Why this is Important

The Department of Environmental Quality (Department) is implementing the American Recovery and Reinvestment Act of 2009 (ARRA) through its Clean Water State Revolving Fund loan program under temporary administrative rules. The temporary rules are effective for only 180 days and will expire in late October. To ensure DEQ’s program is able to continue to meet the requirements of ARRA and administer those funds, a permanent rulemaking is necessary.

Department Recommendation and EQC Motion

The Department recommends that the Environmental Quality Commission (Commission) adopt the proposed permanent 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 an annual capitalization grant from the U.S. Environmental Protection Agency. Oregon’s regular annual capitalization grant is about $10 million and when combined with loan repayments allows DEQ to provide about $50 million annually for new loans. Additionally, the American Recovery and Reinvestment Act of 2009 allocated $44 million to DEQ’s loan program in February, but DEQ’s administrative rules at that time did not allow for the additional subsidizations required by the act.

In April 2009, the Commission adopted temporary administrative rules that addressed the additional ARRA requirements. The temporary rules define several aspects of DEQ’s loan program when using ARRA funds. These include defining project eligibility, maximum loan amounts when using ARRA funds, the use of ARRA funds for loan increases, setting aside a reserve of ARRA funds for “green projects,” and establishing levels of principal forgiveness. The temporary rules expire October 28, 2009. Because DEQ continues to administer ARRA funds, it is necessary that permanent rules are established to ensure DEQ is able to continue complying with ARRA requirements.

The proposed permanent rules include only minor refinements to the language in the temporary rules. A September deadline included in the temporary rules is no longer needed in the proposed rules. DEQ’s experience administering the ARRA funds has resulted in some changes in rule language. For instance, the proposed language maintains a $5million maximum limit on the amount of ARRA funds for each loan, but gives DEQ the authority to determine the amount of funding provided to an applicant within that limit. The proposed rules also clarify a project’s eligibility in regards to the applicant having completed all CWSRF requirements before being offered a loan.

Effect of Rule

The proposed administrative rules 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 ARRA funds when those funds are utilized 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

When it developed the temporary rules to address ARRA requirements in early 2009, DEQ worked closely with 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.

The proposed rules are a refinement of the earlier temporary rules. Although no stakeholder advisory committee was convened during the writing of the proposed rules, notice of the proposed permanent rules was provided by U.S. mail in August to cities, counties and special services districts. Members of the Oregon Association of Clean Water Agencies, Oregon Water Resources Congress and Oregon Association of Conservation Districts were notified of the proposed rules by email.

Public Comment

A public comment period extended from July 24 to August 24 and included public hearings in Medford, Bend and Portland. Results of public input are provided in Attachment C.

Key Issues

As a permanent rulemaking intended to update temporary rules, the key issues of this rulemaking were addressed and discussed by the Commission in April. Those included the ARRA requirements for funded projects to be under contract or construction in a very short timeframe (February 2020); requirements that the loans include additional incentives (at least 50% principal forgiveness; and that projects already funded by the CWSRF program prior to October 2008 not be eligible for ARRA funding. These aspects within the temporary rule are also included in the proposed permanent rule.

A key issue in proposing the permanent rules has been developing the permanent language, allowing the public to comment on the proposed rule revisions and presenting the rules to the Commission before the temporary rules expire. Without permanent rules, DEQ would not have the necessary regulations in place to continue to implement the ARRA requirements.

Next Steps

If adopted, the permanent rules will be filed and made effective with the office of the Secretary of State before October 28, updating the current, ARRA related, temporary administrative rules. Once effective, the rules will be used to administer ARRA funds when those funds are available through the Clean Water State Revolving Fund.

Attachments

A.  Redline version of the proposed rule revisions

B.  Summary of Public Comments and Agency Responses

C.  Presiding Officer’s Report on Public Hearings

D.  Relationship to Federal Requirements Questions

E.  Statement of Need and Fiscal and Economic Impact

F.  Land Use Evaluation Statement

Available Upon Request

1.  Legal Notice of Hearing

2.  Cover Memorandum from Public Notice

3.  Rule Implementation Plan

4.  [optional: list other documents supporting proposal]