200 KAR 17:070. Drinking Water State
RELATES TO: KRS 151.601, 151.603, Chapter
224A, 42 U.S.C. 300f, 300g, 300j, 40 C.F.R. Part 25, Part 35 Subpart L
STATUTORY AUTHORITY: KRS 224A.070,
224A.1115, 224A.113, 224A.300
NECESSITY, FUNCTION, and CONFORMITY: KRS
224A.070(1) and 224A.113 authorize the Kentucky Infrastructure Authority to promulgate
administrative regulations to implement KRS 224A.1115. This administrative
regulation establishes requirements for applying for funding from the Drinking
Water State Revolving Fund for the planning, design, or construction of new and
expanded facilities to deliver potable water for public use and establishes
requirements and criteria to prioritize the projects to receive funds. This
administrative regulation conforms to federal requirements, except is more
stringent in that projects must be consistent with state drinking water
planning requirements contained in KRS Chapter 151.
Section 1. Definitions. (1)
"Applicant" means any governmental agency, except a federal agency,
that has submitted an application to the authority for financial assistance
from the Drinking Water State Revolving Fund.
(2) "Application" means the
information submitted by an applicant to the authority to obtain assistance,
including the need for a specific project or infrastructure, and including
financial information necessary to determine eligibility for assistance from
the federally-assisted Drinking Water State Revolving Fund.
(3) "Area water management
plan" means the community-based plan, as authorized by KRS 224A.300(1),
and 151.603, identifying needs and service projects to address water supply and
drinking water with the goal of making potable water treatment available to all
(4) "Area water management planning
council" means the group of elected and appointed leaders, utility
representatives, health department representatives, and citizens at large
designated pursuant to KRS 151.601 to develop an area water management plan for
water-related services in regions which are generally coterminus with Kentucky's
Area Development Districts.
(5) "Assistance agreement" is
defined by KRS 224A.011(3).
(6) "Authority" is defined by
(7) "Best practicable treatment and
distribution technology" means a treatment and distribution technology
which, in the best professional judgment of the cabinet's engineers, will
adequately treat and deliver the water from the raw water source to assure
public health and compliance with existing and future national drinking water
standards, in a cost effective manner.
(8) "Cabinet" means the
Environmental and Public Protection Cabinet established in accordance with KRS
(9) "Capacity" means the
financial, managerial, and technical ability of a public water system to comply
with all applicable state and federal regulations.
(10) "Capacity development
strategy" means the strategic planning process used to determine how to
assure the long-term ability of public water systems to obtain or retain the
capacity to comply with all applicable state and federal requirements.
(11) "Clean Water Act" is
defined by KRS 224A.011(12) and is otherwise known as the Federal Water
Pollution Control Act.
(12) "Closing date" means the
date established by the authority for execution of the assistance agreement
upon satisfaction of the conditions contained in the conditional commitment
(13) "Conditional commitment
letter" means a letter delivered to the applicant stating the authority's
commitment to provide financial assistance under specifications and subject to
the satisfaction of certain conditions by the applicant on or before the
(14) "Disadvantaged community"
means the service area of a public water system that meets the affordability
criteria established by the authority after public review and comment and may
qualify for additional subsidization of the financial assistance terms.
(15) "Drinking water project"
means a drinking water project consistent with Section 3 of this administrative
(16) "Drinking Water State Revolving
Fund" means the federally-assisted water supply revolving fund created by
(17) "Intended use plan" means
the document prepared annually by the cabinet and the authority, after public
review and comment, which identifies intended uses of all Drinking Water State
Revolving Fund Program funds and describes how those uses support the overall
goals of the Drinking Water State Revolving Fund Program and the Safe Drinking
(18) "Kentucky eClearinghouse"
means the automated Kentucky State Clearinghouse coordinating the federal
executive review process and the Kentucky intergovernmental review process, for
which the Governor's office for Local Development has been designated as the
single point of contact for federal or state financial assistance as required
by KRS 147A.021(3)(k).
(19) "Kentucky State Data
Center" means the agency within the Urban Studies Institute of the
University of Louisville designated by the Commonwealth to serve as the
repository and analyst of data and information generated by the U.S. Census
(20) "Median household income"
means the statistical middle value in household income, considering all
households in Kentucky with an equal number of households above and below the
middle value, as determined by the Kentucky State Data Center.
(21) "NEPA-like process" means
the state environmental review process that is functionally equivalent to the
review undertaken by the U.S. Environmental Protection Agency under the
National Environmental Policy Act, 42 U.S.C. 4321 et seq.
(22) "Project priority list"
means a list of all drinking water projects, with the exception of projects
funded on an emergency basis, that are scored using the cabinet's priority
system, go through a public review process prior to receiving financial
assistance, and are included in the intended use plan.
(23) "Public water system"
means a water system for the provision to the public of water for human
consumption, if the system has at least fifteen (15) service connections or
regularly serves an average of at least twenty-five (25) individuals daily at
least sixty (60) days of the year. The term includes collection, treatment,
storage and distribution facilities under the control of the operator of the
system and used primarily in connection with the system and collection and
pretreatment storage facilities not under the control of the operator of the
water system which are used primarily in connection with the water system.
(24) "Regionalization" means
the creation of expanded service areas which take in a large geographic area or
multiple systems; the creation of multijurisdictional utility commissions,
special districts, authorities or corporations; the utilization of interlocal
cooperation agreements; the consolidated operation or management of multiple
systems which may include regional facilities, smaller systems, or on-site
systems; or the merger, consolidation, or combination of two (2) or more
existing facilities or systems.
(25) "Replacement reserve fund"
means the special depreciation fund that may be established and funded by an
applicant in connection with financial assistance from the Drinking Water State
(26) "Safe Drinking Water Act"
means the federal Safe Drinking Water Act, 33 U.S.C. 300f-j.
Section 2. Eligible Applicants. (1) Any
governmental agency, except a federal agency, shall be eligible to apply for
financial assistance for planning, design and construction of eligible drinking
water supply projects described in Section 3 of this administrative regulation.
(2) Financial assistance under this
administrative regulation shall not be provided to an agency for a public water
(a) Does not have capacity to insure
compliance with the requirements of 401 KAR Chapter 8 and the Safe Drinking
Water Act; or
(b) Is not in compliance with
requirements of 401 KAR Chapter 8 or the Safe Drinking Water Act, unless:
1. The use of the assistance will insure
2. The owner or operator of the system
agrees to undertake feasible and appropriate changes in operations, including
ownership, management, accounting, rates, maintenance, consolidation, alternative
water supply, or other procedures, that the cabinet and the Authority determine
are necessary to insure that the system has the capacity to comply with the
requirements of 401 KAR Chapter 8 and the Safe Drinking Water Act.
Section 3. Eligible Drinking Water
Projects. (1) Funds in the Drinking Water State Revolving Fund may be used for:
(a) Planning, design, and construction of
drinking water intake, treatment, and distribution systems;
(b) Refinancing or buying eligible debt
obligations of a public water system;
(c) Purchasing water systems by other
public water systems;
(d) Guaranteeing or purchasing insurance
for a local obligation to improve credit market access or reduce the interest
rate of the obligation;
(e) Transferring fund assets between the
Clean Water State Revolving Fund and the Drinking Water State Revolving Fund as
allowed in the Clean Water Act and the Safe Drinking Water Act; and
(f) Providing 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 the sale of the bonds
will be deposited in the fund.
(2) Drinking water projects shall address
Safe Drinking Water Act health goals, or situations where compliance standards
have been exceeded, or prevent future violations of the rules. The projects may
(a) Drinking water treatment plants, including
basins for rapid mix, flocculation, coagulation, filtration, pretreatment
disinfection, and disinfection prior to entry to the distribution system;
(b) Distribution systems;
(c) Storage tanks;
(d) Intake lines and short-term raw water
(f) Drilled wells and wellhead areas;
(g) Security related facilities;
(h) Emergency measures for the protection
of public health; and
(i) Any other structure or facility that
the cabinet considers necessary to the efficient and sanitary operation of a
public water system.
(3) Funds shall not be used for:
(a) Projects not listed on the project
priority list, except for emergency projects as provided in subsection (2)(h)
of this section.
(b) Dams or rehabilitation of dams.
(c) Water rights.
(d) Reservoirs, except for finished water
reservoirs and those reservoirs that are part of a treatment process and are
located on the property where the treatment facility is located.
(e) Laboratory fees and other monitoring
(f) Operation and maintenance expenses.
(g) Projects needed mainly for fire
(h) Projects for systems that lack
adequate capacity, unless financial assistance will assure capacity and
(i) Land acquisition where eminent domain
(j) Projects primarily intended to
finance the expansion of any public water system in anticipation of future
(k) Projects not favorably considered by
the area water management council unless the board finds circumstances that
justify overriding the council's recommendation.
Section 4. Process for Selecting Eligible
Drinking Water Projects. (1) The cabinet shall develop the project priority
list once a year and shall provide public notice and seek public comment of the
contents of the project priority list in accordance with 40 C.F.R. Part 25.
(2) The project priority list may be
divided into a fundable list of projects that are expected to receive financial
assistance from available funds designated for use in the current intended use
plan and a comprehensive list of projects that are expected to receive
financial assistance in the future, or the cabinet may combine the fundable and
comprehensive lists into one (1) list.
(3) The project priority list shall
identify the projects to be funded, both in the current year and in future
(4) The order on the list shall be
determined by the priorities set forth in Section 5 of this administrative
(5) If a project is not ready to proceed,
it shall be bypassed. The next highest priority project which meets the
requirements of this administrative regulation shall be considered for funding.
(6) In accordance with 42 U.S.C. 300j-12
of the Safe Drinking Water Act and this subsection, at least fifteen (15)
percent of the funds available for projects shall be awarded to projects for
public water systems serving fewer than 10,0000 people, unless all projects for
systems serving fewer than 10,000 people have been funded, or are not ready to
be funded, due to a failure to comply with all of the requirements of this
(7) Funds may be designated in the
intended use plan to be used for financial assistance pursuant to the
provisions of 42 U.S.C. 300j-12(k) of the Safe Drinking Water Act for land
acquisition or a conservation easement for source water protection. The Cabinet
shall prioritize these projects separately from other projects, based on public
health protection and how the financial assistance will aid compliance.
(8) All projects shall be assessed in
accordance with a NEPA-like review process, which shall include consideration
of regionalization, and shall be reviewed through the Kentucky eClearinghouse
Section 5. Criteria for Prioritization.
(1) Priority shall be given by the cabinet to the projects that are necessary
(a) Ensure compliance with the
requirements of the Safe Drinking Water Act;
(b) Address the most serious risk to
human health; and
(c) Assist systems most in need on a per
(2) The cabinet shall make these determinations
based on the following factors:
(a) Resource development. Projects shall
1. Projects that will improve a public
water system's ability to achieve capacity to comply with existing and future
national drinking water standards.
2. Projects to assure a sufficient
quantity and quality of raw water for treatment.
3. Projects which allow one (1) or more
public water systems to consolidate to achieve capacity to meet national
standards, such as intakes, wells, raw and finished water lines, and pump
(b) Improved treatment. Projects to
prevent or correct compliance problems and produce potable water, such as
presettling basins; aeration towers; full water treatment plant processes such
as rapid mix, coagulation, flocculation, sedimentation, filtration, and
clearwell; baffling; and chemical feeders.
(c) Improved water distribution systems,
which includes projects to allow public water systems to prevent and correct
compliance problems and deliver potable water through the existing distribution
system, such as installation, refurbishment, or replacement of finished water
lines; storage facilities or pump stations; elimination of constantly running
or hydropneumatic pump stations; looping of water lines; flushing devices;
baffling of storage facilities; and disinfection booster stations.
(d) Improving public health through
extension of new service lines and connections, including projects where there
is insufficient raw water available, or where the raw water is of a quality
that is unsuitable for an individual to treat to potable water standards.
(e) Eligible security-related projects
such as fences, alarms, security cameras, or other system improvements that
will assist in preventing vandalism, terrorism, or other deliberate adverse
acts that will damage the system or pose a risk to public health.
Section 6. Submission Requirements. (1)
Projects proposed to be placed on the project priority list shall be submitted
to the local area water management planning council for inclusion in the area
water management plan. All project proposals shall be electronically forwarded
by the area water management planning council to the authority. The authority
shall electronically forward the necessary project information to the cabinet.
(2) After inclusion on the project
priority list, a complete application package, including all supporting
documentation, shall be required for consideration for financial assistance
from the Drinking Water State Revolving Fund.
(3) The procurement of professional
services and construction contracts shall conform to KRS Chapter 45A or 424.
Allowable engineering service fees shall be determined using procedures similar
to those used by federal agencies conducting similar loan programs.
Section 7. Drinking Water Project
Requirements. In addition to other requirements stated in this administrative
regulation, the following specific requirements shall be met:
(1) The drinking water project shall use
the best practicable treatment and distribution technology.
(2) Any drinking water project with a
related distribution system shall assure that the distribution system is in
good repair, or shall include a component to address system problems, to assure
that water loss will be within acceptable ranges for the system.
(3) The drinking water project shall be
consistent with long range water supply plans developed pursuant to KRS Chapter
151, and with capacity development strategies developed pursuant to the Safe
Drinking Water Act.
(4) The applicant shall demonstrate that the
public water system that is to benefit from the project, has capacity to
operate in accordance with 401 KAR Chapter 8 and this administrative
regulation; or, the applicant shall demonstrate that the project will create
capacity for the public water system to operate or be operated in accordance
with 401 KAR Chapter 8 and this administrative regulation.
(5) The applicant shall have an adequate
revenue stream to assure the repayment of the financial assistance while
allowing capacity to efficiently operate the public water system.
(6) The drinking water project shall be
(7) All construction contracts shall be
awarded to the lowest responsive responsible bidder.
Section 8. Provision for Financial
Assistance. (1) Upon completion of the credit review by the authority's staff,
the application shall be submitted to the authority's board for action, subject
to the cabinet's priority ranking and favorable recommendation of the project.
The credit review shall include an analysis of the applicant’s ability to generate
sufficient revenue based on financial statements provided by the applicant to
cover operating costs and to repay the required principal, interest, fees, and
reserves required by receipt of the financial assistance. The cabinet’s recommendation
shall be based on the project’s compliance with the technical and environmental
requirements of the Safe Drinking Water Act.
(2) If the authority approves the
application, a conditional commitment letter shall be issued to the applicant.
This letter shall set forth the conditions and documentation required by the
authority prior to execution of an assistance agreement. Funds shall not be
provided until the assistance agreement is fully executed and any special conditions
included therein met.
(3)(a) The authority shall establish
interest rates based on:
1. Prevailing market conditions;
2. Availability of funds; and
3. Demand for financial assistance.
(b) The executive director of the
authority shall recommend rates to the authority board for approval at least
(c) The rate of interest on financial
assistance shall be set forth in the conditional commitment letter.
(d) Interest rates shall be offered at
1. Standard rate; and
2. A nonstandard rate, which may be lower
than the standard rate.
(e) Applicants shall receive the standard
rate of interest unless they qualify for the nonstandard rate.
(f) The authority may establish one (1)
or more nonstandard rates and shall use the following criteria in establishing
a nonstandard rate:
1. The median household income of the
applicant's jurisdiction or service area as published by the Kentucky State
2. The median household income of the
service area as identified by income surveys;
3. Regionalization as set out in Section
1(24) of this administrative regulation and verified by the authority;
4. Qualification as a disadvantaged
community as set out in Section 1(14) of this administrative regulation and
verified by the authority;
5. The existence of an order or judgment
addressing environmental noncompliance; or
6. Other criteria relating to public
health or safety or financial considerations that the authority may determine.
(g) If the nature of a drinking water
project financed by the authority's financial assistance causes interest on any
authority bonds issued to fund the drinking water project to become taxable,
the authority may consider adjustments in the interest rate to reflect the
additional costs of authority funds.
(4) Principal on any financial assistance
shall be repaid over a period not to exceed federal requirements or the life of
the facilities being financed. Repayment of principal shall commence within one
(1) year of the initiation of operation of the drinking water project or upon
another date as may be set forth in the assistance agreement. Principal shall
be payable semiannually, unless the authority establishes a more frequent
payment schedule based on the credit review. The repayment period may be equal
to or less than the federally-permitted maximum at the discretion of the
(5) Interest payments on the outstanding
principal amount of the financial assistance shall be paid semiannually and
shall commence within six (6) months of initial disbursement of financial
assistance proceeds, unless the interest payments are dependent upon revenues
generated from the drinking water project. If interest payments are directly
dependent upon revenues, interest payments shall begin within six (6) months
after the drinking water project is completed, and interest to cover the
authority's cost of money during the construction period may be added to the
amount of the financial assistance.
(6) The principal amount of financial
assistance shall be equal to the amount approved by the authority's board. The
financial assistance amount may be adjusted by the authority's executive
director up to ten (10) percent of the amount stated in the conditional
commitment letter without further action by the board, subject to the
availability of user fees sufficient to service the debt and authority funds to
provide the increase.
(7) To ensure adequate funds for major
maintenance and replacement of the drinking water projects funded by this
program, the applicant may be required to set aside annually to a replacement reserve
fund from current revenues, after taking into account costs of operations and
maintenance and debt service requirements, an amount to be determined by the
authority. Monies may be withdrawn from the account if major maintenance or
replacement of equipment in excess of budgeted amounts is required.
(8) The assistance agreement between the
authority and applicant shall contain terms and conditions as the authority
deems necessary to maintain the financial integrity of the Drinking Water State
Section 9. Applicants' Capacity. The
cabinet and the authority may require as a condition of any financial
assistance that the applicant perform any or all of the following:
(1) Document compliance with requirements
for adequate capacity to operate the public water system;
(2) Demonstrate the ability to operate as
well as maintain, the project in a proper manner through the final maturity
date of the financial assistance or the useful life of the project, whichever
is greater; and
(3) Document compliance with any other
state or federal requirements that apply to this program.
Section 10. Submission and Review of
Requisition for Funds. (1) The original requisition for funds with the required
invoices attached shall be submitted to the authority and one (1) copy of each
requisition for funds with the required invoices attached shall be submitted to
(2) The cabinet shall review requisitions
for funds for compliance with federal and state requirements as defined in the
conditional commitment letter and assistance agreement before approving payment
by the authority.
Section 11. Financial Assistance Closing.
(1) If an applicant does not meet all conditions for financial assistance
closing and take action to award contracts for the drinking water project as
outlined in the conditional commitment letter, the financial assistance
commitment shall expire.
(2) An extension may be granted upon
request of the applicant if the authority staff, after consultation with the
cabinet, determines that circumstances warrant the granting of the extension.
If the extension is denied, the loan commitment shall be rescinded.
(3) If a request for a time extension is
granted but all the conditions still cannot be met during the extension period,
the loan commitment may be rescinded. The applicant may reapply for a loan for
any project for which the loan commitment has expired or has been rescinded
under this section. An applicant that reapplies for a loan for substantially
the same project shall be given, at the authority's discretion, the standard or
hardship interest rate applicable when reapplying or the initial rate assigned,
depending on affordability. Except, the interest rate shall not be lower than
the initial rate assigned to the project.
Section 12. Financial Assistance
Conditions. (1) In order to establish and maintain or improve capacity, the
(a) Adopt a uniform system of accounting,
consistent with nationally-recognized standards and approved by the authority,
which includes an annual budget, a chart of accounts, and a monthly management
(b) Certify that rates and charges for
drinking water services are, or will be adjusted to be adequate to cover costs
and that they are based upon the cost of providing the service; and
(c) Comply with other financial,
managerial, and technical conditions as established by the authority's board.
(2) If an applicant is found by an
administrative or court order to have violations which were cited by the
cabinet or other regulatory agency, the applicant shall be subject to a
financial review by the authority, and may be subject to a management
assessment or other review by the authority and shall comply with the
recommendations contained in the review or assessment.
Section 13. Authority to Administer the
Program. The authority staff shall monitor the assistance agreements and
require that financial reports be made available to the authority by the
governmental agency at intervals as shall be deemed necessary by the authority
based on financial performance or the compilation of a program report. The
authority staff shall monitor the cash flows of the project and perform all
actions that shall be required to assure that the agreements continuously meet
the program standards established by this administrative regulation.
Section 14. Administrative Fees. At the
beginning of each state fiscal year, the authority shall set an administrative
fee to be charged for all financial assistance approved during that year. The
fee shall apply to the unpaid balance of the financial assistance and shall be
used to defray the authority's expenses of servicing the financial assistance
and necessary operating expenses of the program.
Section 15. Incorporation by Reference.
(1) The following material is incorporated by reference:
(a) "Fund F Loan Form", 2006;
(b) "Request for Payment",
(2) This material may be inspected,
copied, or obtained, subject to applicable copyright law, at Kentucky
Infrastructure Authority, 1024 Capital Center Drive, Suite 340, Frankfort,
Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material may
also be obtained on the Kentucky Infrastructure Authority internet Web site at http://www.kia/ky.gov.
(23 Ky.R. 4246; Am. 24 Ky.R. 855; eff. 9-25-97; 32 Ky.R.
1323; 1910; 2242; eff. 7-7-2006.)