State Loan Program

PURPOSE: This rule establishes requirements for loans from state funding for financing construction improvements at public water systems. (1) General Requirements. (A) The department may make direct loans to public water systems by purchasing the general obligation bonds, revenue bonds, short-term notes, or other acceptable obligation of any qualified recipient for the planning, design or construction, or any combination of these, of an eligible project. (B) In addition to the requirements of this rule, the department may require the recipient to include those assurances and clauses in the loan agreements and bond resolutions as deemed necessary to protect the interest of the state and comply with applicable state and federal requirements. (C) If at any time during the term of the loan a recipient desires to sell, lease, mortgage, or otherwise dispose of the infrastructure financed under this rule, the loan becomes due and payable upon transfer unless otherwise approved by the department. (D) This rule sets out the general format for loans from state funds. The department shall have the authority to make specific refinements, variations, or additional requirements as may be necessary or desirable in connection with the efficient operation of the loan process. (2) Eligible Projects and Project-Related Costs. (A) This subsection incorporates the requirements in 40 CFR 35.3520 as set forth in 40 CFR part 35 subpart L, published July 1, 2017. This document is incorporated by reference without any later amendments or modifications. To obtain a copy, contact the U.S. Government Printing Office at 732 North Capital Street NW, Washington D.C., 20401, toll free at (866)512-1800 or by visiting https://bookstore.gpo.gov. In addition to eligible project costs set forth in 40 CFR 35.3520, costs of issuance and debt service reserve deposits are eligible project costs. (3) Application Procedures. (A) Recipients must submit a preliminary project proposal. (B) Applications are accepted year-round. Recipients shall provide— 1. A completed application form provided by the department; 2. Documentation that they have a chief operator certified at the appropriate level, or expect to have prior to loan award; 3. Documentation that they have an emergency operating plan, or expect to have prior to loan award; and 4. Any additional information request by the department to determine the recipient’s compliance history and technical, managerial, and financial capacity. (C) By submission of its application, the recipient certifies and warrants that the recipient has not, nor will through the loan amortization period, violate any of its bond covenants. (4) Evaluation. (A) Funds are available on a first-come, first-served basis. If available funds are not sufficient to finance all applications, the funds will be distributed based on immediacy of need. Preference is given to those recipients receiving funding through other funding programs administered by the Department of Natural Resources. (5) Fees. (A) The department may charge annual loan fees not to exceed one-half percent (0.5%) of the outstanding loan balance of each loan, except as provided under subsection (5)(B). (B) Additional administrative fees. Additional administrative fees may be assessed by the department at the time the administration fee is calculated for failure by a recipient to pay debt service on a loan or submit approved documents to the department (for example, operation and maintenance manuals, enacted user charge and water-use ordinances, and executed contract documents, etc.) in accordance with the time frames provided under the agreement entered into by the recipient. The additional fee will be an additional one-tenth percent (0.1%) per month that the document remains delinquent. The additional fee for delinquent documents will be collected only during the year in which the document is not submitted. (6) Interest Rates. The department will use the target interest rate (TIR) as outlined in 10 CSR 60-13.020(3)(E). (7) Amortization Schedules. The following guidelines shall be used to establish amortization schedules under this rule: (A) The bonds, notes, or other obligations shall be fully amortized for a period not longer than twenty (20) years after initiation of operation; (B) The principal payment frequency shall be no less than annual and interest payments at least semiannual; (C) The amortization schedule may either be straightline or declining schedules for the term of the debt obligation. The department may approve an alternative amortization method if deemed appropriate; and (D) Repayment of principal shall begin not later than one (1) year after initiation of operation. (8) Requirements for Loan Recipients. (A) Engineering Report and Project Design. Engineering report and design of eligible projects for community water systems shall conform with 10 CSR 60-3.010 and 10 CSR 60-10.010. (B) Loan Closing. All documents and information must be submitted to the department in sufficient time to allow adequate time for review and must be approved sixty (60) days prior to the loan closing date established by the department. The department may extend deadlines if justified. 1. Final document submittal. The following documents must be submitted to and approved by the department: A. Resolution identifying the authorized representative by name. Recipients for assistance shall provide a resolution by the governing body designating a representative authorized to file the application for assistance, reimbursement requests, and act on behalf of the recipient in all matters related to the project; B. Proposed project schedule. The following represents the minimum requirements for the project schedule: (I) Construction start defined as date of issuance of notice to proceed; (II) Construction Completion; (III) Initiation of operation; and (IV) Project completion; C. Executed engineering contract as described in this rule and the appropriate procurement documentation as described in paragraph (8)(G)1.; D. Engineering report and plans and specifications certified by a registered professional engineer licensed in Missouri; E. Certification of easements and real property acquisition. Recipients of assistance shall have obtained title or option to the property or easements for the project prior to loan closing; F. Draft user charge and water use ordinances as described in this rule; and G. Other information or documentation deemed necessary by the recipient or the department to ensure the proper expenditure of loan funds. 2. Projects serving multiple water systems. Prior to closing, if the project serves two (2) or more public water systems, the recipient shall submit executed agreements or contracts between the public water systems for the financing, construction, and operation of the proposed facilities. 3. User charge (water rate) ordinance. A. Loan recipients are required to maintain, for the useful life of the project, user charge ordinances approved by the department. User charge ordinances, at a minimum, shall be adopted prior to financing and implemented by the initiation of operation of the financed project. B. The user charge system shall be designed to produce adequate revenues required for the operation and maintenance, including a reserve for equipment replacement. It shall be proportional and based upon actual use. A one hundred ten percent (110%) debt service reserve may be required. Each user charge system shall include an adequate financial management system that will accurately account for revenues generated by the system, debt service, and loan fee costs and expenditures for operation and maintenance, including replacement based on an adequate budget identifying the basis for determining the annual operation and maintenance costs and the costs of personnel, material, energy, and administration. The user charge system shall provide that the costs of operation and maintenance not directly attributable to users be distributed equally among the users. The system shall provide for an annual review of charges. 4. Additional requirements for privatelyowned public water systems. Privately-owned public water systems must provide documentation from the Missouri Department of Economic Development showing an allocation under Missouri’s private activity bond cap and must obtain any necessary approvals from the Public Service Commission. (C) Operation and Maintenance. 1. Operation and maintenance manual. The recipient must make provision satisfactory to the department for assuring operational efficiency be achieved as quickly as possible and effective operation and maintenance of the constructed project throughout its design life. If required by the department, recipients will develop an operation and maintenance manual in accordance with departmental guidelines. A draft operation and maintenance manual must be submitted by construction completion. 2. Start-up training. At construction completion, a start-up training proposal (if required) and proposed follow-up services contract must be submitted. 3. Personnel. The recipient must make provision satisfactory to the department for assuring that operator(s) and maintenance personnel are hired in accordance with an approved schedule. 4. System certification. If required by the department, one (1) year after initiation of operation of the constructed public water system, the recipient shall certify to the department whether or not the public water system meets the project performance standards. Any statement of noncompliance must be accompanied by a corrective action report containing an analysis of the cause of the project’s inability to meet performance standards, actions necessary to bring it into compliance, and reasonably scheduled date for positive certification of the project. Timely corrective action shall be executed by the recipient. (D) Accounting and Audits. Recipients are required to have a dedicated source for repayment of any loans and an adequate financial management system and audit procedure for the project which provides efficient and effective accountability and control of all property, funds, and assets related to the project. The recipient’s financial system is subject to state or federal audits to assure fiscal integrity of public funds. 1. Each recipient is expected to have an adequate accounting system for the project which provides efficient and effective accountability and control of all property, funds, and assets. 2. The recipient is responsible for maintaining a financial management system which will adequately provide for an accurate, current, and complete disclosure of the financial results of each loan project. Accounting for project funds will be in accordance with generally accepted government accounting principles and practices, consistently applied, regardless of the source of funds. 3. An acceptable accounting system includes books and records showing all financial transactions related to the construction project. The system must document all receipt and disbursement transactions and group them by type of account (for example, asset, revenue, expense, etc.) and by individual expense account (for example, personnel salaries and wages, subcontract costs, etc.). The recipient shall maintain books, records, documents and other evidence and accounting procedures and practices, sufficient to reflect properly the amount, receipt, and disposition by the recipient for all assistance received for the project and the total costs of the project of whatever nature incurred for the performance of the project for which the assistance was awarded. (E) Record Retention Requirements. The recipient must retain all records according to the retention schedules established by Chapter 109, RSMo. A longer retention period may be required under the loan documentation. (F) Minimum Requirements for Architectural or Engineering Contracts. 1. The agreement must— A. Be necessary for and directly related to the accomplishment of the eligible project; B. Be a lump sum or cost plus fixed fee contract in the form of a bilaterally executed written agreement; C. Be for monetary consideration; D. Not be in the nature of a grant or gift; E. State a time frame for performance; F. State a cost which cannot be exceeded except by amendment; and G. State provisions for payment. 2. The nature, scope, and extent of work to be performed during construction should include, but not be limited to, the following: A. Preparing an operation and maintenance manual if required by the department that meets the requirements of this rule; B. Assisting the recipient in letting bids; C. Assisting the recipient in reviewing and analyzing construction bids and making recommendations for award; D. Inspecting during construction to ensure conformance with the construction contract documents unless waived by the department; and E. If required by the department, assisting with facility operation for purposes of certifying that the facility is operating properly one (1) year after start-up. 3. The final approved executed engineering contract must be submitted prior to the first reimbursement request. (G) Procurement of Engineering Services. 1. Procurement of engineering services shall be in accordance with sections 8.285 through 8.291, RSMo or subsection (8)(J) of this rule. (H) Specifications. The construction specifications must contain the following: 1. Recipients must incorporate in their specifications a clear and accurate description of the technical requirements for the material, product, or service to be procured. The description, in competitive procurement, shall not contain features which unduly restrict competition unless the features are necessary to test or demonstrate a specific thing or to provide for interchangeability of parts and equipment. The description shall include a statement of the qualitative nature of the material, product, or service to be procured and, when necessary, shall set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use; 2. The recipient shall avoid the use of detailed product specifications if at all possible; 3. When in the judgment of the recipient it is impractical or uneconomical to make a clear and accurate description of the technical requirements, recipients may use a brand name or equal description as a means to define the performance or other salient requirements of a procurement. The recipient need not establish the existence of any source other than the named brand. Recipients must state clearly in the specification the salient requirements of the named brand which must be met by offerers; 4. Sole source restriction. A specification shall not require the use of structures, materials, equipment, or processes which are known to be available only from a sole source, unless the department determines that the recipient’s engineer has adequately justified in writing to the department that the proposed use meets the particular project’s minimum needs; 5. Experience clause restriction. The general use of experience clauses requiring equipment manufacturers to have a record of satisfactory operation for a specified period of time or of bonds or deposits to guarantee replacement in the event of failure is restricted to special cases where the recipient’s engineer adequately justifies any such requirement in writing. Where this justification has been made, submission of a bond or deposit shall be permitted instead of a specified experience period. The period of time for which the bond or deposit is required shall not exceed the experience period specified; 6. Domestic products procurement law requirements in accordance with sections 34.350–34.359, RSMo; 7. Bonding on construction contracts exceeding fifty thousand dollars ($50,000), the bid documents shall require each bidder to furnish a bid guarantee equivalent to five percent (5%) of the bid price. In addition, the bid documents must require the successful bidder to furnish performance and payment bonds, each of which shall be in an amount not less than one hundred percent (100%) of the contract price; 8. State wage determination in accordance with sections 290.210-290.340, RSMo and 8 CSR 30 Chapter 3; 9. Right of entry to the project site shall be provided for representatives of the department, the Environmental Improvement and Energy Resources Authority, and the Missouri State Auditor so they may have access to the work wherever it is in preparation or progress; and 10. The following statement: “The owner shall make payment to the contractor in accordance with section 34.057, RSMo.” (I) Construction Equipment and Supplies Procurement. This section describes the minimum procurement requirements which the recipient must use unless the recipient elects to use the design/build option described in subsection (8)(J) of this rule. 1. Small purchases. A small purchase is the procurement of materials, supplies, and services when the aggregate amount involved in any one (1) transaction does not exceed one hundred fifty thousand dollars ($150,000). The small purchase limitation of one hundred fifty thousand dollars ($150,000) applies to the aggregate total of an order, including all estimated handling and freight charges, overhead, and profit to be paid under the order. In arriving at the aggregate amount involved in any one (1) transaction, all items which should properly be grouped together must be included. Department concurrence and a minimum of three (3) quotes must be obtained prior to purchase. 2. Bidding requirements. This paragraph applies to procurement of construction equipment, supplies, and construction services in excess of one hundred fifty thousand dollars ($150,000) awarded by the recipient. No contract shall be awarded until the department has approved the formal advertising and bidding. A. Formal advertising. (I) Adequate public notice. The recipient will cause adequate notice to be given of the solicitation by publication in newspapers of general circulation beyond the recipient’s locality (preferable statewide), construction trade journals or plan rooms, inviting bids on the project work and stating the method by which bidding documents may be obtained or examined. (II) Adequate time for preparing bids. A minimum of thirty (30) days shall be allowed between the date when public notice, publication, insertion, or document availability in a plan room is first published and the date by which bids must be submitted. Bidding documents shall be available to prospective bidders from the date when the notice is first published or provided. B. Bid document requirements and procedure. (I) The recipient shall prepare a reasonable number of bidding documents (Invitations for Bids) and shall furnish them upon request on a first-come, first-served basis. The recipient shall maintain a complete set of bidding documents and shall make them available for inspection and copying by any party. The bidding documents shall include, at a minimum: (a) A completed statement of the work to be performed or equipment to be supplied and the required completion schedule; (b) The terms and conditions of the contract to be awarded; (c) A clear explanation of the method of bidding and the method of evaluation of bid prices and the basis and method for award of the contract or rejection of all bids; (d) Responsibility requirements and criteria which will be employed in evaluating bidders; (e) The recipient shall provide for bidding by sealed bid and for the safeguarding of bids received until public opening; (f) If a recipient desires to amend any part of the bidding documents during the period when bids are being prepared, addenda shall be communicated in writing to all firms which have obtained bidding documents in time to be considered before the bid opening time. All addenda must be approved by the department prior to award of the contract; (g) A firm which has submitted a bid shall be allowed to modify or withdraw its bid before the time of bid opening; (h) The recipient shall provide for a public opening of bids at the place, date, and time announced in the bidding documents. Bids received after the announced opening time shall be returned unopened; (i) Award shall be to the lowest, responsive, responsible bidder. After bids are opened, the recipient shall evaluate them in accordance with the methods and criteria set forth in the bidding documents. The recipient shall award contracts only to responsible contractors that possess the potential ability to perform successfully under the terms and conditions of a proposed contract. A responsible contractor is one that has financial resources, technical qualifications, experience, organization, and facilities adequate to carry out the contract or a demonstrated ability to obtain these. The recipient may reserve the right to reject all bids. Unless all bids are rejected for good cause, award shall be made to the lowest, responsive, responsible bidder. The recipient shall have established protest provisions in the specifications. These provisions shall not include the department as a participant in the protest procedures. If the recipient intends to make the award to a firm which did not submit the lowest bid, the recipient shall prepare a written statement before any award, explaining why each lower bidder was deemed nonresponsible or nonresponsive and shall retain the statements in its files. The recipient shall not reject a bid as nonresponsive for failure to list or otherwise indicate the selection of subcontractor(s) or equipment unless the recipient has clearly stated in the solicitation documents that the failure to list shall render a bid nonresponsive and shall cause rejection of a bid; and (j) Departmental concurrence with contract award must be obtained prior to actual contract award. Recipients shall notify the department, in writing, of each proposed construction contract which has an aggregate value over one hundred fifty thousand dollars ($150,000). The recipient shall notify the department within ten (10) calendar days after the bid opening for each construction subagreement. The notice shall include: I. Proof of advertising; II. Tabulation of bids; III. The bid proposal from the bidder that the recipient wishes to accept, including justification if the recommended successful bidder is not also the lowest bidder; IV. Recommendation of award; V. Any addenda not submitted previously and bidder acknowledgment of all addenda; VI. Copy of the bid bond; VII. One (1) set of as-bid specifications; VIII. Revised financial capability worksheet and certification if bids exceed prebid estimates by more than fifteen percent (15%); and IX. Site certification, if not previously submitted. (J) Procurement of Design-build Services. The procurement of design-build services shall be in accordance with section 67.5060, RSMo. Recipients that are exempt from section 67.5060, RSMo may also utilize design-build services if local ordinances or policies allow design-build and the procurement of the design-build team considers both the qualifications of the team. Recipients seeking funds for a project utilizing design-build services must notify the department with the recipient’s application. Recipients that utilize design-build services shall coordinate procurement activities with the department to ensure compliance. (K) Conflict of Interest. 1. No employee, officer, or agent of the recipient shall participate in the selection, award, or administration of a subagreement supported by state or federal funds if a conflict of interest, real or apparent, would be involved. This conflict would arise when— A. Any employee, officer or agent of the recipient, any member of their immediate families, or their partners have a financial or other interest in the firm selected for a contract; or B. An organization which may receive or has been awarded a subagreement employs, or is about to employ, any employee, officer or agent of the recipient, any member of their immediate families, or their partners. 2. The recipient’s officers, employees, or agents shall neither solicit nor accept gratuities, favors, or anything of substantial monetary value from contractors, potential contractors, or other parties to subagreements. (L) Changes in Contract Price or Time. The contract price or time may be changed only by a change order. The value of any work covered by a change order or of any claim for increase or decrease in the contract price shall be determined by the methods set forth in the following: 1. Unit prices. A. Unit prices previously approved are acceptable for pricing changes of original bid items. However, when changes in quantities exceed fifteen percent (15%) of the original bid quantity and the total dollar change of that bid item is greater than twenty-five thousand dollars ($25,000), the recipient shall review the unit price to determine if a new unit price should be negotiated. B. Unit prices of new items shall be negotiated; 2. A lump sum to be negotiated; and 3. Cost reimbursement. The actual cost for labor, direct overhead, materials, supplies, equipment, and other services necessary to complete the work plus an amount to cover the cost of general overhead and profit. (M) Progress Payments to Contractors. 1. Recipients should make prompt progress payments to prime contractors and prime contractors should make prompt progress payments to subcontractors and suppliers for eligible construction, supplies, and equipment costs in accordance with section 34.057, RSMo. 2. Retention from progress payments. The amount the recipient retains shall be in accordance with section 34.057, RSMo. (N) Trustee or Paying Agent. The department may require the recipient to contract with a trustee or paying agent to provide the services listed below, along with other such services as detailed in the participant’s escrow agreement: 1. Maintain separate trust funds and accounts for recipients; 2. Disburse funds to recipients; 3. Collect principal and interest quarterly payments from recipients; and 4. Provide monthly financial reports to recipients. (9) Reimbursement Terms. (A) The maximum reimbursement will be no more than the sum of all eligible costs incurred to date. Each payment shall include the information listed here and any other information deemed necessary by the department to ensure proper project management and expenditure of public funds: 1. Completed reimbursement request form; 2. Construction pay estimates signed by the construction contractor, the recipient, and the consulting engineer, if applicable; and 3. Invoices for other eligible services, equipment, and supplies for the project. (B) If the department is satisfied that the payment request accurately reflects the eligible cost incurred to date on the project, the department will request that state payment be issued to the recipient. AUTHORITY: sections 640.100 and 640.140, RSMo 2016.* Original rule filed Jan. 19, 2001, effective Sept. 30, 2001. Amended: Filed June 13, 2018, effective Feb. 28, 2019. *Original authority: 640.100, RSMo 1939, amended 1978, 1981, 1982, 1988, 1989, 1992, 1993,1995, 1996, 1998, 1999, 2002, 2006, 2012, 2014 and 640.140, RSMo 1978.