OAR 340-054-0065: Clean Water State Revolving Fund Loans to Public Agency Borrowers: Loan Types, Terms and Interest Rates

(1) Loan types. A CWSRF loan to a public agency borrower must be one of the following: (a) A loan secured by a general obligation bond, as defined in ORS 287A.001(10). (b) A loan secured by the public agency borrower’s pledge of its full faith and credit and taxing power, as described in ORS 287A.315. (c) A loan agreement, bond or other unconditional obligation that meets the requirements specified in section (2) of this rule. (d) An alternative loan that meets the requirements specified in section (3) of this rule. (2) A CWSRF loan to a public agency borrower that is a revenue secured loan must: (a) Be represented by a properly executed loan agreement, bonds or other unconditional obligations to pay from specified revenues that are pledged by the public agency borrower to DEQ. The obligation to pay must include a pledge of security DEQ accepts. (b) Include a rate provision that requires the public agency borrower to impose and collect revenues sufficient to pay: (A) All expenses of operating, maintaining and replacing a project; (B) All debt service; (C) All other financial obligations including, but not limited to, contributions to reserve accounts imposed in connection with prior lien obligations; and (D) An amount equal to the loan’s coverage requirements. This requirement is the product of the coverage factor times the debt service due in that year on the CWSRF loan. The coverage factor used must correspond to the coverage factor and reserve percentage the public agency borrower selects from subsection (d) of this section of the rule. (c) Include a debt service reserve provision requiring the public agency borrower to maintain a pledged reserve dedicated to the CWSRF loan payment and that meets the following requirements: (A) The debt service reserve must be maintained in an amount at least equal to the product of the reserve percentage listed in subsection (d) of this section of the rule times one half the average annual debt service during the repayment period based on the repayment schedule or revised repayment schedule in the loan agreement. The reserve percentage selected from subsection (d) of this section of the rule must correspond to the coverage factor selected for the CWSRF loan. (B) A loan reserve may be funded with the public agency borrower’s cash, a letter of credit, repayment guaranty or other third party commitment to advance funds that is satisfactory to DEQ. If DEQ determines reserve funding imposes an undue hardship on the public agency borrower, DEQ may allow reserves to be funded with CWSRF loan proceeds. (d) Comply with the one of the following coverage factors (net income to debt service) and reserve percentages (percentage of one-half the average annual debt service): (A) 1.05:1-100 percent. (B) 1.15:1-75 percent. (C) 1.25:1-50 percent. (D) 1.35:1-25 percent. (e) Include a requirement for the public agency borrower to conduct a periodic rate review and rate adjustment, if necessary, to ensure estimated revenues in subsequent years are sufficient. (f) Include a requirement that, if revenues fail to achieve the required rate level, the public agency borrower must promptly adjust rates and charges to assure future compliance with the rate requirements. DEQ may determine that not adjusting rates does not constitute a default if the public agency borrower transfers unencumbered resources in an amount equal to the revenue deficiency to the utility system that generates the revenues. (g) Include a requirement that if the reserve account is depleted for any reason, the borrower must take prompt action to restore the reserve to the required minimum amount. (h) Include a requirement restricting additional debt appropriate to the public agency borrower’s financial condition. (i) Prohibit the public agency borrower from selling, transferring or encumbering any financial or fixed asset of the utility system that produces the pledged revenues if the public agency borrower is in violation of a CWSRF loan requirement, or if such sale, transfer or encumbrance may cause a violation of a CWSRF loan requirement. (3) Alternative loans. DEQ may authorize an alternative loan to a public agency borrower for a reasonable alternative financing method if the public agency borrower demonstrates to DEQ’s satisfaction that: (a) Borrowing money from the CWSRF through general obligation bonds, revenue bonds or a revenue-secured loan, as described in subsection (a), (b), (c), or (d) of section (1) of this rule, is unduly burdensome or costly to the public agency borrower; and (b) The alternative loan has a credit quality substantially equal to, or better than, the revenue secured loan credit quality to the public agency borrower. DEQ may consult with a financial advisor and may charge the public agency borrower reasonable consultation costs to determine if an alternative loan meets the credit quality requirement. (4) Interest rates for public agency borrowers. (a) Effective date. The interest rates as specified in this section are effective for all loan agreements executed on or after January 1, 2013. (b) Base rate. DEQ will determine the base rate used in computing the interest rates on all direct loans for a quarter based on the weekly average of state and local government bond interest rates for the preceding quarter. This base rate will be the “state and local bonds” entry reported in “Selected Interest Rates, H.15” posted by the Federal Reserve from the “Bond Buyer Index” for general obligation bonds (20 years to maturity, mixed quality). (c) Planning loans. The interest rate for a planning loan will be equal to 25 percent of the base rate. (d) Local community loans. The interest rate for a local community loan will be equal to 50 percent of the base rate. (e) Federal loans. DEQ will determine the interest rate for federal loans. DEQ will not set a rate that exceeds the highest rate described in Table 2 of this rule. (f) All other direct loans. Except as provided in OAR 340-054-0065(10), DEQ will provide the following interest rates for all other CWSRF loans: (A) For loans with a maximum repayment period of up to 20 years, DEQ will provide the following interest rates as detailed in Table 1 of this rule. (B) (Effective January 1, 2016) For loans with a maximum repayment period of up to 30 years, DEQ will provide the following interest rates as detailed in Table 2 of this rule. (C) DEQ will set interest rate premiums as described in Tables 1 and 2 in this rule so as to safeguard the fund’s perpetuity and DEQ will reevaluate them from time to time. (g) Sponsorship option. When a sponsorship option is implemented within the scope of a construction loan, DEQ: (A) Will calculate the debt service on the wastewater facility project based on subsection (f) of this section of the rule; (B) Will calculate the debt service on a combined sponsorship loan by reducing the interest rate so the debt service on the sponsorship loan equals the debt service as calculated in paragraph (g)(A) of this section of the rule only upon completion of both the sponsorship and its associated point source project; and (C) May not reduce the resulting interest rate below one percent. (h) Bond proceeds for direct loans. DEQ may use bond proceeds that are matching funds for federal capitalization grants to fund direct loans at the interest rates listed in this section. Any change in the source of repayment for matching bonds will not affect this subsection’s requirements. (5) Interest accrual and payment period for public agency borrowers. Interest begins accruing when DEQ makes the first CWSRF loan disbursement to a public agency borrower. A public agency borrower must include all outstanding accrued interest with each loan repayment. (6) Annual loan fee for public agency borrowers. (a) Except as provided in subsection (b) of this section of the rule, a public agency borrower must pay DEQ an annual loan fee of 0.5 percent on the unpaid loan balance specified in the payment schedule in its loan agreement. This annual loan fee is in addition to any other payments a public agency borrower is required to make under its loan agreement. (b) DEQ will not charge a public agency borrower any annual loan fee for a planning loan. (7) Commencement of loan repayment for public agency borrowers. A public agency borrower must begin its loan principal and interest repayments within one year of the date the facility is operationally complete and ready for the purpose for which it was planned, designed, and built or DEQ determines that the project is completed. (8) Loan term for public agency borrowers. (a) A public agency borrower must fully repay a loan under a repayment schedule DEQ determines. DEQ will consider the useful life of the assets financed when determining the repayment schedule. The repayment term for: (A) A planning loan may not exceed five years; (B) A local community loan may not exceed ten years; (C) All other loans may not exceed 20 years after project completion; and (D) Effective January 1, 2016, loan terms may not exceed 30 years after project completion. (b) DEQ will allow prepayments without penalty on all CWSRF loans except as section (11) of this rule specifies. Public agency borrowers must provide a written prepayment notification at least 30 days before the estimated pay off date. (c) A loan must be fully amortized by the maturity date of the loan. (9) Minor variations in loan terms for public agency borrowers. DEQ may authorize minor variations in financial terms of loans described in this rule to facilitate administration and repayment of a loan. (10) Restructure and refinance of CWSRF loans for public agency borrowers. (a) DEQ may consider a one-time loan restructure, such as combining two or more existing CWSRF loans, if such restructure safeguards the CWSRF’s perpetuity. DEQ has the discretion as to whether or not to offer a restructure in any individual case. DEQ also has the discretion to set all terms of any restructure. (A) The existing CWSRF loans must have at least 10 years term remaining except where a Planning loan is combined with a Construction loan. (B) A Sponsorship loan may not be combined with any other loan except its sponsoring point source project and only after the construction period for the nonpoint source control project has closed. (b) DEQ may consider a one-time refinance of an existing CWSRF loan if such refinance safeguards the CWSRF’s perpetuity and fund utilization rate. DEQ has the discretion as to whether or not to offer refinancing in any individual case. DEQ also has the discretion to set all terms of any refinance. (A) The existing CWSRF loan must have at least 10 years term remaining. (B) Any extension of term must not exceed the project’s useful life. (C) The refinance may not reduce the interest rate below one percent. (D) A refinance may only be for rate, term, or rate and term and may not include any funding disbursed to the public agency borrower. (c) DEQ may not charge a fee for a restructure or refinance. (11) Leveraged loans for public agency borrowers. (a) DEQ may fund loans with bond proceeds through a leveraged loan program under the following terms and conditions: (A) Interest rates will be less than the interest rate paid by the state on bonds sold to fund the leveraged loans. Rates will be fixed at 65 percent of the base rate. (B) Loan fees will be calculated in accordance with section (6) of this rule. (C) Notwithstanding other provisions of this rule, DEQ may make changes to the terms and conditions of a leveraged CWSRF loan to make it marketable. To the maximum extent practicable, the terms and conditions will be the same as for direct loans. (b) Bond issuance and related transaction costs will be paid out of bond proceeds to the extent permitted by law. (12) Principal forgiveness for public agency borrowers. DEQ may provide additional subsidization to public agency borrowers in the form of principal forgiveness to the maximum extent the federal capitalization grant allows and as the criteria established in this section require. A loan with principal forgiveness is subject to standard interest rates, fees, and loan terms as defined in this rule. Whenever DEQ receives a federal capitalization grant in addition to the annual base capitalization grant, DEQ may provide additional subsidization to eligible borrowers in the form of principal forgiveness to the maximum extent that the additional capitalization grant allows, and subject to its terms and the criteria established in this section. (a) Eligibility. Except as specified in subsection (b) of this section of the rule, the following public agency borrowers are eligible for principal forgiveness: (A) Public agency borrowers that are an eligible recipient and meet affordability criteria as specified in subsection (c) of this section of the rule; (B) Public agency borrowers that are an eligible recipient with a project that DEQ determines implements a process, material, technique, or technology to address water-efficiency goals, energy-efficiency goals, to mitigate stormwater runoff, or to encourage sustainable project planning, design, and construction; or (C) Public agency borrowers that are an eligible recipient and that do not meet the requirements of paragraph (a)(A) or (a)(B) in this section of the rule but have individual ratepayers who will experience financial hardship from a rate increase that financing a project causes. Applicants qualifying under this section must have an established ratepayer hardship assistance program. DEQ will review the applicant’s ratepayer hardship assistance program for duration and effectiveness. (b) Ineligible loans. The following types of loans are not eligible for principal forgiveness: (A) Loans for projects that are not ready to proceed; (B) Loans that have loan agreements that include incentives such as sponsorship option loans; (C) Interim loans (c) Affordability Criteria. Affordability criteria shall be based on income and unemployment data, population trends, and other data determined relevant by the State, including whether the project or activity is to be carried out in an economically distressed area. (d) Principal forgiveness allocation amount. DEQ may allocate or adjust the allocation of additional subsidization every federal fiscal year as a percentage of the annual federal capitalization grant, not to exceed the maximum the federal allocation regulation permits. DEQ will determine the maximum allowable annual percentage allocation of subsidization from time to time to safeguard the loan fund’s perpetuity. (e) Alternate subsidy. DEQ may offer an alternate subsidy in lieu of principal forgiveness, such as a reduced interest rate, to eligible recipients that meet all other principal forgiveness criteria. DEQ will include any alternate subsidy awarded in the total additional subsidization allocated in any fiscal year and may not exceed the individual award amount in subsection (f) of this rule. (f) Award Amount. (A) Eligible public agency borrowers that are an eligible recipient may receive additional subsidization for their loan in an amount not to exceed the maximum amount determined by DEQ. (B) For public agency borrowers that are an eligible recipient and that qualify for principal forgiveness under paragraph 12(a)(B), DEQ will limit the additional subsidization to 50 percent of the project components qualifying under paragraph 12(a)(B). (C) Public agency borrowers that are an eligible recipient may only receive one additional subsidization award per project. (g) Award Reserves. (A) DEQ will reserve seventy percent of the additional subsidization allocation for public agency borrowers that are an eligible recipient meeting the affordability criteria in subsection (a)(A) of this section of the rule. (B) DEQ will reserve thirty percent of the additional subsidization allocation for public agency borrowers that are an eligible recipient with projects eligible under paragraph 12(a)(B) of this section of the rule. (C) At the close of the federal fiscal year, DEQ may reallocate any unawarded allocation of additional subsidization in one reserve to the other reserve. If after such reallocation, unawarded allocation still remains, DEQ may reallocate unawarded additional subsidization to those public agency borrowers that are an eligible recipient and that are eligible under paragraph (a)(C) of this section of the rule. (h) Loan Term. Public agency borrowers that are an eligible recipient and are eligible for principal forgiveness under the affordability criteria as specified in paragraph (a)(A) of this section of the rule must take the longest term available for their loan. All other applicants may choose any term permitted in section (8) of this rule. A public agency borrower may prepay its loan without penalty. [ED. NOTE: To view attachments referenced in rule text, click here to view rule.]