ITEM 12: CONSIDERATION OF APPROVAL OF A RESOLUTION TO PROVIDE STATE REVOLVING FUND ASSISTANCE TO MERCED COUNTY FOR THE ANIMAL CONFINEMENT DRAINAGE IMPROVEMENTS PROJECT (LOAN NO. C-06-6050-110)

DISCUSSION: Merced County (County) submitted an application for a $10 million State Revolving Fund (SRF) loan to fund a portion of the Merced County Animal Confinement Drainage Improvements Project (Project). The proposed Project will create either a County sponsored mini-loan program or a Linked Deposit Program to design and construct source control facilities to manage animal waste from nonpoint source confined animal facility operations including small dairies. For a mini-loan program, the County will enter into loan agreements directly with the nonpoint source confined animal facility operators. With a Linked Deposit Program, the SRF funds will be deposited into a bank or other financial institution which will enter into loan agreements upon direction of the County with nonpoint source confined animal facility operators. Each nonpoint source confined animal facility will be evaluated for a specific design. Examples include lagoon construction, corral drainage control, and off-site drainage facilities.

The County will charge the same rate on the mini-loans as the SRF rate plus whatever additional points the County determines it needs to administer the Project (the SRF rate is one half the rate on the last sale of State General Obligation Bonds, currently 2.5%). The County will be required to secure the mini-loans against default. For a Linked Deposit Program, the financial institution will lower the rates on the loans by the same margin reduced on a time deposit purchased by the State Water Resources Control Board (SWRCB).

The water quality problems associated with dairies are documented in studies by the Central Valley Regional Water Quality Control Board (CVRWQCB). These studies indicate that dairies are responsible for contributing to nitrate levels exceeding 250 milligrams per liter (mg/l) (the drinking water standard is 45 mg/l) and salinity levels exceeding 4,100 mg/l (the drinking water standard is 1,000 mg/l) in the County. The County has approximately 364 dairies that generate five million tons of wet manure, 21,250 tons of nitrogen, and 13,000 acre feet of wastewater annually.

In addition to the $10 million provided through this SRF action, the SWRCB authorized an Agricultural Drainage Management Program (ADMP) loan for $5 million to the County on October 23, 1997 for this Project. Approval of the SRF assistance will make a total of $15 million committed to the Project.

The reason for using both the SRF and the ADMP to provide joint funding of the Project is that regulatory or statutory requirements of both programs restrict their usage as follows:

• The U.S. Environmental Protection Agency (U.S. EPA) has determined that the SRF cannot be used to provide assistance to confined animal facilities operated by private parties that are considered to be point source dischargers. For example, U.S. EPA considers dairies with 700 or more dairy cows to be point source dischargers.
  
• Proposition 204 will not allow the ADMP to dedicate more than $5 million to one single project.

Because of these constraints, the SRF will fund dairies with less than 700 dairy cows, and the ADMP will fund dairies with 700 or more dairy cows.

The County completed a Negative Declaration in October 1997 to comply with the California Environmental Quality Act requirements.

POLICY: ISSUE: Should the State Water Resources Control Board (SWRCB) approve a resolution to provide SRF assistance of $10 million to the County for the Project, contingent upon the County beginning the Project by June 1999?

FISCAL IMPACT: According to SWRCB Resolution No. 97-001 (Approval of a StaffProposal to Better Manage the SRF Repayment Account), the SWRCB may approve preliminary loan commitments against the current FFY account and against 125 percent of future repayment funds based on scheduled loan dates.

The SRF account balances, anticipated repayment amounts, and project approvals under consideration by the SWRCB in June 1998 are as follows:

RWQCB Yes. CVRWQCB.

IMPACT:

STAFF RECOMMENDATION: That the SWRCB approve a resolution to provide SRF assistance of $10 million to the County for the Project, contingent upon the County beginning the Project by June 1999.

May 22, 1998 Draft

WHEREAS:

1. The County of Merced (County) has requested State Revolving Fund (SRF) assistance of $10 million for the Animal Confinement Drainage Improvements Project (Project).

2. The Project will address ground water problems associated with dairies and other confined animal facilities, including high nitrates and salinity.

3. The $10 million SRF funds will be used in conjunction with $5 million previously approved by the State Water Resources Control Board (SWRCB) from the Agricultural Drainage Management Program to provide a total commitment of $15 million to the County for the Project.

THEREFORE BE IT RESOLVED THAT:

The SWRCB approves a resolution to provide SRF assistance of $10 million to the County for the Project, contingent upon the County beginning the Project by June 1999.

The undersigned, Administrative Assistant to the SWRCB, 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 June 18, 1998.

__________________________

Maureen Marché

Administrative Assistant to the Board