HB2408 - 451R

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 ¦                                REFERENCE TITLE: water infrastructure finance authority  ¦
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 ¦ State of Arizona                                                                      ¦
 ¦ House of Representatives                                                              ¦
 ¦ Forty-fifth Legislature                                                               ¦
 ¦ First Regular Session                                                                 ¦
 ¦ 2001                                                                                  ¦
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 ¦                                       HB 2408                                         ¦
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 ¦                                    Introduced by                                      ¦
 ¦ Representatives Huffman, Flake, Carruthers: Blendu, Cannell, Norris, Senators Arzberger, ¦
 ¦               Brown, Guenther, Petersen, Richardson, Solomon, Verkamp                 ¦
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AN ACT

CHANGING THE DESIGNATION OF TITLE 9, CHAPTER 5, ARTICLE 6, ARIZONA REVISED STATUTES, TO "FINANCIAL ASSISTANCE FROM THE WATER INFRASTRUCTURE FINANCE AUTHORITY OF ARIZONA"; CHANGING THE DESIGNATION OF TITLE 11, CHAPTER 4, ARTICLE 4, ARIZONA REVISED STATUTES, TO "FINANCIAL ASSISTANCE FROM THE WATER INFRASTRUCTURE FINANCE AUTHORITY OF ARIZONA"; AMENDING SECTIONS 9-571, 11-671, 49-1203, 49-1223, 49-1224, 49-1225, 49-1243, 49-1244 AND 49-1245, ARIZONA REVISED STATUTES; RELATING TO THE WATER INFRASTRUCTURE FINANCE PROGRAM.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Heading change

The article heading of title 9, chapter 5, article 6, Arizona Revised Statutes, is changed from "WASTEWATER TREATMENT FACILITIES FINANCING" to "FINANCIAL ASSISTANCE FROM THE WATER INFRASTRUCTURE FINANCE AUTHORITY OF ARIZONA".

Sec. 2. Section 9-571, Arizona Revised Statutes, is amended to read:

9-571. Wastewater treatment and drinking water treatment facilities and nonpoint source projects; financial assistance loan repayment agreements; definitions

A. Notwithstanding any other law, a city or town may construct, acquire from a willing ~~provider~~ SELLER or improve a wastewater treatment facility, drinking water facility or nonpoint source project with monies borrowed from or financial assistance including forgivable principal provided by the water infrastructure finance authority of Arizona.

B. To repay ~~a loan~~ FINANCIAL ASSISTANCE from the water infrastructure finance authority of Arizona a city or town may enter into a FINANCIAL ASSISTANCE loan repayment agreement with the authority. A FINANCIAL ASSISTANCE loan repayment agreement is payable from any revenues otherwise authorized by law to be used to repay long-term obligations. If revenue from a property tax assessment is the designated source of repayment under the agreement, the property tax assessed and levied is a secondary property tax levy for purposes of article IX, Constitution of Arizona.

C. The governing body of a city or town shall submit the question of entering and performing a FINANCIAL ASSISTANCE loan repayment agreement to the qualified electors voting at a regular or special general election in the city or town. An election is not required if voter approval has previously been obtained for substantially the same project with another funding source or if the project is constructed with an improvement district. If a majority of the qualified electors voting on the question:

1. Approves, the governing body may execute, deliver and perform the FINANCIAL ASSISTANCE loan repayment agreement.

2. Disapproves, the governing body shall not execute a FINANCIAL ASSISTANCE loan repayment agreement ~~and shall not resubmit the issue to the voters for two years~~.

D. Payments made pursuant to a FINANCIAL ASSISTANCE loan repayment agreement are not subject to section 42-17106.

E. A FINANCIAL ASSISTANCE loan repayment agreement entered into pursuant to this section shall contain the covenants and conditions pertaining to the construction, acquisition or improvement of a wastewater treatment or drinking water facility or nonpoint source project and repayment of the loan as the water infrastructure finance authority of Arizona deems proper. FINANCIAL ASSISTANCE loan agreements may provide for the payment of interest on the unpaid principal balance of such agreement at the rates established in the agreement. The agreement may also provide for payment of the city's or town's proportionate share of the expenses of administering the clean water and drinking water revolving funds established by sections 49-1221 and 49-1241 and may provide that the city or town pay financing and loan administration fees approved by the water infrastructure finance authority. These costs may be included in the levy or assessment amounts pledged to repay the ~~loan~~ FINANCIAL ASSISTANCE. Cities and towns are bound by and shall fully perform the loan repayment agreements, and the agreements are incontestable after the loan is funded by the water infrastructure finance authority of Arizona. The city or town shall also agree to pay the authority's costs in issuing bonds or otherwise borrowing to fund a loan.

F. A FINANCIAL ASSISTANCE loan repayment agreement under this section does not create a debt of the city or town, and the authority shall not require that payment of a FINANCIAL ASSISTANCE loan REPAYMENT agreement be made from other than those sources permitted in subsection B of this section AND AS PRESCRIBED BY SECTIONS 49-1225 AND 49-1245.

G. A city or town may employ attorneys, accountants, financial consultants and such other experts in their field as deemed necessary to perform services with respect to the FINANCIAL ASSISTANCE loan repayment agreement.

H. This section is supplemental and alternative to any other law under which a city or town may borrow money or issue bonds. This section shall not be construed as the exclusive authorization to enter into loan agreements with the authority.

I. A CITY OR TOWN MAY BORROW ADDITIONAL MONIES OR ENTER INTO ADDITIONAL FINANCIAL ASSISTANCE LOAN REPAYMENT AGREEMENTS WITH THE AUTHORITY IN AN AMOUNT UP TO THE AMOUNT APPROVED BY THE VOTERS PURSUANT TO SUBSECTION C OF THIS SECTION LESS THE AMOUNT THAT THE CITY OR TOWN IS ALREADY OBLIGATED TO REPAY TO THE AUTHORITY PURSUANT TO A FINANCIAL ASSISTANCE LOAN REPAYMENT AGREEMENT.

I. J. For purposes of this section:

1. "City" includes both cities formed pursuant to this title and charter cities.

2. "Nonpoint source project" has the same meaning prescribed in section 49-1201.

Sec. 3. Heading change

The article heading of title 11, chapter 4, article 4, Arizona Revised Statutes, is changed from "WASTEWATER TREATMENT FACILITIES FINANCING" to "FINANCIAL ASSISTANCE FROM THE WATER INFRASTRUCTURE FINANCE AUTHORITY OF ARIZONA".

Sec. 4. Section 11-671, Arizona Revised Statutes, is amended to read:

11-671. Financing wastewater treatment facilities and nonpoint source projects; financial assistance loan repayment agreements; definition

A. Notwithstanding any other law, a county authorized to operate a sewage system pursuant to section 11-264 may construct or improve a wastewater treatment facility or nonpoint source project with monies borrowed from or financial assistance provided by the water infrastructure finance authority of Arizona.

B. To repay ~~a loan~~ FINANCIAL ASSISTANCE from the water infrastructure finance authority of Arizona a county may enter into a FINANCIAL ASSISTANCE loan repayment agreement with the authority. A FINANCIAL ASSISTANCE loan repayment agreement is payable from any revenues otherwise authorized by law to be used to pay long-term obligations. If revenue from a property tax assessment is the designated source of repayment under the agreement, the property tax assessed and levied is a secondary property tax levy for purposes of article IX, Constitution of Arizona.

C. The county board of supervisors shall submit the question of entering and performing a FINANCIAL ASSISTANCE loan repayment agreement to the qualified electors voting at a regular or special general election in the county. An election is not required if voter approval has previously been obtained for substantially the same project with another funding source. If a majority of the qualified electors voting on the question:

1. Approves, the board of supervisors may execute, deliver and perform the FINANCIAL ASSISTANCE loan repayment agreement.

2. Disapproves, the board of supervisors shall not execute a FINANCIAL ASSISTANCE loan repayment agreement ~~and shall not resubmit the issue to the voters for two years~~.

D. Payments made pursuant to a FINANCIAL ASSISTANCE loan repayment agreement are not subject to section 42-17106.

E. A FINANCIAL ASSISTANCE loan repayment agreement entered into pursuant to this section shall contain the covenants and conditions pertaining to the construction of a wastewater treatment facility or nonpoint source project and repayment of the loan as the water infrastructure finance authority of Arizona deems proper. FINANCIAL ASSISTANCE loan agreements may provide for the payment of interest on the unpaid principal balance of such agreement at the rates established in the agreement. The agreement may also provide for payment of the county's proportionate share of the expenses of administering the clean water revolving fund established by section 49-1221 and may provide that the county pay financing and loan administration fees approved by the water infrastructure finance authority. These costs may be included in the levy or assessment amounts pledged to repay the ~~loan~~ FINANCIAL ASSISTANCE. Counties are bound by and shall fully perform the loan repayment agreements, and the agreements are incontestable after the loan is funded by the water infrastructure finance authority of Arizona. The county shall also agree to pay the authority's costs in issuing bonds or otherwise borrowing to fund a loan.

F. A FINANCIAL ASSISTANCE loan repayment agreement under this section does not create a debt of the county, and the authority shall not require that payment of a FINANCIAL ASSISTANCE loan agreement be made from other than those sources permitted in subsection B of this section.

G. A county may employ attorneys, accountants, financial consultants and such other experts in their field as deemed necessary to perform services with respect to the FINANCIAL ASSISTANCE loan repayment agreement.

H. This section is supplemental and alternative to any other law under which a county may borrow money or issue bonds. This section shall not be construed as the exclusive authorization to enter into loan agreements with the authority.

I. A COUNTY MAY BORROW ADDITIONAL MONIES OR ENTER INTO ADDITIONAL FINANCIAL ASSISTANCE LOAN REPAYMENT AGREEMENTS WITH THE AUTHORITY IN AN AMOUNT UP TO THE AMOUNT APPROVED BY THE VOTERS PURSUANT TO SUBSECTION C OF THIS SECTION LESS THE AMOUNT THAT THE COUNTY IS ALREADY OBLIGATED TO REPAY TO THE AUTHORITY PURSUANT TO A FINANCIAL ASSISTANCE LOAN REPAYMENT AGREEMENT.

I. J. For purposes of this section, "nonpoint source project" has the same meaning as prescribed in section 49-1201.

Sec. 5. Section 49-1203, Arizona Revised Statutes, is amended to read:

49-1203. Powers and duties of authority; definition

A. The authority is a corporate and politic body and shall have an official seal that shall be judicially noticed. The authority may sue and be sued, contract and acquire, hold, operate and dispose of property.

B. The authority, through its board, may:

1. Issue negotiable water quality bonds pursuant to section 49-1261 for the following purposes:

(a) To generate the state match required by the clean water act for the clean water revolving fund and to generate the match required by the safe drinking water act for the drinking water revolving fund.

(b) To provide financial assistance to political subdivisions, Indian tribes and eligible drinking water facilities for constructing, acquiring or improving wastewater treatment facilities, drinking water facilities, nonpoint source projects and other related water quality facilities and projects.

2. Provide financial assistance to political subdivisions and Indian tribes from monies in the clean water revolving fund to finance wastewater treatment projects.

3. Provide financial assistance to drinking water facilities from monies in the drinking water revolving fund to finance these facilities.

4. Guarantee debt obligations of, and provide linked deposit guarantees through third party lenders to:

(a) Political subdivisions that are issued to finance wastewater treatment projects.

(b) Drinking water facilities that are issued to finance these facilities.

5. Provide linked deposit guarantees through third party lenders to political subdivisions and drinking water facilities.

6. Apply for, accept and administer grants and other financial assistance from the United States government and from other public and private sources.

7. Enter into capitalization grant agreements with the United States environmental protection agency.

8. Adopt rules pursuant to title 41, chapter 6 governing the application for and awarding of wastewater treatment facility, drinking water facility and nonpoint source project financial assistance under this article, the administration of the clean water revolving fund and the drinking water revolving fund and the issuance of water quality bonds.

9. Hire a director and staff for the authority.

10. Contract for the services of outside advisors, attorneys, consultants and aides reasonably necessary or desirable to allow the authority to adequately perform its duties.

11. Contract and incur obligations as reasonably necessary or desirable within the general scope of authority activities and operations to allow the authority to adequately perform its duties.

12. Assess financial assistance origination fees and annual fees to cover the reasonable costs of administering the authority and the monies administered by the authority. Any fees collected pursuant to this paragraph constitute governmental revenue and may be used for any purpose consistent with the mission and objectives of the authority.

13. Perform any function of a fund manager under the CERCLA brownfields cleanup revolving loan fund program as requested by the department. The board shall perform any action authorized under this article on behalf of the brownfields cleanup revolving loan fund program established pursuant to chapter 2, article 1.1 of this title at the request of the department. In order to perform these functions, the board shall enter into a written agreement with the department.

14. PROVIDE GRANTS, STAFF ASSISTANCE OR TECHNICAL ASSISTANCE IN THE FORM OF LOANS, REPAYMENT AGREEMENTS AND OTHER PROFESSIONAL ASSISTANCE TO POLITICAL SUBDIVISIONS INCLUDING SPECIAL DISTRICTS, INDIAN TRIBES AND COMMUNITY WATER SYSTEMS IN CONNECTION WITH THE DEVELOPMENT OR FINANCING OF WASTEWATER, DRINKING WATER, WATER RECLAMATION OR RELATED WATER INFRASTRUCTURE. ASSISTANCE PROVIDED UNDER A TECHNICAL ASSISTANCE LOAN REPAYMENT AGREEMENT SHALL BE IN A FORM AND UNDER TERMS DETERMINED BY THE AUTHORITY AND SHALL BE REPAID NOT MORE THAN THREE YEARS AFTER THE DATE THAT THE MONIES ARE ADVANCED TO THE APPLICANT. THE PROVISION OF TECHNICAL ASSISTANCE BY THE AUTHORITY DOES NOT CREATE ANY LIABILITY FOR THE AUTHORITY OR THIS STATE REGARDING THE DESIGN, CONSTRUCTION OR OPERATION OF ANY INFRASTRUCTURE PROJECT.

C. The board shall deposit, pursuant to sections 35-146 and 35-147, any monies received pursuant to subsection B, paragraph 6 of this section in the appropriate fund as prescribed by the grant or other financial assistance agreement.

D. Disbursements of monies by the water infrastructure finance authority pursuant to a financial assistance agreement are not subject to title 41, chapter 23.

E. For purposes of this section, "CERCLA" has the same meaning prescribed in section 49-201.

Sec. 6. Section 49-1223, Arizona Revised Statutes, is amended to read:

49-1223. Clean water revolving fund; purposes; capitalization grants

A. Monies in the clean water revolving fund may be used for the following purposes:

1. Making wastewater treatment facility and nonpoint source project loans to political subdivisions and Indian tribes under section 49-1225.

2. Purchasing or refinancing debt obligations of political subdivisions or refinancing debt obligations of Indian tribes at or below market rates, provided that the debt obligation was issued after March 7, 1985 for the purpose of constructing, acquiring or improving wastewater treatment facilities or nonpoint source projects.

3. Providing financial assistance to political subdivisions to purchase insurance for local wastewater treatment facility or nonpoint source project bond obligations.

4. Paying the costs to administer the fund, but no more than four per cent of the aggregate of federal capitalization grants may be used to pay these costs. Monies from other sources may be used without limit to pay these costs.

5. Funding other programs that are authorized for federal monies deposited in the fund including programs relating to nonpoint source discharges.

6. Providing linked deposit guarantees through third party lenders by depositing monies with the lender on the condition that the lender make a loan on terms approved by the board, at a rate of return on the deposit approved by the board ~~and the state treasurer~~ and by giving the lender recourse against the deposit of loan repayments that are not made when due.

B. If the monies pledged to secure water quality bonds become insufficient to pay the principal and interest on the water quality bonds that are guaranteed by the clean water revolving fund, the board shall direct the state treasurer to liquidate securities in the fund as may be necessary and apply those proceeds to make current all payments then due on the bonds. The state treasurer shall immediately notify the attorney general and auditor general of the insufficiency. The auditor general shall audit the circumstances surrounding the depletion of the fund and report the findings to the attorney general. The attorney general shall conduct an investigation and report those findings to the governor and the legislature.

C. All proceeds of capitalization grants received from the United States pursuant to the clean water act shall be deposited in the capitalization grant transfer account and shall be used solely to provide financial assistance to political subdivisions and Indian tribes to construct, acquire, restore or rebuild wastewater treatment facilities, to purchase bond insurance or for any other purpose permitted by the clean water act including nonpoint source projects. All principal received on loan repayments made by borrowers pursuant to this section shall be deposited in the clean water revolving fund and shall be invested and used to provide additional financial assistance or shall be used to support the administration of the fund subject to the limits prescribed by the clean water act.

Sec. 7. Section 49-1224, Arizona Revised Statutes, is amended to read:

49-1224. Clean water revolving fund financial assistance; procedures; rules

A. In compliance with any applicable requirements, a political subdivision may apply to the authority for, accept and incur indebtedness as a result of a loan, or other financial assistance under section 49-1223, subsection A, paragraphs 1, 2 and 3, from the clean water revolving fund to support a wastewater treatment facility or nonpoint source project owned by the political subdivision. An Indian tribe may apply to the authority for, accept and incur indebtedness as a result of a loan or refinancing under section 49- 1223, subsection A, paragraphs 1 and 2 from the clean water revolving fund to support a wastewater treatment facility or nonpoint source project owned by the Indian tribe. To qualify for financial assistance under this section the wastewater treatment facility or nonpoint source project must appear on this state's priority list pursuant to section 212 of the clean water act.

B. In compliance with any applicable requirements, the board shall:

1. Prescribe a simplified form and procedure to apply for and approve assistance.

2. Establish by rule criteria by which assistance will be awarded, including requirements for local participation in project costs, if deemed advisable. The criteria shall include a determination of the ability of the applicant to repay a loan according to the terms and conditions established by this section. At the option of the board, the existence of a current investment grade rating on existing debt of the applicant that is secured by the same revenues to be pledged to secure repayment under the loan repayment agreement constitutes evidence regarding ability to repay a loan.

3. Determine the order and priority of projects assisted under this section based on the merits of the application with respect to water quality issues.

C. The authority shall review on its merits each application received and shall inform the applicant of the board's determination within ~~sixty~~ NINETY days after receipt of a complete and correct application. If the application is not approved, the board shall notify the applicant, stating the reasons. If the application is approved, the board may condition the approval on assurances the board deems necessary to ensure that the financial assistance will be used according to law and the terms of the application.

Sec. 8. Section 49-1225, Arizona Revised Statutes, is amended to read:

49-1225. Clean water revolving fund financial assistance; terms

A. Financial assistance from the clean water revolving fund shall be evidenced by a financial assistance agreement or bonds of a political subdivision, THAT ARE delivered to and held by the authority.

B. A loan under this section:

1. Shall be repaid in not to exceed ~~twenty~~ THIRTY years from the date incurred for wastewater treatment facility and nonpoint source loans.

2. Shall require that interest payments begin not later than the next date that either principal or interest must be paid by the authority to the holders of any of the authority's bonds that provided funding for the loan. The authority may provide that loan interest accruing during construction and one year beyond completion of the construction be capitalized in the loan.

3. Shall be conditioned on the establishment of a dedicated revenue source for repaying the loan.

4. To an Indian tribe shall either be conditioned on the establishment of a dedicated revenue source under the control of a tribally chartered corporation, or any other tribal entity that is subject to suit by the attorney general to enforce the loan contract, or be secured by assets that, in the event of default of the loan contract, are subject to execution by the attorney general without the waiver of any claim of sovereign immunity by the tribe.

5. TO A POLITICAL SUBDIVISION SHALL BE SECURED ADDITIONALLY BY AN IRREVOCABLE PLEDGE OF THE SHARED STATE REVENUES DUE THE POLITICAL SUBDIVISION FOR THE DURATION OF THE LOAN AS PRESCRIBED BY A RESOLUTION OF THE AUTHORITY'S BOARD.

C. The authority shall prescribe the rate of interest on loans made under this section, but the rate shall not exceed the prevailing market rate for similar types of loans. The authority may also provide for flexible interest rates and interest free loans under rules adopted by the authority. All financial assistance agreements or bonds of a political subdivision shall clearly specify the amount of principal and interest and any redemption premium that is due on any payment date.

D. The approval of a loan is conditioned on a written commitment by the political subdivision or Indian tribe to complete all applicable reviews and approvals and to secure all required permits in a timely manner.

E. All monies received from political subdivisions or Indian tribes as loan repayments, interest and penalties shall be deposited in the appropriate accounts of the clean water revolving fund.

F. IF A POLITICAL SUBDIVISION FAILS TO MAKE ANY PAYMENT DUE TO THE AUTHORITY UNDER ITS LOAN REPAYMENT AGREEMENT OR BONDS, THE AUTHORITY SHALL CERTIFY TO THE STATE TREASURER AND NOTIFY THE GOVERNING BODY OF THE DEFAULTING POLITICAL SUBDIVISION THAT THE POLITICAL SUBDIVISION HAS FAILED TO MAKE THE REQUIRED PAYMENT AND SHALL DIRECT A WITHHOLDING OF STATE SHARED REVENUES AS PRESCRIBED IN SUBSECTION G OF THIS SECTION. THE CERTIFICATE OF DEFAULT SHALL BE IN THE FORM DETERMINED BY THE AUTHORITY, EXCEPT THAT THE CERTIFICATE SHALL SPECIFY THE AMOUNT REQUIRED TO SATISFY THE UNPAID PAYMENT OBLIGATION OF THE POLITICAL SUBDIVISION.

G. ON RECEIPT OF A CERTIFICATE OF DEFAULT FROM THE AUTHORITY, THE STATE TREASURER TO THE EXTENT NOT EXPRESSLY PROHIBITED BY LAW SHALL WITHHOLD THE MONIES DUE TO THE DEFAULTING POLITICAL SUBDIVISION FROM THE NEXT SUCCEEDING DISTRIBUTION OF MONIES PURSUANT TO SECTION 42-5029. IN THE CASE OF A CITY OR TOWN, THE STATE TREASURER SHALL ALSO WITHHOLD FROM THE MONIES DUE TO THE DEFAULTING CITY OR TOWN FROM THE NEXT SUCCEEDING DISTRIBUTION OF MONIES PURSUANT TO SECTION 43-206 THE AMOUNT SPECIFIED IN THE CERTIFICATE OF DEFAULT AND SHALL IMMEDIATELY DEPOSIT THE MONIES IN THE FUND. THE STATE TREASURER SHALL CONTINUE TO WITHHOLD AND DEPOSIT MONIES UNTIL THE AUTHORITY CERTIFIES TO THE STATE TREASURER THAT THE DEFAULT HAS BEEN CURED. THE STATE TREASURER SHALL NOT WITHHOLD ANY AMOUNT THAT IS NECESSARY TO MAKE ANY REQUIRED DEPOSITS THEN DUE FOR THE PAYMENT OF PRINCIPAL AND INTEREST ON BONDS OF THE POLITICAL SUBDIVISION IF SO CERTIFIED BY THE DEFAULTING POLITICAL SUBDIVISION TO THE STATE TREASURER AND THE AUTHORITY. THE POLITICAL SUBDIVISION SHALL NOT CERTIFY DEPOSITS AS NECESSARY FOR PAYMENT FOR BONDS UNLESS THE BONDS WERE ISSUED BEFORE THE DATE OF THE LOAN REPAYMENT AGREEMENT AND THE BONDS WERE SECURED BY A PLEDGE OF DISTRIBUTION MADE PURSUANT TO SECTIONS 42-5029 AND 43-206.

Sec. 9. Section 49-1243, Arizona Revised Statutes, is amended to read:

49-1243. Drinking water revolving fund; purposes; capitalization grants

A. Monies in the drinking water revolving fund may be used for the following purposes:

1. Making drinking water facility loans including forgivable principal to political subdivisions of this state, Indian tribes under section 49-1245 and other eligible entities as determined by the board pursuant to the safe drinking water act.

2. Making drinking water facility loans under section 49-1244.

3. Purchasing or refinancing debt obligations of drinking water facilities at or below market rate if the debt obligation was issued after July 1, 1993 for the purpose of constructing, acquiring or improving drinking water facilities.

4. Providing financial assistance to drinking water facilities to purchase insurance for local drinking water facility bond obligations.

5. Paying the costs to administer the fund but not more than four per cent of the aggregate of federal capitalization grants may be used to pay these costs. Monies from other sources may be used without limit to pay these costs.

6. Funding other programs that are authorized pursuant to the safe drinking water act.

7. Providing linked deposit guarantees through third party lenders by depositing monies with the lender on the condition that the lender make a loan on terms approved by the board, at a rate of return on the deposit approved by the board ~~and the state treasurer~~ and by giving the lender recourse against the deposit of loan repayments that are not made when due.

B. If the monies pledged to secure water quality bonds become insufficient to pay the principal and interest on the water quality bonds guaranteed by the drinking water revolving fund, the board shall direct the state treasurer to liquidate securities in the fund as may be necessary and shall apply those proceeds to make current all payments then due on the bonds. The state treasurer shall immediately notify the attorney general and auditor general of the insufficiency. The auditor general shall audit the circumstances surrounding the depletion of the fund and report the findings to the attorney general. The attorney general shall conduct an investigation and report those findings to the governor and the legislature.

C. All proceeds of capitalization grants received from the United States pursuant to the safe drinking water act shall be deposited in the capitalization grant transfer account and shall be used solely to make loans to drinking water facilities to construct, acquire, restore or rebuild these facilities, to purchase bond insurance or for any other purpose permitted by the safe drinking water act. All principal received on loan repayments made by borrowers under this section shall be deposited in the drinking water revolving fund and shall be invested, used to provide financial assistance or used to support the administration of the fund subject to the limits defined in the safe drinking water act.

Sec. 10. Section 49-1244, Arizona Revised Statutes, is amended to read:

49-1244. Drinking water revolving fund financial assistance; procedures

A. In compliance with any applicable requirements, a drinking water facility may apply to the authority for and accept and incur indebtedness as a result of a loan or any other financial assistance pursuant to section 49-1243, subsection A, paragraphs 2, 3 and 4 from the drinking water revolving fund to construct, acquire or improve a drinking water facility. To qualify for financial assistance pursuant to this section, the drinking water facility must appear on this state's priority list pursuant to the safe drinking water act.

B. In compliance with any applicable requirements, the board shall:

1. Prescribe a simplified form and procedure to apply for and approve assistance.

3. Determine the order and priority of projects assisted under this section based on the merits of the application with respect to water quality issues.

Sec. 11. Section 49-1245, Arizona Revised Statutes, is amended to read:

49-1245. Drinking water revolving fund financial assistance; terms

A. A loan from the drinking water revolving fund shall be evidenced by a loan repayment agreement or bonds of a political subdivision, THAT ARE delivered to and held by the authority.

B. A loan under this section:

1. Shall be repaid in not to exceed thirty years from the date incurred for drinking water facility loans.

3. Shall be conditioned on the establishment of a dedicated revenue source for repaying the loan.

~~4. Shall not be made for the nonfederal share of any project that has received a grant under section 201 of the clean water act.~~

5. 4. To an Indian tribe shall either be conditioned on the establishment of a dedicated revenue source under the control of a tribally chartered corporation, or any other tribal entity that is subject to suit by the attorney general to enforce the loan contract, or be secured by assets that, in the event of default of the loan contract, are subject to execution by the attorney general without the waiver of any claim of sovereign immunity by the tribe.

C. The authority shall prescribe the rate of interest on loans made under this section, but the rate shall not exceed the prevailing market rate for similar types of loans. The authority may also provide for flexible interest rates, interest free loans and forgivable principal under rules adopted by the authority. All financial assistance agreements or bonds of a political subdivision shall clearly specify the amount of principal and interest and any redemption premium that is due on any payment date.

E. All monies received from political subdivisions or Indian tribes as loan repayments, interest and penalties shall be deposited in the appropriate accounts of the drinking water revolving fund.