DISCUSSION: The Policy for Implementing the State Revolving Fund for Construction of Wastewater Treatment Facilities (SRF Policy) was adopted by the State Water Resources Control Board (SWRCB) on August 18, 1988 and last amended on November 5, 1997.

The State Revolving Fund (SRF) Loan Program provides low-interest, or no-interest, loans for the construction of publicly-owned wastewater treatment and water recycling facilities, correction of nonpoint source and storm water drainage pollution problems, and for estuary enhancement activities.

There are three major reasons for proposing changes to the SRF Policy. First, Clean Water Act (CWA) Amendments passed by Congress in 1987 required that an amount of funds equal to the federal capitalization grant total must be loaned to projects meeting 16 statutory Title II requirements. This provision expired at the end of federal fiscal year 1994 and it does not look like Congress will renew it. Secondly, the DCWP wants to revise the SRF Priority System to reduce the time and effort expended by the Regional Water Quality Control Boards to develop the annual Priority List. Finally, the United States Environmental Protection Agency (USEPA) has expressed concern with the rate of issuance of binding loan commitments for California's program. The DCWP is proposing changes to address these three areas. A number of other minor program changes are also being proposed.

The DCWP formed two task forces to review the existing SRF Policy. A task force consisting of DCWP staff and representatives from the Los Angeles County Sanitation Districts and the City of San Jose reviewed the SRF Policy and helped develop the recommendations on changes to the SRF Policy. A representative from the Central Valley Regional Water Quality Control Board and DCWP staff looked at streamlining the development of the annual Priority List.

A notice containing the key issues and staff recommendations was mailed to the public on May 4, 1998. Exhibit A is a copy of the notice containing the key issues. The following is a short summary of the key issues in the May 4, 1998 notice:

1. Should the SWRCB change the Priority System and annual adoption process?

2. Should the SWRCB drop any of the 16 statutory Title II requirements which currently apply to SRF loans?

3. Should the SWRCB retain the one-year Project Performance Certification Program?

4. Should the SWRCB provide funding for 20 years of reserve capacity?

5. Should the SWRCB relax its requirement regarding the sale of future local debt?

6. Should the SWRCB fund projects which have received previous grants or loans?

7. Should the SWRCB change the definition of a binding loan commitment?

8. Should the SWRCB limit the types of projects eligible for refinancing?

Two comment letters have been received to date and are summarized in Exhibit C. The commentors stated that they concurred with all the staff recommendations except for the following:

1. The requirement to do infiltration/inflow (I/I) studies before funding collection system repair should be dropped.

2. The SWRCB should provide SRF loans to previously grant funded projects if the local agency has operated and maintained the facility for a significant period of time.

3. The project performance certification should be measured by compliance with discharge requirements.

The DCWP position on these comments is that the I/I requirements have been greatly simplified and the proposed changes in the attached SRF Policy should resolve this comment.

The DCWP believes that the program should not fund replacement of previously grant funded facilities at this time because of strong demand for SRF monies.

Finally, the DCWP believes that it is important to assess major unit processes to make sure they perform as specified. Evaluation of treatment plant performance based only on discharge requirements may not reveal potential problems in the treatment train.

A strike-out and underlined draft of the SRF Policy has been prepared. Exhibit B contains a copy of the proposed amendments to the SRF Policy.

POLICY ISSUE: Should the SWRCB approve the proposed Amendments to the SRF Policy?

FISCAL IMPACT: The proposed revisions to the SRF Priority System would significantly reduce the effort needed by the Regional Water Quality Control Boards' staff to place projects on the SRF Priority List. The changes proposed should also reduce the costs to the DCWP to administer the SRF. Funding for the administration of the program is provided by an administrative allowance equal to four percent of the Federal Capitalization Grant amount.

RWQCB IMPACT: The proposed revisions will greatly reduce the time needed on the part of Regional Water Quality Control Board staff to produce the annual SRF Priority List recommendations.

STAFF RECOMMENDATION: That the SWRCB adopt a resolution approving the amendments to the SRF Policy.

[Attachments to this item is not available electronically but can be obtained by calling Eric Torguson at (916) 227-4449.]

DRAFT May 22, 1998

WHEREAS:

1. The need to apply the 16 statutory Title II requirements of the Federal Clean Water Act to the State Revolving Fund (SRF) Loan Program expired on October 1, 1994, and Congress is not expected to renew these requirements;

2. The time and effort required of the Regional Water Quality Control Boards to produce the Annual Statewide SRF Priority List needs streamlining;

3. The United States Environmental Protection Agency has recommended that the State Water Resources Control Board take steps to accelerate the issuance of binding loan commitments;

4. The Division of Clean Water Programs formed two task forces to evaluate the existing SRF Policy and to make recommendations;

5. A Public Notice of the Workshop was mailed to interested parties on May 4, 1998 listing the key issues and staff recommendations; and

6. Comments received on the draft changes have been reviewed, and where appropriate, incorporated in the draft SRF Policy.

THEREFORE BE IT RESOLVED THAT:

The State Water Resources Control Board approves the amendments to the SRF Policy.

The undersigned, Administrative Assistant to the Board, does hereby certify that the foregoing is a full, true, and correct copy of a resolution duly and regularly adopted at a meeting of the State Water Resources Control Board held on June 18, 1998.

Maureen Marché

Administrative Assistant to the Board