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HB2096 - 572R - H Ver
House Engrossed
forgivable financial
assistance; cesspool remediation
State of Arizona
House of Representatives
Fifty-seventh Legislature
Second Regular Session
2026
HOUSE BILL 2096
AN
ACT
amending sections 11-671, 49-1203,
49-1204, 49-1223 and 49-1243, arizona revised statutes;
relating to the water infrastructure finance authority of arizona.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 11-671, Arizona Revised
Statutes, is amended to read:
START_STATUTE
11-671.
Financing wastewater treatment facilities and nonpoint source
projects; financial assistance loan repayment agreements; financial assistance;
definition
A. Notwithstanding any other law, a county
that is
authorized to operate a sewage system pursuant to
section 11-264
or that identifies and remediates a
cesspool pursuant to subsection G of this section
may construct or
improve a wastewater treatment facility or nonpoint source project with monies
borrowed from or financial assistance provided by the water infrastructure
finance authority of Arizona.
B. To repay financial assistance from the water
infrastructure finance authority of Arizona
,
a county may
enter into a financial assistance loan repayment agreement with the
authority. A financial assistance loan repayment agreement is
payable from any revenues otherwise authorized by law to be used to pay long-term
obligations. If revenue from a property tax assessment is the
designated source of repayment under the agreement, the property tax assessed
and levied is a secondary property tax levy for
the
purposes of article IX, Constitution of Arizona.
C. The county board of supervisors shall submit the
question of entering and performing a financial assistance loan repayment
agreement to the qualified electors voting at a regular or special general
election in the county, except that if revenue from a secondary property tax
levy is the designated source of repayment or if the project is constructed
with an improvement district, the question shall be submitted to the qualified
electors at an election held on the first Tuesday following the first Monday in
November. Otherwise, an election is not required if voter approval
has previously been obtained for substantially the same project with another
funding source. If a majority of the qualified electors voting on
the question:
1. Approves, the board of supervisors may execute,
deliver and perform the financial assistance loan repayment agreement.
2. Disapproves, the board of supervisors shall not
execute a financial assistance loan repayment agreement.
D. Payments made pursuant to a financial assistance
loan repayment agreement are not subject to section 42-17106.
E. A financial assistance loan repayment agreement
entered into pursuant to this section shall contain the covenants and
conditions pertaining to the construction of a wastewater treatment facility or
nonpoint source project and repayment of the loan as the water infrastructure
finance authority of Arizona deems proper.� Financial assistance loan repayment
agreements may provide for the payment of interest on the unpaid principal
balance of such agreement at the rates established in the agreement. The
agreement may also provide for payment of the county's proportionate share of
the expenses of administering the clean water revolving fund established by
section 49-1221 and may provide that the county pay financing and loan
administration fees approved by the water infrastructure finance authority
of arizona
. These costs may be included in the levy
or assessment amounts pledged to repay the financial assistance.� Counties are
bound by and shall fully perform the
financial assistance
loan
repayment agreements, and the agreements are incontestable after the loan is
funded by the water infrastructure finance authority of Arizona.� The county
shall also agree to pay the authority's costs in issuing bonds or otherwise
borrowing to fund a loan.
F. A financial assistance loan repayment agreement
under this section does not create a debt of the county, and the authority
shall not require that payment of a financial assistance loan agreement be made
from other than those sources
permitted
allowed
in subsection B of this section.
G. A county may apply for and receive
financial assistance, including forgivable principal, from the water
infrastructure finance authority of Arizona for the remediation, closure or
replacement of cesspools that present a demonstrated risk to surface water,
groundwater or public health. The water infrastructure finance
authority of arizona may award financial assistance, including forgivable
principal, using monies from the clean water revolving fund established by
section 49-1221 or the drinking water revolving fund established by
section 49-1241.� financial assistance, including forgivable principal,
received pursuant to this subsection may be used only for projects that
eliminate existing cesspools and replace the existing cesspool with an on-site
wastewater system that is approved by the department of environmental quality
or that has a connection to a wastewater treatment facility. A
county that receives financial assistance, including forgivable principal,
pursuant to this subsection shall prioritize the remediation, closure or
replacement of cesspools that are located within areas of known groundwater
vulnerability, that are near surface waters or that are in communities with low-to-moderate
income households. A county may establish income-based
eligibility criteria for owner-occupied properties but may not apply
means testing to the remediation of abandoned or uninhabitable
properties. A county shall coordinate with the department of
environmental quality to ensure that each project that has received financial
assistance, including forgivable principal, pursuant to this subsection is
consistent with the county's water quality management plan.� A county that
receives financial assistance, including forgivable principal, pursuant to this
subsection is not required to obtain voter approval to accept the financial
assistance, including forgivable principal.
G.
H.
A
county may employ attorneys, accountants, financial consultants and
such
other experts in their field as deemed necessary to perform
services with respect to the financial assistance loan repayment agreement.
H.
I.
This
section is supplemental and alternative to any other law under which a county
may borrow
money
monies
or issue
bonds. This section
shall
is
not
be construed as
the exclusive authorization to enter into
loan agreements with the authority.
I.
j.
A
county may borrow additional monies or enter into additional financial
assistance loan repayment agreements with the water infrastructure finance
authority
of arizona
in an amount up to the amount
approved by the voters pursuant to subsection C of this section less the amount
that the county is already obligated to repay to the water infrastructure
finance authority
of arizona
pursuant to a financial
assistance loan repayment agreement.
J.
k.
For
the
purposes of this section, "nonpoint source
project" has the same meaning
as
prescribed in
section 49-1201.
END_STATUTE
Sec. 2. Section 49-1203, Arizona Revised
Statutes, is amended to read:
START_STATUTE
49-1203.
Powers and duties of authority; definition
A. The authority is a corporate and politic body and
shall have an official seal that shall be judicially noticed. The
authority may sue and be sued, contract and acquire, hold, operate and dispose
of property. Notwithstanding any other law and unless expressly waived by the
authority, the authority is not subject to any statutory requirement to pay
another party's attorney fees or costs in any administrative or judicial
proceeding.� The authority is not a public service corporation subject to
regulation by the corporation commission.
B. The authority, through its board, may:
1. Issue negotiable water quality bonds pursuant to
section 49-1261 for the following purposes:
(a) To generate the state match required by the
clean water act for the clean water revolving fund and to generate the match
required by the safe drinking water act for the drinking water revolving fund.
(b) To provide financial assistance to political
subdivisions, Indian tribes and eligible drinking water facilities for
constructing, acquiring or improving wastewater treatment facilities, drinking
water facilities, nonpoint source projects and other related water quality
facilities and projects.
2. Issue water supply development bonds for the
purpose of providing financial assistance to eligible entities for water supply
development purposes pursuant to sections 49-1274 and 49-1275.
3. Provide financial assistance to political
subdivisions and Indian tribes from monies in the clean water revolving fund to
finance wastewater treatment projects.
4. Provide financial assistance to drinking water
facilities from monies in the drinking water revolving fund to finance these
facilities.
5. Provide financial assistance from monies in the
water supply development revolving fund to finance water supply development as
prescribed by this article.
6. Guarantee debt obligations of, and provide linked
deposit guarantees through third-party lenders to:
(a) Political subdivisions that are issued to
finance wastewater treatment projects.
(b) Drinking water facilities that are issued to
finance these facilities.
7. Provide linked deposit guarantees through third-party
lenders to political subdivisions and drinking water facilities.
8. Apply for, accept and administer grants and other
financial assistance from the United States government and from other public
and private sources.
9. Enter into capitalization grant agreements with
the United States environmental protection agency.
10. Adopt rules pursuant to title 41, chapter 6
governing the application for and awarding of wastewater treatment facility,
drinking water facility and nonpoint source project financial assistance under
this chapter, administering the clean water revolving fund and the drinking
water revolving fund and issuing water quality bonds.
11. Hire a director who serves at the pleasure of
the board and who shall hire staff for the authority.� The board may prescribe
the terms and conditions of the director's and staff's employment as necessary
to carry out the purposes of the authority. The board shall adopt
written policies, procedures and guidelines, similar to those adopted by the
department of administration, regarding officer and employee compensation,
observed holidays, leave and reimbursement of travel expenses. The
officers and employees of the authority may participate in the
arizona
state retirement system
prescribed
established
by title 38, chapter 5, article 2, and the board, consistent with
section 38-656, subsection A, may provide that the authority's officers and
employees participate in the state employee health
, disability
and accident insurance prescribed by title 38, chapter 4, article
4. The officers and employees of the authority are exempt from any
laws regulating state employment, including the following:
(a) Title 41, chapter 4, article 4, relating to the
state personnel system.
(b) Title 41, chapter 4, articles 5 and 6, relating
to state service.
12. Contract for or
employ the services of outside advisors, attorneys, engineers, financial and
other consultants and aides reasonably necessary or desirable to allow the
authority to adequately perform its duties.
13. Contract and incur obligations as reasonably
necessary or desirable within the general scope of authority activities and
operations to allow the authority to adequately perform its duties.
14. Assess financial assistance origination fees and
annual fees to cover the reasonable costs of administering the authority and
the monies administered by the authority. Any fees collected
pursuant to this paragraph constitute governmental revenue and may be used for
any purpose consistent with the mission and objectives of the authority.
15. Perform any function of a fund manager under the
CERCLA Brownfields cleanup revolving loan fund program as requested by the
department. The board shall perform any action authorized under this
article on behalf of the Brownfields cleanup revolving loan fund program
established pursuant to chapter 2, article 1.1 of this title at the request of
the department.� In order to perform these functions, the board shall enter
into a written agreement with the department.
16. Provide grants, staff assistance or technical
assistance in the form of loan repayment agreements and other professional
assistance to political subdivisions, any county with a population of less than
five hundred thousand persons, Indian tribes and community water systems in
connection with developing or financing wastewater, drinking water, water
reclamation or related water infrastructure. Assistance provided
under a technical assistance loan repayment agreement shall be in a form and
under terms determined by the authority and shall be repaid not more than three
years after the date that the monies are advanced to the applicant.� Technical
assistance provided by the authority does not create any liability for the
authority or this state regarding designing, constructing or operating any
infrastructure project.
17. Provide grants, staff assistance or technical
assistance in the form of loan repayment agreements and other professional
assistance in accordance with section 49-1273. Assistance
provided under a technical assistance loan repayment agreement shall be repaid
not more than three years after the date that the monies are advanced to the
applicant.� Technical assistance provided by the authority does not create any
liability for the authority or this state regarding designing, constructing or
operating any water supply development project.
18. Award financial assistance,
including forgivable principal, for the remediation, closure or replacement of
cesspools pursuant to section 11-671, subsection G.
C. The authority may adopt rules pursuant to title
41, chapter 6 governing the application for and awarding of assistance under
this chapter and the administration of the funds established by this chapter.
D. The board shall deposit, pursuant to sections 35-146
and 35-147, any monies received pursuant to subsection B, paragraph 8 of
this section in the appropriate fund as prescribed by the grant or other
financial assistance agreement.
E. The authority is not subject to title 41, chapter
23. In coordination with the department of administration, the
authority shall establish procurement procedures by rule to administer the long-term
water augmentation fund.
F. For the purposes of the safe drinking water act
and the clean water act, the department is the state agency with primary
responsibility for administering this state's public water system supervision
program and water pollution control program and, in consultation with other
appropriate state agencies as appropriate, is the lead agency in establishing
assistance priorities as prescribed by section 49-1224, subsection B,
paragraph 3, section 49-1243, subsection A, paragraph 6 and section 49-1244,
subsection B, paragraph 3.
G. For the purposes of this section,
"CERCLA" has the same meaning prescribed in section 49-201.
END_STATUTE
Sec. 3. Section 49-1204, Arizona Revised
Statutes, is amended to read:
START_STATUTE
49-1204.
Annual audit and report
A. The board shall cause an audit to be made of the
funds administered by the authority. The audit shall be conducted by
a certified public accountant within one hundred twenty days after the end of
the fiscal year. The board shall immediately file a certified copy of the audit
with the auditor general.
B. The auditor general may make any further audits
and examinations as deemed necessary and may take appropriate action relating
to the audit or examination pursuant to title 41, chapter 7, article
10.1. If the auditor general takes no official action within twenty
days after the audit is filed, the audit is deemed sufficient.
C. The board shall pay any fees and costs of the
certified public accountant and auditor general under this section from the
funds administered by the board.
D. Not later than January 1 of each year the board
shall make an annual report of its activities, including a copy of the annual
audit, to the governor, the president of the senate and the speaker of the
house of representatives.
E. In addition to the reporting
requirements of subsection D of this section, not later than january 1 of each
year, the board shall make an annual report that summarizes financial
assistance, including forgivable principal, awarded by the board pursuant to
section 11-671, subsection G.� The report shall include all of the
following:
1. The number and location of
cesspools that have been remediated or replaced using financial assistance,
including forgivable principal.
2. The total amount of financial
assistance, including forgivable principal, that was awarded and forgiven.
3. Recommendations for improving the
ADMINISTRATION of financial assistance, including forgivable principal, that is
awarded for the remediation, closure or replacement of cesspools pursuant to
section 11-671, subsection G.
END_STATUTE
Sec. 4. Section 49-1223, Arizona Revised
Statutes, is amended to read:
START_STATUTE
49-1223.
Clean water revolving fund; purposes; capitalization grants
A. Monies in the clean water revolving fund may be
used for the following purposes:
1. Making wastewater treatment facility and nonpoint
source project loans to political subdivisions and Indian tribes under section
49-1225.
2. Purchasing or refinancing debt obligations of
political subdivisions or refinancing debt obligations of Indian tribes at or
below market rates, provided that the debt obligation was issued after March 7,
1985 for the purpose of constructing, acquiring or improving wastewater
treatment facilities or nonpoint source projects.
3. Providing financial assistance to political
subdivisions to purchase insurance for local wastewater treatment facility or
nonpoint source project bond obligations.
4. Paying the costs to administer the fund, but no
more than four per cent of the aggregate of federal capitalization grants may
be used to pay these costs. Monies from other sources may be used
without limit to pay these costs.
5. Funding other programs that are authorized for
federal monies deposited in the fund including programs relating to nonpoint
source discharges.
6. Providing linked deposit guarantees through third
party lenders by depositing monies with the lender on the condition that the
lender make a loan on terms approved by the board, at a rate of return on the
deposit approved by the board and the state treasurer and by giving the lender
recourse against the deposit of loan repayments that are not made when due.
7. Funding of financial assistance,
including forgivable principal, that is awarded pursuant to section 11-671,
subsection G.
B. If the monies pledged to secure water quality
bonds become insufficient to pay the principal and interest on the water
quality bonds that are guaranteed by the clean water revolving fund, the board
shall direct the state treasurer to liquidate securities in the fund as may be
necessary and apply those proceeds to make current all payments then due on the
bonds. The state treasurer shall immediately notify the attorney
general and auditor general of the insufficiency.� The auditor general shall
audit the circumstances surrounding the depletion of the fund and report the
findings to the attorney general.� The attorney general shall conduct an
investigation and report those findings to the governor and the legislature.
C. All proceeds of capitalization grants received
from the United States pursuant to the clean water act shall be deposited in
the capitalization grant transfer account and shall be used solely to provide
financial assistance to political subdivisions and Indian tribes to construct,
acquire, restore or rebuild wastewater treatment facilities, to purchase bond
insurance or for any other purpose permitted by the clean water act including
nonpoint source projects. All principal received on loan repayments
made by borrowers pursuant to this section shall be deposited in the clean
water revolving fund and shall be invested and used to provide additional
financial assistance or shall be used to support the administration of the fund
subject to the limits prescribed by the clean water act.
END_STATUTE
Sec. 5. Section 49-1243, Arizona Revised
Statutes, is amended to read:
START_STATUTE
49-1243.
Drinking water revolving fund; purposes; capitalization grants
A. Monies in the drinking water revolving fund may
be used for the following purposes:
1. Making drinking water facility loans
,
including forgivable principal
,
to
political subdivisions of this state, Indian tribes under section 49-1245
and other eligible entities as determined by the board pursuant to the safe
drinking water act.
2. Making drinking water facility loans under
section 49-1244.
3. Purchasing or refinancing debt obligations of
drinking water facilities at or below market rate if the debt obligation was
issued after July 1, 1993 for the purpose of constructing, acquiring or
improving drinking water facilities.
4. Providing financial assistance to drinking water
facilities to purchase insurance for local drinking water facility bond
obligations.
5. Paying the costs to administer the fund but not
more than four per cent of the aggregate of federal capitalization grants may
be used to pay these costs. Monies from other sources may be used
without limit to pay these costs.
6. Funding other programs that are authorized
pursuant to the safe drinking water act.
7. Providing linked deposit guarantees through third
party lenders by depositing monies with the lender on the condition that the
lender make a loan on terms approved by the board, at a rate of return on the
deposit approved by the board and the state treasurer and by giving the lender
recourse against the deposit of loan repayments that are not made when due.
8. Funding of financial assistance,
including forgivable principal, that is awarded pursuant to section 11-671,
subsection G.
B. If the monies pledged to secure water quality
bonds become insufficient to pay the principal and interest on the water
quality bonds guaranteed by the drinking water revolving fund, the board shall
direct the state treasurer to liquidate securities in the fund as may be
necessary and shall apply those proceeds to make current all payments then due
on the bonds. The state treasurer shall immediately notify the
attorney general and auditor general of the insufficiency. The
auditor general shall audit the circumstances surrounding the depletion of the
fund and report the findings to the attorney general. The attorney
general shall conduct an investigation and report those findings to the
governor and the legislature.
C. All proceeds of capitalization grants received
from the United States pursuant to the safe drinking water act shall be
deposited in the capitalization grant transfer account and shall be used solely
to make loans to drinking water facilities to construct, acquire, restore or
rebuild these facilities, to purchase bond insurance or for any other purpose
permitted by the safe drinking water act. All principal received on
loan repayments made by borrowers under this section shall be deposited in the
drinking water revolving fund and shall be invested, used to provide financial
assistance or used to support the administration of the fund subject to the
limits defined in the safe drinking water act.
END_STATUTE
Sec. 6.
Legislative findings and intent
A. The legislature finds
and declares that:
1. Cesspools have been
prohibited for installation in Arizona since 1976.
2. Thousands of legacy
cesspools remain in operation in certain counties and pose a direct and
continuing threat to the public health and safety and groundwater quality.
3. Remediation of cesspools
represents a pressing public health need that is distinct from voluntary septic
upgrades or private convenience improvements.
4. Current Arizona law
limits county eligibility for financial assistance to those counties that
operate sewer systems.
B. It is therefore the
intent of the legislature to do both of the following:
1. Authorize all counties
to access financial assistance
,
including forgivable principal
,
that is administered by the water infrastructure finance
authority of Arizona for the sole purpose of remediating or replacing cesspools
that pose a verified public health or environmental risk.
2. Ensure
that this act shall have no financial impact on the state general
fund. Financial assistance
,
including forgivable principal, shall be issued solely from
the federally capitalized monies from the clean water revolving fund
established by section 49-1221, Arizona Revised Statutes, and the drinking
water revolving fund established by section 49-1241, Arizona Revised
Statutes, that are administered by the water infrastructure finance authority
of Arizona.