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SWRCB - Federal FY 2018 IUP for Clean Water State Revolving Fund and Revised Guidelines for Prop 1
Menchaca, Clarissa From: Bennett, Robin Sent: Tuesday, April 10, 2018 8:57 AM To: Menchaca, Clarissa Cc: Raevsky, Cathy; Gosselin, Paul; McCracken, Shari Subject: SWRCB Fwd: NOTICE OF OPPORTUNITY TO COMMENT - 2018 CWSRF 11UP Attachments: notice-2018 cwsrf iup.pdf, 2018-19-draft cwsrf iup-040918.pdf Hello, Please see the attached announcement from the SWRC13 regarding comment period for the Clean Water State Revolving Fund 2018 Intended Use Plan. R'd'64 Oeelrwere' (530) 872-6304 ffinv-d 0 "SluporrisorsDistrict 5 717 h'llioff Hento P(JrNdisc' ("4 95909 From: lyris@swrcb18.waterboards.ca.gov<Iyris@swrcbl8.waterboards.ca.gov> Sent: Monday, April 9, 2018 5:41 PM To: Bennett, Robin <RBennett@buttecounty.net> Subject: NOTICE OF OPPORTUNITY TO COMMENT-2018 CWSRF IUP This is a message from the State Water Resources Control Board Attached is a Notice of Opportunity to Comment on the proposed adoption of the Federal Fiscal Year 2018 intended Use Plan for the,Clean Water State Revolving Fund and Revised Guidelines for Proposition 1-Chapter 5, Section 79723. Comment Deadline is May 10, 2018 by 12 noon. You are currently subscribed to regs_general as: rbennett@buttecounty.net. To unsub,scribe click here: leave-6651165- 5085298.f8e,fclfel463a520fef6bd6dc1 dl bOf4(a)s,wrcbl 8.waterboards.ca.gov I I " EUu ieU G. Btrinvr,Jr,- ak CAL 1 F O A N I A MATTon,RooA.nucz Water Board 4r..r4r,4,4r4,., r State Water Resources Control Board NOTICE OF OPPORTUNITY TO COMMENT PROPOSED ADOPTION OF THE FEDERAL FISCAL YEAR(FFY) 2018 INTENDED USE PLAN (lUP) FOR THE CLEAN WATER STATE REVOLVING FUND (CWSRF) AND REVISED GUIDELINES FOR PROPOSITION 1 —CHAPTER 5, SECTION 79723 NOTICE IS HEREBY GIVEN that the State Water Resources Control Board (State Water Board) will consider adopting the FFY 2018 IUP for the CWSRF Program and revised guidelines for the implementation of Proposition 1 —Chapter 5, Section 79723 under the Small Community Grant Fund (SCGF) Program as early as the Tuesday, June 19, 2018 Board Meeting. BACKGROUND The CWSRF Program provides low-cost financing statewide for wastewater treatment and recycling, non-point source, estuary, storm water, and combined sewer system projects. The SCGF program, including funds from Proposition 1 —Chapter 5, Section 79723, provides grants to small disadvantaged communities for CWSRF eligible wastewater projects. The FFY 2018 CWSRF IUP outlines the State Water Board's state fiscal year (SFY) 2018-19 business plan for the CWSRF and SCGF programs, including any revised guidelines for the implementation of Proposition 1 —Chapter 5, Section 79723. It specifically identifies the available funding, the projects the State Water Board anticipates financing, the associated financing terms, and the measures that will be used to track the CWSRF and SCGF program performance. The FFY 2018 CWSRF IUP is required by federal statutes and regulations, and will be included in the application submitted to the United States Environmental Protection Agency (U.S. EPA) for the FFY 2018 Capitalization Grant. The guidelines for the implementation of Proposition 1- Chapter 5, Section 79723 under the SCGF program are required by applicable State statutes. DOCUMENT AVAILABILITY The Draft FFY CWSRF 2018 IUP is available for review on the State Water Board's website at: http://www.waterboards.ca.gov/public notices/comments/index.shtml. (To receive email notifications about future IUPs and other information related to the CWSRF Program, go to the State Water Board's Lyris Subscription website at: http://www.waterboards.ca.,qov/resources/email subscri tionslswrcb subscribe.shtml and select"Clean Water State Revolving Fund.") F:E ciA cHAlR EILLLN SUBECK, EXES;tJT[VE DIREC7CR 1001E Street,Sacramento.GA 9581, Mai€inch Address:?.O.Box 100,Sacrarnenlo,CA 95612-0100 � www.waterboards.ca.9ov Cl:t1::,cc4 n'—.1 u - 2- SUBMISSION OF COMMENTS The State Water Board will accept both written and oral comments on the proposed FFY 2018 CWSRF IUP. Written comments should be submitted as early as possible to ensure thorough staff analysis. Please use the subject line "Comment Letter—June 19, 2018 Board Meeting — FFY 2018 CWSRF IUP". Written comments must be received by 12:00 noon on May 10, 2018 and should be addressed to: Jeanine Townsend, Clerk to the Board State Water Resources Control Board 1001 1 Street, 24th Floor Sacramento, CA 95814 Comment letters in pdf less than 15 megabytes may be emailed to the Clerk to the Board at commentletters@waterboards.ca.gov. If the electronic comment letter is greater than 15 megabytes, it maybe submitted by fax at(916) 341-5620. Couriers delivering hard copies of comment letters must check in with lobby security personnel, who can contact Ms. Townsend at (916) 341-5600. At the Board Meeting, commenters will be given an opportunity to make oral comments or to summarize and supplement orally previously submitted written materials. PROCEDURAL MATTERS To ensure a productive and efficient Board Meeting, the Board may limit the time for oral comments. For recommendations regarding presentations to the Board, please go to: http:l/www.waterboards.ca.gov/board info/meetings/board presentations.shtml. If the Board adopts the FFY 2018 CWSRF IUP, the adopted IUP will be submitted to the U.S. EPA as part of the Board's application for the FFY 2018 Capitalization Grant. PARKING AND ACCESSIBILITY For directions to the Joe Serna, Jr. (CaIEPA) Building and public parking information, please refer to the website: http:llwww.calepa.ca.gov/EPAbidg/location.htm. The CaIEPA Building is accessible to persons with disabilities. Individuals requiring special accommodations are requested to call (916) 341-5254 at feast five working days prior to the Meeting. TDD users may contact the California Relay Service at (800) 735-2929 or voice line at(800) 735-2922. An audio broadcast of the Meeting will be available via the internet; it can be accessed at http://www.calepa.ca.gov/broadeast/. All visitors to the CaIEPA Building are required to sign in and obtain a badge at the Visitor Services Center located just inside the main entrance (10th Street entrance). Valid picture identification may be required. Please allow up to 15 minutes for security clearance. ADDITIONAL INFORMATION Please direct questions about this notice to Ms. Romana Wortell at(916)449-5552 of CleanWaterSRF@waterboards.ca.gov April 9, 2018Q'n(Yt� ` Date Jean'n' Townsend Clerk to the Board State of California CLEAN WATER STATE REVOLVING FUND and The Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1 -Chapter 5, Section 79723) INTENDED USE P STATE FISCAL YEAR 2018-19 (FEDERAL FISCAL YEAR 2018 CAPITALIZATION GRANT) Division of Financial Assistance • 10011 Street * Sacramento, CA 95894 Approved by. State Water Resources Control Board XXXX XX, )0000- Resolution No.)000(-X XX April 9,2018 TABLE OF CONTENTS I. INTRODUCTION............................................................................................................ 3 A. Authority, and Past Achievements...................................................................................................4 B. Connections to Other Plans, Goals, and Programs.........................................................................4 C. IUP and Federal Guidance ..............................................................................................................6 II. WATER QUALITY FINANCING NEEDS......................................................................... 7 A. Clean Watersheds Needs Survey....................................................................................................7 B. Project List.......................................................................................................................................7 C. State Water Board Guidance...........................................................................................................7 III. PROGRAM CAPACITY.................................................................................................10 A. General Funding Approach............................................................................................................10 B. Recent Financing Activity...............................................................................................................13 C. Financial Outlook...........................................................................................................................13 D. Application Demand.......................................................................................................................17 E. Analysis of Financial Impacts and Development of a Fundable List.............................................18 F. Financing Forecast......I I...................................................I........ .................. ..........................23 G. Future Financing Trends................................................................................................................24 H. CWSRF Resources and Workload ................................................................................................25 I. Risks...............................................................................................................................................27 IV. CWSRF FINANCING AND PROGRAMMATIC REQUIREMENTS.................................30 A. Davis-Bacon Requirements...........................................................................................................30 B. Generally Accepted Accounting Principles (GAAP).......................................................................30 C. Cost and Effectiveness Analysis....................................................................................................30 D. Procurement for Architectural and Engineering (AIE) Contracts...................................................30 E. Fiscal Sustainability Plan (FSP).....................................................................................................31 F. American Iron and Steel(AIS)........................................................ ................31 ............................... G. Payment and Draw Schedules.......................................................................................................31 H. State Match and Cash Draw Ratio.................................................................................................31 I. Types of CWSRF Assistance and Financing Terms......................................................................31 J. Federal Cross-Cutters and Environmental Reviews......................................................................32 K. Capitalization Grant Conditions and Other Federal Requirements ...............................................33 L. Other State Requirements.............................................................................................................33 M. Timely and Expeditious Expenditure..............................................................................................33 V. OUTCOMES, GOALS, ACTIVITIES, AND MEASURES................................................34 A. Sound Finances.............................................................................................................................34 B. Fund the Most Beneficial Projects .................................................................................................35 C. Efficient Service, Up-to-Date Policies and Procedures, and Recognizable Products...................36 VI. SCHEDULE...................................................................................................................38 April 9, 2018 VII. APPENDICES...............................................................................................................39 APPENDIX A: Current Sources and Uses of the CWSRF .....................................................................39 APPENDIX B: CWSRF Project Financing Forecast for SFY 2018-19—Fundable List...........................40 APPENDIX C: CWSRF Project Financing Forecast for SFY 2018-19—Comprehensive List...............50 APPENDIX D: SCG Construction Grant Eligibility Criteria.....................................................................64 APPENDIX E: SCG Construction Grant Eligibility Criteria for Septic to Sewer and Regional Projects .65 APPENDIX F: Principal Forgiveness Eligibility Criteria..........................................................................66 APPENDIX G: SCG Planning Grants Eligibility Criteria .........................................................................67 APPENDIX H: SCG Fund Balance.........................................................................................................67 APPENDIX I: Administration Fund Balance ...........................................................................................67 APPENDIX J: CWSRF Capitalization Grant Payments and Draw Payments........................................68 VIII. ACRONYMS..................................................................................................................69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2o3.8-3.9 INTENDED USE PLAN I. INTRODUCTION Water is one of the most essential natural resources in California. The State Water Resources Control Board (State Water Board) and the nine Regional Water Quality Control Boards (Regional Water Boards), collectively the Water Boards, protect and improve water quality in California through several regulatory and financial assistance programs. The federal Clean Water Act (CWA) established the Clean Water State Revolving Fund (CWSRF) Program to finance the protection and improvement of water quality. The CWSRF program has protected and promoted the health, safety, and welfare of Californians since 1989. Many of the projects funded by the CWSRF program address wastewater discharge violations or enforcement orders issued by the Regional Water Boards. Every project is directly related to protecting or improving public health, water quality, or both. The State of California also periodically allocates funding to the State Water Board for financing programs that help protect and improve water quality. Many of these programs can be used in conjunction with the CWSRF program. This Intended Use Plan (IUP) establishes the priority and processes for projects to be funded in State Fiscal Year (SFY) 2018-19. California's CWSRF program continues to evolve. Recent efforts by the State Water Board to improve the program and to encourage water recycling projects during the drought have dramatically increased demand on the CWSRF. The Division of Financial Assistance (DFA) expects this high level of demand to continue in the future given the attractive terms available through the CWSRF. The unprecedented interest in CWSRF funding continues to create challenges for both applicants and State Water Board staff. DFA conducted three stakeholder workshops in June and July 2017 to solicit input on potential CWSRF program changes to make the financing process more predictable and manageable. Stakeholders should note that the SFY 2018-19 IUP includes several changes taken from those workshops, highlighted briefly below, to better manage the current demand. • Establishing a "funding target" based on a sustainable financing level supported by an updated capacity analysis to maintain the CWSRF on a sound financial basis. • Scoring or prioritizing applications on a "dry run" basis before implementing permanent prioritization criteria. • Developing a "Fundable List" of applications, and limiting eligibility during the fiscal year to applications on the Fundable List with the exception of Severely Disadvantaged Communities (SDAC)s and Disadvantaged Communities (DAC)s. • Offering partial funding to larger projects. • Reimbursing construction costs incurred prior to approval of financing under limited conditions. Given the ongoing high demand on the CWSRF, the State Water Board will not be able to fund all the projects currently requesting funding in SFY 2018-19. Applicants whose projects are not on the f=undable List are encouraged to evaluate the CWSRF's finances and competing demands on the program as described in this lUP and any updates during the year, and Page 3 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN evaluate all viable, alternative financing options for their projects considering any deadlines they must meet. A. Authority, and Past Achievements In 1987, the United States Congress and the President amended the CWA to replace the long- standing, federal Construction Grants Program (Title 11) with the more flexible CWSRF program (Title VI). In 2014, Congress and the President approved the Water Resources Reform and Development Act of 2014 (WRRDA), making many changes to the requirements and eligibilities included in Title VI of the CWA. California's CWSRF program is authorized under California Water Code Sections 13475-13485, and operates pursuant to an Operating Agreement between the State Water Board and the United States Environmental Protection Agency (U.S. EPA) Region 9. The CWSRF functions as an environmental infrastructure bank capitalized by federal and state funds—providing a sustainable source of funds for water quality protection and improvement. The CWSRF's capital and its earnings are used to provide financial assistance to a wide variety of water quality projects. States can target specific water quality problems, offer a variety of financing options, and customize terms to meet their water quality needs. Financing options include loans, refinancing debt, purchasing or guaranteeing local debt, and purchasing bond insurance. Interest rates must be below the market rate.' Repayment periods are generally the lesser of 30 years or the expected useful life of the financed asset. Since 2009, federal CWSRF appropriations and California law have also authorized grants, negative interest rates, and principal forgiveness (PF) on a limited basis. All 50 states and Puerto Rico are currently operating successful CWSRF programs. The total CWSRF financing nationwide exceeds $118 billion. California's CWSRF has grown since financing its first project in 1989, and has executed more than $11.0 billion in financial assistance agreements with over 300 unique recipients. The program has funded a broad range of projects. Approximately 96 percent(96%) of funds have been used for publicly owned wastewater infrastructure systems, and about four percent (4%) of funds have been used for nonpoint source or estuary projects. B. Connections to Other Plans, Goals, and Programs The CWSRF program supports the following goals from the State Water Board's most recent Strategic Plan Update. Goal 1:Implement strategies to fully support the beneficial uses for all 303(d) listed water bodies by 2030. Goal 2:Improve and protect groundwater quality in high-use basins by 2030. Goal 3:Increase sustainable local water supplies available for meeting existing and future beneficial uses by 1,725,000 acre-feet per year, in excess of 2002 levels, by 2015, and ensure adequate flows for fish and wildlife habitat. 1 Throughout this document,the word"loan"is used expansively and may include bonds, installment sale agreements, and other types of repayable financing. Page 4 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2os8-a.9 INTENDED USE PLAN Goal 4:Comprehensively address water quality protection and restoration, and the relationship between water supply and water quality, and describe the connections between water quality, water quantity, and climate change, throughout California's water planning processes. Goal 5:Improve transparency and accountability by ensuring that State Water Board goals and actions are clear and accessible, by demonstrating and explaining results achieved with respect to the goals and resources available, by enhancing and improving accessibility of data and information, and by encouraging the creation of organizations or cooperative agreements that advance this goal, such as establishment of a statewide water data institute. Goal 6:Enhance consistency across the Water Boards, on an ongoing basis, to ensure our processes are effective, efficient, and predictable, and to promote fair and equitable application of laws, regulations, policies, and procedures. Goal 7.Ensure that the Water Boards have access to information and expertise, including employees with appropriate knowledge and skills, needed to effectively and efficiently carry out the Water Boards' mission. The CWSRF program supports the three goals of the California Water Action Plan (Updated 2016): more reliable water supplies; the restoration of important species and habitat; and a more resilient, sustainably managed water resources system (water supply, water quality, flood protection, and environment) that can better withstand inevitable and unforeseen pressures in the coming decades. The State Water Board administers several programs authorized by Proposition 1 (Prop 1), the Water Quality, Supply, and Infrastructure Improvement Act of 2014, and may have funding available from other bond measures and funding sources. Projects eligible for four Prop 1 programs administered by the State Water Board, (i) Small Community Wastewater, (ii)Water Recycling, (iii) Stormwater, and (iv) Groundwater SUStainability, are also potentially eligible for CWSRF funds. Projects eligible for other state sources of funds may also be eligible for CWSRF funds. DFA manages all the State Water Board's funding programs to maximize its ability to fund projects that support the State Water Boards' water quality goals and by coordinating CWSRF, financing with the State Water Board's other funding sources. In establishing the terms of this CWSRF Intended Use Plan, the State Water Board considered statewide policy set forth in section 106.3 of the Water Code. Specifically, Subdivision (a) declares it is the established policy of the State that"every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes." Subdivision (b) requires the State Water Board to consider this state policy when "revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water." Finally, the State Water Board also considered the objectives and requirements of the Comprehensive Response to Climate Change Resolution'during development of this IUP. The Climate Change Resolution describes near-term actions and policy changes to support the state's key climate priorities as identified in the AB 32 Scoping Plan, Safeguarding California Plan, and Water Action Plan. 2 No.2017-0012 Page 5 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-3.9 INTENDED USE PLAN C. UP and Federal Guidance This IUP contains elements required under federal law. The State Water Board will submit this IUP as part of its application package for the federal fiscal year(FFY) 2018 Capitalization Grant for the CWSRF program. This IUP also establishes the State Water Board's business plan for California's CWSRF program for State Fiscal Year(SFY) 2018-19. It discusses DFA's approach and ability to successfully carry out that business plan with the available financial and programmatic resources. It also discusses how DFA will operate the CWSRF program in conjunction with other financing programs, such as Prop 1 or sources of funding outside the State Water Board that may be used to jointly finance projects. This IUP includes a forecast of the CWSRF cash flow and other funds available to the State Water Board (Appendix A, page 39)for the next several years and identifies projects (Appendix B—the Fundable List, Page 40) the State Water Board anticipates financing in SFY 2018-19. This IUP also analyzes the effect these projects would have on the CWSRF's cash flow and other sources of funds if financed and includes performance measures to track the effectiveness of the CWSRF program. The State Water Board will continue to implement the CWSRF and complementary financing programs consistent with applicable state and federal statutes, regulations, policies, and guidelines. These include, but are not limited to: • The Policy for Implementing the Clean Water State Revolving Fund (CWSRF Policy) and funding guidelines related to any complementary source financing; • The Operating Agreement between the State Water Board and U.S. EPA; • The Clean Water and Drinking Water State Revolving Funds Debt Management Policy (SRF Debt Management Policy) and agreements related to outstanding CWSRF revenue bonds; • The State Water Board's Clean Water and Drinking Water Capacity Development Strategy; • U.S. EPA Interpretive Guidance regarding the WRRDA amendments; • Any additional federal requirements in the 2018 budget appropriation, the 2018 Capitalization Grant agreement, and/or guidance from U.S. EPA The State Water Board or the Executive Director may amend this IUP, but only after the public and interested parties are given an opportunity to comment on the proposed amendment. The Executive Director, or designee, may update stakeholders during SFY 2018-19 on DFA's progress implementing this IUP and the current capacity of the CWSRF and its complementary programs to provide financing to applicants. Page 6 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-zg INTENDED USE PLAN II. WATER QUALITY FINANCING NEEDS A. Clean Watersheds Needs Survey California needs significant funding to achieve its clean water goals. The most recent Clean Watersheds Needs Survey in 2012 shows that California needs an estimated $26.2 billion for wastewater treatment and collection, wastewater recycling, and stormwater pollution prevention over the next 20 years. This includes an estimated $24.4 billion to update aging infrastructure. B. Project List The State Water Board maintains a Project List (List)'that reflects applicants interested in CWSRF financing. The List is typically updated on a quarterly basis. A project must be on the List to receive financing, but the List does not guarantee financing or the order of financing. Applicants must submit a complete application that meets the CWSRF Policy requirements to receive financing. The List classifies each potential project application relative to the State Water Board's water quality and sustainability priorities, and helps prioritize the CWSRF marketing and application review efforts. C. State Water Board Guidance 1. Small and/or Disadvantaged Communities (DACs) On July 1, 2008, the State Water Board adopted Resolution No. 2008-0048 to assist small and/or DACs with their wastewater needs._Resolution No. 2008-0048 referred to a Small Community Wastewater Strategy, which was subsequently updated and expanded in the Spring of 2016 to incorporate public water systems and was renamed the Clean Water and Drinking_Water Capacity Development Strategy(Capacity Development Strategy). The updated strategy provides an overview of the challenges facing these communities. Regarding wastewater, these include both failing septic systems and failing outdated and undersized wastewater treatment plants. Small and/or DACs generally have higher per capita costs. Disadvantaged (median household income [MHl] of less than 80 percent [80%] of the statewide MHl) and severely disadvantaged (MHl of less than 60 percent[60%] of the statewide MHl) small communities typically face the additional burden of lower household incomes. The result is higher, sometimes prohibitive, sewer and water rates. The updated strategy discusses options and offers solutions to the problems faced by these communities. The Office of Sustainable Water Solutions (Office) was established on March 27, 2015 as a result of the Governor signing Assembly Bill 92. The Office is part of the State Water Board's DFA. The Office was created to promote permanent and sustainable drinking water and wastewater treatment solutions to ensure effective and efficient provision of safe, clean, affordable, and reliable drinking water and wastewater treatment services, focusing on addressing financial and technical assistance needs, particularly for small disadvantaged communities. 3 The CWSRF Project List is prepared to meet the requirements pursuant to section 603(g)of the CWA.A construction project must be on the List to receive financing, but the List does not guarantee financing or the order of financing.Applicants must submit a complete application that meets the CWSRF Policy requirements to receive financing. Page 7 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN 2. San Francisco Bay/Sacramento-San Joaquin Delta Estuary (Bay-Delta) Staff from the State Water Board and the Central Valley and San Francisco Bay Regional Water Boards coordinate the Water Boards' activities in the San Francisco Bay and Sacramento-San Joaquin River Delta (Bay-Delta). The Bay-Delta Team is charged with developing the Water Boards' short and long-term efforts for addressing impacts to the beneficial uses of water in the Bay-Delta. The State Water Board is in the process of developing and implementing updates to the Bay-Delta Water Quality Control Plan, and the Central Valley and San Francisco Bay Regional Water Boards continue with their efforts to protect beneficial uses in the Bay-Delta watershed. The CWSRF program can help with these efforts by funding point and nonpoint source projects such as: • Measures identified in Total Maximum Daily Loads; • Stormwater and dry weather runoff reduction from Municipal Separate Storm Sewer Systems; • Conservation measures to reduce sediment and non-point discharges; • Ammonia discharge reduction from publicly-owned treatment works (POTWs); • Urban and agricultural water use efficiency to reduce demands on the Delta and reduce runoff of pesticides to the Delta; • Implementation of non-point source projects under the state's Section 319 program; • Implementation of watershed projects; • Implementation of measures under the San Francisco Estuary Blueprint; and • Measures to promote water conservation, efficiency, or reuse that can decrease demands on the Delta. 3. Sustainability and Climate Change The State Water Board adopted Resolution No. 2008-0030 on May 6, 2008, emphasizing sustainability as a core value for all the Water Boards' activities and programs. Resolution No. 2008-0030 directed the State Water Board staff to take many actions that may affect the CWSRF program such as: • Promote recycled water use, water conservation, and low-impact development (LID); • Assign a higher priority to climate-related and LID projects; and • Coordinate with government agencies, non-profit organizations, and private sector businesses to enhance and encourage sustainable activities. The State Water Board adopted Resolution No. 2017-0012 on March 7, 2017, outlining a comprehensive response to climate change for all the Water Boards' activities and programs. Resolution No. 2017-0012 directed the State Water Board staff to take many actions that affect the CWSRF program IUP. Specifically: • Include climate change mitigation and adaptation objectives in the IUP. • Ensure that applications and environmental reviews for potential projects account for impacts related to climate change, including potential effects of climate change on the viability of funded projects. Page 8 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SPY 203.8-3.9 INTENDED USE PLAN On May 16, 2017, the State Water Board adopted an emergency regulation to implement provisions of the Sustainable Groundwater Management Act(SGMA). SGMA created a framework for sustainable, local groundwater management for the first time in California history, and requires the formation of local groundwater sustainability agencies (GSAs) in California's high- or medium-priority groundwater basins or the submittal of an alternative that demonstrates a basin is already sustainable. The CWSRF can potentially fund projects that would assist GSA's with achieving groundwater sustainability. Page 9 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY zoa.8-sg INTENDED USE PLAN III. PROGRAM CAPACITY A. General Funding Approach This IUP establishes for SFY 2018-19 a Fundable List(Appendix B, page 40) of projects. The Fundable List was developed from applications in process4 as of February 2018, and includes those projects DFA believes will achieve the most favorable water quality results in California during SFY 2018-19 with the financial and programmatic resources available to the CWSRF and complementary financing programs. DFA's goal is to execute financing agreements for all projects on the Fundable List by,lune 30, 2019. An SDAC or DAC application not on the Fundable List in this IUP will be added automatically to the List when the applicant starts an application. SDAC and DAC projects may be funded at any time provided they submit a complete application and meet all other eligibility requirements. Nan-SDAC and non-DAC projects that are Identified on the Fundable List may receive financing during SFYs 2017-18 and 2018-19. Non-SDAC and non-DAC projects not included on the Fundable List are ineligible for financing during SFY 2018-19 unless otherwise directed by the State Water Board, but may be eligible for financing in a future year. Funding will be consistent with the CWSRF Policy5, the SRF Debt Management Policy, the Operating Agreement, applicable federal and state statutes, regulations, and guidance, and any guidelines applicable to the complementary funding sources that may be used to fund a project jointly with CWSRF funds. In addition, funding will be consistent with the requirements of the program's Master Trust Indenture and associated bond documents to ensure compliance with Securities and Exchange Commission, Internal Revenue Service, and Municipal Securities Rule Making Board (MSRB) rules and regulations, and ensure that all CWSRF revenue bonds are secure and repaid in full and on time. The funds available to the CWSRF program during SFY 2018-19 generally consist of: • Repayments of CWSRF principal and interest on past loans and investment earnings; • Capitalization Grants from U.S. EPA, potentially including PF; • Proceeds from the Series 2018 Green Bonds, which closed in March 2018, and potential future bond sales. A more detailed financial analysis is described in Section III.B. The State Water Board's financial priorities for the CWSRF in order of importance during SFY 2018-19 will be: 4"in process"means that some portion of the CWSRF application was submitted to the State Water Board. 5 The effective date for construction costs discussed in Section XI.B.3 of the CWSRF Policy is suspended for applicants on the Fundable List that choose to start construction using other funding sources pending approval of CWSRF and complementary financing. DFA may establish an effective date for eligibility of construction costs for projects on the Fundable List as no earlier than the notice to proceed date for the project. Recipients that start construction before a financing agreement is executed do so at their own risk, and are not guaranteed CWSRF financing. In particular,starting construction before the environmental review is completed can preclude the CWSRF from consulting with relevant federal agencies and,therefore, executing a financing agreement. Changes to laws or requirements that occur prior to execution of a CWSRF financial assistance agreement may affect some or all funding eligibility. Page 10 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 203.8-19 INTENDED USE PLAN • Liquidating the Series 2018 Green Bond proceeds and any future revenue bond proceeds to meet applicable commitments; • Liquidating Capitalization Grants once awarded; and • Liquidating repayments and investment earnings. The CWSRF funding priorities in SFY 2018-19 will also be influenced by the complementary sources of funds available to the State Water Board. Specifically, these additional funding sources are: (i) Prop 1 funds for SDAC and DAC wastewater, water recycling, stormwater, and groundwater projects; and (ii) PF funds; and (iii) Small Community Grant(SCG) funds provided through fees in lieu of interest. DFA may also sell revenue bonds to the extent authorized and approved by the State Water Board6, regulate project commitment or cash disbursement levels, suspend project approvals, or do some combination of these actions to ensure prior commitments are fulfilled. The State Water Board directs DFA to manage the CWSRF so that sufficient funds are available under all circumstances to meet the repayable financing needs of SDAC's and DACs for wastewater projects. Without restricting the approach described in this IUP, the Executive Director(or designee), should update the State Water Board members and the public at State Water Board meetings or by other appropriate communications regarding the finances of the CWSRF and complementary financing programs. They should also recommend appropriate adjustments to this IUP or other changes in policy or procedure necessary to achieve the maximum water quality results in California. Key provisions applicable to financing projects in SFY 2018-19 may include, but are not limited to: 1. Best Use of Available Financing Sources and Terms The State Water Board will consider the requirements associated with all available sources of funds, and match up available funds with projects to achieve the maximum water quality benefit. This includes the use of reduced interest rates, match financing, partial financing, PF, the SCG Fund, other state sources of funds appropriated to the State Water Board, and other state and federal funding sources managed by other agencies, to the extent they are available and compatible with the CWSRF, to maximize the financing of water quality projects. 2. Green Project Reserve (GPR)' Based on the information currently available to DFA, the FFY 2018 appropriation is expected to require that a minimum of 10 percent(10%) of the 2018 Capitalization Grant(or an estimated GPR of approximately $12 million) be provided to projects that meet the GPR criteria. To ensure that California meets or exceeds the minimum GPR requirement for SFY 2018-19, the State Water Board will prioritize the review and approval of GPR projects until 6 On October 3, 2017,the State Water Board approved Resolution No.2017-0057 increasing the leveraging ceiling for the CWSRF program from$1.2 billion to$2.2 billion bonds(par value).Currently, approximately$1.31 billion of the total(par value)has been issued. 7 GPR projects may also be eligible to receive PF as noted in Section III.C.2 and Appendix F(Page 66). Page 11 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2w.8-sq INTENDED USE PLAN the minimum is met. GPR projects must meet U.S. EPA's FFY 2012 Guidance or any subsequent guidance issued by U.S. EPA. As shown in Appendix C (page 50)the CWSRF has significantly more GPR demand than the minimum GPR requirement anticipated in SFY 2018.19; therefore, the State Water Board does not plan to solicit additional GPR projects during SFY 2018-19. 3. Match Financing Option California is required to contribute at least one dollar of matching funds for every five federal dollars contributed to the CWSRF program. California's CWSRF program has matched its federal capitalization grants in excess of the matching requirement for approximately two years' worth of capitalization grants from U.S. EPA at the currently expected levels. Section IV.H provides a more detailed discussion of California's matching contribution to the CWSRF. Offering match financing in accordance with Section V of the CWSRF Policy to CWSRF applicants, where the applicant provides the funds to match the federal grants, is one way California meets the match requirement. Other methods of providing match include state appropriations and match bonds. Currently there are no foreseeable state appropriations of matching funds and providing match loans is financially preferable to issuing match bonds. Given the lead time necessary to identify applicants willing and able to take the match financing option, execute the agreements, and disburse funds that can be counted as match, the State Water Board resumed offering the match financing option to CWSRF recipients whose agreements are executed after July 1, 2017, and will continue to offer the match option until further notice. 4. Reduced Interest Rates a. SDAC and DAC Reduction If the total amount of CWSRF financing to be repaid by an SDAC or DAC qualifying for SCG funds (see Appendices D and E, pages 64 and 65) is less than $10 million, and the community is unable to afford all or a portion of the interest payments, DFA may approve a reduced interest rate (not less than zero percent). b. Non-Point and Estuary Reduction If the total amount of CWSRF financing to be repaid by a non-point source, stormwater, or estuary management applicant is less than $10 million and the project has at least one sustainability point(see Section IV.A.3 of the CWSRF Policy), DFA may approve a reduced interest rate (not less than zero percent) if the applicant is unable to afford all or a portion of the interest payments. 5. Partial CWSRF Financing The State Water Board prefers to provide 100% of the financing requested by applicants to ensure that projects have the complete financing needed for successful completion. DFA may provide partial CWSRF financing, though, to a willing applicant when: • the applicant has demonstrated that it has the remaining financing, or Page 12 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-ig INTENDED USE PLAN • there is reasonable assurance that the applicant has the financial capacity to obtain the remaining financing. B. Recent Financing Activity' From July 1, 2017 to March 1, 2018, the State Water Board has provided the following financing from the CWSRF and complementary financing programs. Table 1: SPY 2017-18 CWSRF Financing CWSRF SCG WRFPSWGP GWQF Totals Dumber of A reements9 26 16 15 14 2 73 $of Agreements, 537.1 37.2 146 20.6 46.3 787.2 millions DFA estimates that cumulative, SFY 2017-18 financing by the CWSRF and complementary financing programs could be as much as $1,100 million. For SFY 2015-16, total CWSRF and complementary financing equaled $1,074 million to 69 projects, and for SPY 2016-17, total CWSRF and complementary financing equaled $1,693 million to 110 projects. C. Financial Outlook 1. CWSRF Cash Flow'°and Funding Target Appendix A (page 39) shows the forecasted cash flow(sources and uses) of the CWSRF program as of February 2018. Except for Capitalization Grants, the future cash flow of the CWSRF program can be predicted with reasonable certainty. The estimated cash flow includes: • The cash balance at the beginning of SFY 2017-18; • U.S. EPA Capitalization Grants"; • Principal and interest payments on outstanding receivables; • Investment earnings; • Matching funds; • Disbursements to projects with executed financing agreements; • Debt service payments; • Estimated proceeds of the 2018 Green Bonds sale and probable bond sales in 2019 and 2020, and 8 Historical CWSRF financing activity can be seen at http://www.waterboards.ca.gov/water issues/programs/grants loanslsrfldocslcwsrflfncng actvty.pdf. Prop 1 funding activity can be found at htti)://www.waterboards.ca.ciov/water issueslprograms/g rants loans/proposition1.shtml. s Ten projects received funding from more than one source.Therefore,the number of unique financing agreements was 63. 16 The overall cash flow includes the available PF funds. 41 Based on the recent adoption of the federal budget for FFY 2018 the estimate used for the 2018 Capitalization Grant is$117 million, and is subject to change. Future Capitalization Grants are conservatively estimated at$70 million per year. Page 13 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2os8-19 INTENDED USE PLAN • Program administrative costs With the future forecasted revenue bond sales authorized by the State Water Board, the CWSRF estimated cumulative uncommitted cash through June 30, 2022 available for financing new projects is approximately $718 million. The CWSRF's Municipal Advisor, in cooperation with DFA staff, updated the CWSRF's lending capacity analysis as part of developing this IUP. Given current capitalization and debt levels, and assuming conservative future capitalization, loan terms and earnings levels, and bond and coverage terms, the CWSRF can operate at an estimated sustainable financing level of approximately $1.0 billion per year. The capacity is the amount of new lending that could be done per year with the existing loan pool and new loans pledged to potential bonds. The annual capacity is a level amount that could be originated each year for the next 20-years. The Funding Target, therefore, for SFY 2018-19 will be $1.0 billion in new financing. 2. CWSRF Principal ForgiveneSS12 Per the CWA, states have the option to select a PF level that ranges from zero percent to a maximum percentage as specified in each Capitalization Grant. The maximum percentage is established by the total national appropriation for the CWSRF program each year13 Additionally, the IFFY 2018 federal appropriation may require, as was done in the IFFY 2016 and 2017 appropriations that a mandatory percentage of the Capitalization Grant be provided as PF. This mandatory amount would be in addition to the optional allocation established by the CWA. The State Water Board will provide the maximum amount allowed from the IFFY 2018 Capitalization Grant as PF. Based on the information DFA currently has regarding the IFFY 2018 appropriation, the maximum amount of PF allowed from the IFFY 2018 Capitalization Grant is estimated to be approximately $38 million. As of April 4, 2018, approximately $39 million in PF is uncommitted.14 Therefore, with the addition of an estimated $38 million in PF from the FFY 2018 Capitalization Grant, the State Water Board would have a maximum of approximately $78 million in PF to commit during SFY 2018-19.15 PF will continue to be available in SFY 2018-19 for addressing water and energy efficiency, mitigation of stormwater runoff, and sustainable planning, design, and construction. Eligible applicants and project types must meet the GPR criteria and the conditions and limitations for PF in the CWA and in Appendix F (page 66). As discussed below in Section III.C.3, the State Water Board anticipates committing all Prop 1 SCG funds to SDAC and DAC projects during SFY 2018-19. The Deputy Director of DFA is authorized to make PF available to SDAC and DAC projects consistent with the conditions 12 Under federal law, principal forgiveness may be provided to"a municipality or intermunicipal,interstate,or State agency"if the recipient meets the State's affordability criteria,or if the project will address water or energy efficiency, mitigate stormwater runoff, or encourage sustainable project planning,design, and construction. 13 Per the CWA, if the national appropriation is equal to$1.0 billion or less, no optional PF is allowed. If the national appropriation is$1.3 billion or more,the maximum optional PF is 30%. If the national appropriation is between$1.0 and$1.3 billion,the maximum optional PF is equal to the percentage the national appropriation exceeds$1.0 billion;for example, if the national appropriation is$1.16 billion,the maximum optional PF is 16%. 14 This includes PF available through the 2017 grant. 15 The PF available during SFY 2018-19 may include PF from previously approved projects that finish under budget. Page 14 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN and limitations in Appendices D, E, and G (pages 64, 65, and 67) after committing all available Prop 1 SCG wastewater funds. 3. Proposition 1 a. Small Community Grant Fund Section 13477.6 of the Water Code authorizes the SCG Fund. The SCG Fund allows the State Water Board to help finance communities with the most need in California, helping those that cannot otherwise afford a loan or similar financing to move forward with water quality improvements. The SCG Fund receives revenue generated by a fee on CWSRF financing agreements deposited into the SCG Fund separate from the CWSRF.is Other funds may also be appropriated to the SCG Fund, including general obligation bond funds available because of Prop 1 and any available residual general obligation bond funds (including those specifically identified in State Water Board Resolution No. 2013-004) that become available. All money deposited into the SCG Fund is provided in the form of grants to SDACs and DACs for CWSRF-eligible wastewater projects. State law requires the State Water Board to give grant priority to projects that serve SDACs, defined as communities with an MHI of less than 60 percent(60%) of the statewide MHI. The procedures for providing grants from the SCG Fund to SDACs and DACs are largely the same procedures used for standard CWSRF financing, specified in the CWSRF Policy, with the exception that projects that receive only Prop 1 funds may be exempted by the Deputy Director from having to comply with certain federal cross-cuffing requirements. This !UP specifies the grant amounts available for SCG projects, and how the Prop 1 SCG, and CWSRF requirements will be coordinated for projects receiving these funding sources. Chapter 5 of Prop 1 allocated $260 million to the SCG Fund for wastewater projects.17 Of the$260 million allocated, the California Legislature has appropriated $222.2 million''to the State Water Board for grants to eligible SCG wastewater projects. As of February 2, 2018, the State Water Board has not yet committed approximately$91 million in SCG funds for wastewater projects.19 Additional funds may be appropriated to the SCG Fund in future years. At least 10 percent(10%) of the SCG funds available from Prop 1 will be provided to SDACs. The projected revenue and SCG Fund balances through the end of the year are shown in Appendix H (page 67). 16 Like the administrative service charge(see Section H (3)below),the SCG charge is also a fee'other than program income not included as principal in CWSRF financing"for federal purposes.The SCG charge is collected,as is the administrative service charge, in lieu of an equal amount of interest that would otherwise be due on the outstanding balance of the financing agreement so that the annual payment stays the same. 17 Wat. Code,§79723. 48$19.6 million is available for appropriation in a future year.The balance of the Prop 1 funds is for administration and bond sale expenses. #9 This includes the remaining amount appropriated from Prop 1 plus an additional$8 million in SCG fee funds appropriated for SFY 2018-19. Page 15 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2o3.8-1g INTENDED USE PLAN All SCG funds authorized for SFY 2018-19, SCG funds that become available from prior SFYs (e.g., any funds de-obligated from previously approved projects that finish under budget), and any SCG funds appropriated in future years, will be used consistent with Appendices D, E, and G (pages 64, 65, and 67) of this IUP until otherwise directed by the State Water Board. In anticipation of the declining balance of SCG fee funds and Prop 1 SCG funds in the SCG Fund over the next few years, the State Water Board will begin applying an SCG fee-in-lieu of interest charge to eligible CWSRF repayable financings at a rate that does not exceed the standard CWSRF interest rate. The SCG fee will be applied to generate sufficient revenue to meet the anticipated demand once Prop 1 SCG funds are fully encumbered. The SCG fee will be collected in an amount that does not jeopardize the long-term growth of the CWSRF, the State Water Board's ability to leverage the CWSRF, or the State Water Board's ability to collect sufficient fee revenue to administer the CWSRF. In addition to capital projects, DFA is authorized to direct up to 15 percent(15%) of the funds available from Prop 1 to a multi-disciplinary technical assistance(TA) program. The State Water Board adopted the Prop 1 TA Funding Plan on November 4, 2015. The Plan outlines the general process to administer Prop 1 TA funds. The TA efforts are focused on helping small DACs develop, fund, and implement capital improvement projects. This is a multidisciplinary approach, intended to address small DACs drinking water, wastewater, groundwater quality, and stormwater needs under one program. b. Water Recycling Funding Program (WRFP) Chapter 9 of Prop 1 allocated $625 million to the WRFP.20 These funds were appropriated 50 percent (50%)for grants ($312.5 million) and 41 percent (41%)for loan S21 ($256.25 million) for water recycling projects consistent with Chapter 9 and the WRFP Guidelines. The State Water Board has authority during SFY 2018-19 to commit and spend all Prop 1 WRFP loan and grant funds. As of February 2, 2018, the State Water Board has not yet committed approximately $14.5 million in Prop 1 grant funds and approximately $198.8 million in Prop 1 loan funds for WRFP projects. The Board also has authority to commit approximately$6.6 million in Prop 13 grant funds. The WRFP guidelines specify the loan and grant amounts available for water recycling projects and how the WRFP requirements will be coordinated with CWSRF requirements for projects receiving funding from both sources. Any water recycling project eligible for SCG grant funding or PF may receive grant or PF funding, but may not combine WRFP grant with either SCG grant or PF. 20 Note that this figure includes a maximum of 2.0 percent funding for water recycling research and pilot projects as well as administration and bond sale costs. 21 WRFP loan payments may be used for future grants if appropriated by the Legislature. Page 16 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2ox.$-ag INTENDED USE PLAN c. Stormwater Grant Program (SWGP) Chapter 7 of Prop 1 allocated $200 million for grants for multi-benefit stormwater management projects.22 Projects may include, but are not limited to, green infrastructure, rainwater and stormwater capture, and stormwater treatment facilities. In 2016, approximately $9.6 million in funding for planning projects and $80 million in funding for implementation projects was awarded to eligible applicants through competitive solicitations. It is anticipated that a solicitation for the remaining $96.4 million available for storm water implementation grants will be conducted in early 2019. The SWGP guidelines specify the grant amounts available for stormwater projects. Stormwater projects may also be eligible for CWSRF financing, and DFA will coordinate with applicants to address the applicable requirements of both programs if applicants request funding from both sources. Applicants are advised to review the Prop 1 SWGP Guidelines, particularly the requirement for projects to be included in Storm Water Resource Plans, the Integrated Regional Water Management Plans, and the State Water Board's January 2016 Strategy to Optimize Resource Management of Storm Water, for information on applying for the Prop 1 SWGP. d. Groundwater Grant Program (GWGP) Chapter 10 of Prop 1 provides $800 million to the SWRCB for grants for projects to prevent or clean up the contamination of groundwater that serves or has served as a source of drinking water.23 The GWGP guidelines were updated in December 2017. Round 1-awards.were completed in early 2018, for a total of approximately $125 million awarded to approximately 25 projects. Concept Proposals for the Round 2 solicitation are due in early 2018, with additional solicitations anticipated :n 2019 and/or 2020. Applicants are advised to review the Prop 1 GWGP Guidelines. Septic-to-sewer projects that prevent or reduce contamination of municipal or domestic wells are potentially eligible for GWGP grants in addition to grants or principal forgiveness awarded through the CWSRF/SCG. Regardless of the criteria listed in Appendix E (page 65), GWGP funds may be available for projects benefitting larger SDACs, and larger DACs with wastewater rates at least 1.5% of MHL DFA staff will coordinate with applicants to determine if septic-to-sewer projects meet the applicable requirements for GWGP funds. D. Application Demand As of February 2018, the State Water Board has in process 207 complete and partially complete applications requesting approximately $7,565.3 million in financing. All applications in process as of February 2018 are listed on the Comprehensive List in Appendix C (page 50). The applications on the Comprehensive List and their statuses are summarized in Table 2 below based on the State Water Board's due diligence reviews. 22 Note that this figure includes administration and bond sale costs. 23 Note that this figure includes administration and bond sale costs. Page 17 of 69 April 4,2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-ig INTENDED USE PLAN The applications on the Comprehensive List represent a wide variety of project types from communities of various sizes throughout California. The largest number of applications comes from small communities—many of them eligible for grant funds due to their status as disadvantaged communities. There are also nine applicants representing large urban areas collectively requesting approximately $4.8 billion in financing. Table 2: Status of Applications on Comprehensive List ($ in Millions) Application Complete Requested2e Group Ap lication Status Applications Amount 1 Financing Agreement Mailed to Applicant for Its Signature25 Y 6 $79.8 Agreement Routing for DFA Management Approval and Subsequent 2 Mailing to Applicant Y 8 $45.7 Staff Has Completed Review of 4 Application Packages and Legal 3 Consultation Is In Process Y 3 $11.7 Staff Has Completed Review of 4 Application Packages but Legal 4 Consultation Has Not Started Y 1 $5.0 Staff Has Not Completed Review of 4 Application Packages but Legal 5 Consultation Is Completed Y 2 $9.6 Staff Has Not Completed Review of 4 Application Packages and Legal 6 Consultation Is In Process Y 6 $322.0 Staff Has Not Completed Review of 4 Application Packages and Legal 7 Consultation Has Not Started Y 69 $3,261.4 Application is Incomplete $ N 112 $3,835.0 Totals 207 $7,563.5 E. Analysis of Financial Impacts and Development of a Fundable List 1. Progressive Scenario Analysis DFA developed four financing scenarios for the projects on the Comprehensive List for SFY 2018-19. The total financing requested for the complementary funding sources for each scenario is summarized in Table 3 below. The remaining financing in each scenario would be provided with CWSRF loan funds, and Table 3 also shows the potential increase in the leveraging ceiling that may be needed for each scenario. 24 Amount requested includes total project cost irrespective of funding source. 25 After the signed financing agreement and the associated legal opinion(s)are returned by the applicant,the agreement will be executed. Page 18 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-a.g INTENDED USE PLAN Table 3: Financing Scenarios26 ($ in Millions) Estimated Financing by Complementary Sources Total EsVd prop 1 SCG Prop 1 WR Prop 1 WR: EsVd New Scenario Financing Grant Grant Loan PF Bonds27 Requested A Finance All SDAC and DAC Projects $270.8 $91.0 $0.0 $0.0 $0.0 $0.0 B Finance Scenario A Pius All Other $718.9 $91.0 $14.5 $79.0 $20.0 $0.0 Projects in Groups 1 W 6 Finance Scenario B Plus Additional C Projects in Group 7 Consistent with $1,947.8 $91.0 $14.5 $198.8 $78.0 $400-800.0 Funding Target D Finance All Projects on the $7,565.3 $91.0 $14.5 $198.8 $78.0 44,000.0 Comprehensive List The scenarios are evaluated below by progressively adding the additional projects described in each scenario to the previous scenario until a maximum financing amount is reached that is consistent with the CWSRF Funding Target and with the availability of complementary financing sources. a. Financing Scenario A The SDAC and DAC projects in Appendix C (page 50) are requesting $192.8 million in grant of PF funds and $78.0 million in loan/repayable funds. As discussed in Section III.C.3.a above, there are approximately $91 million in SCG grant funds available to reduce the financing costs for SDACs and DACs. The available SCG grant funds are insufficient to fulfill all the SCG grant requests in Appendix C (page 50), although PF funds are likely to be available to fulfill some of the requests from SDACs and DACs during SFY 2018-19. Additional SCG grant funds may also be appropriated in future years. There are sufficient CWSRF loan funds for all SDAC and DAC projects, considering the availability of grant funds, and no increase in the leveraging ceiling would be needed to finance all SDAC and DAC projects. There are 65 applications potentially Fundable under Scenario A. b. Financing Scenario B Most of the non-SDAC and non-DAC applications in Groups 1 through 6 appear to be eligible for Prop 1 WRFP funds or PF—the funding priorities established by the State Water Board in the SFY 2017-18 IUP. In addition, all aspects of the application for projects in Groups 1 through 6 were under full review by State Water Board staff as of February 2018, and many of these applications have been fully reviewed and are ready for an executed agreement. 26 The estimated new bonds are based on the current disbursement forecasts for the projects on the Comprehensive List. 27 Estimated new bonds would be over and above the$2.2 billion leveraging ceiling approved by the State Water Board in October 2017(Resolution No.2017-0057). Page 19 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2=8-ig INTENDED USE PLAN Table 4 below shows that there are sufficient Prop 1 WRFP loan funds and PF to fulfill the requests for all projects in Groups 1 through 6 eligible for Prop 1 WRFP loan and PF funds. Table 4 also shows that there are insufficient Prop 1 WRFP grant funds for all projects eligible for those funds. Table 4: Effect of Projects in Groups 1-6 on Prop 1 Water Recycling and PF Balances Prop 1 WR Prop 1 WR PF29 :. Grant28 Loan Estimated Available Funds by $14.5 $198.8 $78.0 Source All Projects in Groups 1—6 Eligible $14.5 $79.0 $22.0 for Prop 1 Water Recycling and PF Estimated Remaining Funds by $0.0 $119.8 Source No increase in the leveraging ceiling will be needed to finance Scenario B based on DFA's current forecast. There are 80 applications potentially fundable under Scenario B. c. Financing Scenario C Additional applications in Group 7 from the Comprehensive List can be financed in SFY 2018-19. DFA's ability to finance projects in Group 7 is based largely on the projects'forecasted disbursements and the Funding Target established in Section IIl.C.1 above. DFA evaluated applications from Group 7 based on the following criteria: • whether the project appears to be eligible for Prop. 1 WRFP or PF funds; + whether a compliance order has been issued by the State Water Board or a Regional Water Board; • whether the Regional Water Board considers the project high priority; whether other, non-State Water Board sources of funds have been secured to cover part of the project's cost; • whether the applicant appears willing and able to accept partial funding; • whether the applicant appears willing to accept the match financing option. After prioritizing the applications in Group 7 based on the factors above, DFA further prioritized the applications based on the two readiness factors below: • whether the project appears ready to proceed to construction; and 28 The potential eligibility for Prop 1 WRFP grant funds of the projects in Groups 1 —6 far exceeds the available grant funds. Three projects on the Fundable List have been identified for the remaining Prop 1 WRFP grant funds based on their progress through the application process.The 2018-19 IUP indicates that water recycling projects are eligible for 50% PF up to a maximum of$2.5 million.Therefore,the remaining water recycling projects on the Fundable List have been listed as eligible for PF. 29 The PF balance could be lower than estimated because PF also may be used to fund SDRC or DAC projects if all Prop 1 SCG funds are committed. Page 20 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN • the degree to which the application review is complete, whether the environmental package review has been completed. Based on DFA's analysis of applications in Group 7, it identified 35 complete applications totaling approximately$2,525 milfion.30 These appear to provide the most water quality benefit achievable in SFY 2018-19, but the total is not consistent with the Funding Target. Thirty of the 35 complete applications, assuming 100%financing is provided, total approximately $900 million. Five of the applications from Group 7 included in Scenario C are related to three applicants requesting financing for large projects or interrelated programs". Each of the three projects or interrelated programs exceeds$200 million, and collectively these three applicants are requesting approximately$1,625 million in financing for these three projects or interrelated programs. Although the five applications appear technically eligible for 100%financing, DFA has recommended that three of the five applications be listed as fundable for 20 percent(20%) of the requested CWSRF financing. Although this would make the total financing under Scenario C greater than the Funding Target, DFA recommends that they be fundable at this time because the construction and associated cash flows of each of the projects or interrelated programs is expected to take significantly longer than other projects in Scenario C32. There are 115 applications potentially fundable under Scenario C. DFA estimates that an increase of$400 million to $800 million in additional leveraging authority may be needed to finance Scenario C. d. Financing Scenario D Fully financing all applications on the Comprehensive List would require more than $4,000 million in additional leveraging authority and additional staff resources to execute the agreements before.June vu, 21-0-119, There are 207 applications potentially fundable under Scenario D. 2. The Fundable List Appendix B (page 40) is the Fundable List for SFY 2018-19. It includes the associated, estimated costs requested by the applicants by anticipated funding source33 for applications under Scenario C. The applications on the Fundable List are organized into the same Groups used to categorize projects in Section IIID above. Projects within each Group are sorted by Region and then alphabetically by Applicant. The Fundable List includes a combination of planning, design, and construction projects. Table 4 below summarizes the projects on the Fundable List by project type. 30 The estimated CWSRF financing may include PF. Each of the three applicants appears capable of obtaining the remaining financing necessary to successfully complete the projects. 31 San Francisco PUC-8372-110; Silicon Valley Clean Water-8264, 210, 710; LACDS-8154-110 32 The Deputy Director of DFA is authorized to coordinate or limit the cash draws for the three projects or interrelated programs identified for partial funding to limit the collective impact of these financing agreements on the CWSRF. 33 CWSRF funds may include available principal forgiveness. Page 21 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-3.9 INTENDED USE PLAN Table 5: SFY 2018-19 CWSRF Fundable List Summary ($ in Millions)34 Project Type Number of Projects Estimated Total Estimated PF or Grant Funding SDAC and DAC 65 $270.8 $192.8 Projects Water Recycling 25 $552.6 $63.6 Projects PF-Eligible GPR 40 $1,016.2 $100.5 Projects Other Projects 6 $279.4 $0.0 All projects on the Fundable List are fundable at any time during SFYs 2017-18 and 2018-19 provided they meet all eligibility requirements. Projects may receive a financing agreement as soon as it is determined the application meets all eligibility requirements. DFA will review the applications on the Fundable List with the objective of executing agreements quickly and efficiently, giving priority to SDACs and DACs, so that all application on the Fundable List have executed agreements by June 30, 2019. Projects on the SFY 2018-19 Fundable List that are not financed by June 30, 2019, will be carried over to the SFY 2019-20 Fundable List unless directed otherwise by the State Water Board or an applicant withdraws its application. Note: Being identified on the Fundable List, the order the project appears on the Fundable List, or being listed with an estimated agreement date and anticipated funding sources do not constitute a financing agreement, a guarantee of financing, a guarantee of the order of financing, or a guarantee that sufficient funds from the anticipated sources of funds will be available for the project; or a determination of eligibility. The Fundable List only includes applications that are fundable during SFYs 2017-18 and 2018-19, and a financing agreement will be executed only if the application meets all applicable eligibility requirements. Appendix B (page 40) is not a limitation on financing SDAC and DAC projects. All SDAC and DAC projects may receive financing during SFYs 2017-18 and 2018-19 provided they submit a complete application and meet all applicable eligibility requirements, and provided that sufficient funds are available. The State Water Board expects DFA to expeditiously finance the projects on the Fundable List. The Deputy Director of DFA is authorized to remove non-SDAC or non- DAC projects from the Fundable List if the applicant is non-responsive to DFA's request for information or consultation after notifying the applicant and giving the applicant a reasonable opportunity to respond. Applicants removed from the Fundable List by the Deputy Director may be placed on the SFY 2019-20 Fundable List, if the Policy requirements for placement have been satisfied. 34 The sum of applications and amounts requested in Table 5 may differ from the totals in Appendix S (page 40) because applications may be counted as multiple applications types. Page 22 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 7o:L8-n.g INTENDED USE PLAN F. Financing Forecast Consistent with Section I I I.A above, all SDAC and DAC projects that have started an application have been included on the SFY 2018-19 Fundable List and will be fundable during SFYs 2017- 18 and 2018-19 provided they submit a complete application and meet all other eligibility requirements. All new SDAC or DAC applicants that start an application during SFY 2018-19 will be added automatically to the Fundable List and be fundable during SFYs 2017-18 and 2018-19 provided they submit a complete application and meet all other eligibility requirements. Projects in Groups 1 through 6 have also been placed on the Fundable List, and will be fundable during SFYs 2017-18 and 2018-19 provided they meet all eligibility requirements. All projects in Groups 1 through 6 were included since they have complete applications and all of them are fully under review, and in many cases the reviews have been completed. The SDAC and DAC projects along with the projects in Groups 1 through 6 represent a combination of CWSRF loan /repayable financing, PF, SCG grant, and WRFP grant and loan totaling approximately $720 million, with approximately $490 million of this being CWSRF loan 1 repayable financing. Projects in Groups 1 through 6 are expected to be financed well before June 30, 2019, given their progress through the application review process, and many of them are expected to receive an executed agreement before June 30, 2018, as indicated by the estimated agreement dates. CWSRF loan financing for SFY 2017-18 through March 1, 2018, was approximately $535 million. Therefore, an additional $490 million in CWSRF financing for Scenario B would be consistent with a sustainable financing level of$1.0 billion for SFY 2017- 18. An additional 35 non-SDAC and DAC project applications from Group 7 were also placed on the Fundable List, and will be fundable during SFYs 2017-18 and 2018-19 provided they meet all eligibility requirements. Although the total commitment for these projects (approximately $1,230 million), assuming all the agreements are executed by June 30, 2019, is somewhat higher than the sustainable financing level, approximately $400 million is related to three projects whose construction is expected to last longer than the construction timeframe typical of most CWSRF projects. Making commitments to these projects now partially represents a commitment against future capacity of the CWSRF. Financing the additional projects described by Scenario C, therefore, would be consistent with the Funding Target established in Section III.C.1 and the SRF Debt Management Policy. Financing additional projects beyond Scenario C now is not feasible because it would require leveraging the CWSRF program beyond its sustainable financing capacity and significantly increasing staff resources. The projects on the Fundable List in Groups 7 and 8 are expected to receive financing agreements some time during SFY 2018-19, although some SDAC and DAC projects will likely receive an agreement during the remainder of SFY 2017-18. DFA also anticipates that all PF funds, all appropriated SCG funds, and all WRFP grant and loan funds will be committed to eligible projects during SFY 2018-19 based on the projects identified on the Fundable List. DFA estimates that approximately $400 to $800 million in additional leveraging authority may be needed from the State Water Board to finance all the projects on the Fundable List. The exact Page 23 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN amount and timing of any additional leveraging, over and above the current limit of$2.2 billion, would continue to depend on the total costs of the projects financed and the timing of the approvals. In addition, the costs identified in Appendix B (page 40) are estimated project costs that may be adjusted lower or higher, as projects are bid out by the financing recipients. The actual level of new financing discussed in this IUP may be higher or lower than the amount predicted by the Fundable List. Based on DFA's experience, not all projects on the Fundable List will be financed by the end of SFY 2018-19. Some projects may be financed in a future year or not at all for various reasons. Projects on the Fundable List that are not financed by June 30, 2019, will be carried over to the SFY 2019-20 Fundable List unless directed otherwise by the State Water Board or an applicant withdraws its application. DFA plans to provide an update to applicants and stakeholders once during SFY 2018-19 on its progress implementing this IUP, its financial outlook, and its financing forecast so that applicants can continue to evaluate the possibility of receiving CWSRF financing in the future. G. Future Financing Trends Demand for CWSRF financing is high as indicated by the Comprehensive List. DFA expects the demand to remain high given the CWSRF's attractive terms and the large water related infrastructure needs in California as noted in Section II.B. Total CWSRF financing over the last four fiscal years, 2014-15 through 2017-18, is greater than $3.8 billion or on average$950 million per year. This is significantly higher than the financing pace over the proceeding nine years—approximately $4.2 billion or an average of approximately$460 million per year—but consistent with a sustainable financing level for the CWSRF. A significant percentage of this financing has been done with municipal, tax-exempt debt. Current program debt is approximately $1.3 billion, and is expected to increase over the next two years to $2.2 billion. Additional debt beyond $2.2 billion will likely be needed for projects on the SFY 2018-19 Fundable List depending on DFA's success executing applications on the Fundable List by June 30, 2019. Future capacity analyses of the CWSRF program considering actual lending year-to-year and future capitalization and earning levels of the CWSRF program may affect future lending levels. Potential increases in leveraging authority in the future will be consistent with the SRF Debt Management Policy. DFA is unaware of any significant impending increases in capitalization grant levels from U.S. EPA. Proposition 68 (Prop 68) will be submitted to the voters at the June 5, 2018, statewide election. If voters approve Prop 68, additional funds may be appropriated to the State Water Board in future years that can complement CWSRF funds. Consistent with this IUP, the CWSRF Policy, and available staff resources, DFA will continue to accept and review documents related to applications that are not on the Fundable List, as well as continue to accept and review new applications, time permitting, to develop applications that can be funded in future years. Based on this year's analysis, it appears that the SFY 2019-20 Fundable List will again be limited by the Funding Target and having a complete application will influence the selection of fundable applications. DFA recommends that applicants submit application materials before December 31, 2018 for consideration and analysis for the SFY 2019-20 Fundable List. Page 24 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY zoz8-a9 INTENDED USE PLAN In this IUP, the State Water Board attempted to implement a more effective method of prioritizing applications. Further effort will be needed to develop a more permanent prioritization system because demand is expected to stay high, and even if the Program runs at full lending capacity, it cannot fund all potential demand. DFA is also mindful of the effort associated with submitting a complete application. DFA has included in this IUP, therefore, a short-term goal to develop during SFY 2018-19 a permanent and easier prioritization system and to request that the State Water Board amend the CWSRF Policy to formalize a more dynamic prioritization system. The State Water Board's recently adopted SRF Debt Management Policy helped establish a sustainable financing level in this lUP to maintain the long-term financial health of the CWSRF program. However, an effective priority scoring process is a necessary counterpart to give applicants more certainty about the likelihood and timeframe for receiving CWSRF funding. It also gives the CWSRF program more certainty about which applications best fulfill the State Water Board's water quality priorities, and evaluate the financial impacts associated with those choices. Potential CWSRF applicants are encouraged to continue to follow future developments in the CWSRF program regarding application prioritization. H. CWSRF Resources and Workload 1. Organization, Program Resources, and Skills Approximately 46.6 Personnel Years (PY) are budgeted for the CWSRF Program35 in SFY 2018-19 and the number of positions is not expected to change substantially. These positions are distributed between DFA and the Office of Chief Counsel (OCC) as follows: • 4.7 PYs for Environmental Scientists to ensure compliance with state and federal environmental and cultural resources requirements (DFA); • 15.3 PYs for Water Resources Control Engineers and Sanitary Engineers to manage project applications (DFA), with one unit of approximately five staff dedicated to processing applications from SDACs and DACs11 • 11.3 PYs for administrative support(DFA); • 10.4 PYs for Program management and staff oversight (DFA); • 3.0 PYs for legal support(OCC); and • 1.9 PYs for other environmental and engineering support of project eligibility reviews Additional indirect cost support is provided by accounting, personnel, budget, and contract support staff in the Division of Administrative Services. The CWSRF program relies on some contracted services that(i) cannot be provided economically by Water Boards staff, (ii) require skills not available in the State Water Boards, or(iii) require independence from the CWSRF program. Approximately$700,000 is s6 In addition to positions funded directly by the CWSRF,the State Water Board has other state-funded positions associated with complementary programs closely aligned with the CWSRF as noted earlier. Many projects,such as SDAC and DAC wastewater,water recycling, and stoma water projects may be financed by a combination of CWSRF and state sources of funds. Staff is trained to help applicants receive financing for their projects regardless of the funding sources;therefore,state-funded positions indirectly provide benefit to the CWSRF program and vice versa. 36 These CWSRF staff members are part of the Office of Sustainable Water Solutions within DFA,which includes one supervising engineer,three senior engineers, one senior environmental scientist, and 16 technical staff(engineers, geologists,etc.)dedicated to addressing both drinking water and wastewater funding and technical assistance needs of small DACs. Page 25 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2o3.8-a.9 INTENDED USE PLAN budgeted for the following contract services: • Independent accounting firm for annual audits; • Outside legal counsel for specialized tax and bond advice; • Outside contractor to conduct credit analyses; • Vendor to provide maintenance for the Loans and Grants Tracking System (LGTS); and • Independent Municipal Advisor In addition, up to $300,000 of"in-kind"funding from the FFY 2098 Capitalization Grant is budgeted for U.S. EPA to fully implement the web enabling of various accounting functions in LGTS. It is contracted through Northbridge Environmental Management Consultants 2. Loan Servicing and Program Administration Servicing existing agreements and fulfilling ongoing program requirements represents a significant workload for the CWSRF staff. There are approximately 427 CWSRF agreements in repayment. Payments on these agreements are collected throughout the year, and DFA conducts regular surveillance on many of these recipients. At present, the CWSRF is servicing approximately 150 agreements in disbursement. On average, staff process approximately 464 CWSRF disbursement requests per year. Staff also oversee and perform periodic construction inspections of financed projects to ensure that work is performed consistent with previous approvals, and to ensure that work is being performed in conformance with program requirements, including but not limited to, Davis-Bacon wage rates, American Iron and Steel procurement requirements, disadvantaged business solicitation rules, and environmental special conditions. The CWSRF program's outstanding revenue bonds require separate accounting of payments from pledged obligations, semi-annual bond payments, and create specific monitoring, reporting, and continuing disclosure actions. The CWSRF program prepares annual financial statements that are audited independently, the CWSRF program is subject to yearly review by U.S. EPA, and is periodically subject to audit or oversight by other federal or state agencies. 3. Administrative Funding Administrative funding for the CWSRF comes from two sources, the capitalization grants awarded yearly by U.S. EPA, and the State Water Pollution Control Revolving Fund Administrative Fund (Administrative Fund). Administrative spending for the CWSRF is limited to fees collected by the State Water Board for administering the CWSRF, plus the greatest of: (a)four percent of cumulative Capitalization Grants, (b) $400,000 per year, or (c) 0.20 percent per year of the current valuation of the CWSRF program. Section 13477.5(c)(1) of the California Water Code allows the State Water Board to apply an annual service charge37 on a financing agreement. The revenue generated by this service charge goes into the Administrative Fund and may be used for administration. The Administrative 37 For federal purposes,the Administrative Fund service charge is a fee"other than program income not included as principal in CWSRF financing." The service charge is collected in lieu of an equal amount of interest that would otherwise be due on the outstanding balance of the financing agreement. The service charge is offset by the reduction in the interest rate so that financing recipients'payments remain the same whether or not they pay the service charge. Page 26 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN Fund and the Capitalization Grants provide reliable administrative funding to the CWSRF program. Under state law, the service charge rate cannot exceed one percent (1%) of the outstanding balance of a financing agreement. Once the service charge is applied to an agreement, the rate remains unchanged for the duration of the agreement. Since the service charge is a percentage of the outstanding principal on each agreement, it produces a declining amount of revenue each year. Each year, the State Water Board roust evaluate the need for the service charge revenue and establish an appropriate rate. The service charge will then be applied to additional agreements to maintain the Administrative Fund revenue consistent with the budget established by the Governor and the Legislature for the CWSRF. The State Water Board will use the Administrative Fund as its primary source of administrative funding for the CWSRF. The Administrative Fund can only be used for CWSRF program administration, while the administrative allowance from the capitalization grants may be used for administration, local assistance, or a combination of the two. The federal administrative allowance serves as a backup source of administrative funding. If cash flow conditions warrant in SFY 2018-19, the State Water Board will disburse 100 percent(100%) of its federal capitalization grants for local assistance. The authority to spend the administrative allowance from the 2018 Capitalization Grant will be retained for potential use in future years. The State Water Board hereby establishes the SFY 2018-19 Administrative Service charge rate at one percent. This shall be the effective rate until the State Water Board establishes a different rate. Based on the budgeted positions for the program for SFY 2018-19 and the projected Administrative Fund balances through the end of the year(Appendix I, page 67), which are declining_because_of decreasing_existing fee-in-lieu of interest payments, the State Water Board anticipates applying this charge to additional agreements during SFY 2018-19. The State Water Board also anticipates applying this charge to additional agreements in SFY 2018-19 because of declining Prop 1 SCG and Prop 1 Water Recycling administration funds and the need to continue supporting the administration of projects jointly funded by Prop 1 and CWSRF. I. Risks The following are financial or programmatic risks to the CWSRF Program. DFA management will focus on identifying potential problems and acting early to maintain the integrity and success of the CWSRF Program. 1. Application Demand vs. Resources Demand for financing exceeds the administrative resources needed to review, approve, and finance all complete applications. Staff resources are the most inflexible aspect of the CWSRF program. Additional staff cannot be quickly added to address high demand because they must be approved through the State's budget process. In addition, hiring may be frozen or work hours reduced due to State budget concerns. DFA will prioritize applications consistent with this lUP and the CWSRF Policy. DFA may also adjust its review procedures and work with U.S. EPA or other agencies to resolve delays, schedule financing with applicants, or seek additional resources. DFA can also work with stakeholders to Page 27 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND 5 F 2018-3.9 INTENDED USE PLAN evaluate changes to the CWSRF Policy or further adjustments to its application and the application review process. 2. Applicants' Schedule Changes or Delays in Executing Agreements Beneficial and eligible projects may not be financed if the applicants' schedules change or are delayed. To minimize and avoid delays, CWSRF program staff will coordinate regularly with applicants identified in this IUP, and with others that submit applications during the year, to maintain a consistent demand on the program. As project schedules shift, lower priority projects may be funded if they are ready for financing, bearing in mind the PF and GPR requirements established in this IUP. This funding flexibility maximizes the use of the CWSRF and increases the number of projects funded. Beneficial and eligible projects may not be financed if DFA encounters delays completing its reviews of the applications. To minimize and avoid delays, CWSRF program staff will coordinate its internal review efforts regularly during the year to expeditiously complete its reviews and maintain consistent progress toward the goal of executing agreements for all projects on the Fundable List by June 30, 2019. As delays are encountered, other projects on the Fundable List should continue to move forward, bearing in mind the PF and GPR requirements established in this IUP and the amount of leveraging authority approved by the State Water Board. This funding flexibility maximizes the use of the CWSRF and increases the number of projects funded. After financing is approved, the recipient must start and complete construction promptly. Applicants are required by their financing agreements to report delays to DFA staff so that appropriate action can be taken to address those delays. 3. Cash Balance The amount of disbursements requested may exceed the CWSRF's cash balance. DFA staff will maintain accurate account balances and prepare forecasts regularly to identify potential cash shortages in advance. If additional cash is needed, the CWSRF has several options. The CWSRF program has considerable assets it can leverage through revenue bond sales in the municipal bond market to obtain additional cash. The State Water Board can prioritize or limit new commitments or potentially negotiate disbursement schedules with applicants. The CWSRF program can also investigate alternative financing (e.g., providing bond insurance) to reduce cash outlays. Excess cash may accumulate if applications, and the associated disbursements, are too low. Excess cash provides no water quality benefit for California. DFA will use its marketing, customer assistance, and project development resources to maintain a pipeline of projects ready for financing. It will closely monitor undrawn balances on outstanding financing agreements to ensure that financing recipients request funds expeditiously. 4. Defaults and Late Payments Pursuant to the CWSRF Policy, DFA will implement prudent lending standards and borrower surveillance practices that safeguard the CWSRF program's equity. The State Water Board contracts with California Municipal Securities, Inc., a financial analysis firm, to evaluate the credit of certain CWSRF applicants before approving funding. The State Water Board also Page 28 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2oa.8-ig INTENDED USE PLAN typically contracts with a professional financial advisor to provide additional financial expertise. The CWSRF program has many tools to reduce the risk of default, including loan monitoring and surveillance, as well as enforcement remedies. For example, DFA collects and reviews audited financial statements of all borrowers for the first five years of repayment, and may request audited financials for some borrowers for longer periods of time. DFA has an agreement with independent accounting firm Clifton LarsonAllen to audit select borrowers identified as having a higher risk of experiencing financial difficulties. These audits can be conducted to evaluate the financial and management capacities of an entity and provide recommended solutions. The State Water Board will also continue to provide SCG funds in SFY 2018-19 to reduce debt service and default risk for SDACs and DACs or projects that regionalize wastewater infrastructure. Additional subsidies for SDACs and DACs will reduce borrowing costs and the risk of default. Additionally, the State Water Board can offer wastewater-related TA to SDACs and DACs in areas such as evaluating project alternatives, financial management, rate setting, and operation and maintenance. 5. Accountability and Oversight The CWSRF is capitalized with public funds, and the State Water Board is responsible for using them lawfully and effectively. The State Water Board regularly reports to U.S. EPA through the National Information Management System (NIMS) and the CWSRF Benefits Reporting (CBR) system on use of the funds. In addition, U.S. EPA reviews the management and performance of the CWSRF annually. The results are summarized in its annual Program Evaluation Reports. The CWSRF Program produces an annual report and audited financial statements. Additional actions are required of the State Water Board staff to comply with provisions of the Internal Revenue Code applicable to the CWSRF outstanding bond debt. The CWSRF program's Post-Issuance Tax Compliance Policy for Tax-Exempt Bond Issues provides further detail about actions required of the program's staff to help ensure that its bonds remain exempt from federal income taxes. Additional reporting is required by the program's Continuing Disclosure Agreement; information on the program's bonds can be found on the Electronic Municipal Market Access system maintained by the Municipal Securities Rulemaking Board. DFA staff will continue to oversee projects to ensure that they meet the terms of the financing agreements by conducting periodic site visits during construction or implementation. All projects are subject to a"Final Project Inspection," and a final summary report is submitted on each project to confirm that it was completed. DFA maintains copies of inspection and final summary reports in the project files. Page 29 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN IV. CWSRF FINANCING AND PROGRAMMATIC REQUIREMENTS A. Davis-Bacon Requirements Federal Davis-Bacon rules apply to the construction of treatment works "carried out in whole or in part with assistance made available by a State water pollution control revolving fund." The State Water Board, therefore, will continue to require that applicants for treatment works projects comply with Davis-Bacon rules. Recipients of CWSRF financing must agree to provide information necessary to show compliance with Davis-Bacon requirements. B. Generally Accepted Accounting Principles (GAAP) The CWA requires that recipients of CWSRF financing maintain project accounts in accordance with generally accepted government accounting standards, including standards relating to the reporting of infrastructure assets. Recipients must agree to comply with GAAP. For governmental entities, the Government Accounting Standards Board establishes these standards. The State Water Board, therefore, will require as a condition of financing that governmental applicants maintain project accounts in accordance with generally accepted government accounting standards. C. Cost and Effectiveness Analysis Effective October 1, 2015, the CWA requires CWSRF recipients that are municipal, inter- municipal, interstate, or State agencies to certify they have conducted a cost and effectiveness analysis. This analysis includes an evaluation of the costs and effectiveness of the proposed project, and selection of a project that, to the maximum extent practicable, maximizes the potential for energy conservation, and efficient water use, reuse, recapture, and conservation, considering construction, operation and maintenance, and replacement costs. This certification must be provided before CWSRF assistance is provided for final design or construction. D. Procurement for Architectural and Engineering (A/E) Contracts Beginning with the FFY 2015 Capitalization Grant, the CWA requires that A/E contracts for equivalency projects (i.e., CWSRF-financed projects specifically identified by DFA that total an amount at least equal to the Capitalization Grant from U.S. EPA) comply with the qualifications- based procurement process described in 40 United States Code section 1101 et seq. or an equivalent state requirement. For all equivalency projects, these procurement requirements apply to any CWSRF-funded A/E contracts38, including any new solicitation, significant contract amendments, and contract renewals for AIE services initiated on or after October 1, 2014. Potential equivalency projects for the FFY 2018 Capitalization Grant are identified in Appendix C (page 50). Equivalency projects will be required to certify that A/E contracts were procured in accordance with federal guidelines or the equivalent state process. 38 A/E contracts include but are not necessarily limited to those for program management, construction management, feasibility studies,preliminary engineering,design,engineering,surveying or mapping. Page 30 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-3.9 INTENDED USE PLAN E. Fiscal Sustainability Plan (FSP) The CWA requires CWSRF recipients for POTW projects to develop and implement an FSP, which includes an inventory and evaluation of critical assets, evaluation and implementation of water and energy conservation efforts, a plan for maintaining, repairing, and replacing the treatment works, and a plan for funding such activities. Applicants can self-certify that the FSP, or its equivalent, has been developed and implemented, or for applicants without an FSP, or its equivalent, the CWSRF financing agreement will include a condition setting a deadline for FSP certification, which must be prior to the final CWSRF disbursement for the project. FSPs will typically be reviewed during the final inspection. F. American Iron and Steel (AIS) The CWA requires CWSRF assistance recipients, absent an exclusion or waiver, to use iron and steel products that are produced in the United States for treatment works projects. U.S. EPA implementation of these provisions is described on its State Revolving Fund American Iron and Steel (AIS) Requirement website. G. Payment and Draw Schedules Appendix J (page 68) shows the State Water Board's requested payment schedule for the 2018 Capitalization Grant funds from the U.S. Treasury and the estimated draws of the 2018 funds and the CWSRF remaining federal funds ("unliquidated obligations"). H. State Match and Cash Draw Ratio The State Water Board must provide one dollar of match for each five dollars received through U.S. EPA Capitalization Grants. Currruiativeiy, the �VIfSRF has been awarded approximately $2.867 billion in capitalization grants as of December 31, 2017, that must be matched. The total matching requirement, therefore, through the estimated FFY 2018 Capitalization Grant is approximately $596.7 million. The CWSRF program has already provided a total of $638.3 million in matching funds as of June 30, 2017, leaving an estimated $41.5 million in match funds for future grants. This excess match amount is sufficient to match approximately $207.8 million in capitalization grants, or approximately four years' worth of grants at the current rate of federal capital contributions. Since the CWSRF is overmatched at this point, the State Water Board's cash draw ratio for the 2018 Capitalization Grant will be 100 percent (100%) federal funds. 1. Types of CWSRF Assistance and Financing Terms The State Water Board will provide funding for all eligible categories of projects using loans, installment sale agreements/purchase of debt. The State Water Board will also provide separate planning, design, or planning and design financing during SFY 2018-19 to SDACs and DACs and those projects specifically identified for planning, design, or planning and design financing on the Fundable List provided the applicants can legally accept such financing. Principal forgiveness, if available, will be provided to those applicants that meet the conditions specified in Appendix G (page 67) and Section III.C.2 above. Page 31 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN The terms associated with CWSRF financial assistance vary by applicant and financing approval date. Planning and design financing is amortized over five or ten years, at the discretion of the applicant, unless rolled into a construction or implementation financing agreement. Construction or implementation financing agreements are generally amortized for periods up to 30 years or the useful life of the financed assets whichever is shorter. The interest rate applied to a financing agreement is established at the time the financing agreement is prepared for approval or financing is approved by the State Water Board. The interest rate will generally be one-half of the State's most recent general obligation bond rate rounded up to the nearest one-tenth of a percent, except as described in Section I I I.A.4 above. Construction costs incurred prior to approval of financing are reimbursable. However, no construction costs may be reimbursed until all eligibility requirements are met and a financing agreement has been executed or amended to establish a final budget in accordance with the CWSRF Policy. J. Federal Cross-Cutters and Environmental Reviews Projects funded by the CWSRF must comply with certain federal laws known as "cross-cutters." The State Water Board will ensure that CWSRF Program financing recipients comply with applicable federal cross-cutter requirements, as identified to the State Water Board in the federal Capitalization Grant. CWSRF financing agreements include a list of applicable federal statutes and requirements identified in the most recent Capitalization Grant. CWSRF financing recipients agree to comply with these federal requirements by signing the financing agreement. The State Water Board will use its State Environmental Review Process (SERP) to ensure compliance with CWSRF environmental requirements during SFY 2018-19. While the SERP generally follows the requirements of the California Environmental Quality Act, each applicant must also complete and submit an Evaluation Form for Environmental Review and Federal Coordination and additional supporting documents. State Water Board staff will review environmental documents received from applicants and determine if consultation with relevant federal agencies is necessary, consistent with the Operating Agreement between the State Water Board and U.S. EPA. In addition to the federal requirements discussed in paragraphs A through F in this section, the State Water Board requires compliance with Disadvantaged Business Enterprise (DBE) requirements for all CWSRF financing, except planning and design financing.39 It also requires compliance with the seven (Uniform Grant Guidance, 2 CFR 200(f)) requirements by all recipients that receive federal funds over the current threshold. The State Water Board will use the Federal Funding Accountability and Transparency Act (FFATA) reporting system to report on all equivalency projects (i.e., projects meeting all the federal cross-cutting requirements whose sum is at least equal to or greater than the Capitalization Grant amount). 39 Planning and design financing agreements may be funded with Capitalization Grants to provide PF for water, energy, and sustainable planning and design. DFA does not intend to apply DBE requirements to such agreements, or to other agreements that do not finance POTWs, but will ensure DBE compliance for all other construction and implementation projects totaling an amount at least equivalent to the Capitalization Grant from U.S. EPA. Page 32 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2o18-19 INTENDED USE PLAN K. Capitalization Grant Conditions and Other Federal Requirements The State Water Board will comply with all conditions included in the 2018 Capitalization Grant agreement. Provisions specific to the FFY 2018 appropriation will take effect only if the State Water Board receives the FFY 2018 Capitalization Grant, and will apply only as directed by Congress or U.S. EPA. The State Water Board will require that CWSRF financing recipients also comply with applicable federal pass-through requirements. Recipients of CWSRF financing must agree to provide information necessary to show compliance with all applicable federal requirements. L. Other State Requirements Other state laws not specific to the CWSRF may also apply. These may include but are not limited to laws affecting urban water suppliers, charter cities, agricultural water users, projects located in the Sacramento-San Joaquin Delta, labor regulations, prevailing wages, and debt reporting. M. Timely and Expeditious Expenditure The State Water Board will ensure timely and expeditious expenditure of all funds during SFY 2018-19. This IUP establishes as a goal during SFY 2018-19 to overcommit cash and undrawn federal grant funds to continually disburse 100 percent(100%) of those funds less a minimum cash balance of$25 million plus any assets restricted for other uses, (i.e., bond payments and administration). The State Water Board will continue to use and refine its existing procedures. These procedures are designed to quickly identify and approve projects, execute financing agreements, and disburse funds to recipients. Currently CWSRF is disbursing funds at a rate of approximately $54.7 million per month, and as of March 29, 2018, the State Water Board has disbursed 95.2 percent(95.2%) of all federal grants awarded, including the American Recovery and Reinvestment Act of 2009 (ARRA) grant. These results are consistent with recent trends, and indicate that the State Water Board can quickly and productively use federal funds once awarded. Page 33 of 69 April 9, 2019 CLEAN WATER STATE REVOLVING FUND SFY 203.8-3.9 INTENDED USE PLAN V. OUTCOMES, GOALS, ACTIVITIES, AND MEASURES A. Sound Finances The State Water Board, the CWSRF program's stakeholders, and the owners of CWSRF bonds expect the CWSRF to be financially sound. Long-Term Goals: 1. Maximize cash flow: For maximum benefit, CWSRF disbursements should equal the Program's receipts, less the minimum $25 million balance and restricted assets. 2. Use revenue and capital effectively: California faces significant water quality needs. The CWSRF repayment stream is sizeable, and the Program continues to receive new capital from U.S. EPA, The CWSRF program's net position may make additional debt to finance water quality projects feasible and desirable. Additional debt, though, should be consistent with the SRF Debt Management Policy and the federal requirement to maintain the CWSRF in perpetuity. 3. Maintain financial integrity: Financial integrity is a core value of the CWSRF program. Effective internal controls ensure that the program's finances are dependable and trustworthy. Prudent lending practices and reasonable interest rates ensure the stability and continued growth of the CWSRF program. Key Short-Term Activities: 1. Prepare and review cash management reports regularly: Ensuring that sufficient cash is available to fulfill project disbursement requests, make bored payments, and pay for other program expenses requires careful and regular oversight of the cash flows. (Completed quarterly) 2. Continue regular staff level finance/audit coordination meetings: a. Review cash flow forecasts of existing and potential commitments and upcoming expenses to assess the CWSRF program's ability to meet its commitments and to evaluate the need for leveraging or other actions to regulate cash outflows. b. Compare actual performance with target performance measures. c. Review audit issues, program control issues, and plan for upcoming audits. (Completed quarterly) Page 34 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND 5FY 2oi8-ig INTENDED USE PLAN 3. Apply for and accept IFFY 2018 Capitalization Grant: The 2018 Grant application will be formally submitted to U.S. EPA after approval of this IUP by the State Water Board. For 2018, a Capitalization Grant application will be submitted for$150 million40 in federal assistance. (Complete July 2098) 4. Maintain compliance with the SRF Debt Management Policy. (Ongoing Annually) 5. Prepare Annual Report and Audited Financial Statements for SFY 2017-18. (Complete October 30, 2098) Performance Measurements: 1. Total executed financing agreements > 120 percent(120%) of federal grants. 2. Disbursement rate = 100 percent(100%) of available funds less $25 million minimum balance and restricted funds. 3. Federal funds disbursement rate = 100 percent(100%) of federal payments. 4. Default ratio = 0. B. Fund the Most Beneficial Projects The CWSRF program has finite funds and resources. These limitations require the State Water Board to prioritize so that the most pressing water quality problems are addressed first. Lona-Term Goals: 1. Achieve compliance statewide with water quality objectives. 2. Achieve sustainable water resource management consistent with the Human Right to Water. 3. Finance infrastructure that will achieve or maintain compliance with federal and state water quality requirements: Support the Califomia Water Action Plan, State Water Board's Strategic Plan, CalEPA's Strategic Vision, and U.S. EPA's Strategic Plan Goal 2 (Protecting America's Waters), Objective 2.2 (Protect and Restore Watersheds and Aquatic Ecosystems), and Sub-Objective 2.2.1 (Improve Water Quality on a Watershed Basis). 4. Assist with the State Water Board's Plan for Califomia's Nonpoint Source Pollution Control Program and Estuary Comprehensive Conservation and Management Plans. 5. Invest in SDACs and DACs disproportionately affected by pollution and water contamination consistent with the Capacity Development Strategy. 40 This number is preliminary,and subject to change.The FFY 2018 federal budget was passed by Congress on March 23,2018 with a potential increase in the FFY 2018 CWSRF national appropriation when compared to prior years.The FFY 2018 capitalization grant application will be submitted for a higher amount($150 million)than the estimated grant award to avoid amending this IUP and resubmitting the application should the actual award be greater than the currently estimated capitalization grant of$117 million. If the actual 2018 grant award is less than the grant application,then the award can be made by U.S. EPA without the State Water Board submitting an amended IUP and grant application. Page 35 of 69 April 9, 2018 CLEAN WATER STATE REVOLVING FUND SFY 2m8-ig INTENDED USE PLAN 6. Support the State's greenhouse gas reduction and climate adaptation goals to the maximum extent practicable consistent with State Water Board Resolution No. 2017-0012. Key Short-Term Activities: 1. Provide funds for high-priority projects: Appendix B, the Fundable List, (page 40) identifies projects that the CWSRF Program anticipates funding in SFY 2018-19 that support the Water Boards' and U.S. EPA's priorities along with their expected executed agreement dates. 2. Conduct additional stakeholder outreach to develop an easy to use"application scoring system"that can be used to select projects for the annual "Fundable List" and help applicants identify projects that best address the State Water Board's water quality objectives and have the best prospect of receiving funding from the CWSRF. This Short- Term Activity is integral to completing Short-Term Activity f#2 under Section V.0 below. (Complete November 2019) 3. Adopt the SFY 2018-19 IUP: The SFY 2018-19 lUP will guide marketing and assistance efforts targeting the Water Board and U.S. EPA's highest priorities in SFY 2018-19. (Complete June 2098) 4. Report activities supporting the California Water Action Plan, State Water Board's Strategic Plan, the CalEPA Strategic Vision, and the U.S. EPA Strategic Plan in the CWSRF Annual Report, CBR, NIMS, and the FFATA Reporting System. (Completed annually) Performance Measurements: 1. Fund utilization rate (U.S. EPA Program Reporting Measure WQ-17 Fund Utilization) > 105 percent (105%) of available funds. 2. Execute financing agreements for 100 percent(100%) of projects listed on the Fundable List, Appendix B (page 40) of this IUP, by.lune 30, 2019. 3. At least 25 percent (25%) of the number of projects executed during SFY 2018-19 should assist SDACs or DACs. 4. FFY 2018 funds committed as PF = maximum allowed by 2018 appropriation. 5. Percentage of FFY 2018 funds committed to GPR projects > minimum GPR percentage established by FFY 2018 appropriation. C. Efficient Service, Up-to-Date Policies and Procedures, and Recognizable Products Applicants have several choices for their financing needs. The CWSRF program should attract high-value projects that support the policies and goals of the State Water Board. Page 36 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2oi8-zg INTENDED USE PLAN Long-Term Goals: 1. Provide good customer service with a special emphasis on assisting SDACs and DACs. 2. Ensure that the application forms and review procedures are clear, flexible, up-to-date, and efficient. 3. Clearly communicate to applicant their statuses and expectations for funding. 4. Ensure staff is well trained and ready to help applicants resolve technical, legal, environmental, and financial issues needed to receive financing. Key Short-Term Activities- 1. ctivities:1. Continue regular internal coordination meetings to identify and resolve delays affecting applications on the Fundable List, coordinate and prioritize application reviews, and ensure all projects on the Fundable List receive an executed agreement by June 30, 2019. (Completed monthly) 2. Prepare a CWSRF Policy Amendment for the State Water Board's Consideration: The State Water Board last amended the CWSRF Policy at its February 17, 2015 meeting to address changes in the program made by WRRDA. Staff will prepare an amendment to the CWSRF Policy that recommends additional changes for the State Water Board's consideration. The objective is to ensure the CWSRF Policy is implementing the best policy choices consistent with the Board's water quality objectives. In particular incorporating an easy to use "application scoring system"that will be used to select projects for the annual Fundable List and help applicants identify projects that best address the State Water Board's water quality objectives and have the best prospect of receiving funding from the CWSRF. (Complete June 2019) 3. Provide a Mid-Year Informational Update to stakeholders on DFA's progress implementing the SFY 2018-19 lUP (Complete November 2018) Performance Measurements: 1. Execute financing agreements for all projects identified on the Fundable List before July 1, 2019. 2. In 30 days or less41, fulfill 100 percent(100%) of complete disbursement requests. 3. Amend financing agreements to establish final project budget no later than 60 days after receipt of complete Final Budget Approval Package. 41 Disbursement fulfillment time is the time from receipt of a complete disbursement request to warrant date. Page 37 of 69 April 9,2018 CLEAN WATER STATE REVOLVING FUND SFY 2018-19 INTENDED USE PLAN VI. SCHEDULE The estimated schedule for public comment and State Water Board adoption of the SFY 2018-19 IUP, and the application, award, and acceptance of the 2018 Capitalization Grant is as follows: Draft IUP posted for public comment, as part of State Water April 9, 2018 Board Meeting agenda Deadline for Public Comments on Draft IUP May 10, 2018 State Water Board adopts IUP at regularly scheduled meeting June 19, 2018 Submit FFY 2018 Capitalization Grant application to U.S. EPA June 30, 2018 Execute FFY 2018 Capitalization Grant agreement with September 2018 U.S. EPA Page 38 of 69 April 9,2018 o C co O Q C aa) 2 tLi y m N N cu C L m N m'O E F N E LL.+ y m� c a) m o E �A m ro y ° N �•O m 4 7 N U W o N m U � do) p y`� CLm. 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L ±. � LL . . . ■ m § § V e i $ § E � a k » LU 2 2 s S w a » § § / G } k k d 2 < LLLL L o L u CLEAN WATER STATE REVOLVING FUND SFY 2oi.8-:.g INTENDED USE PLAN VIII. ACRONYMS A/E Architectural and Engineering AIS American Iron and Steel ARRA American Recovery and Reinvestment Act of 2009 CalEPA California Environmental Protection Agency CBR Clean Water State Revolving Fund Benefits Reporting CFR Code of Federal Regulations CWA Clean Water Act CWSRF Clean Water State Revolving Fund DAC Disadvantaged Community DBE Disadvantaged Business Enterprise DFA Division of Financial Assistance FFATA Federal Funding Accountability and Transparency Act IFFY Federal Fiscal Year FSP Fiscal Sustainability Plan GAAP Generally Accepted Accounting Principles GPR Green Project Reserves GWGP Groundwater Grant Program IUP Intended Use Plan LGTS Loans and Grants Tracking System LID Low Impact Development MHI Median Household Income NIMS National Information Management System OCC Office of Chief Counsel PF Principal Forgiveness POTW Publicly Owned Treatment Works - PY Personnel Years SCG Small Community Grant SDAC Severely Disadvantaged Community SERP State Environmental Review Process SFY State Fiscal Year SWGP Stormwater Grant Program TA Technical Assistance U.S. EPA United States Environmental Protection Agency WRFP Water Recycling Funding Program WRRDA Water Resources Reform and Development Act of 2014 Page 69 of 69 April 9,2018