II 113th CONGRESS 1st Session S. 335 IN THE SENATE OF THE UNITED STATES February 14, 2013 Mr. Merkley (for himself and Mr. Lautenberg ) introduced the following bill; which was read twice and referred to the Committee on Environment and Public Works A BILL To provide financing assistance for qualified water infrastructure projects, and for other purposes.

1. Short title This Act may be cited as the Water Infrastructure Finance and Innovation Act of 2013 . 2. Findings Congress finds that— (1) it is in the national interest to encourage the timely and cost-effective rehabilitation and replacement of aging water and sewer infrastructure and to support investments in innovative, cost-effective, and sustainable infrastructure approaches to protect public health and clean water; (2) the Environmental Protection Agency reports that, in the 20-year period following the date of enactment of this Act— (A) $334,800,000,000 is needed to invest in infrastructure improvements to ensure the provision of safe water; and (B) $298,100,000,000 is needed for publicly owned wastewater systems-related infrastructure; (3) customer rates and local charges are and will remain the primary means of paying for water service and infrastructure in the United States; (4) the municipal bond market and State revolving fund programs are the primary long-term means for financing water infrastructure projects, but upfront investment needs are too high to be met with those traditional means alone; (5) financing constraints make it particularly difficult for State revolving funds to support large water infrastructure projects of regional and national significance; (6) the growing funding gap demonstrates the need to invest in innovative and cost-effective approaches such as green infrastructure, water efficiency, and source water protection to obtain the greatest environmental and public health benefits per dollar invested; (7) this Act will substantially benefit the drinking water and wastewater systems of the United States by— (A) addressing the gap in funding for large, regionally and nationally significant projects by making available direct loans and loan guarantees to reduce borrowing costs and accelerate water infrastructure investment; (B) enhancing the capacity of State revolving fund programs to assist other projects; and (C) promoting clean and safe water through compliance with the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.) and the Safe Drinking Water Act ( 42 U.S.C. 300f et seq. ); (8) since the historical default rate on water and sewer bonds is 0.04 percent, the risk of default on Federal assistance provided under this Act is minimal; (9) keeping the risk of default on water and sewer bonds low requires the alignment of infrastructure investment with environmental sustainability; and (10) because loans, loan guarantees, and other credit instruments only incur long-term costs if subsidized or in the event of default, this Act can help to meet the water infrastructure needs of the United States at minimal long-term cost to the Federal Government. 3. Definitions In this Act: (1) Administrator The term Administrator means the Administrator of the Environmental Protection Agency. (2) Borrower The term borrower means an eligible entity that owes payments of interest or principal on a credit instrument. (3) Community water system The term community water system has the meaning given the term in section 1401 of the Safe Drinking Water Act (42 U.S.C. 300f). (4) Cost of a direct loan; cost of a loan guarantee The terms cost of a direct loan and cost of a loan guarantee mean the cost of a direct loan and cost of a loan guarantee , respectively, as those terms are used in section 502 of the Federal Credit Reform Act of 1990 ( 2 U.S.C. 661a ). (5) Credit instrument The term credit instrument means— (A) a direct loan made under this Act; or (B) a loan or other debt obligation that is subject to a loan guarantee under this Act. (6) Direct loan (A) In general The term direct loan has the meaning given the term in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a). (B) Inclusions The term direct loan includes the purchase of a bond by the Federal Government. (7) Eligible entity (A) In general The term eligible entity means— (i) an entity (other than a State or local agency with jurisdiction over highways or roads) that owns or operates a treatment works that serves the general public, including a municipal, tribal, or regional separate storm sewer system management agency; (ii) an entity, including an Indian tribe, that owns or operates a community water system; (iii) 1 or more entities described in clauses (i) and (ii) that are cooperating on an eligible project; (iv) for an eligible project described in paragraph (8)(B), a State infrastructure financing authority; (v) any entity eligible to receive a loan or loan guarantee under a State water pollution control revolving fund established under title VI of the Federal Water Pollution Control Act ( 33 U.S.C. 1381 et seq. ); and (vi) any entity eligible to receive a loan or loan guarantee under a State drinking water revolving loan fund established under section 1452 of the Safe Drinking Water Act ( 42 U.S.C. 300j–12 ). (B) Inclusions The term eligible entity includes a public-private partnership, except that only the public entity-owned or investor-owned utility shall receive assistance under this Act, not the private financing or development partner. (8) Eligible project The term eligible project means— (A) a capital project— (i) to construct, replace, or rehabilitate a treatment works or a community water system; (ii) to reduce the energy consumption needs of a treatment works or a community water system, including the implementation of energy efficient or renewable generation technologies; (iii) to increase water efficiency, reduce the demand for water, or reduce the demand for treatment works or community water system capacity; (iv) to manage or control stormwater; (v) to reuse municipal wastewater or stormwater; (vi) for the consolidation of 2 or more treatment works or community water systems; (vii) to increase drinking water source protection for surface and groundwater sources; (viii) for construction activities involving— (I) the repair, replacement, or upgrading of a treatment works or sewage collection system in a community that exists on the date of enactment of this Act to address an adverse environmental condition existing on that date of enactment; (II) the construction of an advanced decentralized wastewater treatment system, including planning, design, associated preconstruction planning activities (as defined in section 212 of the Federal Water Pollution Control Act ( 33 U.S.C. 1292 )); and (III) implementation measures to control, manage, reduce, treat, infiltrate, or reuse municipal stormwater, the primary purpose of which is the protection, preservation, or enhancement of water quality to support public purposes (including decentralized or distributed stormwater controls, low-impact development technologies and nonstructural approaches, stream buffers, and wetlands restoration and enhancement, the procurement and use of equipment to support minimum measures, such as street sweeping and storm drain system cleaning, and acquisition of other land and interests in land to meet the needs of existing development that are necessary for those activities and measures); (ix) to implement a management program established under section 319 of the Federal Water Pollution Control Act ( 33 U.S.C. 1329 ); (x) to develop and implement a conservation and management plan under section 320 of the Federal Water Pollution Control Act ( 33 U.S.C. 1330 ); (xi) to increase the security of wastewater treatment works or a community water system (excluding any expenditure for operations or maintenance); (xii) to carry out water conservation or efficiency projects, the primary purpose of which is the protection, preservation, or enhancement of water quality to support public purposes; (xiii) to implement measures to integrate water resource management planning and implementation; (xiv) to carry out water, rainwater, and wastewater reuse, reclamation, recycling, and rainwater harvesting projects, the primary purpose of which is the protection, preservation, or enhancement of water quality to support public purposes; and (xv) for capital costs associated with monitoring equipment for combined or sanitary sewer overflows; (B) a non-capital project that is— (i) associated with a capital project; and (ii) the aim of which is to promote the use of environmentally sustainable proj­ects, including utility-backed stormwater and water efficiency retrofit programs; and (C) 2 or more projects described in subparagraph (A) that are combined to receive a single direct loan or loan guarantee. (9) Indian tribe The term Indian tribe has the meaning given the term in section 4 of the Indian Self-Determination and Education Assistance Act ( 25 U.S.C. 450b ). (10) Loan guarantee The term loan guarantee has the meaning given the term in section 502 of the Federal Credit Reform Act of 1990 ( 2 U.S.C. 661a ). (11) State infrastructure financing authority The term State infrastructure financing authority means the State entity established or designated by the Governor of a State to receive a capitalization grant provided under, or to 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 ). (12) Treatment works The term treatment works has the meaning given the term in section 212 of Federal Water Pollution Control Act ( 33 U.S.C. 1292 ). 4. Establishment The Administrator may make a direct loan, including a subordinated loan, or a loan guarantee to an eligible entity to carry out activities for an eligible project in accordance with this Act. 5. Applications (a) In general As a condition of receiving assistance under this Act, 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. (b) Combined projects In the case of an eligible project described in section 3(8)(C), the Administrator shall require from the eligible entity a single application for the group of projects. 6. Use of assistance An eligible entity shall only use amounts received under this Act for eligible projects— (1) to carry out— (A) development phase activities, including planning, feasibility analysis, revenue forecasting, environmental review, permitting, and other preconstruction engineering and design work; (B) construction, reconstruction, rehabilitation, and replacement activities necessary for the project; and (C) environmental mitigation and construction contingencies; (2) to acquire real property (including interests in real property) and equipment; (3) to provide for any funding mechanisms necessary to meet market or affordability requirements, reasonably required reserve funds, capitalized interest issuance expenses, and other carrying costs during construction of the project; and (4) to refinance interim construction financing, long-term project obligations, or direct loans or loan guarantees made under this Act. 7. Selection among eligible projects (a) In general The Administrator shall select eligible projects to receive assistance under this Act based on— (1) the significance of the infrastructure needs addressed by the project, including the economic, environmental, and public health benefits of the project; (2) the creditworthiness of the project under consideration, including the terms, conditions, financial structure, and security features making up the proposed financing, and the financial assumptions upon which the project is based; (3) the need for Federal assistance, including the likelihood that the provision of assistance by the Administrator under this Act will cause the project to proceed more promptly and with lower costs for financing than would be the case without the assistance; (4) the degree to which the project financing plan includes public or private financing in addition to assistance under this Act; (5) the cost of the direct loan or loan guarantee to the Federal Government for the project; (6) the extent to which the project is nationally or regionally significant; (7) whether the project, to the maximum extent practicable, incorporates environmentally sustainable approaches, including conservation, efficiency, reuse, source water protection, energy efficiency, green infrastructure, and other innovative techniques; (8) whether the project is consistent with— (A) the State priority system established pursuant to section 603(g) of the Federal Water Pollution Control Act ( 33 U.S.C. 1383(g) ); and (B) the types of projects described in section 1452(b)(3) of the Safe Drinking Water Act (42 U.S.C. 300j–12(b)(3)); and (9) the priority system established under subsection (b). (b) Priority system The Administrator shall establish a priority system that gives greater weight to an application for an eligible project that includes— (1) an inventory of the assets of the treatment works or community water system, including a description of the condition of those assets; (2) a schedule for replacement of the assets of the treatment works or community water system; (3) a financing plan that factors in all lifecycle costs and describes the sources of revenue from ratepayers, grants, bonds, loans, and other sources designated to meet those lifecycle costs; (4) a description of any options for restructuring the treatment works or community water system; (5) any new models or techniques, other than a traditional wastewater model, to treat or minimize sewage or urban stormwater discharges using— (A) decentralized or distributed stormwater controls; (B) advanced decentralized wastewater treatment; (C) low-impact development technologies and nonstructural approaches; (D) stream buffers; (E) wetland restoration and enhancement; (F) actions to minimize the quantity of and direct connections to impervious surfaces; (G) soil and vegetation or other permeable materials; or (H) actions that increase efficient water use, water conservation, or water or wastewater reuse, including rainwater harvesting; (6) to the maximum extent practicable, the use of water efficiency and conservation techniques to generate cost-effective sources of new water supply; and (7) a demonstration of consistency with State, regional, and municipal watershed plans, water conservation and efficiency plans, or integrated water resource management plans. (c) Special rule for combined projects For an eligible project described in section 3(8)(C), the Administrator shall consider only the criteria described in paragraphs (1), (2), (3), and (5) of subsection (a). (d) Reasonable assurance of payment The Administrator may select an eligible project for assistance only if the Administrator finds that there is a reasonable assurance that all payments will be made on the credit instrument. 8. Credit evaluation (a) In general The Administrator shall develop and implement a credit evaluation process before providing any assistance under this Act. (b) Preliminary rating opinion letter For purposes of determining creditworthiness under section 7(a)(2), the Administrator may— (1) require an eligible entity to provide a preliminary rating opinion letter from at least 1 rating agency; or (2) use an alternative (including an internal) credit rating process. (c) Rule for certain combined projects For an eligible project described in section 3(8)(C) for which a State infrastructure financing authority is the eligible entity, in addition to the creditworthiness consideration under section 7(a)(2), the Administrator shall evaluate the creditworthiness of each entity represented by the State infrastructure financing authority that will be carrying out any eligible project described in section 3(8)(A) that will be a part of the eligible project. 9. Terms and conditions (a) In general Each direct loan and loan guarantee made under this Act shall be on such terms and conditions and contain such covenants, representations, warranties, and requirements (including requirements for audits) as the Administrator may prescribe. (b) Interest rate (1) In general The interest rate applicable to a direct loan shall be the rate that is set by reference to a benchmark interest rate on marketable Treasury securities with a similar maturity to that direct loan, as of the date of issuance of the direct loan. (2) Higher interest rates The Administrator may charge a higher interest rate on a direct loan if the Administrator determines that the risk profile of the eligible project indicates a higher interest rate is necessary to protect the interests of the United States. (c) Term of loan The Administrator may provide assistance under this Act only with respect to a credit instrument the final maturity date of which is not later than 35 years after the date on which funds are disbursed. (d) Security features The Administrator shall require a borrower receiving assistance under this Act to use a rate covenant, coverage requirement, or similar security feature supporting the project obligations to ensure repayment. (e) Direct loan repayments (1) Schedule The Administrator shall establish a repayment schedule for each direct loan under this Act based on the projected cash flow from project repayment sources. (2) Commencement Scheduled repayments of principal or interest on a direct loan made under this Act shall commence not later than 5 years after the date of substantial completion of the project, as determined by the Administrator in a manner set forth at the time the direct loan is made. (3) Deferral of payments (A) In general If the Administrator determines that a borrower lacks the resources to make scheduled payments on a direct loan made under this Act based on circumstances not foreseeable at the time the direct loan is made, the Administrator may allow for the deferral of the payments. (B) Interests Any payment deferred under subparagraph (A) shall— (i) continue to accrue interest until fully repaid; and (ii) be scheduled to be amortized over the remaining term of the direct loan. (C) Criteria Any payment deferral under subparagraph (A) shall be contingent on the project meeting criteria established by the Administrator, which shall include standards for reasonable assurance of repayment. (4) Prepayment Payments on the direct loan may be made in advance with no penalty. (f) Special rules for loan guarantees (1) Terms The terms of a credit instrument that is the subject of a loan guarantee under this Act shall be consistent with the terms set forth in this Act for a direct loan, except that the interest rate and any prepayment features on the credit instrument shall be negotiated between the borrower and the lender, with the approval of the Administrator. (2) Interest rate The Administrator may make a loan guarantee under this Act only if the Administrator determines that the interest rate on the credit instrument that is subject to the loan guarantee is appropriate, taking into account the prevailing rate of interest in the private sector for similar obligations. (3) Eligible lender The Administrator may not make a loan guarantee under this Act unless the lender of the loan or purchaser of the debt security that will be the subject of the loan guarantee is a non-Federal, qualified institutional buyer (as defined in section 230.144A(a) of title 17, Code of Federal Regulations (or successor regulation)), including— (A) a qualified retirement plan (as defined in section 4974(c) of the Internal Revenue Code of 1986) that is a non-Federal qualified institutional buyer; and (B) a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986) that is a non-Federal qualified institutional buyer. (4) Adequate servicing provisions required No loan guarantee may be made under this Act for a loan unless the Administrator determines that the lender with respect to the loan is responsible and that adequate servicing provisions have been made for the loan that is the subject of the loan guarantee that are reasonable and protect the financial interest of the United States. 10. Program administration (a) In general The Administrator shall establish a uniform system to service each direct loan and loan guarantee made under this Act. (b) Assistance from expert firms The Administrator may retain the services of expert firms, including counsel, in the field of municipal and project finance to assist in the underwriting and servicing of a direct loan or loan guarantee made under this Act. (c) Fees for administrative expenses (1) In general In providing assistance under this Act, the Administrator may— (A) collect fees for administrative expenses, including premiums for loan guarantees, at a level that is sufficient to cover the costs of services of expert firms and all or a portion of the costs to the Federal Government of servicing the direct loans and loan guarantees made under this Act; and (B) as provided in advance in appropriations acts, use the amounts described in subparagraph (A) to cover the expenses described in that subparagraph. (2) Level of fees The Administrator shall set the fees described in paragraph (1) at a level that will minimize the cost to the Federal Government and maximize the assistance that can be provided under this Act, while providing competitive credit terms to eligible projects, in order to reduce borrowing costs and accelerate water infrastructure investment. 11. Technical assistance The Administrator may use amounts made available to carry out this Act to provide technical assistance to applicants and prospective applicants in creating financing packages that leverage a mix of public and private funding sources. 12. Restrictions (a) Assistance threshold The Administrator may provide assistance under this Act only with respect to a credit instrument in an amount of not less than $20,000,000. (b) Refinancing The Administrator shall make available to eligible entities for refinancing activities described in section 6(4) not more than 15 percent of the total amounts made available to carry out this Act. 13. Prevailing wages (a) In general Notwithstanding any other provision of law and in a manner consistent with other provisions in this Act, all laborers and mechanics employed by contractors and subcontractors on projects funded directly by, or assisted in whole or in part by and through, the Federal Government pursuant to this Act shall be paid wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code. (b) Administration With respect to the labor standards specified in this section, the Secretary of Labor shall have the authority and functions set forth in Reorganization Plan Numbered 14 of 1950 (64 Stat. 1267; 5 U.S.C. App.) and section 3145 of title 40, United States Code. 14. Use of American iron, steel, and manufactured goods (a) In general Except as provided in subsection (b), none of the amounts made available under this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. (b) Exception Subsection (a) shall not apply in any case or category of cases in which the head of the Federal department or agency involved finds that— (1) applying subsection (a) would be inconsistent with the public interest; (2) iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or (3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent. (c) Public notice If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b), the head of the department or agency shall publish in the Federal Register a detailed written justification as to why the provision is being waived. (d) International agreements This section shall be applied in a manner consistent with United States obligations under international agreements. 15. Funding (a) Authorization of appropriations (1) Direct loans and loan guarantees There is authorized to be appropriated for the cost of providing direct loans and loan guarantees under this Act such sums as are necessary. (2) Administrative expenses (A) In general There is authorized to be appropriated for administrative expenses under this Act an amount equal to the amount of fees collected under section 10(c). (B) Additional authorization of appropriations In addition to amounts authorized to be appropriated under subparagraph (A), there are authorized to be appropriated for administrative expenses under this Act such sums as are necessary. (b) Payment of subsidy cost A borrower may pay for the cost of a direct loan or loan guarantee under this Act, along with the appropriate amount of related administrative expenses, with payment the Administrator may use, as provided in advance in appropriations Acts, instead of using amounts authorized under subsection (a), to make a direct loan or loan guarantee to the borrower.