31 TAC §375.12, §375.15
The Texas Water Development Board (board) proposes amendments
to 31 TAC §375.12 and §375.15 concerning Clean Water State Revolving
Fund, Subchapter A, relating to General Provisions, to provide for extended
financing terms.
The board proposes to amend §375.12 and §375.15 in order to implement
the March 17, 2006 Policy Statement of the United States Environmental Protection
Agency (EPA) on Extended Financing Terms under the Clean Water Act State Revolving
Fund Program (EPA Policy Statement). Currently, §375.12 limits the term
of loans from the Clean Water State Revolving Fund (CWSRF) to 20 years. According
to the EPA Policy Statement, the board may use the CWSRF to purchase new municipal
obligations with terms that exceed 20 years (extended financing terms). Subsequent
to the EPA Policy Statement, EPA has issued additional memoranda identifying
guidelines pursuant to which the board may purchase new municipal obligations
with terms that exceed 20 years. The board proposes amendments to §375.12
and §375.15 to provide extended financing terms consistent with EPA guidance
because the board believes that providing extended financing term responds
to CWSRF program customer requests to provide terms that more closely match
the life of the assets financed by the CWSRF. Additionally, the board proposes
these amendments to provide an additional incentive for Texas communities
to access the CWSRF program to address wastewater infrastructure needs in
a cost-effective manner.
The board proposes to amend §375.12(a) to move the conditions under
which the board can make loans identified in subsection (a)(1)(A), (B), and
(C) to proposed new §375.12(c). According to the EPA guidance on extended
financing terms, the conditions in subsection (a)(1)(A), (B), and (C) apply
to both CWSRF loans as well as to the purchase of new municipal obligations
with extended financing terms. The board proposes this amendment in order
to consolidate the conditions applicable to loans and new municipal obligation
purchases into proposed new subsection (c).
The board proposes a new subsection (c) to §375.12 to include the
conditions pursuant to which the CWSRF may be used to finance loans pursuant
to §375.12(a)(1) or to purchase new municipal obligations pursuant to §375.12(a)(2).
The board proposes new §375.12(c)(1) and (2) because these are conditions
currently applicable to loans under federal and state statute and because
the EPA guidance on extended financing terms considers these conditions to
be applicable to the purchase of new municipal obligations.
The board proposes new §375.12(c)(3) to apply the current loan requirement
that loan repayments commence one year after project construction completion
to the purchase of new municipal obligations. The proposal for this paragraph
also includes new conditions that interest payments will commence no later
than one year after the date of closing and principal payments will commence
either one year after project completion or five years after the date the
loan is closed or the purchase is made, whichever is earlier. The board proposes
this amendment in order to insure that repayments are started within this
timeframe in order to establish an adequate flow of funds into the CWSRF.
The board proposes new §375.12(c)(4) to include the current loan requirement
that a loan term not exceed 20 years and that the loan is fully amortized
within 20 years after the completion of construction, which is consistent
with current federal and state statutes. As proposed, this requirement will
be generally applicable to new municipal obligations purchased by the board
as well. The board also proposes that this new paragraph include the additional
condition that the average bond life of loans or municipal obligations not
exceed 16 years. Current board rules allow loans and municipal obligations
to have debt structures where the amount of principal paid may vary from year
to year (also referred to as unlevel debt structure). The board has determined
that allowing more principal to mature later in the term of the loan or municipal
obligation may adversely affect the integrity of the CWSRF. Therefore, the
board proposes to accommodate unlevel debt structures while insuring timely
flow of funds into the CWSRF by limiting the average bond life to no more
than 16 years when the term of the loan or municipal obligation is 20 years.
The board proposes new §375.12(c)(5) to allow extended financing terms
only for the purchase of new municipal obligations as authorized by federal
and state statutes. The board proposes extended financing term be defined
as greater that 20 years but no more than 30 years because terms of greater
than 30 years may reduce the amount of repayments to the CWSRF and thereby
adversely affect the sustainability of the program. This proposed new paragraph
provides three conditions under which the board may provide extended financing
terms. First, the board proposes new §375.12(c)(5)(A) to limit the term
to be no longer than the earlier of either 30 years or the useful life of
the asset financed by the proposed assistance. The board proposes this condition
to allow longer terms while maintaining the integrity of the CWSRF consistent
with EPA guidance. Second, the board proposes new §375.12(c)(5)(B) to
limit the average bond life for extended term financing to be no more than
20 years in order to insure a timely flow of funds into the CWSRF. Third,
the board proposes new §375.12(c)(5)(C) to limit the amount of new municipal
obligations purchased by the CWSRF to the amount estimated, pursuant to proposed §375.15(a),
to be available for such financings while maintaining the total amount of
funds historically available through the CWSRF.
The board proposes to amend §375.15(a) to include the requirement
that the executive administrator prepare a capacity model analysis of the
CWSRF for the board prior to its consideration of each annual intended use
plan. The proposed amendment requires that the analysis identify the historical
average annual assistance levels made available for financial assistance by
the CWSRF program account; estimate the total amount of funds available for
financial assistance from the CWSRF for the succeeding fiscal year; estimate
an amount of financial assistance from the CWSRF that can be used for financial
assistance for an extended term in the succeeding year in a manner that maintains
the long-term capability of the CWSRF to provide financial assistance at the
historical average annual assistance levels; estimate the amount of funds
from the CWSRF to be made available for projects that will serve disadvantaged
communities; and evaluate the long term availability of funds for the CWSRF.
The board proposes this amendment to estimate the amount of funds that may
be made available for extended financing terms without adversely affecting
the integrity of the CWSRF. By this proposed amendment, the board proposes
to move the current provisions of §375.15(a), which establishes categories
of projects in the intended use plan, to §375.15(b) and renumbering accordingly.
The board proposes this amendment for subject matter organizational purposes.
James LeBas, Chief Financial Officer, has determined that for the first
five-year period the amendments are in effect, there will be positive fiscal
implications on state and local government as a result of enforcement and
administration of the amended sections. By allowing longer terms for financial
assistance under the CWSRF, local governments will be able to reduce loan
repayments and consequently maintain lower utility wastewater rates. Since
local governments voluntarily participate in this program, however, it is
not possible to determine with any precision the amount of the impact on local
governments.
Mr. LeBas has also determined that for the first five years the amendments,
as proposed, are in effect, the public benefit anticipated as a result of
enforcing the proposed amendments will be to allow municipalities and other
public wastewater utility providers to maintain lower residential rate structures.
Mr. LeBas has determined there will not be economic costs to small businesses
or individuals required to comply with the amendments as proposed.
Comments on the proposal will be accepted for 30 days following publication
and may be submitted to Jonathan Steinberg, Deputy Counsel, General Counsel's
Office, Texas Water Development Board, P.O. Box 13231, Austin, Texas 78711-3231,
by e-mail to jonathan.steinberg@twdb.state.tx.us or by fax at (512) 463-5580.
Statutory authority: Water Code, §6.101 and §15.605.
Cross reference to statute: Water Code, Chapter 15, Subchapter J.
§375.12.Types of Assistance.
(a)
Use of fund. The fund may be used for the following purposes:
(1)
to make loans [
on the condition that:
]
[
(A)
such loans are made at or below market
interest rates, including interest free loans at terms not to exceed 20 years;
]
[
(B)
annual principal and interest payments
will commence not later than one year after completion on any project and
all loans will be fully amortized not later than 20 years after project completion;
and
]
[
(C)
the recipient of a loan will establish
a dedicated source of revenue for repayment of loans
];
(2)
to buy or refinance the bonds of eligible applicants within
the state at or below market rates, when such debt obligations were incurred
after March 7, 1985;
(3)
for the reasonable costs of administering the fund and
conducting activities under the Act, Title VI;
(4)
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 sale of such bonds will be deposited in the fund;
(5)
to earn interest on fund accounts; and
(6)
to guarantee or purchase insurance for local debt obligations.
(b)
Refinancing of debt. Applications for which refinancing
is sought must include provisions for purchase of insurance for the local
debt obligation.
(c)
Conditions of Financial Assistance. Financial
assistance pursuant to subsection (a)(1) or (2) of this section may only be
provided on the condition that:
(1)
the financial assistance is made at or
below market interest rates, including 0% interest;
(2)
the recipient of the financial assistance
will establish a dedicated source of revenue for repayment of the financial
assistance;
(3)
interest payments will commence no later
than 1 year after the date of closing and annual principal payments will commence
either one year after completion of project construction or five years after
the date of closing, whichever is earlier;
(4)
the term of the financial assistance shall
not exceed 20 years, the average bond life shall not exceed 16 years provided,
and the financial assistance will be fully amortized not later than 20 years
after the completion of project construction; and
(5)
notwithstanding paragraph (4) of this subsection,
the board may buy the bonds of eligible applicants with an extended term (defined
as a term of more than 20 years but not more than 30 years) on the condition
that:
(A)
the financial assistance is fully amortized
not later than 30 years after the completion of project construction and the
term of the bonds are no longer than either 30 years or the design life of
the project for which the assistance is provided, whichever is earlier;
(B)
the average bond life shall not exceed
20 years for either a level or unlevel debt service schedule; and
(C)
providing the assistance will not exceed
the amount identified in the applicable intended use plan as available for
financial assistance with an extended term.
§375.15.Criteria and Methods for Distribution of Funds.
(a)
Prior to the adoption by the board of the
intended use plan in each fiscal year, the executive administrator shall prepare
and present to the board a capacity model analysis of the CWSRF which shall,
at a minimum:
(1)
identify the historical average annual
assistance levels made available for financial assistance by the CWSRF program
account;
(2)
estimate the total amount of funds available
from the CWSRF for the succeeding fiscal year that can be used to provide
financial assistance;
(3)
estimate an amount of funds available from
the CWSRF for the succeeding year that can be used to provide financial assistance
for an extended term (defined as a term of more than 20 years but not more
than 30 years) that maintains the long-term capability of the CWSRF to provide
financial assistance at the historical average annual assistance levels;
(4)
estimate an amount of funds available from
the CWSRF for the succeeding year that can be used to provide financial assistance
for projects that will serve disadvantaged communities; and
(5)
evaluate the long term availability of
funds for the CWSRF.
[
(a)
After the executive administrator determines
the amount of funds available for projects for a fiscal year, the funds will
be applied to the list of projects designated to receive funding in the intended
use plan. The list will be divided into eight categories as follows:
]
[
(1)
category A, which shall consist of treatment
works projects proposed by applicants with existing populations of 3,000 or
fewer;
]
[
(2)
category B, which shall consist of treatment
works projects proposed by applicants with existing populations from 3,001
to 10,000;
]
[
(3)
category C, which shall consist of treatment
works projects proposed by applicants with existing populations from 10,001
to 25,000;
]
[
(4)
category D, which shall consist of treatment
works projects proposed by applicants with existing populations from 25,001
to 100,000;
]
[
(5)
category E, which shall consist of treatment
works projects proposed by applicants with existing populations from 100,001
to 500,000;
]
[
(6)
category F, which shall consist of treatment
works projects proposed by applicants with existing populations of 500,001
or greater;
]
[
(7)
category G, which shall consist of treatment
works projects proposed by applicants for rural hardship communities; and
]
[
(8)
category H, which shall consist of nonpoint
source projects or estuary management projects.
]
(b)
After the executive administrator determines
the amount of funds available for projects for a fiscal year, the funds will
be applied to the list of projects designated to receive funding in the intended
use plan.
(1)
The list will be divided into eight categories
as follows:
(A)
category A, which shall consist of treatment
works projects proposed by applicants with existing populations of 3,000 or
fewer;
(B)
category B, which shall consist of treatment
works projects proposed by applicants with existing populations from 3,001
to 10,000;
(C)
category C, which shall consist of treatment
works projects proposed by applicants with existing populations from 10,001
to 25,000;
(D)
category D, which shall consist of treatment
works projects proposed by applicants with existing populations from 25,001
to 100,000;
(E)
category E, which shall consist of treatment
works projects proposed by applicants with existing populations from 100,001
to 500,000;
(F)
category F, which shall consist of treatment
works projects proposed by applicants with existing populations of 500,001
or greater;
(G)
category G, which shall consist of treatment
works projects proposed by applicants for rural hardship communities; and
(H)
category H, which shall consist of nonpoint
source projects or estuary management projects.
(2)
[
(b)
] Projects for categories A-G
shall be listed in priority ranking order with funds required and totaled
by category. Projects in category H shall be listed in alphabetical order
according to the name of the applicant with funds required and totaled for
the category. Project costs will be based on cost estimates, acceptable to
the executive administrator, contained in the intended use plan solicitation
described in §375.17 of this title (relating to Intended Use Plan) used
to establish the project list. Funds required by all projects in each category
will then be totaled. Except for category G, a percentage of the total funds
required by each category shall be computed based upon the ratio of funds
required by each category to the funds required by all categories. The portion
of the available funds shall be assigned to the categories based on this computed
percentage, provided that no category will be assigned less than 7.0% of the
total funds available unless the total needs of the category are less than
7.0%. The funds assigned to category G shall be equal to the amount of federal
grants available for the fiscal year plus an equal amount of CWSRF loan funds.
(c) - (o)
(No change.)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on July 19, 2006.
TRD-200603823
Jonathan Steinberg
Deputy Counsel
Texas Water Development Board
Proposed date of adoption: September 19, 2006
For further information, please call: (512) 475-2052