A new Part 2604 to Title 21 of the official compilation Codes Rules and Regulations of the State of New York is proposed to read as follows:

     2604.1  Purpose, Scope and Applicability.

     (a)  The purpose of this Part is to provide rules and procedures for the New York State Environmental Facilities Corporation (corporation), in conjunction with the New York State Department of Health (department), to provide financial assistance from the New York State Drinking Water Revolving Fund (DWSRF) created by Chapter 413 of the Laws of 1996.

     (b)  This Part, in conjunction with the applicable rules and regulations of the department, 10 NYCRR Part 53, applies to all parties seeking or receiving financial assistance from the DWSRF and to the activities of the corporation and the department in the discharge of their duties related to the DWSRF. For the purposes of the corporation, to the extent this Part conflicts with 10 NYCRR Part 53, this Part shall prevail.

     2604.2  Definitions.

     (a)  Unless defined herein, terms used in this Part shall have the meaning set forth under section 1281 of the public authorities law, and/or the public health law. Terms used in this Part or to be used in complying with this Part have the following meanings.

          (1)  Act means title XIV of the Public Health Service Act (commonly known as the "Safe Drinking Water Act"), 42 U.S.C. §§ 300f et seq., as amended.

          (2)  Administrator means the administrator of the United States Environmental Protection Agency or the chief executive officer of such agency or any successor agency or department or any authorized representatives of the administrator.

          (3)  Ad valorem tax means a tax based upon the value of real property.

          (4)  Allowable costs means all costs of an eligible project which the corporation determines (i) are properly allocable to that project in accordance with applicable laws and regulations; and (ii) are not annual facility operation costs, including but not limited to those for maintenance, or replacement and repair of minor equipment.

          (5)  Business day means any day on which New York State offices are open to conduct business.

          (6)  Commencement of construction means the date that (i) a notice to proceed is issued by the recipient to the contractor following the execution of the contract between the recipient and such contractor for the erection, building, acquisition, alteration, reconstruction, improvement, enlargement or extension of the project; or (ii) in the event that the project will be built by recipient employees (force account) in lieu of a contractor, the first day that a work crew occupies the project; or (iii) in the event that the project is a contract to purchase supplies, material or equipment, a binding purchase agreement is executed between the contracting parties and the recipient has provided evidence satisfactory to the corporation of the execution of such agreement.

          (7)  Commissioner means the commissioner of the New York State Department of Health.

          (8)  Comptroller means the Comptroller of New York State.

          (9)  Construction means the erection, building, acquisition, alteration, reconstruction, improvement, enlargement or extension of a project; the inspection and supervision thereof; and the engineering, architectural, legal, fiscal, and economic investigations and studies, surveys, designs, plans, working drawings, specifications, procedures, and other actions necessary thereto.

          (10)  Corporation means the New York State Environmental Facilities Corporation, or its successor, unless otherwise indicated.

          (11)  Corpus allocation means the amount of moneys of the DWSRF, as determined by the corporation, allocated to provide earnings to reduce a recipient's total financing costs for an eligible project.

          (12)  Department means the New York State Department of Health.

          (13)  Design means necessary design calculations and decisions and the preparation of construction drawings and specifications.

          (14)  Direct loan means a loan made from moneys in the DWSRF other than proceeds of the corporation's bonds or notes.

          (15)  Disbursement means a transfer of DWSRF assistance moneys to the recipient from accounts held by the corporation's custodian in accordance with the executed PFLA.

          (16)  DWSRF or fund means the New York State drinking water revolving fund, established pursuant to Chapter 413 of the Laws of 1996. Such fund shall include, without limitation, moneys available to finance state assistance payments in the manner set forth in paragraphs (d), (f) and (h) of subdivision four of section 1285-m of the PAL.

          (17)  DWSRF assistance means financial assistance from the DWSRF, or other available sources, provided by the corporation to a recipient for an eligible project, including, without limitation, loans or hardship assistance. It has the same meaning as "financial assistance to recipients" as set forth under Section 1285-m.4 of the public authorities law.

          (18)  Eligible project means a project for construction of a water supply facility which is intended to improve drinking water facilities, including a project that would be eligible for financing under or designed to comply with the requirements of the Act, which the commissioner has certified, in writing, (a) is necessary for the objectives and goals of the State sanitary code or the Act to assure safe public drinking water; (b) represents a reasonable effort to develop a viable water supply that can consistently meet drinking water standards; (c) takes into consideration the water resources management strategy pursuant to title twenty-nine of article fifteen of the environmental conservation law; and (d) is a project for which financial assistance is available from the fund.

          (19)  Engineering report means the document or documents incorporating the results of preliminary project planning and technical and fiscal studies to determine the technical and economic feasibility of the project.

          (20)  Equivalency project means a project that must be constructed in compliance with the provisions of the Act applicable to projects funded from Federal capitalization funds or their equivalent.

          (21)  Federal capitalization funds are funds deposited in the DWSRF pursuant to a Federal capitalization grant according to the provisions of the Act or any lesser amount which the administrator shall determine is subject to the limitations imposed by the Act.

          (22)  Hardship assistance means DWSRF assistance, including, without limitation, a reduced interest rate loan, a principal subsidy, and/or State assistance payments, provided by the corporation to a recipient in those instances where the corporation, in its discretion, determines financial hardship exists.

          (23)  Intended use plan (IUP) means a plan identifying the intended uses of the amounts available in the DWSRF, including but not limited to: a list of potentially eligible projects; a description of the short-term and long-term goals and objectives of the DWSRF; information on the activities to be supported including a description of project categories, terms of DWSRF assistance, recipients, and the criteria and method established for the distribution of funds. The IUP shall be published annually, and shall be subject to public review and comment.

          (24)  Interest rate subsidy means: (i) for a leveraged loan, the investment earnings on the corpus allocation credited to the recipient to reduce the interest which the recipient would otherwise be required to pay; or (ii) for a direct loan, the difference between the market rate of interest and the interest rate required to be paid by the recipient for DWSRF assistance.

          (25)   Loan means a loan made by the corporation to a recipient for an eligible project.

          (26)  Leveraged loan means a loan made from moneys deposited in the DWSRF from the proceeds of bonds or notes that are special obligations of the corporation.

          (27)  Long-term loan means a loan for a period of more than three years.

          (28)  Market rate of interest means the interest rate obtained on the most recent sale of bonds by the corporation for a DWSRF pooled bond issuance or the interest rate determined by the corporation to be otherwise payable by a direct loan recipient if the project were financed without DWSRF assistance.

          (29)  Median household income (MHI) means the MHI published by the U.S. Department of Commerce Bureau of the Census, as it shall be adjusted to the most recent biennium for which income data is available from the Bureau of the Census. For special districts and other areas for which accurate census data is not available, other income data may be considered by the corporation.

          (30)  Municipality means any county, city, town, village, district corporation, county or town improvement district, school district, Indian nation or tribe recognized by the State or the United States with a reservation wholly or partly within the boundaries of New York State, any public benefit corporation or public authority established pursuant to the laws of New York, any sewer authority now existing in a city, or any agency of New York State which is empowered to construct and operate an eligible project, or any two or more of the foregoing which are acting jointly in connection with an eligible project.

          (31)  Planning means the orderly development of a project concept from the original statement of need or purpose through the evaluation of alternatives to a final recommendation on a course of action and measures to implement the selected alternative.

          (32)  Pooled bond issuance means the sale of bonds by the corporation to provide DWSRF assistance to two or more recipients.

          (33)  Principal subsidy means a payment by the corporation of up to seventy-five percent of the principal of a loan made by the corporation to a recipient under the DWSRF, such payment to be made pursuant to, and in accordance with, section 1285-m.4(g) of the PAL.

          (34)  Project means a water supply facility or a facility or site for the supply, control, treatment or distribution of water, including but not limited to water transmission lines, pumping stations, reservoirs, dams and other impoundments, and all of the necessary appurtenances, and any other property, real or personal, functionally related and subordinate to said facility, for the purpose of providing a public water supply. A project may include an eligible project.

          (35)  Project completion means the later of (i) the date that operation of the project is initiated or is capable of being initiated; or (ii) the date on which all construction or other activities for which allowable costs have been incurred, and for which DWSRF assistance has been provided, have been completed.

          (36)  Project financing and loan agreement (PFLA) means an agreement, or agreements, between the corporation and one or more recipients with respect to the financing of an eligible project or projects.

          (37)  Public authorities law (PAL) means Chapter 43-A of the Consolidated Laws of New York State entitled the public authorities law.

          (38)  Public health law (PHL) means Chapter 45 of the Consolidated Laws of New York State entitled the public health law.

          (39)  Public water supply means any water system as defined in 10 N.Y.C.R.R. Part 5, Subpart 5-1, Section 5-1.1, Public Water systems.

          (40)  Recipient means any municipality, public utility, or person, including any individual, firm, partnership, association, not-for-profit corporation or other corporation organized and existing under the laws of the State or any other state which is empowered to construct and operate an eligible project, or any two or more of the foregoing which are acting jointly in connection with an eligible project.

          (41)  Reduced interest rate means an interest rate less than that which otherwise would be applicable to the financing of an eligible project if such project were financed with a leveraged loan.

          (42)  Segment of a project means one or more construction contracts and associated costs that the corporation and the department determine constitute a discrete portion of the project which may be financed and constructed separately from other project segments.

          (43)  Service charge means the total annual cost of service for a household or equivalent dwelling unit in the area served by the project, which includes a user charge, a charge for debt service, and all other annualized charges.

          (44)  Short-term loan means a loan made for an eligible project for a period of not more than three years.

          (45)  State means the State of New York.

          (46)   State assistance payment means a payment by the corporation to a recipient of all or a part of the state share of the cost of an eligible project from moneys available therefore, pursuant to, and in accordance with, section 1285-m.4(h) of the PAL.

          (47)  Target service charge means the amount, as determined by the corporation, that a household or equivalent dwelling unit having an income equal to the MHI for the area served by the project reasonably could pay annually. Criteria for the corporation's calculation of the target service charge shall be set forth in the annual IUP.

          (48)  User charge means a charge levied on users of a project, or that portion of the ad valorem taxes paid by a user, for the user's proportionate share of the cost of operation and maintenance (including replacement) of such project.

          (49)  User charge system means a system for apportioning user charges.

     2604.3   Project Certification

     The corporation shall not provide DWSRF financial assistance to a recipient unless and until the department has certified to the corporation, in writing, that (i) the project to be financed through the DWSRF is an eligible project; and (ii) all applicable requirements of the department have been met, including, without limitation, requirements relating to equivalency projects, and all Federal and State requirements relating to environmental review of the project.

     2604.4  Direct Loans.

     (a)  The corporation may provide financial assistance to recipients for eligible projects from any available moneys in the fund, other than the proceeds of the corporation's bonds or notes or moneys needed to pay the costs of the corporation and the department for administering and managing the DWSRF program including the provision of technical assistance, if and to the extent the corporation determines that it is unable to, or that it is impractical or inadvisable to, finance all or a portion of the costs of an eligible project from the proceeds of bonds or notes that are special obligations of the corporation.

     In making such determination, the corporation shall consider:

          (1)  whether the credit rating of the recipient, as determined by the corporation, is such that may impair the ability of the corporation to market its bonds or notes to finance the recipient's project;

          (2)  whether providing DWSRF assistance from the proceeds of corporation bonds or notes would not be cost-effective; or

          (3)  any other factor which may prevent the corporation from financing, or may make it fiscally disadvantageous, or otherwise inadvisable, to finance the project from proceeds of the corporation's bonds or notes.

     (b)  The corporation may provide a long-term loan or a short-term loan as a direct loan.

     (c)  Interest rates for direct loans shall be established by the corporation as follows:

          (1)  Generally: The interest rate for a direct loan shall be no more than two-thirds of the market rate of interest.

          (2)  Short-term loans: The interest rate for a short-term loan shall not exceed two-thirds of the market rate of interest, and shall be published annually in the IUP.

     2604.5  Hardship Assistance

     (a)  The corporation may provide hardship assistance in those cases where the corporation, in its discretion, determines financial hardship exists. In making such determination, the corporation may consider whether the total estimated annual service charge for a household or equivalent dwelling unit in the area served by the project, calculated using the maximum interest rate applicable to the project, exceeds the target service charge.

     (b)  To the extent such hardship assistance includes a principal subsidy, the corporation shall give preference in the granting of such subsidies to small and rural communities.

     (c)  To the extent such hardship assistance includes State assistance payments, the corporation shall give preference to recipients which would be unable to carry out such eligible projects in the absence of such state assistance payments without creating a financial hardship on system users.

     (d)  The applicable terms of the hardship assistance are those which bring the estimated service charge closest to the target service charge. Notwithstanding the foregoing, the corporation may also consider other conditions deemed relevant to adjust the terms of the hardship assistance if such adjustment is necessary to reflect actual financial needs (or lack thereof).

     (e)  Hardship assistance may be provided only for projects costing ten million dollars or less. Hardship assistance will not be provided for a segment of a project if the total cost of all segments of the project exceeds ten million dollars. The corporation may provide a written confirmation that a potential recipient qualifies for hardship assistance because of financial hardship.

     (f)  A recipient shall not receive DWSRF assistance in the form of a loan if the corporation determines that such recipient cannot reasonably be expected to provide debt service payments on such a loan.

     2604.6  Corpus Allocation

     In those cases where the corporation provides DWSRF assistance in the form of a loan funded from the proceeds of bonds or notes of the corporation, the amount of corpus allocation applicable to such DWSRF assistance shall be determined annually by the corporation, and published annually in the intended use plan. The corpus allocation, as determined by the corporation in accordance with the preceding sentence, shall be applied equally to all eligible projects financed with DWSRF assistance from the proceeds of bonds or notes of the corporation during the period covered by such intended use plan. The amount of corpus allocation applicable to the portion of any eligible project financed with such DWSRF assistance shall not be less than thirty-three and one-third percent of the principal amount of such DWSRF assistance outstanding at any time for such eligible project, to the extent reasonably practicable, and subject to such deviation as may be necessary, in connection with the administration and investment of moneys in the DWSRF.

     2604.7  Financing of Planning Costs.

     DWSRF assistance shall not be provided for project planning costs prior to completion of that planning. Planning costs may be included as allowable costs for purposes of DWSRF assistance for any subsequent portion of that project.

     2604.8  General Project Requirements.

     (a)  Recipients shall ensure that all projects that receive DWSRF assistance effectively protect water quality, employ good management practices, and fulfill all applicable requirements of: Federal and State laws, regulations, and executive orders, including, without limitation, prevailing wage requirements under Article 8 of the Labor Law, requirements of the general municipal law and the State finance law governing disqualification of bidders, all requirements of the PFLA, and all applicable instructions issued by the commissioner or the corporation to ensure that these requirements are met.

     (b)  The corporation and the department may conduct such reviews, inspections and investigations as they determine necessary to ensure that applicable Federal, State and local requirements are fulfilled, and that the terms, requirements, and conditions of the PFLA are being met.

     (c)  The corporation and the department may accept recipient certification that project requirements have been met where such certifications are permitted by State laws or regulations. Acceptance of a certification that a project requirement was met shall not preclude either the corporation or the department from carrying out selective sampling and verification of such certification.

     (d)  All contracts between the recipient and parties carrying out construction and other DWSRF assisted activities shall provide that representatives of the commissioner, the comptroller, and the corporation shall have access to the work wherever it is in preparation or progress and shall permit extracts and copies of project records to be made by them.

     (e)  All change orders shall be submitted to the department within thirty days following the date they are ordered. Proposed changes which will significantly alter any treatment process incorporated in the project shall require prior approval by the department. The department will notify the corporation of any approved change orders at the same time it notifies the recipient.

     (f)  The recipient shall provide for inspection of project construction, under the direction of a professional engineer licensed in New York State who shall be responsible for determining whether such work has been performed in accordance with the approved plans and specifications. Following project completion, the professional engineer shall certify to the recipient, the commissioner and the corporation that the construction is in accordance with the approved plans and specifications or approved amendments thereto.

     (g)  The recipient shall have or acquire such title, estate or interest in the site of the project, including, without limitation, necessary easements and rights-of-way, to ensure the undisturbed use and possession during construction of the project and for the estimated operational life thereof.

     (h)  The recipient, all authorized representatives of the recipient, and all contractors and subcontractors providing services for the project shall comply with all Federal, State and local laws, rules, regulations, and executive orders applicable to the project, including, without limitation, laws, rules, regulations, and executive orders regarding affirmative action, equal employment opportunity, and small, minority and women's business enterprises. The recipient shall include in all contracts or subcontracts financed with DWSRF assistance which the commissioner determines are subject to article 15-A of the Executive Law, contract provisions determined necessary by the commissioner for purposes of complying with article 15-A of the Executive Law and any regulations adopted pursuant thereto.

     (i)  The recipient is solely responsible for the preparation of engineering reports, design drawings, plans and specifications, contract documents, and the inspection of project construction necessary for the completion of the project. Notwithstanding any review or approval of engineering reports, design drawings, plans and specifications, contract documents, change orders, and/or the inspection of project construction by the department or the corporation, neither the department nor the corporation, nor their employees, agents or representatives, are responsible for increased costs resulting from defective engineering reports, design drawings, plans and specifications, change orders, or negligent inspection of project construction.

     2604.9   Application and Project Financing and Loan Agreements.

     (a)  A party may submit a complete application, including a description of the project, to the corporation for DWSRF assistance when:

          (1)  project planning is completed and the applicant has submitted to the department an engineering report, and that report has been approved by the department;

          (2)   any necessary water district has been formed; and

          (3)  at the time of such application, the applicant is in compliance with all applicable project requirements specified in section 2604.8 of this Part, and any preapplication instructions issued by the department, or the corporation.

     (b)  Applications for DWSRF assistance shall be submitted in a format that is consistent with instructions published by the corporation including, at the corporation's discretion, the use of forms published by the corporation for use by parties seeking DWSRF assistance.

     (c)  A PFLA shall not be executed for a project until the applicant has submitted to the corporation an application for DWSRF assistance for such project, and the corporation has approved such application.

     (d)  A PFLA for a segment of a project shall include a schedule for the completion of the entire project and an agreement by the recipient to complete the entire project in accordance with that project completion schedule regardless of the availability of future DWSRF assistance.

     2604.10  Disbursements.

     (a)  Disbursement requests shall be submitted by the recipient to the corporation in writing on forms provided by, or acceptable to, the corporation, in accordance with any instructions issued by, and together with any documentation of costs required by, the corporation. Copies of the disbursement request shall be submitted simultaneously to the corporation, and to any party named in the applicable PFLA.

     (b)  Loan proceeds or other financial assistance will be disbursed by the corporation only for costs associated with a project which has been certified by the department, in writing, as an eligible project. Recipients shall apply the proceeds of DWSRF assistance only to costs associated with such eligible project.

     (c)  The corporation may at any time review and audit disbursement requests and make adjustments for, among other things, arithmetical errors, items not built or bought, or unallowable costs.

     (d)  No disbursement of DWSRF moneys made pursuant to a PFLA shall be made without the approval of the corporation based upon its review and audit of disbursement requests as provided in section 2604.9(c) of this Part. Failure by the corporation to issue written notice, to all parties named in the PFLA of approval, adjustment, or denial of a disbursement request within ten (10) business days of the corporation's receipt of such disbursement request, shall be deemed to be an approval of such request and the disbursement shall be made.

     (e)  The corporation may transfer the full amount or any part of the DWSRF assistance to a project account established for that purpose. Terms for the disbursement of the funds in such project account shall include but are not limited to:

     (1)  The recipient shall agree that it shall submit disbursement requests to the corporation before any funds are disbursed from the project account; and

     (2)  No disbursement shall be made to the recipient from the project account unless the corporation has approved a disbursement request in the amount of the disbursement.

     (f)  Satisfactory documentation supporting DWSRF disbursement requests shall demonstrate that the costs claimed were those approved in the PFLA, that they are allowable costs and that the goods or services for which the costs were incurred have been provided. Satisfactory documentation may include signed copies of payment vouchers or invoices, cancelled checks, details of current indirect cost and fringe benefit rates, copies of all subagreements, executed change orders, payroll records, tabulations of allowable costs incurred to date and:

          (1)  for construction, the latest cumulative work-in-place estimate and a summary of executed change orders for each construction contract;

          (2)  for professional services, a description of the nature of the service, and documentation that the service was provided according to the terms of a professional services agreement;

          (3)  for purchase of equipment not included in a construction contract, a detailed list of equipment purchased, price of each item, and the method and details of the procurement of each item; and

          (4)  for project services approved in a PFLA to be provided by employees of the recipient, employee time records, signed by the employee and the employee's supervisor, which account for all hours worked in the period covered, and describe in detail the work claimed as approvable.

     All documentation for a project shall be incorporated and referenced in project accounts maintained by the recipient in accordance with generally accepted government accounting principles, or, in the case of non-governmental recipients, generally accepted accounting principles.

     2604.11  Remedies.

     (a)  If a recipient has received DWSRF moneys for work which is not an allowable cost of a project, the recipient may be required to reimburse the DWSRF for the amount of misapplied funds received (reimbursed amounts may be applied to allowable project costs or to bond redemption) and until the full amount of such misapplied funds has been reimbursed, the corporation may apply any interest subsidy to such reimbursement or reduce any future interest rate subsidy for purposes of reimbursing the DWSRF in addition to any other remedy permitted pursuant to this section.

     (a)  (b)  If the corporation or the department determines that the project or the recipient is not in compliance with Federal or State laws or the terms of the PFLA, and, following written notice to the recipient, the project or recipient is not brought into compliance, the corporation may, on its own initiative or at the direction of the department, refuse to approve DWSRF disbursement requests until the project or recipient is brought into compliance.

     (a)  (c)  Nothing in this section shall be construed to limit the rights of the corporation or the department to take actions including, but not limited to, administrative enforcement actions and actions for breach of contract against a recipient that fails to carry out its obligations under this Part, or the PFLA.

     2604.12  Severability.

     If any provisions of this Part or the application thereof to any person or circumstance is adjudged invalid by a court of competent jurisdiction, such judgment shall not affect or impair the validity of the other provisions of this Part or the application thereof to other persons and circumstances.