SECTION 371.72. Financial Assistance Secured by Promissory Notes and Deeds of Trust

(a) Applicability. This section contains closing requirements for a water supply corporation, an eligible NPNC, or an eligible private Applicant or other Applicant that is not authorized to issue bonds or other securities. This section applies to financial assistance for either pre-design or construction funding.

(b) Use of consultants. The executive administrator may recommend, but not require, that the entity engage the services of a financial advisor or other consultant to ensure the appropriateness of the proposed debt and to provide advice to the entity.

(c) Documents required for closing. The following documents and conditions are required for closing financial assistance secured by promissory notes and deeds of trust:

(1) evidence that applicable requirements and regulations of all identified local, state, and federal agencies having jurisdiction have been met, including but not limited to permits and authorizations;

(2) an executed promissory note and loan agreement in a form approved by the executive administrator;

(3) a Deed of Trust and Security Agreement that must contain a first mortgage lien evidenced by a deed of trust on all the real and personal property of the water system; provided, however, this is not needed if the financial assistance consists of 100 percent principal forgiveness;

(4) an owner's title insurance policy for the benefit of the Board covering all the real property identified in the deed of trust; provided, however, this is not needed if the financial assistance consists of 100 percent principal forgiveness;

(5) evidence that the rates on which the Applicant intends to rely for repayment of the financial assistance have received final and binding approval from the Utility Commission and, for Applicants required to utilize a surcharge account, evidence that the approval of the Utility Commission was conditioned on the creation of a surcharge account;

(6) a certified copy of the resolution adopted by the governing body authorizing the indebtedness and a certificate from the secretary of the governing body attesting to adoption of the resolution in accordance with the bylaws or rules of the governing body and in compliance with the Open Meetings Act, if applicable;

(7) a legal opinion from Applicant's counsel that provides:

(A) that the entity has the legal authority to enter into the loan agreement and to execute a promissory note;

(B) that the entity is not in breach or default of any state or federal order, judgment, decree, or other instrument which would have a material effect on the loan transaction;

(C) that there is no pending suit, action, proceeding, or investigation by a public entity that would materially adversely affect the enforceability or validity of the required financial assistance documents;

(D) evidence that the entity is in good standing with the Texas Office of the Secretary of State; and

(E) a statement addressing any other issues deemed relevant by the executive administrator.

(8) evidence that an approved water conservation plan has been adopted and will be implemented through the life of the project;

(9) evidence of the Applicant's agreement to comply with special environmental conditions contained in the Board's environmental finding;

(10) evidence that the Applicant has established a dedicated source of revenue for repayment of the financial assistance;

(11) evidence that the Applicant has adopted final water rates and charges that are not subject to appeal to the Utility Commission;

(12) copies of executed service and revenue contracts;

(13) evidence that the Applicant has the technical, managerial, and financial capacity to maintain the system unless the use of the funds will be to ensure that the system has the technical, managerial, and financial capacity to comply with the national primary or applicable state drinking water regulations over the long term;

(14) if the project will result in the development of surface water or groundwater resources, the Applicant must provide information showing that it has the legal right to use the water that the project will provide. Upon receipt of the information, the executive administrator will prepare a finding that the Applicant has a reasonable expectation of obtaining the water rights to the water that the project will provide prior to any release of funds for planning, land acquisition, and design activities. Prior to the release of funds for construction, a written water rights certification must be prepared by the executive administrator. The certification will be based on the Applicant's information showing the necessary water rights have been acquired.

(15) when any portion of the financial assistance is to be held in an escrow account, the Applicant shall execute an escrow agreement, approved as to form and substance by the executive administrator; and

(16) any additional information specified in writing by the executive administrator.

(d) if financial assistance proceeds are to be deposited into an escrow account at the time of closing, then an escrow account separate from all other accounts and funds must be created, as follows:

(1) the account must be maintained by an escrow agent as defined in §371.1 of this title (relating to Definitions);

(2) funds cannot be released from the escrow account without prior written approval of the executive administrator, who shall issue written authorization for the release of funds;

(3) escrow account statements must be provided to the executive administrator upon request;

(4) the investment of any financial assistance proceeds deposited into an approved escrow account, must be handled in a manner that complies with the Public Funds Investment Act, Texas Government Code Chapter 2256; and

(5) the escrow account must be adequately collateralized in a manner sufficient to protect the Board's interest in the project and that complies with the Public Funds Collateral Act, Texas Government Code Chapter 2257.

(e) Construction account. A construction account must be created and must be kept separate from all other accounts and funds of the Applicant.

(f) Phased closing. The executive administrator may determine that closing the financial assistance in phases is appropriate when:

(1) the project has distinct phases for planning, design, acquisition, and construction, or if any one of the phases can be logically and practically divided into discrete sections;

(2) the project utilizes the design-build or construction manager-at-risk process or any process wherein there is simultaneous design and construction;

(3) there are limitations on the availability of funds;

(4) additional oversight is required due to the financial condition of the Applicant or the complexity of the project; or

(5) due to any unique facts arising from the particular transaction.

Source Note: The provisions of this §371.72 adopted to be effective June 10, 2020, 45 TexReg 3863