APRIL 17, 1997


DISCUSSION: Water reclamation projects currently receive state loan assistance from two State Water Resources Control Board (SWRCB) programs: the Water Reclamation Loan Program (WRLP) and the State Revolving Fund Loan Program (SRF). The WRLP is financed by two bond laws approved in 1984 and 1988. The Water Reclamation Loan Program Guidelines were adopted by the SWRCB on June 16, 1994.

Proposition 204 was passed by the voters on November 8, 1996. Titled the Safe, Clean, Reliable Water Supply Act (1996 Bond Law), the proposition included $60 million in state assistance for water reclamation projects. The funds can be used for low-interest loans for design and construction and for grants for facilities planning, and the funds would be administered by the SWRCB. To incorporate the provisions for these loans and grants, the Water Reclamation Loan Program Guidelines have been redrafted and renamed the Water Recycling Funding Guidelines, which are the subject of this agenda item and are attached.

There are a number of policy issues that have been identified to incorporate the new provisions of the 1996 Bond Law into functional programs. The issues, staff recommendations, and rationales are presented below. The section where each issue is addressed in the draft guidelines is cited after each issue question.

Planning Grants

1. Issue: Should planning grants be limited to a share of eligible costs? (Sections III.C, III.G)

Recommendation: Planning grants should be limited to a 50 percent share of eligible costs, up to the statutory maximum grant of $75,000.

Rationale: The maximum allowable grant ($75,000) is insufficient to fund an adequate facilities plan for most projects. Requiring a local share provides an incentive to invest in better planning up to $150,000 in total costs.

2. Issue: Should grants be limited to projects that appear to augment the state or local water supply? (Section III.C)

Recommendation: Yes.

Rationale: The bond funds and SWRCB resources should be used in the most effective way to benefit the state. The primary focus of the 1996 Bond Law program for water recycling is to augment water supply. Thus, planning grants should be used for proposed studies that appear likely to yield projects that augment water supply.

3. Issue: Should grants be provided only to projects that will reclaim treated municipal wastewater? (Section III.B)

Recommendation: Yes.

Rationale: Water recycling projects that involve a need to establish a market for recycled water are in particular need for a thorough planning effort. Recycled polluted groundwater typically is fed directly into a potable or freshwater supply, whereas recycled municipal wastewater is typically distributed in a separate pipeline system to multiple users. There are many jurisdictional, water pricing, user acceptance, and other issues to confront in planning for reuse of municipal wastewater. The SWRCB staff proposed the grant concept for the 1996 Bond Law because projects involving the delivery of treated municipal wastewater especially fit this situation and would derive the most benefit of grants to assist in planning.

4. Issue: Should there be a time limit on the completion of grant-funded planning studies? (Section III.C)

Recommendation: Yes, a deadline should be established based on an agency=s initial estimated completion date with an option for up to an additional twelve months based on Office of Water Recycling (OWR) approval. Time extensions beyond twelve months should require SWRCB approval.

Rationale: There has been a problem in the past with the funding of planning because some studies become stagnant without conclusion, tying up funds and administration unnecessarily. A reasonable time limit, based on each study=s needs, will lead to more efficient administration of this program and stimulate a serious effort by the grant recipients.

5. Issue: Should grant payments be made in two disbursements: 50 percent at submittal of draft plan, 100 percent after approval of final plan? (Section III.H)

Recommendation: Grant payments should be made in two disbursements.

Rationale: Because of the relatively small amount of the grants compared to the total planning cost, limiting the grants to two disbursements will improve the efficiency of program administration without creating a cash flow burden on agencies.

6. Issue: Should OWR accept a final report for a grant that does not recommend a viable recycling project? (Section III.F)

Recommendation: The OWR should accept a final report that does not recommend a viable recycling project.

Rationale: It is not always possible to foresee whether there is viable recycling project in a community. There are many factors that can prevent a viable project. Planning should be encouraged where the conditions for water recycling appear to be favorable, without forcing an artificial recommendation for a project in order to receive payment on a grant.

Design and Construction Loans

1. Issue: Should loans under 1996 Bond Law for design and construction of a water recycling project be conditioned upon receipt of an acceptable facilities plan? (Section VIII)

Recommendation: An acceptable facilities plan should be required for approval of a loan for a water recycling project.

Rationale: There are many factors that must be considered in the development of a successful water recycling project. A facilities plan is the best method of documenting the analysis of a project before recommendation for implementation.

2. Issue: Should projects be required to be cost-effective based on their project objective as a condition for receipt of a loans under 1996 Bond Law for water recycling projects? (Sections I.E, VII)

Recommendation: Yes. However, an option should be provided for the SWRCB to review a staff determination that a project is not cost-effective.

Rationale: Public funds should be spent in the wisest manner. Demonstration of cost-effectiveness should be a condition for receipt of a state loan. Cost-effectiveness and economic efficiency are factors mentioned in the 1996 Bond Law in relation to this program and water recycling projects (Water Code Sections 78500.2(c) and 78622).

3. Issue: As part of the cost-effectiveness analysis, should an economic analysis be required for loans under 1996 Bond Law, as appropriate to the project purpose? (Sections II.A.1, VII)

Recommendation: An economic analysis should be required as part of the cost-effectiveness for loans under the 1996 Bond Law.

Rationale: An economic analysis is traditionally a major component of determining cost-effectiveness. Economic feasibility is one of the factors that is stated in the declarations of the 1996 Bond Law to determine the desirability of water recycling (Water Code Section 78500.2(c)).

4. Issue: Should the loan cap for projects under the WRLP be raised from $5 million to the statutory limit of $10 million for 1984 Bond Law funds and should there be a loan cap of $15 million for 1996 Bond Law funds? (Section IV.A)

Recommendation: The loan cap for projects under the WRLP should be raised from $5 million to the statutory limit of $10 million for 1984 Bond Law funds. There should be a loan cap of $15 million for 1996 Bond Law funds for water recycling projects.

Rationale: Because of the limited bond funds allocated specifically to water recycling, the SWRCB has relied upon the State Revolving Fund (SRF) to fund the more expensive projects. By augmenting loan funds designated for water recycling, the 1996 Bond Law helps make available a fairly large and secure pool of funds restricted to water recycling. Using loan applications received since June 1989 as a basis for anticipating the future, a $15 million cap would have allowed funding of 81 percent of loan applications and 53 percent of loan expenditures from the WRLP. Raising the loan cap for the WRLP to $15 million would release more funds in the SRF for pollution control projects. At the same time, placing a cap on 1996 Bond Law loans will extend the recycling funds to more projects.

5. Issue: Should SRF funds continue to be used to supplement the WRLP for water supply-type water recycling projects that augment the state water supply if the loan amount exceeds $15 million or if the WRLP has insufficient funds? (Section I.D.1)

Recommendation: Yes.

Rationale: While the SRF is intended mainly for water pollution control projects, the state has been given latitude to use the funds for other purposes and has been using funds for water-supply type water recycling projects. With the addition of 1996 bond funds for recycling, it is proposed to raise the cap for water recycling loans under the WRLP and reduce the need for SRF funds. Nevertheless, the availability of SRF funds will assist the more expensive recycling projects.

6. Issue: Should the funding of water recycling projects intended primarily to meet pollution control needs continue to be limited to the SRF? (Section I.D.2)

Recommendation: Yes.

Rationale: The SRF is available to fund water recycling projects when recycling is the cost-effective alternative for meeting pollution control requirements. However, the 1996 Bond Law makes available loan funds for water recycling projects that could serve the same purpose. Nevertheless, the primary function of the 1996 Bond Law recycling funds is clearly to serve water supply, as stated in the declarations of the bond law. For the ease of administration of pollution control projects, it is recommended that the SWRCB continue to fund all pollution control-type water recycling projects under the SRF.

7. Issue: Should agencies using a mandatory use ordinance for market assurance be allowed to avoid submission of letters of intent or notifications of users under certain conditions before receiving a loan? (Section IX.A)

Recommendation: Yes.

Rationale: In some cases a portion of the market for recycled water consists of users that are already plumbed and metered for using recycled water and are using potable water on an interim basis until recycled water becomes available. If the recycled water retailer has a mandatory use ordinance and a history of successful implementation of the ordinance under these conditions, this situation is considered an adequate assurance that the plumbed users will take recycled water without documentation of individual notification.

8. Issue: Should agencies be encouraged to place projects on the SRF priority list and should the SRF requirements for environmental review be imposed on 1996 Bond Law funded projects? (Section IV.B)

Recommendation: Yes.

Rationale: There are now four sources of funds under two programs for water recycling projects. Certain SRF requirements apply not only to the SRF but also to 1984 Bond Law funds. At any given time, depending on the current loan caps, the eligible project cost, and availability of uncommitted funds in each source, the OWR desires to have the flexibility to assign a project to any of the sources that best serves the interests of the programs. The SRF requirements for placement on the priority list and environmental review involve minor additional tasks by applicants and allow flexibility to manage the programs.

9. Issue: Should the preliminary loan commitment expire eight weeks after the applicant=s scheduled date for submittal of final plans and specifications? Should OWR by authorized to extend this commitment by up to 90 days for good cause? (Section V)

Recommendation: Yes.

Rationale: This requirement is already specified in the SRF and has been applied to the WRLP, even though it is not stated in the guide-lines. It was established because of delays, sometimes for several years, in projects after a preliminary loan commitment. The commit-ment prevents funds from being allocated to other projects that may be more ready to proceed. The SWRCB has placed caps on all of the loan programs because of a shortage of funds. It is unfair to some applicants if others are blocking use of funds that they are not prepared to use.

10. Issue: Should land or right-of-way purchases be eligible under the WRLP? (Section X.B.1)

Recommendation: Land, easements, or right-of-way purchases should not be made eligible under the WRLP.

Rationale: Land, easements, and rights-of-way purchases are not eligible under the SRF and 1984 Bond Law loans. There have been only rare instances of such costs being requested for eligibility, so a change in policy on this would have negligible consequence on applicants. To maintain program flexibility and to simplify the process through uniformity, it is recommended that the SWRCB eliminate eligibility of these costs.

POLICY ISSUE: Should the SWRCB adopt the revised Water Recycling Funding Guidelines addressing the issues discussed above?


FISCAL IMPACT: The availability of an additional $60 million for water reclamation projects may generate additional applications for loans and grants. These projects would be funded by bonds and the revolving fund established by the 1996 Bond Law. The bond law provides for not more than 3 percent of the total amount of funds to be spent for administration of the funding programs and additional authorized expenditures of the bonds.

STAFF RECOMMENDATION: That the SWRCB adopt the revised Water Recycling Funding Guidelines shown in the attachment.

[Guidelines not available electronically but a copy can be obtained by calling Rich Mills at (916) 227-4578].





1. The Clean Water Bond Law of 1984, the Clean Water and Water Reclamation Bond Law of 1988, and the Safe, Clean, Reliable Water Supply Act were passed by the voters in 1984, 1988, and 1996, respectively;

2. These bond laws provide funds for State loans for water reclamation projects and grants for water reclamation facilities planning studies;

3. The State Water Resources Control Board (SWRCB) administers the State Revolving Fund Loan Program;

4. The SWRCB adopted revised policies and procedures, called the AWater Reclamation Loan Program Guidelines,@ on June 16, 1994 to administer loans authorized in the 1984 and 1988 bond laws;

5. The SWRCB adopted a revision of APolicy for Implementing the State Revolving Fund for Construction of Wastewater Treatment Facilities@ on January 18, 1996, which included funding for water reclamation projects for water supply purposes and incorporated the AWater Reclamation Loan Program Guidelines@ for use on water reclamation projects;

6. The staff has proposed revisions to the guidelines to implement the provisions of the 1996 bond law and incorporate other minor changes to improve the administration of the water reclamation funding programs.


The SWRCB adopts the proposed AWater Recycling Funding Guidelines@ for use in the Water Recycling Loan Program, the Water Recycling Facilities Planning Grant Program, and the State Revolving Fund Loan Program.



The undersigned, Administrative Assistant to the Board, does hereby certify that the foregoing is a full, true, and correct copy of a resolution duly and regularly adopted at a meeting of the State Water Resources Control Board held on April 17, 1997.


Maureen Marché

Administrative Assistant to the Board