will be available for the implementation of a program established under section 319 of the act for the management of nonpoint sources of pollution, and subject to the requirements of that act. ((These)) Those projects will be under the nonpoint source category.

(c) Not more than ten percent of the fund will be available for the development and implementation of a comprehensive conservation and management plan under section 320 of the act relating to the National Estuary Program, and subject to the requirements of that act. ((These)) Those projects will be under the comprehensive estuary conservation and management category (estuary category).

(d) Not more than fifty percent of the fund in each category will be available to any one applicant.

(3) ((After the one hundred twenty day limitation period established in subsection (2) of this section, the department may make financial assistance agreements with any applicant as necessary to utilize available funds. The director may exercise prerogative to ensure that the fund is equitably distributed state-wide, consider the intent of category limitations above, and is self-sustaining in perpetuity. Such projects must comply with all applicable requirements of the act.)) In accordance with federal law, loan offers identified on the final IUP will be effective for up to one year from the date of the offer or until the issuance of the next year's final IUP. All SRF loan offers that do not result in a signed SRF loan agreement within the effective offer period are automatically terminated. Funds reserved for SRF loan agreements that are not signed within the effective period may be carried over and made available for the next year's funding cycle.

(4) The fund ((cannot)) may not be used for activities primarily directed toward water resources or water pollution control activities or facilities or portions ((thereof)) of those facilities that are primarily intended to control, transport, treat, dispose, or otherwise manage commercial, institutional, or industrial wastewater or other water pollution control needs from ((industrial)) those sites. Costs associated with commercial, institutional, or industrial pretreatment are not eligible for funding. However, commercial, institutional, or industrial ((or commercial)) wastewater flows attributable to a public body's water pollution control ((facility)) facilities which are determined by the department to be "small" may be allowed. Small flows are commercial, institutional, or industrial flows that comprise less than five percent individually or thirty percent collectively of the total flow.

(5) The fund ((cannot)) may not be used to make direct loans to applicants to support the nonfederal share of eligible portions of projects receiving assistance under Title II of the act. The fund ((can)) may be used to finance portions of such projects which were determined to be ineligible for federal assistance but which are eligible under ((this)) the SRF program.

(6) ((If state grants authorized by chapter 70.146 RCW are combined with SRF financial assistance, these combinations will generally be structured to approximately equal a fifty-five percent grant for the eligible project costs except for hardship cases and base grants that exceed fifty percent, as determined by the department according to the criteria of the grant program administered by the department. For recipients of a grant/loan combination, requirements will be consistent, insofar as possible, and will not result in duplication of effort, but will be no less stringent than is allowed by federal and state laws, regulations, and guidance.

To ensure that federal funds are obligated in a timely manner, equitably in the department's programs, and the fund is maintained in perpetuity, the director may exercise prerogative in establishing department grant percentages, loan interest rates, and terms of loans.

(7) Applicants must submit an approvable facilities plan for projects funded according to the water pollution control facilities category. Other planning level documents including, but not limited to, engineering reports (chapter 173-240 WAC), may be approvable for financial assistance issued under the nonpoint and estuary categories. Facilities plans must be approved before the financial assistance agreements can be signed for those agreements signed on or after January 1, 1991.)) Noneligible project costs include, but are not limited to, the following:

(a) Acts of nature: Projects related to acts of nature that alter the natural environment, thereby causing water quality problems;

(b) Aquatic plant control for aesthetic reasons, navigational improvements, or other purposes unrelated to water quality;

(c) Engineering reports;

(d) Facilities that propose to meet or maintain primary treatment of domestic sewage;

(e) Flood control: Projects primarily designed to provide flood control;

(f) Lake implementation projects where there is no public access;

(g) Reclamation of abandoned mines or if used in the mining process;

(h) State and federal agency water pollution control programs that are part of the agency's mission, goals, or statutory responsibilities;

(i) Scientific research unrelated to a specific project;

(j) Sewers: Side sewer laterals or individual pump stations on private residential property, or other appurtenances where the facilities are not owned and maintained by a public body;

(k) Solid and hazardous waste facilities;

(l) Storm water activities and facilities associated exclusively with flood control.

(7) Noneligible project component costs include, but are not limited to, the following:

(a) Bond costs for debt issuance;

(b) Employee training not related to or identified in an SRF loan agreement;

(c) Equipment required for site and building maintenance;

(d) Facilities components:

(i) Abandonment of existing structures;

(ii) Bonus or acceleration payments to contractors to meet contractual completion dates for construction;

(iii) Capacity in excess of twenty years;

(iv) Construction claims and associated costs determined to be nonmeritorious;

(v) Construction claims, meritorious, in excess of the maximum allowable loan amount;

(vi) Corrective action plans for the one-year performance certification program;

(vii) Cost-plus-a-percentage-of-cost contracts (also know as multiplier contracts);

(viii) Demolition of structures that are not interfering with proposed construction;

(ix) Replacement parts, for an initial set of spare parts for equipment that is critical for facilities to operate in compliance with discharge permit requirements;

(e) Fines and penalties due to violations of or failures to comply with federal, state, or local laws;

(f) Interest on bonds, interim financing, and associated costs to finance projects;

(g) Lake implementation projects where there is no public access;

(h) Land acquisition for siting of wastewater treatment plants, sewer rights of way, and easements, and associated costs;

(i) Landscaping for aesthetic reasons;

(j) Legal expenses other than those associated with development of local ordinances for water quality protection and improvement or associated with the use of a bond counsel in developing a loan agreement;

(k) Lobbying or expenses associated with lobbying;

(l) Monitoring equipment used by an industry for sampling and analyzing industrial discharges to municipal water pollution control facilities;

(m) Office equipment;

(n) Operating expenses of local government, such as the salaries and expenses of a mayor, city council member, and/or city attorney;

(o) Overtime differential paid to employees of local government to complete administrative or force account work;

(p) Personal injury compensation or damages arising out of the project, whether determined by adjudication, arbitration, negotiation, or other means;

(q) Preparation of SRF loan applications;

(r) Previously funded objectives financed with an SRF loan;

(s) Rework costs;

(t) Routine or ongoing operation and maintenance costs;

(u) Seminar and conference fees not identified in an SRF loan agreement;

(v) Vehicle purchase or lease except those vehicles that are integral to a treatment process e.g., sludge truck.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-050, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-060  ((Allowance provisions for planning and design for facilities.)) What is the step process for planning facilities and activities projects? (1) ((An established allowance of financial assistance shall be provided for planning and design for water pollution control facilities. The allowance shall be based on total construction costs when the bids are received. If the project is in the design phase, the allowance shall be based on approvable facilities planning estimates, and the allowance will be adjusted when the bids are received. The allowance is determined in accordance with the tables provided in the program guidelines.

(2) The allowance is not intended to necessarily cover one hundred percent of all planning and design engineering costs incurred. Accordingly, the allowance tables are not recommended to be used to determine the cost for planning or design services provided by the consulting engineer. This actual cost must be negotiated between the applicant and its consulting engineer based upon the nature, scope, and complexity of the project.

(3) The allowance will be paid to the recipient according to the following schedule and conditions:

(a) A recipient may request payment of thirty percent of the estimated planning and design allowance immediately after the financial assistance agreement is signed.

(b) Half the remaining estimated planning and design allowance may be requested when the design of the project is at least fifty percent complete.

(c) Adjustment and final payment of the allowance will occur when the lowest, responsible, responsive bid(s) are accepted and approved by the department.

(d) If a project receives grant assistance administered by the department, the allowance will be adjusted so that only the nongrant share is provided. These combinations will generally be structured to approximately equal a fifty-five percent grant for eligible project costs.)) The step process for facilities. To be eligible for an SRF loan, facilities projects must proceed according to a systematic method known as the "step process." Before a public body with a facilities project is eligible to apply for funds, all previous steps must be approved or approvable by the department in order to help ensure that funds are well spent on projects proceeding towards a successful and viable outcome. Funding for site-specific facilities planning (Step 1) or design (Step 2) does not guarantee the awarding of future loans for construction (Step 3). The loan agreement will not be signed until all previous steps have been completed and approved by the department.

(a) Planning (Step 1). Step 1 involves the preparation of a site-specific facilities plan that identifies and prioritizes the cost-effective alternatives for addressing a water pollution control problem with or without state and federal funding. If there is an existing engineering report, prepared with or without department funding, it must be upgraded for SRF eligibility if it does not meet the definition of a facilities plan.

(b) Design (Step 2). Step 2 includes the preparation of plans and specifications for use in construction. These must be based on the preferred cost-effective alternative identified in the facilities plan.

(i) Facilities plan must be approved or deemed approvable by the department before an application for design can be considered for funding. Site-specific facilities planning documents not funded by a department grant or loan must also be approved or approvable by the department before an application for design can be considered.

(ii) Applications for Step 2 loans will be accepted and considered for funding if it can be documented by the applicant that Step 1 planning is approved within ninety days after the close of the application period.

(iii) Due to specific loan review criteria, a facilities plan approved by the department for purposes other than securing a loan will not be accepted for design purposes.

(iv) A facilities plan approved by the department more than two years prior to the close of the SRF application period must contain evidence of department review to ensure the document reflects current conditions.

(c) Construction (Step 3). Step 3 includes the actual building of facilities based on the approved design.

(i) Design must be approved or deemed approvable by the department before an application for construction can be considered for funding.

(ii) Applications for Step 3 loans will be accepted and considered for funding if it can be documented by the applicant that Step 2 design is approved within ninety days after the close of the application period.

(d) Design and construction (Step 4). In some cases, design and construction may be combined into one loan award. Applications for Step 4 loans will be accepted and considered for funding if it can be demonstrated that Step 2 design can be completed and approved by the department within one year of the date the final IUP is made public. The SRF loan share of the total eligible project under Step 4 cannot exceed fifty percent of the amount available in the appropriate funding category, or one million dollars, whichever is less.

(e) Step compliance and step deviations. There is one situation in which a deviation from the step process can be allowed:

(i) If the Washington state department of health has declared a public health emergency and if the proposed project would remedy this situation.

(ii) In this situation, the department will accept applications for funding consideration that do not follow the step process. However, no loan agreement will be signed until all previous steps have been completed and approved by the department. This deviation from the step process will only allow an application to be considered for funding. It does not allow a loan to be awarded until all step requirements have been satisfied.

(iii) If a deviation is approved, the applicant may deviate by only one step. For instance, the department could accept an application for design if planning was not completed and approved, or an application for construction if design was not completed and approved. However, the department may not accept an application for construction if planning was not completed and approved.

(2) The step process for activities. In most cases, the step process for activities is not required. However, those applications proposing to implement a specific project identified in a completed comprehensive plan are given additional consideration in the evaluation process. Agricultural best management practices that involve improvements on private property, or lake projects, must follow the step process.

(a) Planning (Step 1) involves the identification of problems and evaluation of cost-effective alternatives, based on environmental and economic considerations, for correcting and preventing water quality problems. Specific activities may include planning for watershed management, ground water management areas, lake restoration, and water quality assessment and other related activities.

(b) Implementation (Step 2) includes the actual implementation of the project based on the approved planning document.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-060, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-070  ((Compliance with applicable)) What other laws, regulations, ((and other)) or requirements((.)) must recipients comply with? (1)(a) All recipients shall comply with all applicable federal, state, and local laws, orders, regulations, and permits. Applications must not be inconsistent with pertinent adopted water quality plans including, but not limited to, plans under sections 208, 303(e), 319, and 320 of the act.

(b) The Puget Sound water quality management plan constitutes the comprehensive conservation and management plan required in section 320 (b)(4) of the act. Plans must not be inconsistent with shoreline master programs, ground water management programs and storm water plans, combined sewer overflow (CSO) reduction plans and county or city comprehensive sewer plans.

(c) In accordance with the ((financial assistance)) SRF loan agreement, the applicant shall provide assurances that the necessary permits required by authorities having jurisdiction over the project have been secured((, and make)). Copies must be available to the department, ((if requested)) upon request.

(2) Recipients shall fully comply with all federal, state, and local laws and regulations related to procurement, discrimination, labor, job safety, and drug-free environments. The recipient shall also comply with the state and federal minority-and-women-owned businesses regulations.

(3) If ((financial assistance)) an SRF loan is provided for water pollution control facilities, recipients shall submit a declaration of construction of water pollution control facilities to the department within thirty days of project, phase, or segment completion.

(4) Recipients must maintain accounting records in accordance with "generally accepted government accounting standards." These standards are defined as, but not limited to, those contained in the United States General Accounting Office (GAO) publication "Standards for Audit of Governmental Organizations, Programs, Activities, and Functions." For example, charges must be properly supported, related to eligible costs, and documented by appropriate records. These accounts must be maintained as separate accounts.

(5) ((Recipients must demonstrate their legal ability to provide a dedicated source of revenue and guarantee the repayment of their obligations to the fund from that dedicated source. Dedicated sources of revenue could be special assessments, general taxes, or general obligation bonds, revenue bonds, user charges, rates, fees, or other sources.

(6))) Accounting irregularities may result in an immediate stoppage of payment until irregularities are resolved. The director may require immediate repayment of misused loan funds.

(((7))) (6) According to RCW 90.50A.060, in the event of loan default, the state of Washington may withhold any amounts otherwise due to the recipient from the state and direct that such moneys be applied to the indebtedness and deposited into the SRF.

(((8))) (7) Appeals of ((financial assistance)) SRF loan agreement((s)) decisions will be processed in accordance with the water quality financial assistance appeals procedure. The only decisions which can be appealed are written decisions by the department made during the effective ((financial assistance)) SRF loan agreement period ((will be appealable)). Appeals must be filed ((with the financial assistance program disputes decision coordinator)) in writing to the department within forty-five days from the date of the disputed decision. Following the final decision of a dispute, the department and the recipient shall proceed with the project in accordance with the decision rendered. Administrative or legal costs and other expenses incurred as part of an appeal will not be eligible for reimbursement.

(((9))) (8) The department, or at the department's discretion another authorized auditor, will audit the ((financial assistance)) SRF loan agreement and records.

(((10))) (9) Recipients shall maintain comprehensive insurance coverage on the project for an amount equal to the funds disbursed.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-070, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-080  Indemnification. (1) The department shall in no way be held responsible for payment of salaries, consultant's fees, and other overhead costs related to ((a financial assistance)) an SRF loan agreement issued to ((an applicant)) a recipient.

(2) To the extent that the Constitution and laws of the state of Washington permit, the ((applicant)) recipient shall indemnify and hold the department harmless from and against any liability for any or all injuries to persons or property arising out of ((a financial assistance)) an SRF loan agreement except for such damage, claim, or liability resulting from the negligent act or omission of the department.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-080, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-090  ((Project priority list and)) How do I make sure my project is included in the intended use plan ((process.))? (1) ((The project priority list required by section 216 of the act will be the intended use plan (IUP) beginning in fiscal year 1990 and thereafter.)) Applicants must apply for SRF financial assistance in order for their projects to be included on the IUP. Projects must be on the IUP in order to receive SRF financial assistance.

(2) Projects in all three categories will be ranked according to environmental and financial need. Projects in each category which have the highest environmental and financial need will be given priority for assistance under the SRF program. Because funds must be used in a timely manner to ensure that all available federal funding is received by the state, readiness to proceed ((may)) is also ((be)) used in establishing the priority of projects.

(3) Applications for financial assistance ((according to)) in the water pollution control facilities category (WAC 173-98-050 (2)(a)) must address problems such as public health emergencies, severe public health hazards, the need to provide secondary or advanced treatment, the need to improve and protect water quality, reduction of combined sewer overflows, and other environmental needs.

(4) Applications for financial assistance in the nonpoint source category (WAC 173-98-050 (2)(b)) must address the remedies and prevention of water quality degradation associated with nonpoint source water pollution and must not be inconsistent with needs identified in the department's nonpoint source pollution assessment and management program.

(5) Applications for financial assistance in the comprehensive estuary conservation and management category (estuary category) (WAC 173-98-050 (2)(c)) must meet applicable environmental needs outlined above and must meet needs identified in the Puget Sound water quality management plan or the respective plans for other federally designated estuaries in the state of Washington.

(6) Financial need would normally focus on the need to maintain user charges and fees at affordable levels. Both the priority process and the terms of the ((financial assistance)) SRF loan will be directed toward this objective. Unless the provisions of water pollution control facilities or activities has caused a financial hardship, refinancing of completed projects or segments would generally be low priority.

(7) Applicants must fully describe the environmental and the financial need for the project((, and they must submit a completed financial capability assessment form and a schedule for signing the financial assistance agreement and completing their project. These documents will be used to prepare a draft intended use plan (IUP) for public review and comment. Public participation will be used in the preparation of the draft and final intended use plan)).

(8) The department will prepare the draft IUP prior to the award of each federal capitalization grant from EPA or in the absence of a federal capitalization grant before principal and interest repayments to the SRF are offered. The ((plan)) IUP will generally list projects in the order that projects may be offered financial assistance.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-090, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-100  How do recipients comply with the state environmental review process((.))? (1) All ((projects)) recipients which receive ((financial assistance from the SRF program)) SRF loans must meet the provisions of the State Environmental Policy Act (SEPA), chapter 43.21C RCW, and the SEPA rules, chapter 197-11 WAC. Additional provisions are currently needed by federal law under Title VI of the act to satisfy the state's responsibility to help ensure that recipients comply with the National Environmental Policy Act (NEPA) and other applicable environmental laws, regulations, and executive orders. The lead agency (WAC 197-11-050(2)) responsible for SEPA compliance for each project under the SRF program shall also comply with the following additional provisions. When a categorical exclusion, finding of no significant impact, or a record of decision has been issued ((by EPA)) under NEPA for the same project scope of work, no additional environmental documentation is required. ((The)) Applicants will need to adopt the federal environmental documentation to meet their responsibilities as required by SEPA rules WAC 197-11-600, 197-11-610, and 197-11-630. If federal environmental documentation has not been submitted for approval to ((EPA)) the appropriate federal agency, applicants and designated lead agencies must:

(a) Consult with the department ((prior to)) before determining that the project is categorically exempt from SEPA and obtain concurrence that the project meets the criteria for a categorical exemption (WAC 197-11-305) and give public notice of the categorical exemption by publishing a notice in a newspaper of area-wide circulation. This notice shall include the locations where the public may review the facilities plan and other environmental information.

(b) Consult with the department prior to issuing a threshold determination (WAC 197-11-330), and submit a copy of the environmental checklist (WAC 197-11-315) and a recommended threshold determination to the department.

(c) Obtain written concurrence from the director with the recommended threshold determination as to whether a determination of nonsignificance (DNS) (WAC 197-11-340) or an environmental impact statement (EIS) is to be issued prior to issuing the actual document.

(d) Issue the threshold determination, determination of nonsignificance (DNS) or determination of significance (DS) (WAC 197-11-360) and submit copies to the department; two copies shall be sent to ((both)) the department's environmental review section ((of central programs)) and one copy to the regional water quality ((financial assistance)) program (((WQFAP)) WQ) of the department. The director must concur in writing with the findings of the checklist and DNS if a DNS is issued.

(e) Give public notice of the threshold determination by publishing a notice in a newspaper of area-wide circulation. This notice shall include the locations where the public may review the threshold determination, facilities plan, and other environmental information.

(f) Distribute copies of the threshold determination and supporting documents to other affected local, state, and federal agencies, Indian tribes, and the public.

(g) When a DS is issued, the lead agency will develop the final scope of elements to be addressed in the environmental impact statement (EIS) and obtain written concurrence from the director. The department shall be consulted throughout the EIS process.

(h) Distribute copies of the draft and final EIS(('s)) to the department; two copies shall be sent to both the environmental review section ((of central programs)) and the ((WQFAP)) department's water quality program.

(i) Give public notice of the draft and final EIS(('s)) by publishing notices in a newspaper of area-wide circulation. Notices shall include the locations where the public may review the draft and final EIS(('s)) or obtain copies.

(j) Distribute copies of the draft and final EIS(('s)) to other affected local, state, and federal agencies, Indian tribes, and the public.

(k) The director must concur in writing with the finding of the final EIS.

(2) The lead agency shall issue a notice of action for the final EIS regarding the preferred alternative in accordance with RCW 43.21C.080, WAC 197-11-680, and 197-11-990.

(3) A cost-effectiveness analysis will be required for all SRF projects. Planning must include a comparison of the total cost, i.e., capital, operation and maintenance, and replacement costs of the project with other alternatives, including the no action alternative((, i.e., capital, operation and maintenance, and replacement costs)). The comparison of the total costs, e.g., total present worth or annual equivalent costs of projects for the planning period, must be included. ((Cost-effectiveness)) Cost-effective analyses must also include nonmonetary cost of the project, i.e., the environmental impact, resource utilization, implementability, etc. This analysis must be included in the planning document and must be summarized in the EIS or DNS. Financial assistance under the SRF program will be offered to the cost-effective solution to the water pollution control problem.

(4) All mitigation measures ((recommended or)) committed to in the environmental checklist or state EIS, or in the finding of no significance impact/environmental assessment or record of decision/federal EIS (for federally approved projects) will become ((financial assistance)) SRF loan agreement conditions. Applicants must complete all mitigation measures required. Failure to abide by these conditions will result in withholding of payments and may result in immediate repayment of the loan.

(5) The applicant ((is responsible for compliance)) must comply with the requirements of applicable environmental laws, regulations, and executive orders. Concurrence from the director will be based on best available information provided by the applicant. The department is not responsible for concurrence based on erroneous information.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-100, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-110  ((Repayments of loans.)) What are the repayment options and schedules? (1) General provisions.

When the scope of work identified in the ((financial assistance)) SRF loan agreement ((for a loan)) has been fully ((performed)) completed and/or the initiation of operation date has been determined:

(a) The department and recipient will execute a final ((financial assistance)) SRF loan agreement amendment which details the final loan amount. This amount will include the principal from disbursements made to recipients and accrued interest. Interest will accrue on each disbursement as it is paid to the recipient.

(b) The department will prepare according to the SRF loan agreement, a repayment schedule ((according to the financial assistance agreement)) which ((will)) fully amortize the final loan amount within twenty years of project completion. The first repayment of principal and interest will be due no later than one year after the initiation of operation date. Equal payments will be due every six months after this first payment. Loan balances may be repaid or additional principal payments may be ((repaid)) made at any time without penalty.

(c) If any amount of the final loan amount or any other amounts owed to the department remains unpaid after it becomes due and payable, the department may assess a late charge. The late charge shall be additional interest at the rate of one percent per month, or fraction thereof, starting on the date the debt becomes past due and until it is paid in full.

(d) If the due date for any semiannual payment falls on a Saturday, Sunday, or designated holiday for Washington state agencies, the payment shall be due on the next business day for Washington state agencies.

(2) Phased or segmented project. Where a project has been phased or segmented, the general provisions for repayment shall apply to the completion of individual phases or segments.

(3) More than five years to complete project. When ((the)) a project approved by the department takes longer than five years to complete, loan repayment ((of the loan)) must begin within five years of the first disbursement ((on)) for the project, unless the director determines that the fund is fiscally sound without this repayment schedule. Repayments for these loans must follow the general provisions as outlined in subsection (1)(b) of this section.

(4) Security for loan repayment. Loans shall be secured by a general obligation pledge or a revenue pledge of the recipient. The obligation of the recipient to make loan repayments from the sources identified in its SRF loan agreement shall be absolute and unconditional, and shall not be subject to diminution by setoff, counterclaim, or abatement of any kind.

(a) General obligation. When repayment of a loan is secured by a general obligation pledge, the recipient shall pledge for so long as the loan is outstanding, to include in its budget and levy taxes annually within the constitutional and statutory tax limitations provided by law without a vote of its electors, on all of the taxable property within its boundaries in an amount sufficient, together with other money legally available and to be used for loan repayment, to pay when due the principal of and interest on the loan, and the full faith, credit, and resources of the recipient shall be pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of the principal of and interest on the loan.

(b) Revenue obligation. Repayment of a loan may be secured by an irrevocable pledge of the net revenues of the recipient's utility and, in appropriate cases, utility local improvement district assessments. In such cases:

(i) Lien position. Repayment of a loan shall constitute a lien and charge (A) upon the net revenues of the recipient's utility prior and superior to any other charges whatsoever, except that the lien and charge shall be junior and subordinate to the lien and charge of any senior lien obligations and, (B) if applicable, upon utility local improvement district assessments prior and superior to any other charges whatsoever.

(ii) Coverage requirement. For as long as a loan is outstanding, the recipient must establish, maintain, and collect utility rates and charges that produce net revenues which (together with utility local improvement district assessments deposited in the loan fund) are at least equal to one hundred twenty-five percent of annual debt service on all senior lien obligations plus annual debt service on the loan.

(iii) Reserve requirement. For loans with a term greater than five years secured by a pledge of utility revenues, the recipient must accumulate in a reserve account in the loan fund an amount equal to average annual debt service on the loan. The required reserve must be accumulated by the recipient in approximately equal annual amounts over a period of five years, commencing on the earlier of one year after (A) the initiation of operation and (B) the project completion date. The recipient may, at any time, satisfy the reserve requirement in whole or in part by making a deposit to the loan fund from any available source other than net revenue.

(5) Repayment from other than pledged sources. A recipient may repay any portion of its loan from any legally available funds other than those pledged in its SRF loan agreement to repayment.

(6) No defeasance or advance refunding. So long as the department holds a loan, the recipient shall not be entitled to, and shall not effect, its economic defeasance or advance refunding.

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-110, filed 8/29/89, effective 9/29/89.]

AMENDATORY SECTION (Amending Order 89-34, filed 8/29/89, effective 9/29/89)

WAC 173-98-120  General provisions. (1) Sale of facilities to private enterprises. Recipients may sell facilities for which the SRF loan was provided to private enterprises; however, the ((financial assistance)) SRF loan agreement must be terminated in accordance with the terms of the agreement and the assistance repaid to the SRF immediately upon sale.

(2) Refinancing. The refinancing of existing debt obligations shall be limited to water pollution control facilities where project construction began after March 7, 1985. Applicants requesting refinancing must meet all the requirements contained in the act. They must be on the IUP before assistance will be offered and must be eligible to receive such assistance.

(((3) Self certification. The department may authorize a recipient to certify compliance with selected program requirements. The recipient must request such certification authority and document that it has the capability and resources, that it is in the best interest of the state, and that the request is consistent with state and federal laws and regulations. Concurrences required in the environmental review process cannot be delegated to recipients.

(4) Legislative reporting. The department shall report to the legislature no later than November 30 of each year on the use of the fund by the department. This report shall include a list of applicants, recipients, project descriptions, total loan amounts, financial arrangements and interest rates, repayment schedules, and source(s) of repayments.

(5) Construction engineering contracts. Consulting services shall not use a "cost-plus-percentage-of-cost" or "percentage-of-construction-cost" type contract.))

[Statutory Authority: Chapter 90.50A RCW. 89-18-019 (Order 89-34), § 173-98-120, filed 8/29/89, effective 9/29/89.]

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