Why this is Important

In February, Congress enacted the American Recovery and Reinvestment Act of 2009. The Act provides $4 billion of stimulus funding to states through the Clean Water State Revolving Fund loan program. A temporary rulemaking is needed to amend specific requirements within Oregon's Clean Water State Revolving Fund loan program to ensure the effective and timely implementation of the Act requirements.

Department Recommendation and EQC Motion

The Department of Environmental Quality recommends that the Environmental Quality Commission adopt the proposed temporary rule revisions to OAR Chapter 340, Division 54 as presented in Attachment A.

Background and Need for Rulemaking

DEQ administers Oregon’s Clean Water State Revolving Fund loan program through support of a capitalization grant received each year from the U.S. Environmental Protection Agency. Oregon’s annual capitalization grant is about $10 million and provides approximately one fourth of the total funds available. Through the Act, DEQ will be awarded an additional capitalization grant of about $44 million.

DEQ’s current administrative rules do not allow for additional subsidization as required by the Act. Without the proposed rule amendments, DEQ is not eligible to receive Act funds.

DEQ recognizes the Act’s goal of expeditiously funding eligible projects that will preserve and create jobs and promote economic recovery. DEQ convened a financial work group to address this goal and the group provided recommendations for this rulemaking. DEQ also has worked closely with EPA to ensure this rulemaking complies with requirements of the Act. The proposed rule revisions address the Act’s goal by defining what projects are eligible, how funds under the Act are to be allocated to projects, and what financial terms will be established.

Effect of Rule

The temporary rulemaking will establish rules in OAR 340-054-0098 through OAR 340-054-0108 (see page 34, Attachment A). These rules will govern the use of funds provided by the Act within the Clean Water State Revolving Fund program and will define the use of the funds, the types of eligible projects and activities, the allocation of the funds and specific financial terms.

In addition to proposing to adopt OAR 340-054 0098 through OAR 340-054-0108, the Department made minor edits to OAR 340-054-0024, 0025 and 0035 with regards to clarifying the terminology used for design or construction loans. Also, the language in OAR 340-054-0025 was modified to ensure the department can update its Intended Use Plan more frequently when needing to do so.

Commission Authority

The EQC has authority to take this action under Oregon Revised Statutes 468.020 and 468.423 - 468.440.

Stakeholder Involvement

DEQ worked closely with current applicants and various organizations including the Oregon Association of Clean Water Agencies, the League of Oregon Cities, Oregon Water Resources Congress, Association of Oregon Counties, Special Districts Association of Oregon, and the Oregon Association of Conservation Districts. Notice of the availability of the Act’s funds was provided in December by U.S. mail and e-mail to Oregon communities and public agencies. DEQ met with current applicants in December to provide information on potential federal stimulus funding. A follow-up meeting occurred March 5 to provide updated information and answer questions. A financial work group was also convened to discuss options for providing subsidization as required by the Act.

Public Comment

Public comment is not required for a temporary rulemaking and did not occur for this rulemaking due to the urgency for DEQ to obtain the capitalization grant. An opportunity for public comment will be available during the permanent rulemaking scheduled to follow this temporary rulemaking.

Key Issues

The Act requires funded projects either be under contract or under construction by February 16, 2010. Wastewater improvement projects typically take more than a year to plan, design, contract work and begin construction. Because DEQ anticipates receiving the capitalization grant by early June, we are encouraging applicants to complete all loan application requirements now.

The Act also requires not less than 50 percent of the capitalization grant be used for additional subsidization. The intent of the Act is to produce the greatest economic stimulus while targeting those communities least able to afford needed water quality infrastructure improvements. Providing loans that include principal forgiveness is one subsidization option allowed by Oregon law.

DEQ’s approach to targeting communities least likely to afford needed wastewater or water quality improvement projects is to provide a greater incentive to Oregon communities with a population of 5,000 or less. Data indicates the cost per capita for addressing wastewater infrastructure needs is consistently higher for small communities. DEQ determined it could best meet the intent of the Act, including the subsidization requirement, by offering loans at 75 percent principal forgiveness and a zero percent interest rate to small communities. In an effort to provide reasonable size loans to as many communities as possible, a $5 million limit is set for each loan.

A final issue is the Act identifies October 1, 2008 as the date certain projects might be eligible for stimulus funding rather than February 17, 2009, the date the Act was signed. Given the level of interest in acquiring Act funding and the intent of the Act, a borrower who obtained a loan prior to October 1, 2008 is not eligible for funding under the Act. DEQ made this determination based on discussions with the Oregon Economic and Community Development Department (agency implementing the drinking water SRF program) and other states.

Next Steps

If adopted at the April 16-17, 2008 commission meeting, these temporary rules will be filed with the Secretary of State’s Office and Legislative Council in late April. DEQ will publish and accept public comment on its Clean Water State Revolving Fund Intended Use Plan that will outline how the funds under the Act will be used. After the public comment period, EPA will process DEQ’s capitalization grant application and it is anticipated that funds will be available for loans by June. Permanent rulemaking will begin in April.

Attachments

A.  Redlined Version of Proposed Rule Revisions

B.  Statement of Need and Justification

Available Upon Request

1.  DEQ’s Implementation Plan of the 2009 American Recovery and Reinvestment Act

2.  EPA Guidance document on awarding capitalization grants under the Act