The proposed revised regulations are for the New York State Water Pollution Control Revolving Fund ("CWSRF"), Section 1285-j of the Public Authorities Law ("PAL"), co-administered by the New York State Environmental Facilities Corporation ("EFC") and the New York State Department of Environmental Conservation ("DEC") and established by the Legislature pursuant to Chapter 565 of the Laws of 1989.

2. PURPOSE

The proposed regulations set forth rules and procedures whereby DEC and EFC can implement the statutory provisions of the Water Pollution Control Linked Deposit Program Act ("Act"), which was created by the Legislature pursuant to Chapter 262 of the Laws of 2007. The Act created a new program, the Linked Deposit Program ("LDP"), under the CWSRF. The Act allows for LDP investments to be made from the CWSRF to offset interest on loans made by certain lenders for: (i) repairs/replacements of septic systems or abandonment of on-site wastewater management systems and connections to sewers, when a sewer becomes available, for residences and small businesses; and (ii) the implementation of management programs for agricultural projects established under Section 319 of the Federal Water Pollution Control Act.

3. GENERAL SUBSTANCE

It is proposed to amend the CWSRF regulations found within 21 NYCRR Part 2602 in the following manner (companion regulations found within 6 NYCRR Part 649 will also be amended):

The proposed regulatory amendments add new Section 2602.5 to the CWSRF regulations, as well as important definitions to conform to and implement the provisions of the Act. The proposed amendments will also set forth the eligibility criteria for prospective borrowers carrying out certain water quality improvement projects, as well as the eligibility criteria for prospective lenders to participate in the LDP.

A new definition of "Linked loan recipient" will be added, which means any person who is: (i) an individual or small business eligible to undertake an eligible project related to residential and small business on-site wastewater treatment systems; (ii) an entity receiving or eligible to receive an agricultural assessment pursuant to article twenty-five AA of the Agriculture and Markets Law, which is eligible to undertake an eligible project; (iii) any two or more of the foregoing which are acting jointly in connection with an eligible project; or (iv) another recipient as may be approved by the Corporation and permitted by applicable law. Small businesses are defined under the proposed regulations as New York businesses which are independently owned and operated, not dominant in their field and which employ no more than 100 persons.

Under the LDP, EFC provides a deposit with a qualified lender who will provide a loan to the LDP borrower in the same amount of the deposit at a reduced interest rate offset by certain investment earnings on EFC's linked deposit. "Linked deposit" is defined under the regulations as financial assistance undertaken by EFC for the construction of an eligible project through an investment eligible to be held by an eligible lender. "Lender" is defined under the proposed regulations to mean any state or federally-chartered savings bank, savings and loan association, federal savings bank, federal savings and loan association, farm credit institution, or commercial bank or trust company approved by EFC to accept linked deposits. EFC is also required under the regulations to develop and maintain a list of eligible lenders and develop a LDP application to be provided to eligible lenders.

In order to implement the expansion of the types of projects eligible for CWSRF assistance to include LDP projects, certain definitions will have to be added to the regulations. It is proposed to add a new definition of "Linked loan project", which includes: (i) projects for the implementation of a management program under Section 319 of the Federal Water Pollution Control Act related to agricultural operations; (ii) the upgrade or replacement of residential and small business on-site water treatment systems with a system approved by the state or local government department of health; or (iii) the abandonment of residential and small business on-site wastewater treatment systems and connection to a sewer, when a sewer becomes available.

The proposed new regulations also establish procedures for the submittal of LDP applications by the lender and governmental approvals. Under the proposed regulations, the lender is required to forward a completed application along with all the material terms and conditions of the linked loan to EFC for its review. Upon receipt of a completed application from the lender, EFC has the authority to either approve or deny such application based on its eligibility for LDP assistance. Upon approval of the application by EFC, the application is forwarded by EFC to the Department of Agriculture and Markets ("DAM") for concurrent approval for agricultural projects and to the Department of State ("DOS") for concurrent approval of residential and small business on-site wastewater treatment systems.

It is also proposed that EFC's Project Priority System be expanded to include a new Category (Category F) for LDP projects allowed under the Act. Pursuant to the proposed regulations, CWSRF funds available for Category F shall be distributed in the form of linked deposits on a first-come, first-served basis as completed applications are received and approved by EFC. If a completed application is received by EFC which exceeds the amount remaining in Category F, EFC may reject the application or fund the linked deposit up to the amount remaining in Category F. Under the Act, a maximum of $10 million from the CWSRF can be used in the LDP program per fiscal year.

EFC, DEC, DAM and DOS have all been involved in a coordinated drafting and review of the LDP regulations from the start and have all reviewed and approved of the provisions of these proposed regulations and the provisions of this rulemaking package.

The full text of this rule is available on EFC's website at: www.nysefc.org

1. STATUTORY AUTHORITY

When the Legislature enacted Chapter 565 of the Laws of 1989, it created the New York State Water Pollution Control Revolving Fund ("CWSRF") and, in part, amended the State's Public Authorities Law ("PAL") creating Section 1285-j, which sets forth the provisions of the CWSRF. Under Environmental Conservation Law Section 17-1909(3), the New York State Department of Environmental Conservation ("DEC") is given statutory authority to promulgate regulations to fulfill its purposes under the CWSRF. Under Section 1285-j of the PAL, the New York State Environmental Facilities Corporation ("EFC") is given the statutory authority to administer the CWSRF. Pursuant to Section 1285-j(4) of the PAL, the Legislature provided that moneys in the CWSRF be applied by EFC to provide financial assistance to municipalities for the construction of eligible projects and, upon consultation with the director of the division of the budget and the commissioner of DEC, for such other purposes permitted by the Federal Water Pollution Control Act, as amended.

Section 1284, which sets forth the general powers of EFC, states that EFC has the power "….to make and alter by-laws for its organization and internal management, and rules and regulations governing the exercise of its powers and fulfillment of its purposes under this title…" PAL Section 1284(5). Section 243 of the State Finance Law, set forth in the Linked Deposit Program ("LDP") legislation, gives EFC the authority to promulgate rules and regulations necessary and reasonable for the operation of the LDP. In addition, EFC is empowered to provide financial assistance for the types of projects covered under the LDP under Section 319 of the Federal Water Pollution Control Act, which authorizes states to implement nonpoint source management plans.

2. LEGISLATIVE OBJECTIVES

In creating the LDP under the State Finance Law, the Legislature directed EFC, DEC, the Department of State ("DOS") and the Department of Agriculture and Markets ("DAM") to provide financial assistance in support of the types of projects permitted under the LDP in order to encourage and assist eligible borrowers within the state to undertake eligible projects to reduce, control or prevent water pollution. The United States Environmental Protection Agency ("EPA") has also consistently encouraged the states to expand the types of projects and borrowers eligible for funding under the CWSRF. The proposed rulemaking is compatible with and mirrors the provisions and requirements of Chapter 262 of the Laws of 2007, which created the LDP. This compatibility includes: (i) matching the defined terms in the proposed regulations to those set forth in the LDP legislation; (ii) setting forth procedures for the submittal and approval of LDP applications which conform to the requirements mandated by the Legislature; and (iii) requiring consultation and cooperation with DEC, DOS and DAM in connection with administration of the LDP program.

The Legislature also specifically authorized EFC to use funds in the CWSRF program to provide financial assistance for the LDP program and to promulgate rules and regulations in connection with the LDP. Since the Legislature empowered EFC to use a specific fund to finance LDP projects and to promulgate regulations necessary and reasonable for the operation of the LDP program, the proposed amendments to the CWSRF regulations are entirely consistent with and advance the public policy objectives sought by the Legislature when the LDP legislation was enacted.

3. NEEDS AND BENEFITS

The purpose of these proposed amendments to the CWSRF regulations is to set forth rules and procedures whereby DEC and EFC can implement the statutory provisions of the Water Pollution Control Linked Deposit Program Act (the "Act"). These amended regulations are needed because DEC and EFC need to set forth clear and concise internal regulatory guidelines as to what types of projects are eligible for financing under the LDP, what procedures need to be followed in connection with the submittal and approval of LDP applications, what type of consultation is needed among DEC, EFC, DAM and DOS for administering the program and what types of lenders are eligible to participate in the LDP. The proposed regulations also add a new Category F under the CWSRF Intended Use Plan ("IUP"), which is needed in order to comply with the Act's requirement that the Commissioner of DEC establish and maintain a list or potentially eligible projects and eligible borrowers for the LDP under the IUP. Also, based upon guidance issued by EPA beginning in 1993 and thereafter, states have been encouraged by EPA to further expand the types of projects eligible for financing through the CWSRF. By encouraging financing through the CWSRF, EPA has effectively requested that states fund a vast range of water quality projects, including those carried out by private entities, through the CWSRF. Accordingly, pursuant to these policy objectives and the LDP legislation, EFC has prepared amendments to such regulations and is now submitting the same for review and adoption.

The benefits from the promulgation of these proposed regulations is that DEC, EFC, DOS and DAM staff will find it easier and less confusing to administer the program and provide financial assistance because there will be specific guidelines as to what constitutes eligible projects, eligible lenders and what procedures are required for submittal and approval of LDP applications. These proposed regulatory amendments will benefit prospective borrowers and lenders by making low-cost financing available to fund these environmental projects. These amendments will also benefit the residents of New York State by encouraging and assisting the undertaking of projects that improve the environmental quality within the state, which is entirely consistent with EFC's statutory purposes set forth in Section 1283, PAL.

4. COSTS

The proposed amendments will not result in any additional costs to any regulated parties, to EFC or to state and local governments for the implementation and continuation of the rule.

5. PAPERWORK

None. The proposed amendments do not require any additional paperwork. Participation in the LDP through the CWSRF is entirely voluntary. Anyone choosing to apply for financial assistance from the LDP and any lender willing to participate under the LDP would simply have to submit the documentation required for a complete application to EFC for its consideration and review.

6. LOCAL GOVERNMENT MANDATES

None. Participation in the LDP through the CWSRF is entirely voluntary. Anyone choosing to apply for financial assistance from the LDP and any lender willing to participate under the LDP would simply have to submit the documentation required for a complete application to EFC for its consideration and review.

7. DUPLICATION

The proposed amendments to 21 NYCRR Part 2602 will be mirrored in DEC's CWSRF regulations found in 6 NYCRR Part 649 with the exception of the provisions pertaining to new Project Priority List Category F.

8. ALTERNATIVES

Three alternatives for modification of the CWSRF regulations with respect to the LDP have been considered, including: (i) taking no action; (ii) delaying changes to the CWSRF program regulations for implementation of the LDP; and (iii) instituting changes to the CWSRF regulations now for implementation of the LDP. In light of the clear requirement of the Act that each project be listed in the IUP, it is necessary to amend the CWSRF regulations now to accommodate the LDP. Therefore, the last alternative is the only acceptable and viable option.

9. FEDERAL STANDARDS

The proposed amendments do not exceed any minimum federal government standards.

10. COMPLIANCE SCHEDULE

EFC is required under the Water Pollution Control Linked Deposit Program Act to submit on or before February 1, 2010 and annually thereafter, to the governor, the temporary president of the senate and the speaker of the assembly a report regarding the activities of the LDP. In addition, the Act provides that LDP loans may not be made after September 30, 2011.

The New York State Environmental Facilities Corporation ("EFC") has determined that, pursuant to Section 202-b(3)(a) of the State Administrative Procedure Act, a regulatory flexibility analysis is not required. The proposed regulations in connection with the Clean Water State Revolving Fund ("CWSRF") Program to provide financial assistance for linked deposit projects will not impose an adverse economic impact on small businesses or local governments and will not impose reporting, recordkeeping or other compliance requirements on small businesses or local governments.

The CWSRF provides a process whereby low-cost financial assistance may be obtained by municipalities and private borrowers for the construction of treatment works, such as water pollution control facilities and wastewater treatment plants, the implementation of a state's approved non-point source ("NPS") management plan or a state's approved estuary management plan. The proposed CWSRF regulations in connection with the Linked Deposit Program ("LDP") will extend this low-cost financing to agricultural operations, the upgrade or replacement of residential and small business on-site wastewater treatment systems or the abandonment of residential and small business on-site wastewater treatment systems and connection to a sewer, when a sewer becomes available, which will have positive impacts on small businesses and no adverse impacts on local governments. Participation in the program is intended to result in a financial benefit for the borrower applying for assistance and the lender participating in the Linked Deposit Program ("LDP"). Participation in the program is also voluntary and any reporting, recordkeeping or other requirements are imposed only if the borrower and the lender elect to participate in the program.

EFC is planning an extensive outreach program in order to make prospective small business owners aware of the benefits of low-cost financing available through the LDP. EFC, in conjunction with the New York State Department of Environmental Conservation ("DEC"), the New York State Department of Agriculture ("DAM'), the New York State Department of State ("DOS") and the New York State Department of Health ("DOH") is planning on contacting various lenders, including banks and farm credit institutions and providing written materials, such as brochures, that the lenders can provide to homeowners, small businesses and farmers seeking financial assistance for on-site wastewater treatment systems and agricultural operations. Also, should the appropriate DOH be required to inspect a septic system and determine that the system is defective, such agency can provide the homeowner, small business owner or farmer with information regarding the financing of the upgrade or replacement of the system through the LDP.

For the same reasons, it is economically and technically feasible for small businesses and local governments to comply with these regulations. This conclusion is based upon the express nature and purpose of the statutes authorizing the CWSRF, the LDP and the regulations proposed herein.

The New York State Environmental Facilities Corporation has determined that, pursuant to Section 202-bb(4)(a) of the State Administrative Procedure Act, a rural area flexibility analysis is not required. The proposed regulations in connection with the Clean Water State Revolving Fund ("CWSRF") Program to provide financial assistance for linked deposit projects will not impose an adverse economic impact on rural areas and will not impose reporting, recordkeeping or other compliance requirements on rural areas.

The CWSRF provides a process whereby low-cost financial assistance may be obtained by municipalities and private borrowers for the construction of treatment works, such as water pollution control facilities and wastewater treatment plants, the implementation of a state's approved non-point source ("NPS") management plan or a state's approved estuary management plan. The proposed CWSRF regulations in connection with the Linked Deposit Program ("LDP") will extend this low-cost financing to agricultural operations, the upgrade or replacement of residential and small business on-site wastewater treatment systems or the abandonment of residential and small business on-site wastewater treatment systems and connection to a sewer, when a sewer becomes available, which will have positive impacts on rural areas, especially those areas engaged in agricultural operations. Participation in the program is intended to result in a financial benefit for the borrower applying for assistance and for the lender participating in the LDP. Participation in the program is also voluntary and any reporting, recordkeeping or other requirements are imposed only if the borrower and the lender elect to participate in the program.

This conclusion is based upon the express nature and purpose of the statutes authorizing the CWSRF, the LDP and the regulations proposed herein.

The New York State Environmental Facilities Corporation has determined that, pursuant to Section 201-a(2)(a) of the State Administrative Procedure Act, a job impact statement is not required. It is apparent from the nature and purpose of the proposed rulemaking in connection with the Linked Deposit Program ("LDP") that it will not have an adverse impact on jobs and employment opportunities.

Under the LDP, EFC provides a deposit with an eligible lender who then provides a loan to the LDP borrower in the same amount of the deposit at a reduced interest rate to offset certain investment earnings on EFC's linked deposit. EFC's linked deposit is the financial assistance undertaken by EFC for the construction of an eligible project through an investment eligible to be held by such eligible lender. The proposed amendments to the CWSRF regulations will make low-cost financial assistance available to small businesses for on-site wastewater treatment systems, which will result in savings to such businesses for capital related expenditures and have a positive impact on job opportunities and employment. The regulations will also make such financing available to agricultural operations, particularly with respect to agricultural management plans, resulting in overhead savings for businesses engaging in such activities. In addition, these proposed amendments will result in the planning, design and construction of a new category of environmental projects to reduce, control or prevent water pollution. This will have a positive impact on job opportunities for any engineers, accountants, attorneys and various consultants working in conjunction with the borrowers and lenders engaged in such projects.

This conclusion is based upon the express nature and purpose of the statutes authorizing the CWSRF, the LDP and the regulations proposed herein.