200 KAR 17:010. Guidelines for Infrastructure Revolving Fund.
RELATES TO: KRS Chapter 224A
STATUTORY AUTHORITY: KRS Chapter 13A, 224A.070(1), 224A.113
NECESSITY, FUNCTION, AND CONFORMITY: KRS 224A.070(1) and 224A.113 authorize the Kentucky Infrastructure Authority to promulgate administrative regulations in accordance with KRS Chapter 13A, to govern the application for and provision of financial assistance to governmental agencies for the construction or acquisition of infrastructure projects from the Infrastructure Revolving Fund.
Section 1. Definitions. For the purposes of this administrative regulation the words and terms used shall have the same meaning as in KRS 224A.011, with the following additions:
(1) "Applicant" shall mean any governmental agency that has submitted an application for funds to the Kentucky Infrastructure Authority.
(2) "State clearinghouse" shall mean a review conducted within the Department of Local Government pursuant to federal or state law or regulations.
(3) "Authority staff" shall mean the Office for Investment and Debt Management.
(4) "Conditional commitment letter" shall mean a letter delivered to the borrowing governmental agency issuing the authority's commitment to provide a loan conditional on certain actions by the governmental agency on or before the closing date.
(5) "Department" shall mean the Department of Local Government.
(6) "Closing date" shall mean the date established by the authority for execution of the assistance agreement immediately preceding the award of construction contracts and satisfaction of conditions on the loan.
(7) "Index rate" shall mean the average of the Bond Buyer indexes - twenty (20) G.O. Bonds as published weekly in the Bond Buyer (a financial newspaper published in New York) calculated based on the weeks falling within each calendar quarter. This average shall be rounded to the nearest one-tenth (.1) of one (1) percent.
Section 2. Eligible Applicants. (1) Any governmental agency, as defined in KRS 224A.011, is eligible to apply to receive financial assistance for construction or acquisition of infrastructure projects.
(2) Each applicant shall certify in writing that it is unable to finance the entire infrastructure project from its own resources. Documentation evidencing its inability shall include the following:
(a) Letters from local lending institutions.
(b) An opinion of bond counsel, if applicable.
(c) If funds are for wastewater treatment facility, a statement from the Natural Resources and Environmental Protection Cabinet stating either:
1. The applicant will not qualify for funding during the current funding cycle;
2. The applicant has applied and fallen below the funding level in two (2) consecutive attempts; or
3. The applicant needs to supplement Natural Resources and Environmental Protection funds.
(d) If the applicant is in an area which qualifies for assistance through the Farmer's Home Administration ("FmHA"), a statement stating either:
1. The applicant would not qualify for funding;
2. Applicant has previously applied for FmHA funding and has failed to receive assistance in two (2) consecutive attempts; or
3. The applicant needs to supplement the FmHA funds with Infrastructure Revolving Fund.
(e) Statements from any other sources or other certifications, which have a bearing on the application, shall be considered.
(3) Each applicant shall have or shall attain the legal authority necessary for constructing, operating and maintaining the proposed infrastructure project. The applicant shall also have the legal authority to obtain, give security for, and repay the proposed loan. The applicant shall be responsible for operating, maintaining and managing the infrastructure project and providing for its continued availability and use at rates and terms that shall be adequate to meet its obligations as they become due including any loan. If the infrastructure project is to be operated, maintained or managed by a third party under contract, management agreement or written lease, the applicant shall nevertheless continue to be responsible for compliance with the requirements of this section.
Section 3. Eligible Infrastructure Projects. Monies in the Infrastructure Revolving Fund shall be used for infrastructure projects which will enhance the health, safety and welfare, and encourage economic development opportunities in local communities as determined by the authority based upon each application. Eligible activities include infrastructure projects as defined in KRS 224A.011(13).
Section 4. Submission Requirements and Review Process. (1) The original and one (1) copy of each application shall be submitted to: Department of Local Government, Capital Plaza Tower, Second Floor, Frankfort, Kentucky 40601, Attention: Director, Division of Community Programs; and one (1) copy of each application shall be simultaneously submitted to the Kentucky Infrastructure Authority, Room 318, Capitol Annex Building, Frankfort, Kentucky 40601, Attention: Executive Director.
(2) Application forms may be obtained from the Department of Local Government, and a complete set of application forms shall be submitted before an application shall be considered for assistance from the Infrastructure Revolving Fund.
(3) Only one (1) application from an eligible applicant shall be accepted at one (1) time. An application may be withdrawn at any time by an applicant, and any project previously disapproved for assistance from the Infrastructure Revolving Fund may be resubmitted.
(4) The time frame for application review shall be: forty-five (45) days for Kentucky State Clearinghouse review; thirty (30) days for Department of Local Government review and priority assignment; and thirty (30) days for authority credit review; except the agencies responsible for each part of the review may extend the time for review beyond these guidelines as may be necessary for thorough review, or to obtain from the applicant, and to consider clarification of anything contained in the application. Applicants may supplement their applications during the review process to clarify or explain the project scope, funds pledged as repayment of the loan, or make adjustments in the application to enhance the programmatic or financial feasibility of the project.
Section 5. Criteria for Selecting Eligible Projects. (1) The Department of Local Government shall select and determine eligible projects for loans or grants. The department shall take into consideration the following:
(a) Unemployment data, which shall be specific to the county or counties from which the application originates and shall reflect the most recent figures available from each county.
(b) The applicant's relationship to the capital investment plan, which shall determine how well the infrastructure project fits into the economic strategy of the community. An infrastructure project which directly relates to economic development is one that stimulates the creation of new job opportunities or prevents the loss of a significant number of jobs. An infrastructure project shall be considered based on the degree to which it enhances economic development efforts through job creation or retention and the level of priority in the community's capital investment plan.
(c) The department shall determine the extent of the need for the infrastructure project and the impact which the project will have on the local economic development efforts. A primary consideration shall be whether jobs will be created or retained as a result of the infrastructure project.
(d) The department shall determine if the proposed costs of completing the infrastructure project is reasonable given the geographic location of the infrastructure project, current pricing trends, required professional services, and any other factors that may have a bearing on the project. Cost figures submitted in the application shall be reviewed to determine whether the proposed budget for the project is feasible.
(e) The department shall determine the overall project effectiveness and determine if the most beneficial project has been designed for the use of the Infrastructure Revolving Fund.
(2) The department shall review applications and assign a priority ranking based on the selection criteria. Projects shall be ranked as Priority I, Priority II, or Priority III.
(a) A Priority I ranking shall be assigned when, having considered all criteria, the project will make a significant economic impact on the community through the creation or retention of jobs; is well designed; cost effective; and, generally, determined by the department to be the most suitable solution to the community's needs.
(b) Priority II shall be assigned when one (1) or more factors exist which would limit the success or feasibility of the project.
(c) Priority III shall be assigned when, having considered all the criteria, the department finds that the project is premature, is not feasible, or is inappropriate for assistance from the Infrastructure Revolving Fund.
(d) The department shall recommend Priority I rankings to the authority's staff for financial review.
(3) Financial review of the Priority I designated project applications shall include:
(a) Analysis of:
1. The appropriateness of the type of revenues pledged for the repayment of the loan;
2. The validity of the assumptions used to project new revenues resulting from the project;
3. Security of monies other than the infrastructure loan pledged to fund the project cost;
4. Ability of the applicant to provide for maintenance and operations cost of the project and related public service system;
5. Ability of the applicant to service existing debt of the system related to the project;
6. Security of funds pledged by entities, other than the applicant, to repay the infrastructure loan; and
7. Ability of the authority to finance the applicant project using the financing programs permitted by Kentucky and federal law or regulation.
(b) At any time during the financial analysis, an applicant may be notified of a deficiency. If the problem cannot be resolved through negotiation, the authority may remove the application from consideration.
Section 6. Loan Process. (1) Upon completion of the credit review by the authority's staff, the application shall be submitted to the authority for final action.
(2) If the authority approves the application, a conditional commitment letter shall be issued to the applicant. This letter shall set forth the conditions and documentations required by the authority prior to execution of an assistance agreement. No funds shall be provided until the assistance agreement is fully executed. The commitment shall be made upon the authority's satisfaction that the project proposed is financially feasible, the applicant is credit worthy and the project shall comply with all technical and program requirements set forth in state and federal law and regulations.
(3) The authority shall establish interest rates quarterly based on prevailing market conditions. The rate of interest on each loan shall be set forth in the conditional commitment letter. There shall be two (2) rates of interest offered, the above median income interest rate and the below median income interest rate. The above median income interest rate shall be the index rate less two (2) percent. The above median interest rate shall apply to borrowers whose jurisdiction lies within a county whose median family income level is above or equal to the statewide median household income level. The below median interest rate shall be the index rate less four (4) percent. The below median interest rate shall apply to borrowers whose jurisdiction lies within a county whose median family income is below the statewide average family income. The most recent statistics on family income as published by the Urban Studies Center, University of Louisville, shall apply. If a borrower's jurisdiction lies within more than one (1) county, the average of the median family income of all the counties covered by the borrowers jurisdiction shall determine the applicable interest rate. If the median family income level of an applicant's community differs significantly from that of the applicant's county, the authority may consider adjustment of the interest rate to the below median income rate. If the nature of a project financed by the authority's loan causes the authority bonds issued to fund the project to become taxable as interest, the authority may consider adjustments in the interest rate to reflect the additional costs of authority funds.
(4) Loan repayments shall not exceed thirty (30) years, and principal shall be payable annually, and interest semiannually, unless the authority establishes a more frequent payment schedule due to credit concerns. The loan repayment period may be less than thirty (30) years upon election of the authority. Loan repayments shall commence within six (6) months after the start of construction, unless repayment is dependent on revenues generated from the specific infrastructure project. In such cases, loan repayment shall begin within six (6) months after the infrastructure project is operational, and interest to cover the authority's cost of money during the construction period may be added to the amount of the loan.
(5) The principal amount of each loan shall be equal to the amount approved by the authority. The final loan amount may be adjusted by up to ten (10) percent of the commitment without further action by the authority, subject to availability of funds to service the debt.
(6) Upon certification by the project engineer of construction of the infrastructure project as eighty (80) percent complete, and the submission by the applicant of evidence of the exact cost of the project, an inspection shall be held by the authority staff to provide for any adjustments in the loan amount.
(7) To assure adequate funds for major maintenance and replacement of the projects funded by this program, the borrower shall be required to set aside annually from current revenues in excess of operations, maintenance and debt service requirements an amount equal to ten (10) percent of average annual debt service on the authority's loan. These amounts are to be deposited into a separate bank account until the balance is equal to five (5) percent of the original principal amount of the loan. Monies may be withdrawn from the account when major maintenance or replacements of equipment in excess of budgeted amounts are required. Such withdrawals shall be replaced from the successive year's revenue for the maintenance of the required five (5) percent balance. If the applicant is not the operator of the infrastructure project and the nature of the revenues pledged to repay the authority's loans are not generated by the project, this requirement may be waived.
(8) The assistance agreement between the authority and application shall contain such terms and conditions as the authority deems necessary to maintain the financial integrity of the Infrastructure Revolving Fund according to the circumstances of each project.
Section 7. Applicant Management Capacity. The department and the authority's staff shall require as a condition of any loan that the applicant perform any or all of the following:
(1) Document compliance with statutory mandates for financial accountability and personnel management.
(2) Demonstrate the ability to operate, as well as maintain, the project in a proper manner over the life of the loan.
(3) Document compliance with any other state or federal agencies.
Section 8. Loan Closing and Extensions. An applicant shall meet all conditions for loan closing and take action to award contracts for the project within not more than eleven (11) calendar months after the date of the conditional commitment letter, otherwise, the loan commitment shall expire. (For example, if an application was approved on January 1, 1989, bids for the project shall be accepted and the loan agreement signed by November 30, 1989.) One (1) extension period of up to six (6) months may be granted if needed. If the extension is denied, the loan offer may be rescinded. If a request for a time extension is granted, but all the conditions still cannot be met during the extension period, the loan commitment may be rescinded. The applicant may reapply for any project for which the loan commitment has been expired or been rescinded under this section.
Section 9. Authority to Administer the Program. The authority shall monitor the assistance agreements and require that financial reports be made available to the authority by the governmental agency at such intervals as shall be deemed necessary by the authority. The authority shall monitor the economic impact on the community, the cash flows of the project, and perform all actions that shall be required to assure that the agreements continuously meet the program standards established by this administrative regulation. There shall be an annual administrative fee of two-tenths (.2) of one (1) percent charged on the unpaid balance of all loans. This fee shall be applied to the servicing costs of the loans and necessary operating expenses of the program. (16 Ky.R. 89; Am. 341; eff. 8-22-89.)