Supplemental Intended Use Plan for the New York State Drinking Water State Revolving Fund

Issued: June 17, 2009

Table of Contents

Attachments

1.0 Introduction

This Drinking Water State Revolving Fund (DWSRF) Intended Use Plan (IUP) accompanies New York State's application for a $86,811,000 capitalization grant provided as an appropriation under the American Recovery and Reinvestment Act (ARRA) of 2009. This IUP is considered a supplement to the previously approved Final IUP for 2009 that was issued on September 30, 2008. The DWSRF program is administered jointly by the New York State Department of Health (DOH) and the New York State Environmental Facilities Corporation (EFC).

2.0 DWSRF Program Goals Under the ARRA

The DOH and the EFC are committed to using the ARRA funds to provide assistance to water systems for capital improvement projects which will proceed quickly to construction, creating jobs in New York State and furthering the public health protection objectives of the Safe Drinking Water Act. In the short term, the DOH and the EFC will identify projects that can help achieve the ARRA goal of commencing construction activity within 120 days of enactment. The long-term goal is to commit all ARRA funds to projects that will be under contract for construction by February 17, 2010. Achieving both of these goals will promote economic stimulation envisioned by the ARRA. The DOH and the EFC intend to award all ARRA funds in full conformance with the deadlines established under the ARRA and the terms and conditions of the capitalization grant award.

The DOH and the EFC recognize that the goal of the ARRA is to expeditiously fund eligible projects that simultaneously will create jobs, promote economic recovery, and generate long-term benefits from infrastructure investment in New York State. With the ARRA funds, the DOH and the EFC are being called upon to accomplish goals that were not previously priorities in the base DWSRF program. Some priorities and activities in the DWSRF base program that may not practically be attainable within the timeframes associated with the ARRA will be pursued using funds made available through the base DWSRF program.

3.0 Sources and Uses of Funds

The DOH and the EFC are applying for a capitalization grant in the amount of $86,811,000. This total represents the amount that New York State is eligible to receive under the allocation from the supplemental appropriation enacted under the ARRA. Note that the ARRA has waived the State match that is normally required in order to receive a capitalization grant.

The DOH and the EFC intend to take a set-aside of 4% for DWSRF program administrative costs and a set-aside of 2% for technical assistance costs. Technical assistance will be focused on working with the eligible small systems on the amended Project Readiness List to prepare these systems to be ready to proceed expeditiously to construction. A work plan for the technical assistance set-aside will be developed and put into effect consistent with the grant conditions required by USEPA guidance for the ARRA. The following Table 1A summarizes the proposed source and uses of the ARRA funds for which the State is applying:

Table 1A: Proposed Source and Uses For ARRA Funds for FFY 2009
Source Amount
ARRA (Stimulus) Funds $86,811,000
Total Sources $86,811,000
Uses Amount
ARRA-Administrative Set-Aside $3,472,440
ARRA-Technical Assistance Set-Aside $1,736,220
Total Set-Asides $5,208,660
ARRA Additional Subsidization, including Green Projects and the Green Innovation Grant Program2 $59,301,1701
ARRA Direct Financing, including Green Projects $7,301,170
ARRA Allocation for Leveraged Financing, including Green Projects $15,000,0003
Total Uses $86,811,000
  1. Not less than $43,405,500 of the $86,811,000 DWSRF capitalization grant shall be provided to applicants for DWSRF funding as grant, principal forgiveness or negative interest loans.
  2. At least $3,000,000 and not more than $7,000,000 of ARRA additional subsidization will be made available through the Green Innovation Grant Program.
  3. Leveraged three times, these funds will provide financing of $45,000,000 worth of eligible projects. Combined with Direct Financing and Additional Subsidization, the total financing capacity from ARRA funds is approximately $111,602,340.

4.0 Criteria and Methods for Distribution of ARRA Funds

To be qualified to receive ARRA funds, a project must be listed on the amended DWSRF Project Readiness List (attachment 1) for DWSRF financing and submit an application for financing to the EFC. The DOH and the EFC will give priority for ARRA funds to projects that are ready to proceed to construction regardless of their ranking on the Project Readiness List. Preference will be given to projects that can meet the end goal of executing all construction contracts by January 1, 2010.

With the exception of the projects funded through the Green Innovation Grants Program (as noted below), all projects financed with ARRA funds will be selected according to the following criteria:

  • The ability to execute all construction contracts as expeditiously as possible, but in no event later than January 1, 2010; and
  • The ability to meet all applicable program requirements.

The DOH and the EFC will require all recipients of ARRA funds to:

  • Commit to a pre-construction project schedule as a condition of their financing agreement for ARRA funds;
  • Provide weekly reports of the status of their pre-construction schedule; and
  • Certify to the DOH and the EFC by January 1, 2010 that all construction contracts have been executed.

If the contracts execution certification required by January 1, 2010 is not received, the DOH and the EFC will consider reallocating the ARRA funds to another project that can meet the February 17, 2010 requirement. This may result in the loss of subsidized financing as well as principal forgiveness or grant as set forth in the financing agreement. The DOH and the EFC will maintain a list of projects that qualify for ARRA funds for such reallocations.

4.1 Loan Terms and Fees

EFC will continue to determine interest rates and loan terms as described in the 2009 Final IUP issued on September 30, 2008. The fees and costs of DWSRF financing are presented in the 2009 Final IUP.

The DOH and the EFC will provide ARRA funds to projects that meet the requirements of the ARRA and the DWSRF program, to the extent that funds are available. Projects may receive a combination of 2009 program DWSRF funds and ARRA funds subject to eligibility requirements and availability. The combination will be determined by EFC in consultation with the applicant. Other projects will be provided with 2009 DWSRF program funds, to the extent that funds are available. The EFC will work with communities to close financings as quickly as possible to adhere to the intent and requirements of the ARRA.

4.2 Additional Subsidization Through the ARRA

The ARRA requires that no less than 50% of the appropriated funds be provided as additional subsidization in the form of grants, principal forgiveness, or negative interest loans. For projects not subject to the DWSRF Hardship Policy, the DOH and the EFC intend to forgive a minimum of 50% of the principal amount of debt for each selected project, or portion thereof, that qualifies for ARRA funds.

Projects which are determined to be qualified for ARRA funds and for which ARRA funds are available will have access to up to 50% of the total estimated project financial needs for up to 3 years on an interest-free basis. Projects may receive a combination of base DWSRF funds and ARRA funds subject to eligibility requirements and availability. The combination will be determined by EFC in consultation with the applicant. Within 3 years of the closing on the short term financing, the recipient will need to repay or convert their financing to an EFC long term financing. The 50% additional subsidization through the ARRA in the form of forgiveness of principal will be set forth in the financing agreement. Each recipient of ARRA funds will be subject to strict reporting and construction requirements. Recipients who do not meet these requirements may face several remedies as set forth in the financing agreement including, without limitation, a change in the interest rate of funds (from interest free to short-term market rate), and loss of any additional subsidization (forgiveness of principal or grant), and the recoupment of all funds advanced.

4.3 Green Project Reserve

The ARRA requires 20% of funds, or approximately $17.36 million, be utilized for projects that incorporate green infrastructure, energy efficiency, water efficiency, and/or other environmentally innovative activity. Projects will be evaluated based upon, but not limited to, the following criteria: economic benefits generated; public health and safety; protection of water quality and the environment; demonstrated readiness; green energy production and/or reduction in energy consumption; regional distribution of projects, or water conservation.

The DOH and the EFC will distribute these funds in two ways. First, the amended Project Readiness List contains fundable projects with green infrastructure components that qualify towards the green project reserve for purposes of this requirement, based upon USEPA guidance. The files for such projects will contain documentation of the business case on which the project was judged to qualify, as described in Attachment 8 to the USEPA guidance for the ARRA as appropriate.

Green Project Reserve funds will also be provided to projects that participate in the Green Innovation Grant Program (GIGP). Eligibility requirements, application deadlines, and other program criteria and information for the GIGP can be found on the EFC web site at www.nysefc.org/GreenGrants . The actual amount of ARRA funds allocated to each method will be dependent upon the demand, however at least $3 million will be made available through the GIGP. The DOH and the EFC expect that there will be sufficient demand from these two methods to utilize the entire Green Project Reserve for green projects or green portions of projects.

4.4 Priority for Projects Under the ARRA

The base DWSRF program ranks projects in accordance with criteria associated with public health, compliance and economic need. However, the ARRA requires that priority be given to projects that will be ready to proceed to actual construction within 12 months of the date of enactment. To implement this new priority, the DOH and the EFC will proceed in the manner described in Section 4.0, Criteria and Methods for Distribution of ARRA Funds.

In addition, ARRA section 1602 requires that "recipients shall give preference to activities that can be started and completed expeditiously, including a goal of using at least 50 percent of the funds for activities that can be initiated not later than 120 days after … enactment" of the ARRA. The DOH and the EFC intend to implement this preference requirement by selecting for first ARRA funding from among the projects with the priority determined above, those projects that, as far as it's possible to determine, appear most likely to be able to start construction by June 17, 2009.

4.5 Avoidance of Reallotment

In order to meet the requirements and deadlines of the ARRA for the expeditious and timely commitment and expenditure of funds, the DOH and the EFC will regularly review the data reported to USEPA on the progress of assistance recipients under the statutory deadlines specified in this IUP to identify any issues with the timeliness of this progress. If such issues are identified, the DOH and the EFC intend to work with the USEPA to resolve such issues as may place the State at risk of reallotment if not resolved in a timely manner. The EFC will include conditions in its financing agreements to ensure that assistance recipients make timely progress with respect to entering into contracts and/or construction. If a recipient fails to maintain progress with these conditions, they may receive funding from other DWSRF monies so that ARRA funding can be provided for a project that is ready to proceed.

The DOH and the EFC understand that the USEPA may deobligate grant funds from States that fail to meet requirements on use of funds. The DOH and the EFC intend to avoid deobligation. If the State is eligible for additional funds made available from other States that fail to meet deadlines, the DOH and the EFC will provide certification through an IUP amendment that all funds received will be committed to ARRA qualified projects that will be under contract for construction within 120 days of reallotment. The DOH and the EFC will maintain a list of projects that are qualified for ARRA funds for submittal to EPA in the event of a reallotment of deobligated ARRA funds.

4.6 Refinancing of Prior Debt

Congress has stated as a goal that ARRA funds should be used in a manner that maximizes job creation and economic benefit. To the extent permitted under ARRA, the DOH and the EFC will consider segmenting or phasing projects for purposes of ARRA funding with respect to costs incurred after October 1, 2008.

4.7 ARRA Hardship Policy

Applicants who qualify for financial assistance according to the DWSRF Hardship Policy as well as ARRA funds will be eligible to receive a minimum of 50% principal forgiveness. If an applicant received a confirmed financial assistance package through the DWSRF hardship program and that package provides a grant greater than 50% principal forgiveness, then the applicant will continue to receive the confirmed financial assistance package. The determination of the level of principal forgiveness provided will be based on the availability of funds with the goal of bringing the estimated first year drinking water service charge down to the Target Service Charge. Projects may receive a combination of base DWSRF funds and ARRA funds subject to eligibility requirements and availability. The combination will be determined by EFC in consultation with the applicant.

Hardship applications are not being accepted during this IUP period. However, the DOH and the EFC expect to exercise the DWSRF Hardship Provision for FFY 2010 and resume the hardship program at that time. Acceptance of ARRA funding does not preclude an applicant from being considered for future hardship consideration.

4.8 Smart Growth

The DOH and the EFC promote the use of smart growth principles in all DWSRF projects. Funding drinking water projects that repair, maintain, or upgrade existing infrastructure support a smart growth policy and should have higher priority. The DOH is reviewing engineering reports and project listing information to identify those instances where applicants are proposing to either increase capacity or extend service without adequate planning or justification. DWSRF applicants will be required to demonstrate that adequate planning has been performed and adopted by the appropriate governmental body. Adequate planning for such projects should be documented by Comprehensive Plans, regional plans, infrastructure plans, or other planning documents and should be included in the engineering report as justification for the project scope of work.

5.0 Public Review and Comment

On March 18, 2009, the DOH and the EFC announced that the FFY 2009 Final IUP for the DWSRF program, dated September 30, 2008, was being amended. A public notice, published in both the New York State Register and the Environmental Notice Bulletin, provided a brief summary of the availability of the ARRA funds and provided the DOH web site (www. nyhealth.gov/environmental/water/drinking/water.htm ) where the public could review the draft amendment. The public comment period ran from March 18, 2009 through April 3, 2009. A response to public comments on the draft Supplemental IUP has been prepared and is included as Attachment 2.

Attachment I - Amended Project Readiness List

Attachment II - Response to Comments on the Draft Supplemental Intended Use Plan

The following response to comments was prepared to address the public's comments on the Drinking Water State Revolving Fund's draft Supplemental Intended Use Plan that was issued on March 18, 2009. The public comment period began on March 18, 2009 and ended on April 3, 2009. In addition to the comments addressed herein, a number of project specific comments were received and addressed on an individual basis.

Comment:

Regarding the Davis Bacon Act, who will provide the required rates to be included in specifications?

Response:

We are waiting for clarification from EPA regarding whether the United States Department of Labor wage rate requirements will be applicable in addition to New York State prevailing wage rate requirements.

Comment:

Why are fixed priced contracts preferred?

Response:

Fixed price contracts tend to make a project more affordable because costs will be predetermined.

Comment:

Please explain the term cross cutter compliance.

Response:

A project is considered to be cross cutter compliant when it meets the requirements of all applicable federal authorities as they apply to projects and activities receiving federal financial assistance.

Comment:

Please explain why ARRA projects must be started by February 17, 2010, yet DOH/EFC have set a date of January 1, 2010?

Response:

In order to meet the requirements and deadlines of ARRA for the expeditious and timely commitment and expenditure of funds and to avoid deobligation of ARRA funds, the DOH and the EFC have set a January 1, 2010 date as the goal for executing all construction contracts.

Comment:

Is the single audit cost an eligible cost?

Response:

Yes.

Comment:

When will specific projects be notified of their funding and terms?

Response:

Once the ARRA capitalization grant award is made by EPA, the specific projects that are selected to receive the ARRA funding will be notified of the terms and conditions of their financing agreement.

Comment:

Regarding the Additional Subsidization and the Hardship Policy, is there a maximum grant percent or amount that is being considered?

Response:

For projects not subject to the DWSRF Hardship Policy, the DOH and the EFC intend to forgive a minimum of 50% of the principal amount of debt for each selected project, or portion thereof, that qualifies for ARRA funds. It is our intent to provide a confirmed hardship project that is also an ARRA eligible project with the best possible financing package in order to reach their Target Service Charge.

Comment:

We understand the Smart Growth concept, but in many of the rural areas of New York State there is no growth or negative growth; therefore, any growth is smart.

Response:

Smart growth refers to appropriate and planned growth along with the efficient use of resources.

Attachment III - Output and Outcome Measures for ARRA Funds

Environmental Results Grant Requirements

As required by EPA Order 5700.7, Environmental Results under EPA Assistance Agreements, New York will provide the following output and outcome measures in its DWSRF ARRA IUP:

Anticipated Outputs for DWSRF ARRA Funds

  1. Number of binding commitments (4).
  2. Number of financing agreements (4).
  3. Number, dollar amounts, and/or population served of projects financed (4/$95M).
  4. Number of binding commitments that address green infrastructure (5).
  5. Number of financing agreements that address green infrastructure (5).

Anticipated Outcomes for DWSRF ARRA Funds

  1. Number of projects initiating construction (4).
  2. Number of projects initiating construction that address green infrastructure (5).
  3. Number of jobs created.