[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 91822-91839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30194]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 35

[EPA-HQ-OW-2016-0569; FRL-9953-24-OW]
RIN 2040-AF63


Credit Assistance for Water Infrastructure Projects

AGENCY: Environmental Protection Agency (EPA).

ACTION: Interim final rule; request for comments.

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SUMMARY: The Environmental Protection Agency (EPA) is issuing an 
interim final rule to implement a new program authorized under Subtitle 
C of the Water Resources Reform and Development Act of 2014 (WRRDA), 
which is referred to as the Water Infrastructure Finance and Innovation 
Act of 2014 (WIFIA). WIFIA authorizes EPA to provide secured (direct) 
loans and loan guarantees to eligible water infrastructure projects. 
Projects will be evaluated and selected by the Administrator of the EPA 
based on criteria set out in this rule using weightings established in 
a separate Notice of Funding Availability (NOFA). Following project 
selection, individual credit agreements will be developed through 
negotiations between the project sponsors and EPA. EPA is soliciting 
comments on an interim final rule that establishes the guidelines for 
the new credit assistance program for water and infrastructure projects 
and the process by which EPA will administer such credit assistance. 
The interim final rule primarily restates and clarifies statutory 
language while establishing approaches to specific procedural issues 
left to EPA's discretion. This interim final rule pertains to a matter 
involving a federal loan and loan guarantee program and is therefore 
exempt from the rulemaking requirements of the Administrative Procedure 
Act. As such, EPA is issuing this rule as interim final.

DATES: Effective December 19, 2016. Comments must be received on or 
before February 17, 2017.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OW-
2016-0569, at http://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or withdrawn. The EPA may publish any comment received to its 
public docket. Do not submit electronically any information you 
consider to be Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. Multimedia 
submissions (audio, video, etc.) must be accompanied by a written 
comment. The written comment is considered the official comment and 
should include discussion of all points you wish to make. The EPA will 
generally not consider comments or comment contents located outside of 
the primary submission (i.e. on the web, cloud, or other file sharing 
system). For additional submission methods, the full EPA public comment 
policy, information about CBI or multimedia submissions, and general 
guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa.dockets.

FOR FUTHER INFORMATION CONTACT: Jordan Dorfman, Water Infrastructure 
Division, Office of Wastewater Management, Mail Code 4201C, 
Environmental Protection Agency, 1200 Pennsylvania Avenue NW., 
Washington, DC, 20460; telephone number: (202) 564-0614; email address: 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background
II. Water Infrastructure Needs and Current Sources of Financing
III. Program Information
    A. Funding
    B. Applicant Eligibility
    C. Project Eligibility
    D. Threshold Criteria Required by Statute
    E. Application Process
    F. Creditworthiness
    G. Coordination with SRF Programs
    H. Fees
    I. Credit Assistance
    J. Small Community Set-aside
    K. Rating Requirement
    L. Tax Status of Loan Guarantees
    M. Federal Requirements
    N. American Iron and Steel
    O. Labor Standards
    P. Reporting
    Q. Selection Criteria
IV. Priorities
    A. Adaptation to Extreme Weather and Climate Change Including 
Enhanced Infrastructure Resiliency, Water Recycling and Reuse, and 
Managed Aquifer Recovery
    B. Enhanced Energy Efficiency of Treatment Works, Public Water 
Systems, and Conveyance Systems Including Innovative, Energy 
Efficient Nutrient Treatment
    C. Green Infrastructure
    D. Repair, Rehabilitation, and Replacement of Infrastructure and 
Conveyance Systems
V. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review & 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Orders 11988 and 13690 and the Federal Flood Risk 
Management Standard
    C. Paperwork Reduction Act (PRA)
    D. Regulatory Flexibility Act
    E. Unfunded Mandates Reform Act (UMRA)
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From 
Environmental Health & Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    J. National Technology Transfer and Advancement Act (NTTAA)
    K. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    L. National Environmental Policy Act
    M. Congressional Review Act

I. Background

    Congress enacted the Water Infrastructure Finance and Innovation 
Act of 2014 (WIFIA) as part of the Water Resources Reform and 
Development Act of 2014, as amended by sec. 1445 of Public Law 114-94 
\1\ and codified at 33 U.S.C. 3901-3914. WIFIA establishes a new 
federal credit program for water infrastructure projects to be 
administered by EPA.
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    \1\ Section 1445 of Public Law 114-94 amends WIFIA by deleting 
33 U.S.C. 3907(a)(5) which prohibited EPA from providing credit 
assistance to a project financed (directly or indirectly) by the 
proceeds of a tax-exempt obligation.
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    Congress authorized EPA to provide federal credit assistance 
through WIFIA in the form of loans or loan guarantees to eligible 
entities: Corporations; partnerships; joint ventures; trusts; Federal, 
State, or local governmental entities, agencies, or instrumentalities; 
tribal governments or consortiums of tribal governments; or State 
infrastructure finance authorities.
    WIFIA authorizes EPA to provide assistance for a wide variety of 
projects.

[[Page 91823]]

Eligible projects, as defined in 33 U.S.C. 3905, include: \2\
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    \2\ Projects described by 33 U.S.C. 3905(1) are not eligible for 
purposes of the WIFIA program as operated by EPA. Section 3902(b)(2) 
specifies that EPA can provide WIFIA assistance to all eligible 
projects categories except for (1). The Army Corps of Engineers is 
responsible for establishing a WIFIA program that provides 
assistance to such projects.
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     Projects eligible under the Clean Water and Drinking Water 
State Revolving Fund Programs (SRFs);
     Projects for enhanced energy efficiency in the operation 
of a public water system or a publicly owned treatment works;
     Projects for repair, rehabilitation, or replacement of a 
treatment works, community water system, or aging water distribution or 
waste collection facility (including a facility that serves a 
population or community of an Indian reservation);
     Brackish or sea water desalination projects;
     Managed aquifer recharge or water recycling projects;
     Acquisition of real property or an interest in real 
property if the acquisition is integral to an already eligible project 
or pursuant to an existing plan that, in the judgment of the 
Administrator, would mitigate the environmental impacts of water 
resources infrastructure projects otherwise eligible for assistance; 
and
     A combinations of projects submitted to EPA by an SRF 
program under a single application; and
     A combination of projects secured by a common security 
pledge for which there is a single application.
    Sections 3902, 3905, and 3907 of title 33, U.S.C., describe the 
conditions that govern a project's eligibility under WIFIA. Generally, 
projects must have eligible costs of not less than $20 million. 
However, for projects eligible for assistance under categories (1) or 
(2) below (i.e., SRF eligible projects), that serve a community of not 
more than 25,000 individuals, eligible project costs must be no less 
than $5 million. The types of projects eligible for assistance are 
listed in 33 U.S.C. 3905 and are also summarized below in 40 CFR 
35.10005(m).

II. Water Infrastructure Needs and Current Sources of Financing

    In the United States, localities are primarily responsible for 
providing water infrastructure services and funding these services 
through user fees. Today, some communities face formidable challenges 
in providing adequate and reliable water infrastructure services. 
Existing water infrastructure in some of these communities is aging, 
and investment is not always keeping up with the needs. As described in 
greater detail below, EPA estimates the national funding need for 
capital improvements for such facilities totals approximately $660 
billion over the next 20 years.\3\ In many cases, meeting these needs 
will require significant increases in capital investment.
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    \3\ EPA. ``Clean Watersheds Needs Survey 2012: Report to 
Congress,'' 2012, and ``Drinking Water Infrastructure Needs Survey: 
Fifth Report to Congress,'' 2011.
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    Water infrastructure capital projects are typically funded with 
pay-as-you-go or debt financed through the municipal bond market. The 
U.S. Conference of Mayors estimates that in 2008, local governments 
invested $93 billion in their water systems, of which 40% went to 
capital investments, with the remainder for operations and 
maintenance.\4\ In 2014, municipal bond issuance for water and sewer 
projects totaled $31.9 billion according to the Securities Industry and 
Financial Markets Association (SIFMA). Total municipal bond issuance in 
2014 was $314.9 billion, of which $282.8 billion was tax-exempt.\5\ 
From 2003 through 2012, tax-exempt financing for water and sewer 
facilities totaled $258 billion.\6\ While a summary of bond ratings for 
water and sewer debt is not available, a 2014 analysis of outstanding 
municipal market debt shows that 19 percent of issues were rated BBB or 
below, or were unrated.\7\ As such, the potential market for lower-
rated investment-grade municipal borrowers, which could benefit most 
from WIFIA, is significant.
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    \4\ U.S. Conference of Mayors--Mayors Water Council. ``Trends in 
Local Government Expenditures on Public Water and Wastewater 
Services and Infrastructure: Past, Present and Future.'' February 
2010. http://www.usmayors.org/publications/201002-mwc-trends.pdf.
    \5\ SIFMA. ``Research Report--Municipal Bond Credit Report: 
Fourth Quarter 2014''.
    \6\ http://www.naco.org/sites/default/files/documents/Protecting-Bonds-to-Save-Infrastructure-and-Jobs-2013.pdf.
    \7\ SIFMA. ``Research Report--Municipal Bond Credit Report: 
Fourth Quarter 2014''.
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    After pay-as-you-go and bonds, the next largest source of water 
infrastructure financing are the Clean Water State Revolving Fund 
(CWSRF) and Drinking Water State Revolving Fund (DWSRF) programs. The 
SRFs are state-operated finance programs that receive capitalization 
grants from EPA. These capitalization grants, combined with required 
state match and loan repayments with interest, allow the SRFs to 
provide a far greater amount of assistance annually than the amount 
appropriated for the programs. The SRFs provided $7.9 billion in 
assistance to projects across the country in 2015.\8\ In addition, 
communities also received water infrastructure funding through at least 
two other federal agencies in 2015. The Department of Housing and Urban 
Development authorized $333.4 million in block grants to communities 
for water infrastructure projects, and the United States Department of 
Agriculture (USDA) approved $1.5 billion in grants and loans for small 
communities.
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    \8\ July 1, 2014-June 30, 2015. EPA SRF National Information 
Management Systems.
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    EPA's 2012 Clean Watersheds Needs Survey (CWNS) \9\ estimated that 
the total capital wastewater and stormwater treatment and collection 
needs for the nation are $271 billion as of January 2012. The CWNS does 
not represent all needs for the 20-year period from January 2012 
through December 2031. Because states often do not have documentation 
that demonstrates needs that far into the future, nearly all needs 
included in the CWNS are for projects that will be completed within 5 
years (i.e., 2012-2017) and are documented in capital improvement plans 
and other short term planning documents. Needs without existing 
independent documentation are not included in the CWNS. In addition, 
the CWNS does not include information about privately owned wastewater 
facilities, projects on tribal lands, and operations and maintenance 
needs. Stormwater management needs are also underestimated due to not 
all states reporting in this category. For these reasons, actual 20 
year needs are likely to be significantly higher.
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    \9\ EPA. ``Clean Watersheds Needs Survey 2012: Report to 
Congress.'' 2012.
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    EPA's 2011 Drinking Water Infrastructure Needs Survey (DWINS) \10\ 
estimates a total capital drinking water infrastructure need of $384.2 
billion for the 20-year period from January 2011 through December 2030. 
This estimate includes needs for American Indian and Alaska Native 
Village systems. Like the CWNS, this figure does not represent all of 
the needs. The scope of the survey is limited to those needs eligible 
to receive DWSRF assistance--thus excluding some capital projects, 
including projects related primarily to future population growth. 
Moreover, needs for which no independent documentation exists are 
represented in the DWINS by default values which are conservative. The 
DWINS does not include operations and maintenance needs.
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    \10\ EPA. ``Drinking Water Infrastructure Needs Survey: Fifth 
Report to Congress.'' 2011.
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    Other studies report significantly larger estimates of needs. For 
example, the American Society of Civil Engineers estimates 
approximately 240,000 water

[[Page 91824]]

main breaks annually.\11\ The American Water Works Association 
estimates that $1 trillion is needed to restore existing distribution 
system pipe at the end of its useful life and to expand pipe networks 
to meet growing population needs between 2011 and 2035.\12\
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    \11\ American Society of Civil Engineers. ``2013 Report Card for 
America's Infrastructure.'' 2013.
    \12\ American Water Works Association. ``Buried No Longer: 
Confronting America's Water Infrastructure Challenge.'' http://www.awwa.org/Portals/0/files/legreg/documents/BuriedNoLonger.pdf.
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    The Administration has pointed to an increased need for 
infrastructure financing through its Build America Initiative. In its 
initial report, the Department of Treasury noted that ``increasing 
fiscal pressures at all levels of government have led to reduced 
commitments for infrastructure and a greater reliance on debt 
financing, which, in turn, has contributed to increased debt ratios and 
reduced debt service coverage levels for certain issuers. At the same 
time, stagnant economic growth and absence of support for new or 
increased user fees have curtailed increased debt capacity among many 
issuers.'' \13\ The Build America Initiative aims to make 
infrastructure financing more affordable and to encourage innovative 
financing and public-private partnerships.
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    \13\ U.S. Department of the Treasury Office of Economic Policy. 
``Expanding our Nation's Infrastructure through Innovative 
Financing.'' September 2014.
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    As suggested by the estimated size of national water infrastructure 
needs, currently available funding sources are not sufficient. SRF 
programs under the Clean Water Act and Safe Drinking Water Act are 
designed to primarily provide a benefit to smaller projects, typically 
under $100 million, in communities that often have limited access to 
funding. There is a large segment of need associated with projects that 
the SRFs cannot fund due to project size or ownership. The average 
CWSRF wastewater treatment project is $3.5 million, while the average 
DWSRF project is $2.4 million. According to the most recent data, 
states issued only 180 CWSRF loans over $50 million, and 35 of those 
were over $100 million, out of over 14,000 loans issued since 2004. 
Since 2009, states issued only 20 DWSRF loans over $50 million, and ten 
of those were over $100 million, out of over 6,700 loans.\14\ Private 
wastewater treatment facilities are not eligible for most CWSRF 
financing.
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    \14\ Collection of project specific data began in 2004 for the 
CWSRF program and 2009 for the DWSRF program.
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    Bond-financing requires strong debt service coverage to benefit 
from low interest rates and long tenors. In addition, private entities 
generally cannot access the tax-exempt bond market. Finally, grant 
funding and USDA loans are targeted at specific underserved sectors and 
are generally less applicable to large projects.
    Similar to large-scale transportation projects, the financing of 
large water infrastructure projects can be addressed through the use of 
several financing tools and techniques that, when combined, can result 
in a highly efficient capital structure that minimizes the financial 
impact on system users. WIFIA will assist in delivering on these needs 
in the water sector. It is in a position to promote the use of public-
private partnerships in this area by reducing the cost of private 
participation. At the same time, WIFIA will have limited impact on the 
municipal bond market. Total municipal bond issuance was $314.9 billion 
in 2014, of which water infrastructure accounted for 10%. Even if WIFIA 
is able to provide $1 billion annual assistance, it will account for 
approximately 3% of the market for water infrastructure bonds such that 
the program is not expected to impact the municipal bond market.

III. Program Information

A. Funding

    The Federal Credit Reform Act of 1990 (FCRA) requires agencies to 
estimate the long-term cost of providing a direct loan or loan 
guarantee on a present value basis, and requires that an agency have 
the necessary budget authority appropriated to the agency before 
entering into an obligation for a loan or loan guarantee. Section 
3912(a) of WIFIA authorizes annual amounts to be appropriated for the 
cost of loans or loan guarantees in FY2015 through FY2019. However, to 
date no annual appropriations have been provided for the cost of loans 
or loan guarantees under WIFIA. EPA will not know the amount of budget 
authority that will be available until it is appropriated.

B. Applicant Eligibility

    Section 3904 of title 33, U.S.C., defines entities that are 
eligible for WIFIA assistance. To be eligible, an applicant must be one 
of the following:
    1. A corporation;
    2. A partnership;
    3. A joint venture;
    4. A trust;
    5. A federal, state, or local governmental entity, agency, or 
instrumentality;
    6. A tribal government or consortium of tribal governments; or
    7. A state infrastructure financing authority.

C. Project Eligibility

    Section 3905 of title 33, U.S.C., defines projects eligible for 
assistance. To be eligible, a project must fall under one of the 
following categories:
    1. One or more activities that are eligible for assistance under 
section 603(c) of the Federal Water Pollution Control Act (33 U.S.C. 
1383(c)), notwithstanding the public ownership requirement under 
paragraph (1) of that subsection.
    2. One or more activities described in section 1452(a)(2) of the 
Safe Drinking Water Act (42 U.S.C. 300j-12(a)(2)).
    3. A project for enhanced energy efficiency in the operation of a 
public water system or a publicly owned treatment works.
    4. A project for repair, rehabilitation, or replacement of a 
treatment works, community water system, or aging water distribution or 
waste collection facility (including a facility that serves a 
population or community of an Indian reservation).
    5. A brackish or sea water desalination project, a managed aquifer 
recharge project, or a water recycling project.
    6. Acquisition of real property or an interest in real property--
    a. If the acquisition is integral to a project described in 
paragraphs (1) through (5); or
    b. Pursuant to an existing plan that, in the judgment of the 
Administrator, would mitigate the environmental impacts of water 
resources infrastructure projects otherwise eligible for assistance 
under this section.
    7. A combination of projects, each of which is eligible under 
paragraph (1) or (2), for which a State infrastructure financing 
authority submits to the Administrator a single application.
    8. A combination of projects secured by a common security pledge, 
each of which is eligible under paragraph (1), (2), (3), (4), (5), or 
(6), for which an eligible entity, or a combination of eligible 
entities, submits a single application.

D. Threshold Criteria Required by Statute

    The WIFIA statute contains the following requirements, as 
paraphrased below, that do not require interpretation and are restated 
in the rule without further explanation:
     Public or private applicants for credit assistance will be 
required to submit applications to EPA in order to be considered for 
approval.
     Project financing shall be repayable, in whole or in part, 
from State or local

[[Page 91825]]

taxes, user fees, or other dedicated revenue sources that also secure 
the senior project obligations of the project; shall include a rate 
covenant, coverage requirement, or similar security feature supporting 
the project obligations; and may have a lien on revenues subject to any 
lien securing project obligations;
     In the case of a project that is undertaken by an entity 
that is not a State or local government or an agency or instrumentality 
of a State or local government, or a tribal government or consortium of 
tribal governments, the project that the entity is undertaking must be 
publicly sponsored. Public sponsorship means that the recipient can 
demonstrate, to the satisfaction of the Administrator, that it has 
consulted with the affected state, local, or tribal government in which 
the project is located, or is otherwise affected by the project, and 
that such government supports the proposed project. Support can be 
shown by a certified letter signed by the approving municipal 
department or similar agency, mayor or other similar designated 
authority, local ordinance, or any other means by which local 
government approval can be evidenced.
     To be eligible for financing, a prospective borrower must 
have developed an operations and maintenance plan that identifies 
adequate revenues to operate, maintain, and repair the project during 
its useful life.
    Further detail will be available in a program handbook that will be 
posted on the WIFIA program public Web site.

E. Application Process

    For each fiscal year for which credit assistance is made available 
by Congress, EPA will publish a NOFA in the Federal Register to solicit 
letters of interest for credit assistance. EPA will also publish the 
NOFA on the WIFIA program Web site, at www.epa.gov/wifia. The notice 
will provide detailed instructions for submitting letters of interest 
and applications, as well as the respective due dates for submissions. 
It will advise prospective borrowers of the estimated amount of funding 
available to support WIFIA credit instruments and information required 
in a letter of interest and application.
    The application process has two steps. The first step requires the 
submission of a letter of interest prior to the deadline set out in the 
NOFA. Then, projects selected by EPA to continue in the application 
process will be invited to submit an application. EPA will only select 
those projects that it expects might reasonably proceed to closing.
    The Letter of Interest has four primary purposes: (i) Validate the 
eligibility of the prospective borrower and the proposed project, (ii) 
perform a preliminary creditworthiness assessment, (iii) perform a 
preliminary engineering feasibility assessment, and (iv) evaluate the 
project against the selection criteria and identify which projects EPA 
will invite to submit applications. The Letter of Interest addresses 
the WIFIA eligibility criteria, WIFIA selection criteria, and 
identifies other specific information that must be provided to EPA to 
be considered for credit assistance. This serves to familiarize EPA 
with basic information relating to the project and the prospective 
borrower.
    The Letter of Interest will require items such as:
    1. Prospective Borrower Information: The Letter of Interest should 
describe the proposed obligor's organizational structure, identify the 
entity that will serve as the applicant, list other significant members 
of the project team, describe the proposed obligor's relationship to 
subsidiaries or affiliates, if any, and provide a Web site link where 
additional information can be found.
    2. Project Plan: The Letter of Interest should describe the 
project, including its location, population served, purpose, design 
features, estimated capital cost, and development schedule. The 
prospective borrower will also describe how the project fits into one 
of the eight project types eligible for assistance under WIFIA. The 
Letter of Interest also requests inclusion of any other relevant 
information that could affect the development of the project, such as 
community support, pending legislation, or litigation. The Project Plan 
section will also serve to summarize the status of the project's 
environmental review, engineering report, and other approvals necessary 
to the project.
    3. Project Operations and Maintenance Plan: The Letter of Interest 
should describe the project's plan for operating, maintaining, and 
repairing the project post-completion, and discuss sources of revenue 
used to finance these activities.
    4. Financing Plan: The Letter of Interest should include the 
proposed sources and uses of funds for the project and state the type 
and amount of credit assistance to be sought from EPA. The discussion 
of proposed financing should also identify the source(s) of revenue or 
other security that would be pledged to the WIFIA assistance. 
Additionally, this section should describe the credit characteristics 
of the project and how the senior obligations of the project will 
achieve an investment-grade rating. The Letter of Interest should also 
include a summary financial pro forma and up to three years' audited 
financial statements, if available.
    5. Selection Criteria: The Letter of Interest should describe the 
potential benefits to be achieved through the use of WIFIA assistance 
with respect to each of the WIFIA selection criteria.
    6. Contact Information: The Letter of Interest should identify the 
point of contact with whom EPA should communicate regarding the Letter 
of Interest. For the purpose of completing its evaluation, EPA staff 
may contact a prospective borrower regarding specific information in 
the Letter of Interest.
    7. Certifications: The prospective borrower will certify that it 
will abide by all applicable laws and regulations.
    8. Notification of State Infrastructure Financing Authority: The 
interested party will acknowledge that EPA will notify the appropriate 
State infrastructure financing authority in the State in which the 
project is located that the prospective borrower submitted this this 
letter of interest; and provide the submitted letter of interest and 
source documents with it to that State infrastructure financing 
authority.
    Selected interested parties will be invited to submit an 
application to EPA. The purpose of the application is to provide EPA 
with materials necessary to underwrite the proposed WIFIA assistance. 
The application will require items such as:
    1. Detailed Applicant Information: The applicant will submit 
information identifying and describing the applying organization, 
including the applicant's organizational structure, and the applicant's 
legal authority to apply for WIFIA credit assistance and undertake the 
project. The applicant will also have to demonstrate its ability to 
execute the project through past experiences and qualifications of its 
personnel.
    2. Detailed Project Information: Materials submitted under this 
section will detail the applicant's plan for project construction, 
projected over several years, to include a description of the facility 
to be built, including design features, and the intended purpose. The 
applicant will also submit a project management and compliance 
monitoring plan, including the project construction timeline, and an 
assessment of the costs expected at each point in the timeline. The 
applicant will also submit an analysis of the risks that may be 
encountered during construction, and steps that will be undertaken to 
minimize those risks. The

[[Page 91826]]

applicant will also submit draft or final bid documents.
    3. Detailed Operations and Maintenance Plan: In this section, the 
applicant will submit materials supporting the applicant's plan to 
operate the project after construction. This plan should include an 
operation and maintenance plan for the tenor of the WIFIA assistance, 
including an estimate of the associated costs. The applicant should 
also submit materials describing contractual arrangements that the 
applicant has already made, or plans to make.
    4. Comprehensive Financing Plan: The applicant will need to submit 
a comprehensive plan describing how the project will be financed, and 
how financing will be repaid over the tenor of the requested WIFIA 
assistance. This will include a detailed financial model, the sources 
and seniority of other financing, a description of the dedicated 
sources of repayment, rate covenants, and security for the proposed 
credit assistance. The applicant will also submit a preliminary rating 
letter indicating the possibility of the project's senior obligations 
obtaining an investment-grade rating from a NRSRO.
    5. Final Certifications: The applicant will certify that it will 
abide by all applicable laws and regulations.
    This two-step process limits the time, cost and effort required by 
prospective borrowers prior to having a reasonable expectation of 
potential WIFIA funding. EPA plans to develop detailed application 
information contained in a program handbook and will post it on the 
WIFIA program public Web site at the time of solicitation for letters 
of interest. EPA welcomes comment on this application process.

F. Creditworthiness

    By statute, at 33 U.S.C. 3907(a)(1), the Administrator must 
determine that every funded project is creditworthy. Therefore, an 
overarching goal of the creditworthiness determination process is to 
ensure that each project that is ultimately offered credit assistance 
advances the WIFIA Program's mission while providing a level of risk 
exposure that is suitable to EPA. To that end, the WIFIA Program will 
evaluate applications for financial assistance based on prudent lending 
practices for the long-term holding of an illiquid asset. The 
creditworthiness determination will be based on a review of the 
following:
     Terms, conditions, financial structure, and security 
features of the proposed financing;
     Dedicated revenue source(s) securing the financing;
     Financial assumptions surrounding the proposed project;
     Financial soundness and credit history and outlook of the 
borrower; and
     Technical merits and engineering risks of the proposed 
financing.
    Further information will be available in the WIFIA program 
handbook.

G. Coordination With SRF Programs

    In order to promote coordination between the SRF programs and the 
WIFIA program, the statute includes procedures on the use of existing 
funding mechanisms. The statutory procedure requires notification by 
EPA to the relevant state SRF program of the receipt of applications 
for SRF-eligible projects. Such notification must occur within 30 days 
of the receipt of an application submitted to the WIFIA program office. 
Under the statute, the notified SRF program has 60 days to formally 
declare an intent to fund the project in the program's intended use 
plan, in place of EPA in an amount equal to or greater than the amount 
requested in the WIFIA application. If such a declaration is made, EPA 
may not provide assistance to the project under WIFIA unless the SRF 
program fails to provide assistance within 180 days from the date of 
notification or the terms are less favorable than those offered by the 
WIFIA program.
    Those administering SRF programs have expressed concern that the 
amount of time within which they must receive and review SRF 
applications and make funding decisions regarding these applications is 
too short. EPA will therefore provide notice to SRF programs within 30 
days of the receipt of a letter of interest. Such notice will include 
the letter of interest and supporting documentation provided by the 
prospective borrower. The letter of interest includes a notice to 
interested parties explaining the notification procedure and allows the 
prospective borrower to request that EPA not share the letter of 
interest with the SRF program, though the SRF program will still be 
notified of the submission, as required by statute. Providing initial 
notification within 30 days of the of the receipt of a letter of 
interest, as opposed to the application, will provide additional time 
for SRF programs to communicate with the prospective borrower, for the 
prospective borrower to apply to the SRF program, for funding decisions 
to be made, and for a formal declaration of the intent to fund the 
project with a SRF loan to be made.
    EPA welcomes comment on providing notification to SRF programs at 
an earlier time than required by the statute. Though not addressed 
through this implementation rule, EPA also welcomes suggestions on the 
content of the notification to SRF programs.

H. Fees

    Sections 3908(b)(7), 3909(b), and 3909(c)(3) of 33 U.S.C., allow 
EPA to collect user fees from applicants to defray some or all of the 
costs associated with administering the program. A separate proposed 
rule governing applicant fees can be found in the docket for the rule 
at EPA-HQ-OW-2016-0568. While each rule has a separate process for 
comments, EPA is aware that the similar timelines for comment and the 
relationship between the two rules may cause confusion. Therefore, in 
the event that comments are received for this rule under the heading of 
the fee rule, or vice versa, EPA will consider all comments and respond 
accordingly. EPA will not be able to collect user fees until the user 
fee rule is finalized.

I. Credit Assistance

    Two types of credit instruments are permitted under WIFIA: Secured 
(direct) loans and loan guarantees. General rules concerning the terms 
governing these credit instruments appear at 33 U.S.C. 3908 and 3909. 
More specific terms will be determined on a project-specific basis 
during negotiations between EPA and successful applicants.
    In general, WIFIA limits the amount of credit assistance that may 
be provided to a project to not more than 49% of reasonably anticipated 
eligible project costs. However, the statute authorizes EPA to use up 
to 25% of its budget authority appropriated through Fiscal Year 2019 to 
provide credit assistance to one or more projects of up to no more than 
80% (statutory cap on federal participation) of the total costs of any 
given project. EPA will use its budget authority to provide credit 
assistance greater than 49% of eligible project costs (i.e., up to 80% 
of the total project costs) only in extraordinarily exceptional 
circumstances, such as where a project would be unable to proceed to 
closing absent such additional assistance due to unforeseen events. 
Unforeseen events that could prevent a project from going to closure 
may include, but are not limited to: Unexpected cost revisions, 
unexpected loss of other sources of financing, increased cost of 
capital, or acts of nature. In such an event, EPA will reexamine the 
creditworthiness of the project and only provide funding if the project 
can still meet all requirements of the program. Such a limitation is 
necessary because the amount of budget

[[Page 91827]]

authority that may be used for such purposes is limited and the use of 
such authority reduces the agency's ability to support other projects. 
EPA will not entertain requests for use of this authority in a letter 
of interest or application.
    Costs incurred prior to a project sponsor's submission of an 
application for credit assistance may be considered in calculating 
eligible project costs only upon approval by EPA. Prospective borrowers 
may not include application charges or any other expenses associated 
with the application process (such as charges associated with obtaining 
the required preliminary rating opinion letter, as discussed below) in 
the total project cost, as these expenses are not eligible activities 
per 33 U.S.C. 3906. No costs financed internally or with interim 
funding may be refinanced later than 1 year following substantial 
completion of the project.
    EPA will not obligate funds for a project that has not received an 
environmental Categorical Exclusion, Finding of No Significant Impact, 
or Record of Decision under the National Environmental Policy Act 
(NEPA).
    For planning purposes, and as is standard in construction loan 
agreements, the credit agreement will include the anticipated schedule 
for loan disbursements. However, actual disbursements will be based on 
costs incurred in accordance with the approved construction plan, as 
evidenced by paid invoices. This requirement protects EPA in the event 
of non-performance and is typical of most federal loans and grants.
    As required by statute, the interest rate on a secured loan will be 
equal to or greater than the yield on U.S. Treasury securities of 
comparable maturity on the date of execution of the credit agreement. 
The base interest rate can be identified through use of the daily rate 
tables published by the Bureau of the Fiscal Service for the State and 
Local Government Series (SLGS) investments. The WIFIA program will 
estimate the yield on comparable Treasury securities by adding one 
basis point to the SLGS daily rate with a maturity that is closest to 
the weighted average loan life of the WIFIA credit assistance, measured 
from first disbursement.
    As allowed by statute at 33 U.S.C. 3908(c)(2), scheduled loan 
repayments of principal or interest on a secured loan will commence not 
later than 5 years after the date of substantial completion of the 
project. However, scheduled loan repayments of principal or interest on 
a secured loan to a State infrastructure financing authority will 
commence not later than 5 years after the date on which amounts are 
first disbursed.
    As required by statute, the final maturity date of a secured loan 
will be the earlier of the date that is 35 years after the date of 
substantial completion of the project, or if the useful life of the 
project is less than 35 years, the useful life the project. However, 
the final maturity date of a secured loan to a State infrastructure 
financing authority will be not later than 35 years after the date on 
which amounts are first disbursed. In determining the useful life of 
the project, for the purposes of establishing the final maturity date 
of the WIFIA credit instrument, the Administrator will consider the 
useful economic life of the asset(s) being financed, as required under 
OMB Circular A-129.
    As required by statute, EPA's Federal credit instrument may have a 
junior claim to other debt issued for the project in terms of its 
priority interest in the project's pledged security. However, EPA's 
claim on assets will not be subordinated to the claims of other 
creditors in the event of a default leading to bankruptcy, insolvency, 
or liquidation of the obligor. The EPA's interest may include 
collateral other than pledged revenues. EPA welcomes comment on its 
restricted use of the authority to provide credit assistance greater 
than 49% of eligible project costs and policy on reimbursing project 
costs financed internally or through interim funding.

J. Small Community Set-Aside

    Each fiscal year for which budget authority is made available by 
Congress, as required by statute, EPA will set aside at least 15% of 
its appropriated budget authority for projects that serve communities 
of no more than 25,000 individuals. The statute requires that set-aside 
budget authority be obligated to small communities prior to the first 
day of June each year, after which the budget authority will be made 
available to all other projects. Small communities are eligible for 
financing regardless of the set-aside.

K. Rating Requirement

    EPA, as required by statute at 33 U.S.C. 3907(a)(1)(D)(i), will 
require each applicant to furnish a preliminary rating opinion letter 
as part of the application process. This is required with the 
submission of the application, not the letter of interest. The 
applicant is responsible for identifying and approaching one or more 
Nationally Recognized Statistical Rating Organizations (NRSROs) to 
obtain such letter. This letter must indicate that the applicant 
project's senior obligations have the potential of attaining an 
investment-grade rating and opine on the default risk of the WIFIA 
credit instrument. This letter will allow EPA to evaluate the 
application and execute a term sheet upon which funds are obligated. 
The disbursement of any funds will be contingent upon the execution of 
a formal credit agreement between EPA and the project sponsor and the 
receipt of two formal investment-grade ratings on the project's senior 
obligations. These ratings must apply to all project obligations with 
claims senior to that of the Federal credit instrument on the security 
pledged to the Federal credit instrument. In addition, the ratings must 
specifically refer to the default risk of the WIFIA instrument itself. 
If the Federal credit instrument is the project's senior obligation, 
these ratings must apply to the Federal credit instrument as well as 
all project obligations with claims at parity to that of the Federal 
credit instrument on the security pledged to the Federal credit 
instrument.
    EPA will require the credit rating to mention the default risk of 
the WIFIA loan. Given the WIFIA statutory mandate that the Federal 
interest will not be subordinated in the event of bankruptcy, 
insolvency, or liquidation of the project, EPA understands that this 
analysis would already be imbedded in the rating agency review of the 
senior debt obligations. Therefore, adding the requirement that the 
credit rating mentions the default risk of the WIFIA loan primarily 
serves to clarify EPA's expectations that the rating letters should 
specifically reference the WIFIA credit as well as the project's senior 
obligations.

L. Tax Status of Loan Guarantees

    Section 103(a) of the Internal Revenue Code (IRC), 26 U.S.C. 
103(a), provides that ``gross income'' does not include interest on any 
state or local bond, with certain exceptions. Section 149(b) of the 
IRC, 26 U.S.C. 149(b), however, provides that the section 103(a) 
exclusion from gross income ``shall not apply to a state or local bond 
if such bond is federally guaranteed.'' Section 149(b) in effect 
converts tax exempt debt to taxable debt when such debt is guaranteed 
by the Federal government. WIFIA did not amend the provisions in 
section 149(b) of the Internal Revenue Code that prohibit the use of 
direct or indirect Federal guarantees of tax-exempt obligations. 
Accordingly, the interest income on any project loan that is directly 
or indirectly federally

[[Page 91828]]

guaranteed under WIFIA is not exempt from Federal income taxation.

M. Federal Requirements

    Recipients of WIFIA credit assistance must comply with Federal 
requirements applicable to all Federally-funded projects. The rule 
provides a non-exhaustive list of these requirements in Supplementary 
Information Section V.

N. American Iron and Steel

    Recipients of WIFIA credit assistance must comply, by statute at 33 
U.S.C. 3914, with American Iron and Steel (AIS) requirements, which 
requires that if any WIFIA assistance is provided to a project for 
construction, alteration, maintenance, or repair, all of the iron and 
steel products used in the project must be produced in the United 
States. The language in the statute is identical to AIS language 
applicable to the SRF programs. This requirement applies to all iron 
and steel products, not only those paid for with proceeds from the 
WIFIA assistance agreement. A waiver may be issued for a case or 
category of cases where EPA finds (1) that applying these requirements 
would be inconsistent with the public interest; (2) iron and steel 
products are not produced in the U.S. in sufficient and reasonably 
available quantities and of a satisfactory quality; or (3) inclusion of 
iron and steel products produced in the U.S. will increase the cost of 
the overall project by more than 25%.
    The WIFIA program is adopting all AIS guidance applicable to the 
SRF programs. Due to the identical nature of the statutory language for 
each program, as well as the need for consistency between two 
infrastructure programs administered by EPA, this requirement should be 
applied to both programs in the same manner. Additionally, the WIFIA 
program will adopt all relevant national waivers issued by EPA's SRF 
programs. These waivers allow recipients to purchase certain products 
from non-American sources. The rationale for these waivers applies 
equally to both programs. AIS guidance and waivers can be found on 
EPA's Web site. EPA welcomes comment on the implementation of AIS 
requirements.

O. Labor Standards

    The statute, at 33 U.S.C. 3909(e), requires recipients of WIFIA 
credit assistance to pay all laborers and mechanics employed by 
contractors or subcontractors wages at rates not less than those 
prevailing for the same type of work on similar construction in the 
immediate locality, as determined by the Secretary of Labor. This is 
commonly referred to as Davis-Bacon wage requirements. This requirement 
applies to all laborers and mechanics working on a project, not only 
those paid from proceeds of the WIFIA assistance agreement. Further 
guidance will be made available on EPA's WIFIA Web site.

P. Reporting

    EPA requires, at a minimum, any recipient of WIFIA credit 
assistance to submit an annual project performance report and audited 
financial statements to EPA within 180 days following the recipient's 
fiscal year-end for each year during which the recipient's obligation 
to the Federal Government remains in effect. EPA may conduct periodic 
financial and compliance audits of the recipient, as determined 
necessary by EPA. The specific credit agreement between the recipient 
of credit assistance and EPA may contain additional reporting 
requirements. This is a necessary and important requirement in order to 
allow EPA to provide proper and sufficient oversight of federally-
funded projects and conforms to the requirements of other federal 
programs. EPA welcomes comment on this requirement.

Q. Selection Criteria

    Section 3907(b)(2) of the statute establishes 11 criteria for 
selecting among eligible projects to receive credit assistance, but 
allows EPA to identify additional selection criteria. EPA is proposing 
the following thirteen selection criteria. Eleven are criteria 
prescribed by the statute (as paraphrased below), and EPA further 
proposes to supplement certain of those criteria. EPA added criteria 
(12) and (13) below:
    1. The extent to which the project is nationally or regionally 
significant, with respect to the generation of economic and public 
health benefits;
    2. The likelihood that assistance under this subtitle would enable 
the project to proceed at an earlier date than the project would 
otherwise be able to proceed;
    3. The extent to which the project uses new or innovative 
approaches such as the use of energy efficient parts and systems, or 
the use of renewable or alternate sources of energy; green 
infrastructure \15\; and the development of alternate sources of 
drinking water through aquifer recharge, water recycling or 
desalination;
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    \15\ Green infrastructure includes a wide array of practices at 
multiple scales that manage wet weather and that maintains and 
restores natural hydrology by infiltrating, evapotranspiring and 
harvesting and using stormwater. On a regional scale, green 
infrastructure is the preservation and restoration of natural 
landscape features, such as forests, floodplains and wetlands, 
coupled with policies such as infill and redevelopment that reduce 
overall imperviousness in a watershed. On the local scale, green 
infrastructure consists of site- and neighborhood-specific 
practices, such as bioretention, trees, green roofs, permeable 
pavements and cisterns.
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    4. The extent to which the project protects against extreme weather 
events, such as floods or hurricanes, as well as the impacts of climate 
change;
    5. The extent to which the project helps maintain or protect the 
environment or public health;
    6. The extent to which a project serves regions with significant 
energy exploration, development, or production areas;
    7. The extent to which a project serves regions with significant 
water resource challenges, including the need to address water quality 
concerns in areas of regional, national, or international significance; 
water quantity concerns related to groundwater, surface water, or other 
resources; significant flood risk; water resource challenges identified 
in existing regional, state, or multistate agreements; and water 
resources with exceptional recreational value or ecological importance;
    8. The extent to which the project addresses identified municipal, 
state, or regional priorities;
    9. The readiness of the project to proceed toward development, 
including a demonstration by the obligor that there is a reasonable 
expectation that the contracting process for construction of the 
project can commence by not later than 90 days after the date on which 
a Federal credit instrument is obligated for the project under this 
subtitle;
    10. The extent to which the project financing plan includes public 
or private financing in addition to assistance under this subtitle;
    11. The extent to which assistance under this subtitle reduces the 
contribution of Federal assistance to the project;
    12. The extent to which the project addresses needs for repair, 
rehabilitation or replacement of a treatment works, community water 
system, or aging water distribution or wastewater collection system; 
and
    13. The extent to which the project serves economically stressed 
communities, or pockets of economically stressed rate payers within 
otherwise non-economically stressed communities.
    EPA supplemented criteria (3) by adding examples to define EPA's 
expectations for innovation. These examples align this criterion with 
the particular innovative projects listed as

[[Page 91829]]

eligible in the statute at 33 U.S.C. 3905 (4) and (6).
    EPA added ``as well as the impacts of climate change'' to the end 
of criterion (4) in order to reflect the Administration's priorities as 
well as align the criteria with the specific priority project type, 
``adaptation to extreme weather and climate change including enhanced 
infrastructure resiliency, water recycling and reuse, and managed 
aquifer recovery,'' which is discussed below.
    EPA added ``or public health'' to the end of criterion (5) in order 
to reflect essential objectives in the public interest under both the 
Clean Water Act and the Safe Drinking Water Act.
    EPA added criterion (12) in order to align project criteria with 
statutorily defined project eligibilities and to provide credit to 
those projects that meet the growing need for repair, rehabilitation, 
or replacement of treatment works, community water systems, or aging 
water distribution or wastewater collection systems. Addressing these 
needs is an Agency priority.
    EPA added criterion (13) in order to reflect the Agency's 
continuing efforts to address the needs of economically stressed 
communities where access to financing for critical infrastructure is 
often lacking or difficult to obtain. While the creditworthiness 
requirement, as well as the requirement to obtain an investment-grade 
rating on senior obligations, may be a high bar for access to the WIFIA 
program by economically stressed communities, there are some options 
that may allow such communities to meet such requirements. For 
instance, an economically stressed community may seek a guarantee from 
a State that would bring the required rating up to an investment-grade 
level. A community may also seek the participation of an SRF program 
where the SRF program applies for a WIFIA loan and uses its resources 
as security in order to meet WIFIA's creditworthiness requirements. The 
SRF program can then provide funding to the community and as a result 
take on a level of risk that EPA is statutorily barred from assuming 
under WIFIA. EPA welcomes comment on the additions and modifications to 
the default statutory criteria.
    EPA is not assigning weights to these priorities in this rule, but 
rather will make weighting decisions in the first Notice of Funding 
Availability and adjust such weights as needed in subsequent notices. 
Assigning criteria weights in the Notice of Funding Availability, 
rather than through regulation, allows EPA flexibility to adapt to 
changing circumstances and priorities in an efficient and timely 
manner. In addition, the Administrator may include in the notice 
additional criteria in order to further reflect the Administrator's 
priorities. EPA proposes to provide notice and response to comments 
prior to the issuance of the second Notice of Funding Availability, and 
subsequent notices thereafter if necessary, in order to allow for 
public input on additional criteria or changes to non-statutory 
criteria. EPA will publish a draft NOFA, when necessary to provide 
public notice of potential criteria changes or additions, in the 
Federal Register and respond to comments on these changes in the final 
NOFA. This flexibility will allow the Agency to encourage applications 
that focus on a particular selection criterion for a given funding 
cycle, e.g., projects that respond to extreme weather events, focus on 
climate resiliency, serve economically stressed communities, or address 
other selection criteria priorities. EPA welcomes comment on the 
decision to apply weights to criteria in the Notice of Funding 
Availability rather than by regulation. EPA also wishes to ensure that 
the public has the opportunity to provide input in the development of 
additional criteria and changes to non-statutory criteria and welcomes 
comment on the proposal to provide informal notice and comment prior to 
issuance of the second Notice of Funding Availability and subsequent 
notices if necessary. EPA also welcomes other ideas that may provide 
the opportunity for such input while also allowing EPA to efficiently 
manage the program and provide assistance in a timely manner.
    In addition to the criteria set forth above, the statute includes 
one additional selection criterion, which is directly related to a 
project's creditworthiness, financial viability, and EPA's capacity to 
make a loan: ``The amount of budget authority required to fund the 
Federal credit instrument made available under this subtitle.'' This 
criterion will be used to assess projects separate from the assessment 
under the previous thirteen criteria. In particular, it will inform 
EPA's ability to provide funding in an equitable manner to prospective 
borrowers seeking financing. The amount of budget authority used by a 
project will be an important consideration when selecting projects. The 
greater the budget authority used by a project, which is a function of 
both project size and creditworthiness, the less budget authority is 
available to finance other projects. Selecting projects will be at the 
discretion of the Administrator who may decide that a project that uses 
a proportionally high level of budget authority provides essential 
environmental or public health benefits and deserves greater 
consideration.

IV. Priorities

    Criteria weights will be assigned in the first Notice of Funding 
Availability, and may be adjusted in subsequent notices to address 
changing circumstances and priorities. This discussion highlights 
important factors that will inform EPA's decision-making process prior 
to issuance of the first criteria weights.
    Congress enacted WIFIA with the goal of accelerating investment in 
our nation's water infrastructure by providing supplemental credit 
assistance to creditworthy projects of major importance to the water 
sector. While the list of projects eligible for funding under WIFIA is 
expansive, EPA has identified the following project priorities for the 
first Notice of Funding Availability:
     Adaptation to extreme weather and climate change including 
enhanced infrastructure resiliency, water recycling and reuse, and 
managed aquifer recovery \16\;
---------------------------------------------------------------------------

    \16\ Managed aquifer recovery: Storage of excess supply to be 
used during peak periods of demand, drought, or other conditions.
---------------------------------------------------------------------------

     Enhanced energy efficiency of treatment works, public 
water systems, and conveyance systems, including innovative, energy 
efficient nutrient treatment;
     Green infrastructure; and
     Repair, rehabilitation, and replacement of infrastructure 
and conveyance systems.
    EPA's project priorities for the WIFIA program reflect water sector 
challenges that require innovative tools to assist municipalities in 
managing and adapting to our most pressing public health and 
environmental challenges. They are consistent with EPA's Strategic 
Plan, which points to the need for the agency to drive innovation in 
addressing water quality and EPA's ``Blueprint for Integrating 
Technology Innovation into the National Water Program,'' which builds 
on the strategic plan and calls for the Agency to promote innovation in 
energy reduction and treatment facilities, nutrient recovery, greening 
the nation's infrastructure, water reuse, and resiliency, among other 
priorities.\17\
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    \17\ EPA. ``Blueprint for Integrating Technology Innovation into 
the National Water Program.'' March 27, 2013. Available at https://www.epa.gov/sites/production/files/2014-04/documents/blueprintv1.pdf.

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[[Page 91830]]

A. Adaptation to Extreme Weather and Climate Change Including Enhanced 
Infrastructure Resiliency, Water Recycling and Reuse, and Managed 
Aquifer Recovery

    The capital and operations and maintenance costs associated with 
extreme weather and climate change are estimated to be between $448 and 
$994 billion for water and energy utilities through 2050.\18\ This 
estimate includes the costs associated with adapting to changes in 
runoff quantity and timing, seawater intrusion, temperature changes, 
drought, rising sea levels, increased flood events, changes in 
precipitation quantity and timing, reduction in source water 
availability and quantity, and other types of changes associated with 
climate change. Utilities have a suite of options that can be used to 
adapt to these changes, including investments in resiliency, recycling 
and reuse, and aquifer recovery.
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    \18\ National Association of Clean Water Agencies (NACWA) and 
Association of Metropolitan Water Agencies (AMWA). ``Confronting 
Climate Change: An Early Analysis of Water and Wastewater Adaptation 
Costs.'' October 2009.
---------------------------------------------------------------------------

    Enhanced infrastructure resiliency can include moving essential 
infrastructure to higher ground, installing backup power sources, and 
other measures to harden the utility against storms. In other areas, 
droughts will become more frequent and severe. Water recycling and 
reuse and managed aquifer recovery are some of the adaptation 
strategies for such extreme events. Aquifer recharge and aquifer 
storage and recovery are tools to augment water resources and address 
climate change, including drought, and increased demand on water 
supplies related to development. With Superstorm Sandy and extreme 
droughts in the western states occurring since these costs were 
estimated, the current needs can reasonably be expected to be 
significantly higher. As communities are increasingly feeling the 
effects of extreme weather and climate change, demand for projects to 
adapt to these changes is expected to be significant.

B. Enhanced Energy Efficiency of Treatment Works, Public Water Systems, 
and Conveyance Systems Including Innovative, Energy Efficient Nutrient 
Treatment

    Drinking water and wastewater systems account for approximately 3-
4% of energy use in the United States, adding over 45 million tons of 
greenhouse gases annually. Further, drinking water and wastewater 
plants are typically the largest energy consumers of municipal 
governments, accounting for 30-40% of total energy consumed. Energy as 
a percent of operating costs for drinking water systems can also reach 
as high as 40% and is expected to increase 20% in the next 15 years due 
to population growth and tightening drinking water regulations. As a 
result, energy efficiency and alternative energy projects are 
increasingly being pursued by water systems. Investments in energy 
efficiency will also help reduce the impacts of climate change.
    For example, municipalities face increased costs to upgrade 
wastewater treatment in order to remove nutrients (nitrogen, 
phosphorous) to an extent sufficient to protect receiving waters. 
Nutrients are a significant water quality concern throughout the United 
States, with 25% of all water body impairments believed to be due to 
nutrient-related causes. This human-induced nutrient pollution comes 
from point and non-point sources, such as urban stormwater runoff, 
wastewater discharges, Animal Feeding Operations (AFOs) and 
Concentrated Animal Feeding Operations (CAFOs), agriculture, and 
atmospheric deposition. The costs of biological nutrient removal vary 
based on the quality of the source water (for drinking water) and 
receiving waters (for uses designated in state water quality 
standards), flows, and whether it is for a new facility or upgrades. 
Nutrient-induced formation of harmful algal blooms is an additional 
complicating factor for drinking water treatment. Operations and 
maintenance costs, particularly energy costs, are one of the primary 
drivers of the costs associated with nutrient removal. WIFIA can help 
reduce these costs by driving the development of innovative, energy 
efficient tools to treat nutrients and assist in their dissemination 
throughout the country.
    While estimates of total energy efficiency needs in treatment works 
and public water systems are not currently available, recent experience 
points to a significant demand for these types of projects. SRF 
programs committed $1.7 billion of funding received under the American 
Recovery and Reinvestment Act to Green Project Reserve projects, well 
above the 20% requirement; 45% of this amount went towards energy 
efficiency projects.\19\ From 2009 through 2015, CWSRF and DWSRF 
programs have funded $1.8 billion in energy efficiency projects. As 
more utilities seek out energy efficiency improvements, WIFIA can be on 
the forefront of making these projects come to fruition by reducing the 
cost of implementing innovative projects.
---------------------------------------------------------------------------

    \19\ U.S. EPA. ``Implementation of the American Recovery & 
Reinvestment Act of 2009: Clean Water & Drinking Water State 
Revolving Fund Programs.'' May 2011 (EPA-832-K-11-001). Available at 
nepis.epa.gov/Exe/ZyPURL.cgi?Dockey=P100BEEI.TXT.
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C. Green Infrastructure

    The EPA's CWNS 2012 documented needs of $48.0 billion for combined 
sewer overflow (CSO) correction, of which $4.2 billion was reported for 
green infrastructure, and $19.2 billion for stormwater management, of 
which $2.8 billion was reported for green infrastructure. Because only 
21% of regulated municipal separate storm sewer systems (MS4) submitted 
data, the actual stormwater needs are likely significantly higher. In 
2011, EPA issued a memorandum entitled ``Achieving Water Quality 
through Integrated Municipal Stormwater and Wastewater Plans,'' \20\ 
which among other options, encourages the integration of green 
infrastructure in CSO long term control plans. An increasing number of 
communities are choosing to invest in green infrastructure to manage 
CSOs and wet weather and to decrease costs and improve livability. 
Twenty-year investment needs in green infrastructure can reasonably be 
expected to substantially top the $7 billion projected by the CWNS 
2012.
---------------------------------------------------------------------------

    \20\ Available at: https://www.epa.gov/sites/production/files/2015-10/documents/memointegratedmunicipalplans_0.pdf.
---------------------------------------------------------------------------

D. Repair, Rehabilitation, and Replacement of Infrastructure and 
Conveyance Systems

    The EPA's CWNS and DWINS estimate needs of approximately $660 
billion for up to twenty years. The vast majority of that need, 90% or 
$591 billion, is for repair, rehabilitation, and replacement of 
existing infrastructure.
    Actual needs in this area are likely even higher than reported to 
EPA. To calculate water systems' distribution system replacement needs, 
DWINS applies a default replacement benchmark of 0.5% per year. This 
default benchmark percentage reflects current replacement rates and 
assumes water mains have a life expectancy of 200 years though actual 
life expectancies can be significantly shorter. However, relatively few 
surveyed systems document needs in excess of the default. Further, the 
American Water Works Association estimates the total need between 2011 
and 2035 for replacement of distribution system is approximately $526 
billion.\21\

[[Page 91831]]

This figure does not include the repair, replacement, and upgrade of 
wastewater collection systems, nor of drinking water and wastewater 
treatment facilities.
---------------------------------------------------------------------------

    \21\ American Water Works Association. ``Buried No Longer: 
Confronting America's Water Infrastructure Challenge.'' Available at 
http://www.awwa.org/Portals/0/files/legreg/documents/BuriedNoLonger.pdf.
---------------------------------------------------------------------------

    Additionally, the repair, rehabilitation, and replacement of aging 
infrastructure can support climate change adaptation--for instance, by 
improvements to increase the flood resilience of facilities and 
components, including helping to assure the accessibility, 
uninterrupted operations, and maintaining public services during and 
following extreme weather events. Other examples include measures to 
reduce water loss from leaking drinking water distribution systems in 
communities where the availability of surface or ground water supplies 
to meet demand is a significant concern. Distribution system projects 
can similarly support energy efficiency since loss of water that has 
previously been treated and pumped is in effect energy lost.

V. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review & Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is a significant regulatory action that was submitted 
to the Office of Management and Budget (OMB) for review. This rule has 
been determined significant because it affects the rights and 
obligations of recipients of a loan program and raises novel legal or 
policy issues arising out of a legal mandate. Any changes made in 
response to OMB recommendations have been documented in the docket.

B. Executive Orders 11988 and 13690 and the Federal Flood Risk 
Management Standard

    In order to help ensure enhanced resiliency of federally funded 
projects against floods, and to ensure that those projects do not 
exacerbate flood risk upstream, downstream, to adjacent properties, or 
to populations relying on facility services, projects funded under this 
rule will meet or exceed applicable State, local, Tribal, and 
Territorial standards for flood risk and floodplain management, as well 
as Executive Orders 11988 and 13690, the Federal Flood Risk Management 
Standard, and the Guidelines for Implementing Executive Order 11988, 
Floodplain Management, and Executive Order 13690, Establishing a 
Federal Flood Risk Management Standard and a Process for Further 
Soliciting and Considering Stakeholder Input (Guidelines). This rule 
applies to projects funded by the WIFIA program. Other EPA programs may 
have other approaches to compliance with these Executive Orders.
    Under this rule, projects involving new construction, substantial 
improvement, or to address substantial damage to structures and 
facilities will use the expanded floodplain standard described in E.O. 
13690. Substantial improvement and substantial damage include projects 
equaling or exceeding 50 percent of the value of the structure or 
facility. These project applicants shall determine whether the proposed 
project will occur in the floodplain using any of the approaches 
provided in section 6(c) of E.O. 11988, as amended. Applicants for 
proposed projects that are not new construction, substantial 
improvement, or to address substantial damage will use, at a minimum, 
the base 100-year floodplain standard for non-Critical Actions, and the 
0.2%-annual chance floodplain for Critical Actions.
    The Guidelines include an Eight-Step Decision-Making Process for 
identifying and addressing flood risks. Through that decision-making 
process, applicants will consider alternatives, including those that 
would avoid the floodplain, whenever practicable. Applicants will 
identify potential impacts, and if the project would result in harm to 
or within the floodplain, take actions to minimize that harm and 
restore and protect the natural floodplain environment. Under this 
rule, projects funded under WIFIA will be considered Critical Actions, 
as that term is defined in E.O.11988, unless the Administrator provides 
written notification to the applicant that the particular project is 
not considered to be a Critical Action.
    Specific procedures and additional information are laid out in the 
program handbook, to be made available on the WIFIA program Web site. 
EPA welcomes comment on rule requirements related to Executive Orders 
11988 and 13690 and the Federal Flood Risk Management Standard.

C. Paperwork Reduction Act (PRA)

    The information collection activities in this proposed rule have 
been submitted for approval to OMB under the PRA. The Information 
Collection Request (ICR) document that the EPA prepared has been 
assigned EPA ICR number 2549.01. You can find a copy of the ICR in the 
docket for this rule.
    The collection of information is necessary in order to receive 
applications for credit assistance pursuant to section 5024 of the 
Water Infrastructure Finance and Innovation Act (WIFIA) of 2014, 33 
U.S.C. 3903. The purpose of the WIFIA program is to provide Federal 
credit assistance in the form of direct loans and loan guarantees to 
eligible clean water and drinking water projects.
    WIFIA requires that an eligible entity shall submit to the 
Administrator an application at such time, in such manner, and 
containing such information, as the Administrator may require to 
receive assistance under WIFIA. In order to satisfy these requirements, 
EPA must collect a letter of interest and an application from entities 
seeking funding. This collection is necessary to determine whether each 
proposed project meets creditworthiness and other Federal requirements 
to receive WIFIA credit assistance. The content of the letter of 
interest and application are set out in 40 CFR 35.10015(c)(1) and (2), 
respectively. EPA solicits comments on the information required to be 
included in this collection.
    EPA estimates 25 respondents per year, for a total estimated burden 
of 1,500 hours (per year) and cost of $3,064,593.90 (per year) 
(includes no annualized capital or operation and maintenance costs). 
This estimate includes the burden for 20 unduplicated respondents for 
the letter of interest and 5 unduplicated respondents for the 
application. For the letter of interest, EPA estimates 1,000 annual 
burden hours and the annualized cost of those hours is $40,107. EPA 
used the following median hourly wages from the May 2015 National 
Occupational Employment and Wage Estimates United States (http://www.bls.gov/oes/current/oes_nat.htm) from the U.S. Bureau of Labor 
Statistics to calculate the cost of the estimated burden hours: Lawyers 
= $55.69; Management = $47.38; Engineers = $43.30; and Office and 
Administrative Support = $15.96. For the application, EPA estimates 500 
annual burden hours and the annualized cost of those hours is $19,487. 
EPA estimates 50 legal hours, 55 management hours, 285 technical hours, 
and 110 clerical hours. As noted, EPA used the median wages from U.S. 
Bureau of Labor Statistics to calculate the cost of the estimated 
burden hours.
    In addition to the burden hours of compiling the letter of interest 
and application, EPA estimated that respondents will be charged two 
fees. An application fee will be due upon submission of the 
application. The application fee acts as ``earnest money'' to ensure 
applicants are committed to

[[Page 91832]]

closing the WIFIA credit assistance. This application fee is credited 
toward the cost of expert services. For applications for projects 
serving small communities (population of not more than 25,000 people), 
this application fee is estimated to be $25,000. For all other 
applicants, this application fee is estimated to be $100,000. EPA 
assumes five applicants, with one being a small community. The annual 
combined application fee for all five applicants is estimated to be 
$425,000.
    A credit processing fee will be due at the time of closing for 
projects selected to receive assistance. The proceeds of any such fees 
would be used to pay for all or a portion of the Agency's cost of 
providing credit assistance and the costs of retaining expert firms, 
including legal, engineering, and financial advisory services. The fee 
for each project is directly attributable to the costs incurred by EPA 
for that project. EPA intends to fund all entities that are invited to 
apply for WIFIA credit assistance. If the credit agreement is not 
executed, the applicant must reimburse EPA for costs incurred in 
negotiating the credit agreement.
    The amount for expert firms varies between applicants depending on 
the complexity of the project. EPA estimates these costs may range from 
$350,000 to $700,000. For the purpose of estimating burden, EPA 
estimates the cost will be approximately $400,000. A portion of the 
credit processing fee may be waived at the discretion of the EPA. EPA 
will calculate a specific credit processing fee for each project. This 
credit processing fee will be equal to the cost of expert firms minus 
the application fee. For example, if the cost of expert firms is 
$400,000 and the applicant paid a $100,000 application fee, a $300,000 
credit processing fee will be due at closing. The total credit 
processing fee for five applicants will be approximately $1,575,000.
    The cost of general expenses for submitting an application, such as 
supplies, delivery charges, mailing, copying, and telecommunications, 
will be $1,000. The total general expenses will be $5,000.
    WIFIA also requires that an eligible entity shall submit to the 
Administrator a preliminary rating opinion letter. By statute, 
applicants are required to submit a preliminary rating letter at the 
time of application and two (2) final rating letters at the time of 
closing that indicate that the senior obligation of the project has an 
investment grade rating. These rating letters must be from a rating a 
bond rating agency identified by the Securities and Exchange Commission 
as a nationally recognized statistical rating organization (NRSRO). The 
cost of these rating letters vary based on the size and complexity of 
the project. Based on bond rating agency estimates and industry 
research, EPA estimates that the final rating letters will cost 
approximately $100,000 per letter and that the initial preliminary 
rating letter is included in the cost of one of the final letters. The 
total cost for five applicants will be $1,000,000.
    EPA solicits comment on the accuracy of the estimated level of 
burden of collecting this information and the validity of the 
assumptions used. EPA also solicits comment on the utility and clarity 
of the information to be collected and ways EPA can minimize the 
information collection burden on respondents.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for the 
EPA's regulations in 40 CFR are listed in 40 CFR part 9. When OMB 
approves the ICR, the Agency will announce that approval in the Federal 
Register and publish a technical amendment to 40 CFR part 9 to display 
the OMB control number for the approved information collection 
activities contained in this final rule.

D. Regulatory Flexibility Act

    This action is not subject to the RFA. The RFA applies only to 
rules subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act (APA), 5 U.S.C. 553, or any other statute. 
This rule pertains to loans and loan guarantees, which the APA 
expressly exempts from notice and comment rulemaking requirements under 
5 U.S.C. 553(a)(2). Moreover, the Water Infrastructure Finance and 
Innovation Act (sec. 1445 of Pub. L. 114-94) does not require notice 
and comment rulemaking to take this action.

E. Unfunded Mandates Reform Act (UMRA)

    This action does not contain an unfunded mandate of $100 million or 
more as described in UMRA, 2 U.S.C. 1531-1538, and does not 
significantly or uniquely affect small governments. The action imposes 
no enforceable duty on any state, local, or tribal governments or the 
private sector.

F. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

G. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications as specified in 
Executive Order 13175. While a tribal government, or a consortium of 
tribal governments, may apply for WIFIA credit assistance, this action 
does not have substantial direct effects on one or more Indian tribes, 
on the relationship between the Federal Government and Indian tribes, 
or on the distribution of power and responsibilities between the 
Federal Government and Indian tribes.

H. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    This action is not subject to Executive Order 13045 because it is 
not economically significant as defined in Executive Order 12866, and 
because this action does not address environmental health or safety 
risks. This rulemaking provides the procedure to apply for credit 
assistance; the selection criteria used for evaluating and selecting 
among eligible projects to receive credit assistance contained in the 
Supplementary Information section of the preamble includes the extent 
to which the project generates public health benefits.

I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. This rulemaking simply provides the 
procedure to apply for credit assistance; therefore, by itself, this 
rulemaking will not have any effect on the supply, distribution or use 
of energy.

J. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

K. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    The EPA believes that this action is not subject to Executive Order 
12898 (59 FR 7629, February 16, 1994) because it does not establish an 
environmental health or safety standard.

[[Page 91833]]

L. National Environmental Policy Act

    Each project obtaining assistance under this program is required to 
adhere to the National Environmental Policy Act of 1969, as amended (42 
U.S.C. 4321 et seq.). These requirements apply at the time of 
application for assistance. This rulemaking simply provides the 
procedure to apply for credit assistance; therefore, by itself, this 
rulemaking will not have any effect on the quality of the environment.

M. Congressional Review Act

    This action is subject to the CRA, and the EPA will submit a rule 
report to each House of the Congress and to the Comptroller General of 
the United States. This action is not a ``major rule'' as defined by 5 
U.S.C. 804(2).

List of Subjects in 40 CFR Part 35

    Environmental protection, Reporting and recordkeeping requirements, 
and Water finance.

    Dated: December 6, 2016.
Gina McCarthy,
Administrator.

    For the reasons set forth in the preamble, EPA amends 40 CFR part 
35 as follows:

PART 35--STATE AND LOCAL ASSISTANCE

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.; 33 U.S.C. 1251 et seq.; 42 
U.S.C. 300f et seq.; 42 U.S.C. 6901 et seq.; 7 U.S.C. 136 et seq.; 
15 U.S.C. 2601 et seq.; 42 U.S.C. 13101 et seq.; Pub. L. 104-134, 
110 Stat. 1321, 1321-299 (1996); Pub. L. 105-65, 111 Stat. 1344, 
1373 (1997), 2 CFR 200.


0
2. Add Subpart Q to read as follows:
Subpart Q--Credit Assistance for Water Infrastructure Projects
Sec.
35.10000 Purpose.
35.10005 Definitions.
35.10010 Limitations on assistance.
35.10015 Application process.
35.10020 Small community set-aside.
35.10025 Federal requirements.
35.10026 Federal flood risk management standard.
35.10030 American iron and steel.
35.10035 Labor standards.
35.10040 Investment-grade ratings.
35.10045 Threshold criteria.
35.10050 Use of existing financing mechanisms.
35.10055 Selection criteria.
35.10060 Term sheets and approvals.
35.10065 Closing on the credit agreement.
35.10070 Credit agreement.
35.10075 Reporting requirements.

Subpart Q--Credit Assistance for Water Infrastructure Projects


Sec.  35.10000   Purpose.

    This part implements a Federal credit assistance program for water 
infrastructure projects.


Sec.  35.10005   Definitions.

    The following definitions apply to this part:
    Community water system has the meaning given the term in section 
1401 of the Safe Drinking Water Act (42 U.S.C. 300f).
    Credit assistance means a secured loan or loan guarantee under 33 
U.S.C. 3908.
    Credit agreement means a contractual agreement between the EPA and 
the project sponsor (and the lender, if applicable) that formalizes the 
terms and conditions established in the term sheet (or conditional term 
sheet) and authorizes the execution of a secured loan or loan 
guarantee.
    Credit subsidy cost shall have the same meaning as ``cost'' under 
section 502(5) of the Federal Credit Reform Act of 1990 (2 U.S.C. 
661a(5)), which is the net present value at the time the obligation is 
entered into. The credit subsidy cost for a given project is calculated 
by EPA in consultation with OMB. The credit subsidy cost must be less 
than the unobligated subsidy amount that has been appropriated by 
Congress to date.
    Eligible project costs mean amounts, substantially all of which are 
paid by, or for the account of, an obligor in connection with a 
project, including the cost of:
    (1) Development-phase activities, including planning, feasibility 
analysis (including any related analysis necessary to carry out an 
eligible project), revenue forecasting, environmental review, 
permitting, preliminary engineering and design work, and other 
preconstruction activities;
    (2) Construction, reconstruction, rehabilitation, and replacement 
activities;
    (3) The acquisition of real property or an interest in real 
property (including water rights, land relating to the project, and 
improvements to land), environmental mitigation (including acquisitions 
pursuant to section 5026(7)), construction contingencies, and 
acquisition of equipment; and
    (4) Capitalized interest necessary to meet market requirements, 
reasonably required reserve funds, capital issuance expenses, and other 
carrying costs during construction. Capitalized interest on the WIFIA 
credit instrument is not an eligible project cost.
    Federal credit instrument means a secured loan or loan guarantee 
authorized to be made available under 33 U.S.C. 3901-3914 with respect 
to a project.
    Investment-grade rating means a rating category of BBB minus, Baa3, 
bbb minus, BBB (low), or higher assigned by a nationally recognized 
statistical rating organization (NRSRO) to project obligations offered 
into the capital markets.
    Iron and steel products means the following products made primarily 
of iron or steel: Lined or unlined pipes and fittings, manhole covers 
and other municipal castings, hydrants, tanks, flanges, pipe clamps and 
restraints, valves, structural steel, reinforced precast concrete, and 
construction materials.
    Lender means any non-Federal qualified institutional buyer (as 
defined in 17 CFR 230.144A(a)), known as Rule 144A(a) of the Securities 
and Exchange Commission and issued under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), including:
    (1) A qualified retirement plan (as defined in section 4974(c) of 
the Internal Revenue Code of 1986, 26 U.S.C. 4974(c)) that is a 
qualified institutional buyer; and
    (2) A governmental plan (as defined in section 414(d) of the 
Internal Revenue Code of 1986, 26 U.S.C. 414(d)) that is a qualified 
institutional buyer.
    Loan guarantee means any guarantee or other pledge by the 
Administrator to pay all or part of the principal of and interest on a 
loan or other debt obligation issued by an obligor and funded by a 
lender.
    Nationally recognized statistical rating organization (NRSRO) means 
a credit rating agency identified and registered by the Office of 
Credit Ratings in the Securities and Exchange Commission under 15 
U.S.C. 78o-7.
    Obligor means a party primarily liable for payment of the principal 
of or interest on a Federal credit instrument, which party may be a 
corporation; partnership; joint venture; trust; Federal, State, or 
local governmental entity, agency, or instrumentality; tribal 
government or consortium of tribal governments; or a State 
infrastructure finance authority.
    Project means:
    (1) One or more activities that are eligible for assistance under 
section 603(c) of the Federal Water Pollution Control Act (33 U.S.C. 
1383(c)), notwithstanding the public ownership requirement under 
paragraph (1) of that subsection;

[[Page 91834]]

    (2) One or more activities described in section 1452(a)(2) of the 
Safe Drinking Water Act (42 U.S.C. 300j-12(a)(2));
    (3) A project for enhanced energy efficiency in the operation of a 
public water system or a publicly owned treatment works;
    (4) A project for repair, rehabilitation, or replacement of a 
treatment works, community water system, or aging water distribution or 
waste collection facility (including a facility that serves a 
population or community of an Indian reservation).;
    (5) A brackish or sea water desalination project, a managed aquifer 
recharge project, or a water recycling project;
    (6) Acquisition of real property or an interest in real property--
    (i) If the acquisition is integral to a project described in 
paragraphs (1) through (5) of this definition; or
    (ii) Pursuant to an existing plan that, in the judgment of the 
Administrator, would mitigate the environmental impacts of water 
resources infrastructure projects otherwise eligible for assistance 
under this section;
    (7) A combination of projects, each of which is eligible under 
paragraph (1) or (2) of this definition, for which a State 
infrastructure financing authority submits to the Administrator a 
single application; or
    (8) A combination of projects secured by a common security pledge, 
each of which is eligible under paragraph (1), (2), (3), (4), (5), or 
(6) of this definition, for which an eligible entity, or a combination 
of eligible entities, submits a single application.
    Project obligation means any note, bond, debenture, or other debt 
obligation issued by an obligor in connection with the financing of a 
project, other than a Federal credit instrument.
    Project sponsor, for the purposes of this part, means an applicant 
for WIFIA assistance or an obligor, as appropriate.
    Publicly sponsored means the obligor can demonstrate, to the 
satisfaction of the Administrator, that it has consulted with the 
affected state, local, or tribal government in which the project is 
located, or is otherwise affected by the project, and that such 
government supports the proposed project. Support can be shown by a 
certified letter signed by the approving municipal department or 
similar agency, mayor or other similar designated authority, local 
ordinance, or any other means by which local government approval can be 
evidenced.
    Secured loan means a direct loan or other debt obligation issued by 
an obligor and funded by the Administrator in connection with the 
financing of a project under 33 U.S.C. 3908.
    State means any one of the fifty states, the District of Columbia, 
Puerto Rico, or any other territory or possession of the United States.
    State infrastructure financing authority means the State entity 
established or designated by the Governor of a State to receive a 
capitalization grant provided by, or otherwise carry out the 
requirements of, title VI of the Federal Water Pollution Control Act 
(33 U.S.C. 1381 et seq.) or section 1452 of the Safe Drinking Water Act 
(42 U.S.C. 300j-12).
    Subsidy amount means the dollar amount of budget authority 
sufficient to cover the estimated long-term cost to the Federal 
Government of a Federal credit instrument, calculated on a net present 
value basis, excluding administrative costs and any incidental effects 
on governmental receipts or outlays in accordance with the provisions 
of the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.).
    Substantial completion means the stage in the progress of the 
project when the project or designated portion thereof is sufficiently 
complete in accordance with the contract documents so that the project 
or a portion thereof can be used for its intended use.
    Term sheet means a contractual agreement between the EPA and the 
project sponsor (and the lender, if applicable) that sets forth the key 
business terms and conditions of a Federal credit instrument. Execution 
of this document represents a legal obligation of budget authority.
    Treatment works has the meaning given the term in section 212 of 
the Federal Water Pollution Control Act (33 U.S.C. 1292).
    WIFIA means the Water Infrastructure Finance and Innovation Act of 
2014, Pub. L. 113-121, 128 Stat, 1332, codified at 33 U.S.C. 3901-3914.


Sec.  35.10010  Limitations on assistance.

    (a) The total amount of credit assistance offered to any project 
under this part shall not exceed 49% of the anticipated eligible 
project costs, as measured on an aggregate cash (year-of-expenditure) 
basis, or, if the secured loan does not receive an investment-grade 
rating, the total amount of credit assistance shall not exceed the 
amount of the senior project obligations of the project.
    (b) Notwithstanding paragraph (a) of this section, the 
Administrator may offer credit assistance in excess of 49% of the 
anticipated eligible project costs as long as such excess assistance 
combined for all projects does not require greater than 25% of the 
subsidy amount made available for the fiscal year.
    (1) Credit assistance may not exceed 80% of the total project costs 
due to a statutory restriction on the maximum extent of federal 
participation in a project, except in the case of certain rural water 
projects authorized to be carried out by the Secretary of the Interior 
that includes among its beneficiaries a federally recognized Indian 
tribe and for which the authorized Federal share of the total project 
costs is greater than 80%.
    (2) Use of the authority to offer credit assistance in excess of 
49% of the anticipated eligible project costs shall be considered only 
under extraordinarily exceptional circumstances.
    (3) In the event this authority is used, all other criteria and 
requirements described in this part must be met and adhered to.
    (c) Costs incurred prior to a project sponsor's submission of an 
application for credit assistance may be considered in calculating 
eligible project costs only upon approval of the Administrator. In 
addition, applicants shall not include application charges or any other 
expenses associated with the application process (such as charges 
associated with obtaining the required preliminary rating opinion 
letter) among the eligible project costs. Capitalized interest on the 
WIFIA credit instrument is not eligible for calculating project costs.
    (d) No costs financed internally or with interim funding may be 
refinanced under this part later than a year following substantial 
completion of the project.
    (e) The Administrator shall not obligate funds for a project that 
has not received an environmental Categorical Exclusion, Finding of No 
Significant Impact, or Record of Decision under the National 
Environmental Policy Act (NEPA), 42 U.S.C. 4321 et seq.
    (f) The Administrator shall fund a secured loan based on the 
project's financing needs. The credit agreement shall include the 
anticipated schedule for such loan disbursements. Actual disbursements 
will be based on incurred costs, and in accordance with the approved 
construction plan, as evidenced by paid invoices.
    (g) The interest rate on a secured loan will be equal to or greater 
than the yield on U.S. Treasury securities of comparable maturity on 
the date of execution of the credit agreement as identified through use 
of the daily rate tables published by the Bureau of the Fiscal Service 
for the State and Local Government Series (SLGS) investments. The yield 
on comparable Treasury

[[Page 91835]]

securities will be estimated by adding one basis point to the SLGS 
daily rate with a maturity that is closest to the weighted average loan 
life of the WIFIA credit instrument, measured from first disbursement.
    (h) The final maturity date of a secured loan will be the earlier 
of the date that is 35 years after the date of substantial completion 
of the project, as determined by the Administrator and identified in 
the assistance agreement, and if the useful life of the project, as 
determined by the Administrator, is less than 35 years, the useful life 
the project; however, the final maturity date of a secured loan to a 
State infrastructure financing authority will be not later than 35 
years after the date on which amounts are first disbursed. In 
determining the useful life of the project, for the purposes of 
establishing the final maturity date of the WIFIA credit instrument, 
the Administrator will consider the useful economic life of the 
asset(s) being financed.
    (i) A secured loan will not be subordinated to the claims of any 
holder of project obligations in the event of bankruptcy, insolvency, 
or liquidation of the obligor of the project.
    (j) EPA will establish a repayment schedule for a secured loan 
based on the projected cash flow from project revenues and other 
repayment sources. Scheduled loan repayments of principal or interest 
on a secured loan will commence not later than 5 years after the date 
of substantial completion of the project as determined by the 
Administrator; however, scheduled loan repayments of principal or 
interest on a secured loan to a State infrastructure financing 
authority will commence not later than 5 years after the date on which 
amounts are first disbursed.


Sec.  35.10015   Application process.

    (a) Each fiscal year for which budget authority is made available 
by Congress, the EPA shall publish a Federal Register notice to solicit 
letters of interest for credit assistance called a Notice of Funding 
Availability. Such notice will specify the relevant due dates, the 
estimated amount of funding available to support WIFIA credit 
instruments for the current and future fiscal years, contact name(s), 
and other details for submissions and funding approvals.
    (b) Public and private applicants for credit assistance under this 
part will be required to submit letters of interest to the EPA in order 
to be selected by the Administrator to submit an application.
    (c) The application process is divided into two steps: letter of 
interest and application.
    (1) The letter of interest provides enough information for EPA to 
make a project selection and invite prospective borrowers to submit 
applications. Such information may include, but is not limited to:
    (i) Prospective borrower information;
    (ii) Project plan;
    (iii) Preliminary project operations and maintenance plan;
    (iv) Proposed financing plan and audited financial statements;
    (v) Contact information;
    (vi) Written responses addressing selection criteria;
    (vii) Certifications; and
    (viii) Notification of state infrastructure financing authority.
    (2) The application provides all relevant information for EPA to 
provide credit assistance. Submission of an application does not 
guarantee that EPA will award credit assistance to a given applicant. 
At a minimum, such applications shall provide, in addition to the 
information provided in the letter of interest:
    (i) Detailed applicant information;
    (ii) Detailed project information;
    (iii) Detailed project operation and maintenance plan;
    (iv) Comprehensive financing plan; and
    (v) Complete certifications.
    (d) Following successful submission and approval by EPA of the 
application, EPA will offer the applicant a term sheet, as described in 
section 35.10060. The applicant may accept or negotiate terms in the 
term sheet.
    (e) Following acceptance of the term sheet, the applicant will 
proceed to closing, as described in section 35.10065.
    (f) An application for a project located in or sponsored by more 
than one entity shall be submitted to the EPA by just one entity. The 
sponsoring entities shall designate a single obligor for purposes of 
applying for, receiving, and repaying WIFIA credit assistance.


Sec.  35.10020   Small community set-aside.

    (a) Each fiscal year for which budget authority is made available 
by Congress, EPA shall set aside at least 15% of budget authority for 
projects that serve communities of not more than 25,000 individuals.
    (b) Any set-aside budget authority remaining unobligated on June 1 
of the fiscal year for which the budget authority is set aside shall be 
made available for projects other than small community projects.


Sec.  35.10025   Federal requirements.

    All projects receiving credit assistance under this part shall 
comply with:
    (a) Environmental authorities:
    (1) The National Environmental Policy Act of 1969, 42 U.S.C. 4321 
et seq.;
    (2) Archeological and Historic Preservation Act, 16 U.S.C. 469-
469c;
    (3) Clean Air Act, 42 U.S.C. 7401 et seq.;
    (4) Clean Water Act, 33 U.S.C. 1251 et seq.;
    (5) Coastal Barrier Resources Act, 16 U.S.C. 3501 et seq.;
    (6) Coastal Zone Management Act, 16 U.S.C. 1451 et seq.;
    (7) Endangered Species Act, 16 U.S.C. 1531 et seq.;
    (8) Federal Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations, Executive Order 12898, 59 FR 
7629, February 16, 1994;
    (9) Floodplain Management, Executive Order 11988, 42 FR 26951, May 
24, 1977, as amended by Executive Order 13690, 80 FR 6425, February 4, 
2015;
    (10) Protection of Wetlands, Executive Order 11990, 42 FR 26961, 
May 25, 1977, as amended by Executive Order 12608, 52 FR 34617, 
September 14, 1987;
    (11) Farmland Protection Policy Act, 7 U.S.C. 4201 et seq.;
    (12) Fish and Wildlife Coordination Act, 16 U.S.C. 661-666c, as 
amended;
    (13) Magnuson-Stevens Fishery Conservation and Management Act, 16 
U.S.C. 1801 et seq.;
    (14) National Historic Preservation Act, 16 U.S.C. 470 et seq.;
    (15) Safe Drinking Water Act, 42 U.S.C. 300f et seq.; and
    (16) Wild and Scenic Rivers Act, 16 U.S.C. 1271 et seq.
    (b) Economic and miscellaneous authorities:
    (1) Debarment and Suspension, Executive Order 12549, 51 FR 6370, 
February 21, 1986;
    (2) Demonstration Cities and Metropolitan Development Act, 42 
U.S.C. 3301 et seq., as amended, and Executive Order 12372, 47 FR 
30959, July 16, 1982;
    (3) Drug-Free Workplace Act, 41 U.S.C. 8101 et seq.;
    (4) New Restrictions on Lobbying, 31 U.S.C. 1352;
    (5) Prohibitions relating to violations of the Clean Water Act or 
Clean Air Act with respect to Federal contracts, grants, or loans under 
42 U.S.C. 7606 and 33 U.S.C. 1368, and Executive Order 11738, 38 FR 
25161, September 12, 1973; and
    (6) The Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970, 42 U.S.C. 4601 et seq.

[[Page 91836]]

    (c) Civil Rights, Nondiscrimination, Equal Employment Opportunity 
Authorities:
    (1) Age Discrimination Act, 42 U.S.C. 6101 et seq.;
    (2) Equal Employment Opportunity, Executive Order 11246, 30 FR 
12319, September 28, 1965;
    (3) Section 13 of the Clean Water Act, Pub. L. 92-500, codified in 
42 U.S.C. 1251;
    (4) Section 504 of the Rehabilitation Act, 29 U.S.C. 794, 
supplemented by Executive Orders 11914, 41 FR 17871, April 29, 1976 and 
11250, 30 FR 13003, October 13, 1965;
    (5) Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et 
seq.; and
    (6) Participation by Disadvantaged Business Enterprises in 
Procurement under Environmental Protection Agency (EPA) Financial 
Assistance Agreements, 73 FR 15904.
    (d) Other Federal and compliance requirements as may be applicable.


Sec.  35.10026   Federal flood risk management standard.

    (a) In making WIFIA funding decisions under this rule, EPA will 
follow the requirements of Executive Orders 11988 and 13690, the 
Federal Flood Risk Management Standard, and the Guidelines for 
Implementing Executive Order 11988, Floodplain Management, and 
Executive Order 13690, Establishing a Federal Flood Risk Management 
Standard and a Process for Further Soliciting and Considering 
Stakeholder Input (Guidelines). Applicants shall submit information 
regarding the project that is sufficient for EPA to determine that the 
project is in compliance with the standards and requirements of these 
Executive Orders and Guidelines.
    (b) Projects funded under the WIFIA program implemented through 
this rule must also demonstrate that they will meet or exceed 
applicable State, local, Tribal, and Territorial standards for flood 
risk and floodplain management.
    (c) As a condition of funding projects involving new construction, 
substantial improvement, or to address substantial damage to structures 
and facilities, the project sponsor must demonstrate to EPA that it 
will use the expanded floodplain standard described in E.O. 13690. 
Projects involving substantial improvement or addressing substantial 
damage include projects equaling or exceeding 50 percent of the value 
of the structure or facility. With regard to projects meeting this 
definition, the project applicant shall determine whether the proposed 
project will occur in the floodplain using any of the approaches 
provided in section 6(c) of Executive Order 11988, as amended. 
Applicants for proposed projects that are not new construction, 
substantial improvement, or projects to address substantial damage 
shall use at minimum, the base 100-year floodplain standard for actions 
that are not ``critical actions'' as defined in Executive Order 11988 
Section 6(d) and the 0.2%-annual chance floodplain for critical 
actions.
    (d) For purposes of this section, projects funded under WIFIA will 
be considered Critical Actions as defined in Executive Order 11988, as 
amended, unless the Administrator determines and provides written 
notice to the applicant that the particular project is not considered 
to be a Critical Action.
    (e) All applicants shall follow the Guidelines, including the 
Eight-Step Decision-Making Process described in the Guidelines, as a 
means of compliance with the requirements of section 2(a) of Executive 
Order 11988, as amended. EPA shall provide oversight to ensure that 
project applicants have complied with this process.
    (f) The Administrator will not allow WIFIA funding for new 
construction, substantial improvement, or to address substantial damage 
to structures and facilities sited in or encroaching on a Floodway or a 
Coastal High Hazard Area/V-Zone, except for a functionally dependent 
use or to facilitate an open space use. The Administrator will make the 
determination of whether a proposed project is a functionally dependent 
use or a structure that facilitates an open space use. In addition to 
compliance with paragrpahs (a) through (e) of this section, applicants 
for projects sited in these zones must include engineering plans 
demonstrating that the facility will be accessible and operational to 
the elevation of the applicable level, including elevation or 
floodproofing of buildings, electronics, and mechanical components.


Sec.  35.10030   American iron and steel.

    (a) All projects receiving credit assistance under this part for 
the construction, alteration, maintenance, or repair of a project shall 
use only iron and steel products produced in the United States.
    (b) By statute, at 33 U.S.C. 3914(b), ``iron and steel products'' 
means the following products made primarily of iron or steel: Lined or 
unlined pipes and fittings, manhole covers and other municipal 
castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, 
structural steel, reinforced precast concrete, and construction 
materials. Equipment employed in construction but does not become part 
of the project is not an ``iron and steel product'' for purpose of this 
section.
    (c) EPA may issue a waiver for a case or category of cases where 
EPA finds:
    (1) That applying these requirements would be inconsistent with the 
public interest;
    (2) Iron and steel products are not produced in the US in 
sufficient and reasonably available quantities and of a satisfactory 
quality; or
    (3) Inclusion of iron and steel products produced in the US will 
increase the cost of the overall project by more than 25%.
    (d) All guidance developed for compliance with American Iron and 
Steel requirements for EPA's State Revolving Fund programs shall apply 
to projects receiving credit assistance under this part. Such guidance 
can be found on EPA's Web site.
    (e) All national waivers issued by EPA in accordance with section 
436(b) of Pub. L. 113-76, 128 Stat. 346, 2014, Consolidated 
Appropriations Act, 2014, shall apply to projects receiving credit 
assistance under this part in the same manner as they apply to projects 
receiving assistance under the Clean Water and Drinking Water State 
Revolving Fund programs, unless such waiver addresses the timing of the 
submission of engineering plans and specifications as the submission 
relates to Congressional appropriations for either the Clean Water or 
Drinking Water State Revolving Fund programs.


Sec.  35.10035   Labor standards.

    All laborers and mechanics employed by contractors or 
subcontractors on projects receiving credit assistance under this part 
shall be paid wages at rates not less than those prevailing for the 
same type of work on similar construction in the immediate locality, as 
determined by the Secretary of Labor.


Sec.  35.10040   Investment-grade ratings.

    (a) At the time a project sponsor submits an application, the EPA 
shall require a preliminary rating opinion letter. This letter is a 
conditional credit assessment from a NRSRO that provides a preliminary 
indication of the project's overall creditworthiness and that 
specifically addresses the potential of the project's senior debt 
obligations (those obligations having a lien senior to that of the 
WIFIA credit instrument on the pledged security) to achieve an 
investment-grade rating and the default risk of the WIFIA loan.
    (b) The full funding of a secured (direct) loan or loan guarantee 
shall be contingent on the assignment of an investment-grade rating by 
two NRSROs

[[Page 91837]]

to all project obligations that have a lien senior to that of the 
Federal credit instrument on the pledged security along with commentary 
on the default risk of the WIFIA loan.
    (c) Neither the preliminary rating opinion letter nor the formal 
credit ratings should reflect the effect of bond insurance, unless that 
insurance provides credit enhancement that secures the WIFIA 
obligation.


Sec.  35.10045   Threshold criteria.

    (a) To be eligible to receive Federal credit assistance under this 
part, a project shall meet the following six threshold criteria:
    (1) The project and obligor shall be creditworthy;
    (2) The project sponsor shall submit a project application to the 
Administrator;
    (3) A project shall have eligible project costs that are reasonably 
anticipated to equal or exceed $20 million, or for a project eligible 
under paragraphs (2) or (3) of 33 U.S.C. 3905 serving a community of 
not more than 25,000 individuals, project costs that are reasonably 
anticipated to equal or exceed $5 million;
    (4) Project financing shall be repayable, in whole or in part, from 
State or local taxes, user fees, or other dedicated revenue sources 
that also secure the senior project obligations of the project; shall 
include a rate covenant, coverage requirement, or similar security 
feature supporting the project obligations; and may have a lien on 
revenues subject to any lien securing project obligations;
    (5) In the case of a project that is undertaken by an entity that 
is not a State or local government or an agency or instrumentality of a 
State or local government, or a tribal government or consortium of 
tribal governments, the project that the entity is undertaking shall be 
publicly sponsored.
    (6) The applicant shall have developed an operations and 
maintenance plan that identifies adequate revenues to operate, 
maintain, and repair the project during its useful life.
    (b) With respect to paragraph (a)(4) of this section, the 
Administrator may accept general obligation pledges or general 
corporate promissory pledges and will determine the acceptability of 
other pledges and forms of collateral as dedicated revenue sources on a 
case-by-case basis. The Administrator shall not accept a pledge of 
Federal funds, regardless of source, as security for the WIFIA credit 
instrument.


Sec.  35.10050   Use of existing financing mechanisms.

    (a) Within 30 days of receipt of an application for a project 
eligible under 33 U.S.C. 3905(2) or (3), EPA shall notify the State 
infrastructure financing authority in the State in which the 
applicant's project is located that such an application has been 
received.
    (b) EPA may not provide assistance under this chapter if within 60 
days of receipt of a notification described in paragraph (a) of this 
section, the State infrastructure financing authority notifies EPA that 
it intends to commit funds in an amount equal to or greater than the 
amount requested in the application to the applicant for the project, 
as evidenced by an amendment to the State revolving fund program's 
intended use plan described in Sec.  35.3150 or Sec.  35.3555 unless:
    (1) By the date 180 days after receipt of the notification 
described in paragraph (a) of this section, the State infrastructure 
financing authority fails to enter into an assistance agreement with 
the applicant; or
    (2) The financial assistance to be provided by the State 
infrastructure authority will be at rates and terms that are less 
favorable than the rates and terms of the assistance agreement to be 
provided under this chapter.


Sec.  35.10055   Selection criteria.

    (a) The Administrator shall assign weights to selection criteria in 
the first Notice of Funding Availability published in accordance with 
section 4(a), and adjusted weights in future Notices of Funding 
Availability to address changing circumstances and priorities. The 
following thirteen selection criteria will be used for evaluating and 
selecting among eligible projects to receive credit assistance:
    (1) The extent to which the project is nationally or regionally 
significant, with respect to the generation of economic and public 
health benefits;
    (2) The likelihood that assistance under this subtitle would enable 
the project to proceed at an earlier date than the project would 
otherwise be able to proceed;
    (3) The extent to which the project uses new or innovative 
approaches such as the use of energy efficient parts and systems, or 
the use of renewable or alternate sources of energy; green 
infrastructure; and the development of alternate sources of drinking 
water through desalination, aquifer recharge or water recycling;
    (4) The extent to which the project protects against extreme 
weather events, such as floods or hurricanes, as well as the impacts of 
climate change;
    (5) The extent to which the project helps maintain or protect the 
environment or public health;
    (6) The extent to which a project serves regions with significant 
energy exploration, development, or production areas;
    (7) The extent to which a project serves regions with significant 
water resource challenges, including the need to address water quality 
concerns in areas of regional, national, or international significance; 
water quantity concerns related to groundwater, surface water, or other 
resources; significant flood risk; water resource challenges identified 
in existing regional, state, or multistate agreements; and water 
resources with exceptional recreational value or ecological importance;
    (8) The extent to which the project addresses identified municipal, 
state, or regional priorities;
    (9) The readiness of the project to proceed toward development, 
including a demonstration by the obligor that there is a reasonable 
expectation that the contracting process for construction of the 
project can commence by not later than 90 days after the date on which 
a Federal credit instrument is obligated for the project under this 
subtitle; and
    (10) The extent to which the project financing plan includes public 
or private financing in addition to assistance under this subtitle;
    (11) The extent to which assistance under this subtitle reduces the 
contribution of Federal assistance to the project;
    (12) The extent to which the project addresses needs for repair, 
rehabilitation or replacement of a treatment works, community water 
system, or aging water distribution or wastewater collection system; 
and
    (13) The extent to which the project serves economically stressed 
communities, or pockets of economically stressed rate payers within 
otherwise non-economically stressed communities.
    (b) The Administrator may include additional weighted criteria in 
the Notice of Funding Availability to address changing circumstances 
and priorities.
    (c) In addition, 33 U.S.C. 3907(a)(1)(D)(i) conditions a project's 
approval for credit assistance on receipt of a preliminary rating 
opinion letter indicating that the project's senior debt obligations 
have the potential to attain an investment-grade rating.


Sec.  35.10060   Term sheets and approvals.

    (a) EPA, after review and evaluation of the application, and all 
other required

[[Page 91838]]

documents submitted by the applicant, may offer to an applicant a 
written Term Sheet signed by the Administrator, including detailed 
terms and conditions that must be met. The issuance of this Term Sheet 
represents approval of the application for credit assistance.
    (b) To proceed to closing, the applicant must sign the Term Sheet 
before the expiration date on which the terms offered will expire 
unless the Administrator agrees in writing to extend the expiration 
date.


Sec.  35.10065   Closing on the credit agreement.

    (a) Subsequent to the signing of the Term Sheet by the applicant, 
EPA will set a closing date for execution of a credit agreement, and 
provide documents articulating the conditions precedent to closing to 
the applicant.
    (b) By the closing date, the applicant must have satisfied all of 
the detailed terms and conditions required by EPA and all other 
contractual, statutory, and regulatory requirements. If the applicant 
has not satisfied all such terms and conditions by the closing date, 
the Administrator may set a new closing date or rescind the approval of 
the application.
    (c) If at any point following the issuance of the Term Sheet by EPA 
and prior to the closing date, the terms and conditions of the 
financing arrangements or the financial status of the obligor change in 
a material manner from the information used to evaluate the 
application, the applicant must notify EPA within the time period 
specified by the Administrator, at which point the Administrator may 
update the Term Sheet accordingly or rescind the approval of the 
application.
    (d) The Credit Agreement and related documents will include 
detailed definitions, terms, and conditions necessary and appropriate 
to protect the interest of the United States over the life of the 
credit assistance and in the case of default, and will be executed at 
closing only after EPA has ensured that all requirements and conditions 
articulated in this rule, the statute, and other relevant laws and 
regulations have been satisfied.


Sec.  35.10070   Credit agreement.

    (a) Only a credit agreement executed by the Administrator can 
contractually obligate EPA to provide assistance under WIFIA.
    (b) EPA is not bound by oral representations made during the letter 
of interest step, or application step, or during any negotiation 
process.
    (c) Except if explicitly authorized by an Act of Congress, no 
Federal funds, proceeds of Federal loans, or proceeds of loans 
guaranteed by the Federal Government, may be used by a borrower to pay 
for credit subsidy costs, administrative fees, or other fees charged by 
or paid to EPA relating to the WIFIA program.
    (d) Prior to the execution by EPA of a credit agreement, EPA must 
ensure that the following requirements and conditions are satisfied:
    (1) The project qualifies as an eligible project under WIFIA;
    (2) The face value of the credit agreement is limited to no more 
than 49 percent of total eligible project costs, or if credit 
assistance in excess of 49% has been approved, no more than the 
percentage of eligible project costs agreed upon, not to exceed 80% of 
eligible project costs;
    (3) The applicant is obligated to make full repayment of the 
principal and interest on the credit instrument over a period of up to 
the lesser of 35 years or the useful life of the project, after 
substantial completion; however, the final maturity date of a secured 
loan to a State infrastructure financing authority will be not later 
than 35 years after the date on which amounts are first disbursed.
    (4) If the credit instrument is a loan guarantee, the loan 
guarantee does not finance, either directly or indirectly, tax-exempt 
debt obligations, consistent with the requirements of section 149(b) of 
the Internal Revenue Code;
    (5) The amount of the credit agreement, when combined with other 
funds committed to the project, will be sufficient to carry out the 
project, including adequate contingency funds;
    (6) The applicant has pledged project assets and other collateral 
or surety, including non-project-related assets, determined by EPA to 
be necessary to secure the repayment of the credit agreement;
    (7) The credit agreement and related documents include detailed 
terms and conditions necessary and appropriate to protect the interest 
of the United States in the case of default;
    (8) The credit agreement is not subordinate to any loan or other 
debt obligation in the event of bankruptcy, insolvency, or liquidation 
of the obligor of the project;
    (9) There is satisfactory evidence that the applicant is willing, 
competent, and capable of performing the terms and conditions of the 
credit agreement, and will diligently pursue the project;
    (10) The applicant has taken and is obligated to continue to take 
those actions necessary to perfect and maintain liens on assets which 
are pledged as security for the credit agreement;
    (11) EPA or its representatives have access to the project site at 
all reasonable times in order to monitor the performance of the 
project;
    (12) EPA and the applicant have reached an agreement as to the 
information that will be made available to EPA and the information that 
will be made publicly available;
    (13) The applicant has filed applications for or obtained any 
required regulatory approvals for the project and is in compliance, or 
promptly will be in compliance, where appropriate, with all Federal, 
State, and local regulatory requirements;
    (14) The applicant has no delinquent federal debt, including tax 
liabilities, unless the delinquency has been resolved with the 
appropriate federal agency in accordance with the standards of the Debt 
Collection Improvement Act of 1996;
    (15) The credit agreement and related agreements contain such other 
terms and conditions as EPA deems reasonable and necessary to protect 
the interests of the United States, including without limitation 
provisions for (i) such collateral and other credit support for the 
credit agreement, and (ii) such collateral sharing, priorities and 
voting rights among creditors and other intercreditor arrangements as, 
in each case, EPA deems reasonable and necessary to protect the 
interests of the United States; and
    (e) The credit agreement must contain audit provisions which 
provide, in substance, as follows:
    (1) The applicant must keep such records concerning the project as 
are necessary to facilitate an effective and accurate audit and 
performance evaluation of the project; and
    (2) EPA and the Inspector General, or their duly authorized 
representatives, must have access, for the purpose of audit and 
examination, to any pertinent books, documents, papers, and records of 
the applicant. Examination of records may be made during the regular 
business hours of the applicant, or at any other time mutually 
convenient.


Sec.  35.10075   Reporting requirements.

    At a minimum, any recipient of Federal credit assistance under this 
part shall submit an annual project performance report and audited 
financial statements to EPA within no more than 180 days following the 
recipient's fiscal year-end for each year during which the recipient's 
obligation to the Federal Government remains in effect. EPA may conduct 
periodic financial and compliance audits of the

[[Page 91839]]

recipient of credit assistance, as determined necessary by EPA. The 
specific credit agreement between the recipient of credit assistance 
and EPA may contain additional reporting requirements.

[FR Doc. 2016-30194 Filed 12-16-16; 8:45 am]
 BILLING CODE 6560-50-P