200 KAR 17:070. Drinking Water State Revolving Fund

Link to law: http://www.lrc.ky.gov/kar/200/017/070.htm
Published: 2015

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      200 KAR 17:070. Drinking Water State

Revolving Fund.


      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


224A.1115, 224A.113, 224A.300


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

KRS 224A.011(4).

      (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

closing date.

      (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

KRS 224A.1115.

      (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

Water Act.

      (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

Revolving Fund.

      (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

system that:

      (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

compliance; and

      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


      (e) Clearwells;

      (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

is necessary.

      (j) Projects primarily intended to

finance the expansion of any public water system in anticipation of future

population growth.

      (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

administrative regulation.

      (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

household basis.

      (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

cost effective.

      (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

Data Center:

      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

Revolving Fund.


      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

the cabinet.

      (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

applicant shall:

      (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.)