200 KAR 17:030. Guidelines for Water Resources Loan Fund

Link to law: http://www.lrc.ky.gov/kar/200/017/030.htm
Published: 2015

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      200 KAR 17:030.

Guidelines for Water Resources Loan Fund.



Chapter 224


AUTHORITY: KRS Chapter 13A, 224A.070(1), 224A.113, Part I, OPERATING BUDGET,

sec. E. -Finance and Administration Cabinet, 44. a. General Administration, Part

II, CAPITAL PROJECTS BUDGET, sec. D. -Finance and Administration Cabinet, 4. a.

Ky. Infrastructure Authority of Chapter 514 of the 1990 Ky. Acts, provides for

funds-administer the Water Resources Loan Fund.


FUNCTION, AND CONFORMITY: KRS 224A.070(1) and 224A.113 authorize the Kentucky

Infrastructure Authority to promulgate administrative regulations in accordance

with KRS Chapter 13A, to govern the application for and provision of financial

assistance to governmental agencies for the construction or acquisition of

water resources projects from the Drinking Water Loan Fund.


      Section 1.

Definitions. For the purposes of this administrative regulation the words and

terms used shall have the same meaning as in KRS 224A.011, with the following



"Applicant" shall mean any governmental agency that has submitted an

application to the authority for a loan from the Water Resources Loan Fund.


"Application" shall mean the application submitted by an applicant

for a loan from the Water Resources Loan Fund.

      (3) "State

clearinghouse review" shall mean a review conducted within the Department

of Local Government pursuant to federal or state law or regulations.


"Authority staff" shall mean the Office of Financial Management and

Economic Analysis.


"Conditional commitment letter" shall mean a letter delivered to the

applicant issuing the authority's commitment to provide a loan under specific

terms and subject to the satisfaction of certain conditions by the applicant on

or before the closing date.


"Department" shall mean the Department of Local Government.


"Closing date" shall mean the date established by the authority for

execution of the assistance agreement upon satisfaction of the conditions

contained in the conditional commitment letter.

      (8) "Water

Resources Loan Fund" shall mean the Water Resources Loan Fund established

pursuant to the authority of KRS Chapter 224A.


"Capital investment plan" shall mean the plan developed by the

applicant for investment in capital projects as required by KRS 224A.112(6)(b).

      (10) "Index

rate" shall mean the average of the Bond Buyer's Index of twenty (20) G.O.

Bonds as published weekly in the Bond Buyer (a financial newspaper published in

New York) calculated based on the weeks falling within each calendar quarter.

This average shall be rounded the nearest one-tenth (.1) of one (1) percent.


"Special Depreciation Fund" shall mean the Special Depreciation Fund

required to be established by an applicant by Section 6 of this administrative

regulation in connection with a loan from the Water Resources Loan Program.


      Section 2.

General Eligibility Requirements and Conditions to Financial Assistance. (1)

Applications shall only be submitted by applicants for water resources projects

located in the Big Sandy, Cumberland Valley, Kentucky River, or Gateway Area

Development Districts.

      (2) Only

applicants that certify in writing that they are unable to finance the entire

water resources project from their own resources shall be eligible for a loan.

Documentation evidencing such inability shall include the following:

      (a) Letters from

local lending institutions.

      (b) Letters from

financial advisors, accountants or fiscal agents, if applicable.

      (c) If the

applicant is in an area which qualifies for assistance through the Farmer's

Home Administration, (FmHA), a statement stating either:

      1. The applicant

will not qualify for funding;

      2. The applicant

has previously applied for FmHA funding and has failed to receive assistance in

two (2) consecutive attempts; or

      3. The applicant

needs to supplement the FmHA funds with Water Resources Loan Funds.

      (d) Statements

from any other sources or other certifications having a bearing on the

application which the authority in its discretion deems relevant for purposes

of making the determination that an applicant is unable to finance the entire

water resources project from its own resources.

      (3) Each

applicant shall have or shall attain the legal authority necessary for

constructing, operating and maintaining the proposed water resources project.


      Section 3.

Eligible Water Resources Projects. Monies in the Water Resources Loan Fund

shall be used for water resources projects which shall enhance the health,

safety and welfare, and encourage economic development opportunities in local

communities as determined by the authority based upon each application.


      Section 4.

Submission Requirements and Review Process. (1) The original and two (2) copies

of each application shall be submitted to: Department of Local Government,

Capital Plaza Tower, 2nd Floor, Frankfort, Kentucky 40601, Attention: Director,

Division of Community Programs.

      (2) The

application form, substantially in the form as in effect on April 15, 1991,

which is incorporated by reference and is made a part hereof as if fully set

forth herein, may be obtained at the Department of Local Government from 8 a.m.

to 4:30 p.m., Monday through Friday. Only a completed application, including

all supporting documentation, shall be submitted before an application will be

considered for assistance from the Water Resources Loan Fund.

      (3) Applications

shall be subject to Kentucky state clearinghouse review, shall be reviewed by

the Department of Local Government, and shall be subject to authority credit

review. Extensions of any review periods that are established may be necessary

if the applicable reviewing agency determines that additional time is required

for a more thorough review, or if any such agency determines that additional

information or clarification is required to complete review of the application.

Applicants may supplement their applications during the review process to:

      (a) Clarify or

explain the water resources project scope;

      (b) To provide

additional information or clarification concerning the funds pledged as

repayment of the loan; or

      (c) To make

adjustments in the application to enhance the programmatic or financial

feasibility of the water resources project.


      Section 5.

Criteria for Selecting Eligible Water Resources Projects. (1) The Department of

Local Government shall select and determine eligible water resources projects

for loans. The department shall take into consideration the following:

      (a) Unemployment

data, which shall be specific to the county or counties from which the

application originates and shall reflect the most recent figures available from

each county.

      (b) The extent

to which the water resources project fits into the economic development

strategy of the community. A water resources project which relates to economic

development is one that stimulates the potential for economic growth. A water

resources project shall be considered based on the degree to which it enhances

economic development efforts and its level of priority in the community's

capital investment plan.

      (c) The extent

of the need for the water resources project and the impact which the water

resources project will have on the local economic development efforts.

      (d) Whether the

proposed costs of completing the water resources project are reasonable given

the geographic location of the water resources project, current pricing trends,

required professional services, and any other factors that may have a bearing

on the water resources project. Cost figures submitted in the application will

be reviewed to determine whether the proposed budget is sound. Any costs

considered questionable will be analyzed to determine whether the integrity of

the water resources project is suspect.

      (e) Whether,

based upon the department's evaluation of the overall water resources project

effectiveness, the most beneficial water resources project has been designed

for the use of the Water Resources Loan Fund.

      (2) The

department shall review applications and assign a priority ranking based on the

selection criteria. Water resources projects shall be ranked as Priority I,

Priority II, or Priority III.

      (a) A Priority I

ranking shall be assigned when, having considered all of the criteria, the

water resources project will have a significant economic impact on the

community; is well designed; cost effective; and, generally, determined by the

department to be the most suitable solution to the community's needs.

      (b) Priority II

shall be assigned when one (1) or more factors exist which would limit the

success or feasibility of the water resources project.

      (c) Priority III

shall be assigned when, having considered all the criteria, the department

finds that the water resources project is premature, is not feasible, or is

inappropriate for assistance from the Water Resources Loan Fund.

      (d) The department

shall recommend Priority I rankings to the authority's staff for financial


      (3) Authority

staff shall conduct a financial review of the Priority I designated water

resources project applications.

      (a) The

financial review shall include an analysis of:

      1. The adequacy

and quality of the revenues pledged for the repayment of the loan;

      2. The validity

of the assumptions used to project new revenues resulting from the water

resources project;

      3. Whether

monies other than the water resources loan have been committed and shall be

available to fund the cost of the water resources project;

      4. The ability

of the applicant to provide for maintenance and operations cost of the water

resources project and related public service system;

      5. The ability

of the applicant to service existing debt of the system related to the water

resources project;

      6. The nature of

any funds pledged or committed by entities, other than the applicant, to repay

the water resources loan; and

      7. The ability

of the authority to finance the applicant's water resources project using the

financing programs permitted by Kentucky and federal laws or regulations.

      (b) At any time

during the financial analysis, an applicant may be notified of a deficiency. If

the problem cannot be resolved through negotiation, the authority may remove

the application from consideration.


      Section 6. Loan

Process. (1) Upon completion of the credit review by the authority's staff, the

application shall be submitted to the authority for final action.

      (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. No funds shall be provided until the assistance agreement is fully

executed. The commitment shall be made upon the authority's satisfaction that

the water resources project proposed is financially feasible, the applicant is

credit worthy and that the water resources project will comply with all

technical and program requirements set forth in state and federal laws and


      (3) The

authority shall establish the interest rate quarterly based on prevailing

market conditions. The rate of interest on each loan shall be set forth in the

conditional commitment letter. There shall be one (1) rate of interest offered

which will be the index rate less four (4) percent. If the nature of a water

resources project financed by the authority's loan causes interest on any

authority bonds issued to fund the water resources project to become taxable,

the authority may consider adjustments in the interest rate to reflect the

additional costs of authority funds.

      (4) Loan

repayment shall not exceed thirty (30) years, and principal shall be payable

annually and interest semiannually unless the authority establishes a more

frequent payment schedule due to credit concerns. The loan repayment period may

be less than thirty (30) years upon election of the authority. Loan repayment shall

commence within six (6) months after the start of construction, unless

repayment is dependent upon revenues generated from the specific water

resources project. In such cases, loan repayment shall begin within six (6)

months after the water resources project is operational, and interest to cover

the authority's cost of money during the construction period may be added to

the amount of the loan.

      (5) The

principal amount of each loan shall be equal to the amount approved by the

authority. The final loan amount may be adjusted by up to ten (10) percent of

the commitment without further action by the authority, subject to availability

of funds to service the debt.

      (6) Upon

certification by the water resources project engineer of construction of the

water resources project as eighty (80) percent complete, and submission by the

applicant of evidence of the exact cost of the water resources project, an

inspection shall be conducted by the authority staff to provide for any

adjustments in the loan amount.

      (7) To assure

adequate funds for major maintenance and replacement of the water resources

projects funded by this program, the applicant shall be required to set aside

annually, to a Special Depreciation 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 when major maintenance or replacements of equipment in excess of

budgeted amounts are required.

      (8) The

assistance agreement between the authority and applicant shall contain such

terms and conditions as the authority deems necessary to maintain the integrity

of the Water Resources Loan Fund according to the circumstances of each water resources



      Section 7.

Applicant's Management Capacity. The department and the authority's staff shall

require as a condition of any loan that the applicant perform any or all of the


      (1) Document

compliance with statutory mandates for financial accountability and personnel


      (2) Demonstrate

the ability to operate, as well as maintain, the water resources project in a

proper manner through the final maturity date of the loan.

      (3) Document

compliance with any other state or federal laws or regulations.


      Section 8. Loan

Closing and Extensions. An applicant shall meet all conditions of the

conditional commitment letter and take bids for the water resources project

within not more than eleven (11) calendar months after the date of the

conditional commitment letter, otherwise, the loan commitment shall expire.

(For example, if an application was approved on January 1, 1992, bids for the

project must be accepted and the assistance agreement signed by November 30,

1992.) One (1) extension period of up to six (6) months may be granted upon

request of the applicant, if the authority determines that circumstances

warrant the granting of the extension. If the extension is denied, the loan

commitment shall be rescinded. 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 any water

resources project for which the loan commitment has expired or been rescinded

under this section.


      Section 9.

Authority to Administer the Program. The authority shall monitor the assistance

agreements and require that financial reports be made available to the

authority by the applicant at such intervals as shall be deemed necessary by

the authority. The authority shall monitor the economic impact on the

community, 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. There shall be an annual

administrative fee of two-tenths (.2) of one (1) percent charged on the unpaid

balance of all loans. This fee shall be applied to the servicing costs of the

loans and necessary operating expenses of the program. (17 Ky.R. 3321; Am. 18

Ky.R. 674; eff. 8-22-91.)