(1) The following types of bonds will be accepted by the department as evidence of and security for a loan to a municipality under the program if Montana law authorizes the municipality to issue such bonds to finance the project and the department determines the municipality has the ability to repay the loan. Notwithstanding compliance with the provisions of state law, the department may determine that it will not approve the loan if it determines that the loan is not likely to be repaid in accordance with its terms or it may impose additional requirements that in its judgment it considers necessary.

(a) The department may accept general obligation bonds issued by a municipality, upon the following terms:

(i) the bond will not cause the municipality to exceed its statutory indebtedness limitation;

(ii) all statutory requirements for the issuance of such bonds shall have been met prior to the issuance of the bonds; and

(iii) the election authorizing the issuance of the bonds has been conducted by the date of a binding commitment unless such requirement is waived by the department.

(b) The department may accept revenue bonds issued by a municipality in accordance with the provisions of Title 7, chapter 7, part 44, or Title 7, chapter 13, part 2, MCA, or other applicable statutory provisions, subject to the following terms and conditions:

(i) the bonds must be payable from the revenues of the system on a parity with any outstanding revenue bonds payable from the system. The bond must be secured by a pledge of the net revenues of the system. If bonds are currently outstanding payable from the gross revenues of the system, a gross revenue pledge will be acceptable provided the requirements of (ii) -(iv) are met.

(ii) the payment of principal and interest on the revenue bonds must be secured by a reserve account equal to reserve requirement, such requirement to be met upon the issuance of the bonds;

(iii) the municipality shall covenant to collect and maintain rates, charges, and rentals such that the revenue for each fiscal year the bonds are outstanding will be at least sufficient to pay the current expenses of operation and maintenance of the system, to maintain the operating reserve, and to produce net revenues during each fiscal year not less than 125% of the maximum amount of principal and interest due on all outstanding bonds payable from the revenues of the system in any future fiscal year or, if the municipality calculates debt service on such outstanding bonds on a calendar year basis, then in any future calendar year;

(iv) the municipality shall agree not to incur any additional debt payable from the revenues of the system, unless the net revenues of the system for the last complete fiscal year preceding the issuance of such additional bonds have equaled at least 125% of the maximum amount of principal and interest payable from the revenue bond account in any subsequent fiscal year during the term of the then outstanding bonds and the additional bonds proposed to be issued, or, if the municipality calculates debt service on such outstanding bonds on a calendar year basis, then in any future calendar year.

(A) For the purpose of the foregoing computation, the net revenues must be those shown by the financial reports caused to be prepared by the municipality, except that if the rates and charges for service provided by the system have been changed since the beginning of the preceding fiscal year, then the rates and charges in effect at the time of issuance of the additional bonds must be applied to the quantities of service actually rendered and made available during such preceding fiscal year to ascertain the gross revenues, from which there shall be deducted, to determine the net revenues, the actual operation and maintenance cost plus any additional annual costs of operation and maintenance which the engineer for the municipality estimates will be incurred because of the improvement or extension of the system to be constructed from the proceeds of the additional bonds proposed to be issued.

(B) In no event may any such additional bonds be issued and made payable from the revenue bond account if there then exists any deficiency in the balances required to be maintained in any of the accounts of the fund or if the municipality is in default in any of the other provisions;

(v) applications indicating the loan will be evidenced by the issuance of a revenue bond must be accompanied by:

(A) if requested by the department, audited financial statements of the system for the last two completed fiscal years;

(B) if requested by the department, a certificate as to the municipality's current population and number of system users, a schedule of the 10 largest users of the system showing the percentage of total revenues provided by such users and the amount of outstanding system debt;

(C) a description of the existing and proposed facilities constituting the system, including a discussion of the additional capital needs for the system over the next three-year period;

(D) a copy of the ordinance or resolution establishing and describing the system of rates and charges for the use or availability of the system;

(E) a pro forma showing revenues of the system in an amount sufficient to meet the requirements of these rules and any outstanding obligations payable from the system;

(F) if the pro forma indicates an increase in rates and charges to meet the requirements of these rules, a copy of the proposed rates and charge resolution and a proposed schedule for the adoption of the charges and if subject to review or approval by another entity, the schedule for the rate approval;

(G) any other information deemed necessary by the department to assess the feasibility of the project and the financial security of the bonds.

(vi) notwithstanding the fact that the municipal revenue bond act does not require that the issuance of revenue bonds be approved by the voters, the department may require the municipality to conduct an election to evidence community support and acceptance of the project or require the bonds be authorized by the electors and issued as general obligation bonds in accordance with 7-7-4202, MCA.   A municipality shall conduct an election to evidence community support and acceptance of the project when in the opinion of the department there are projected large rate increases due to the improved facility or the facility is a projected high cost facility.

(vii) the municipality may pledge water system revenues for a loan where the financed project consists of treatment of side stream waste from a water system or otherwise constitutes a wastewater project;

(viii) in addition to the foregoing terms and conditions, in the case of loans to finance nonpoint source projects, particularly where there is no existing system or history of revenues, the department may impose such requirements as the department determines are reasonable and prudent to determine or realize adequate security for the loan; for example, in connection with a solid waste management system project, the department may require, without limitation:

(A) a financial feasibility study;

(B) a description of other solid waste management services available in the area;

(C) that the municipality place the fees and charges on the tax bill and collect them in accordance with the provisions of Title 7, chapter 13, part 2, MCA; and

(D) require that the debt be secured by the full faith and credit of the municipality.

(c) General obligation bonds issued by county water and sewer districts shall comply with the requirements of ARM 36.24.104(1) (a) hereof, and the provisions of Title 7, chapter 13, parts 22 and 23, MCA. Revenue bonds issued by county water and sewer districts created pursuant to Title 7, chapter 13, parts 22 and 23, MCA will be accepted as evidence of the loan, subject to the following terms and conditions:

(i) the issuance of the bonds must be authorized by the electors of the district as provided in 7-13-2321 through 7-13-2328, MCA;

(ii) the election authorizing the incurrence of the debt shall be conducted by the date of the binding commitment, unless such requirement is waived by the department;

(iii) the district shall covenant that it will cause taxes to be levied to meet the district's obligation on any bond issued to the department in the event that the revenues of the system are inadequate therefore in accordance with the provisions of 7-13-2302 through 7-13-2310, MCA;

(iv) the bonds must be payable from the revenues of the system on a parity with any outstanding revenue bonds payable from the system;

(v) the district shall covenant to collect and maintain rates, charges, and rentals such that the revenue for each fiscal year the bonds are outstanding will be at least sufficient to pay the current expenses of operation and maintenance of the system, to maintain the operating reserve and to produce net revenues during each fiscal year not less than 120% of the maximum amount of principal and interest due on all outstanding bonds payable from the revenues of the system in any future fiscal year, or, if the district calculated debt service on such outstanding bonds on a calendar year basis, then in any future calendar year;

(vi) the payment of principal and interest on the bonds must be secured by a reserve account equal to the reserve requirement, such requirement to be proportionately funded from each periodic draw so that the requirement is fully satisfied upon the final draw;

(vii) the district shall agree not to incur any additional debt payable from the revenues of the system without the written consent of the department, unless the net revenues of the system for the last complete fiscal year preceding the issuance of such additional bonds have equaled at least 120% of the maximum amount of principal and interest payable from the revenue bond account in any subsequent fiscal year during the term of the then outstanding bonds and the additional bonds proposed to be issued, or, if the district calculates debt service on such outstanding bonds on a calendar year basis, then in any future calendar year.

(A) For the purpose of the foregoing computation, the net revenues must be those shown by the financial reports caused to be prepared by the district, except that if the rates and charges for services provided by the system have been changed since the beginning of the preceding fiscal year, then the rates and charges in effect at the time of issuance of the additional bonds must be applied to the quantities of service actually rendered and made available during such preceding fiscal year to ascertain the gross revenues, from which there shall be deducted, to determine the net revenues, the actual operation and maintenance cost plus any additional annual costs of operation and maintenance which the engineer for the district estimates will be incurred because of the improvement or extension of the system to be constructed from the proceeds of the additional bonds proposed to be issued.

(B) In no event shall any such additional bonds be issued and made payable from the revenue bond account if there then exists any deficiency in the balances required to be maintained in any of the accounts of the fund or if the district is in default in any of the other provisions;

(viii) an application by a district must be accompanied by:

(A) if requested by the department, audited financial statements of the system for the last two completed fiscal years if there is an existing system;

(B) a map depicting the boundaries of the district;

(C) a certificate as to numbers of persons in the district subject to levy described in (v) and the number of wastewater system customers and the amount of outstanding wastewater debt;

(D) a pro forma showing revenues of the system in an amount sufficient to meet the requirements of these rules and any outstanding obligations payable from the system;

(E) if the pro forma indicates an increase in rates and charges to meet the requirements of these rules, a copy of the proposed rates and charge resolution and a proposed schedule for the adoption of the charges.

(d) The department may accept as evidence of the loan, bonds issued by a municipality payable from assessments levied upon real property included within a special improvement district and specially benefitted by the project being financed from the proceeds of the loan, upon the following terms and conditions:

(i) the district be created in accordance with the provisions of Title 7, chapter 12, part 21 and/or Title 7, chapter 12, parts 41 and 42, MCA;

(ii) the city or county agrees to maintain a revolving fund as authorized by 7-12-2181 through 7-12-2186 and 7-12-4221 through 7-12-4225, MCA (respectively, the revolving fund statutes) and covenants to secure the bonds by such revolving fund and agrees to provide funds for the revolving fund by levying such tax or making such loan from the general fund as authorized by the revolving fund statutes;

(iii) 5% of the principal amount of the loan be deposited into the revolving fund and the city or county shall agree to maintain in the revolving fund to the extent allowed by law, an amount not less than 5% of the principal of the bonds secured by the revolving fund. The department may, if the financial risks associated with a proposed district warrant it, as a condition to the purchase of such bond, require the city or county to establish a district reserve fund and fund it from the proceeds of the loan, as permitted by law;

(iv) the special improvement district be at least 75% developed, except if the loan is for the purpose of acquiring an existing system. For purposes of this section, a district will be deemed to be 75% developed if 75% of the lots or assessable area in the district have a habitable residential dwelling thereon that is currently occupied or there is a commercial, professional, manufacturing, industrial, or other non-residential facility thereon;

(v) the total amount of special assessment debt including the amounts to be assessed for repayment of the loan against the lots or parcels of land in the district does not exceed 50% of the fair market value of such lots or parcels within the district;

(vi) if the project to be financed from the loan secured by a special assessment bond is not part of a system currently existing and operated by the municipality receiving the loan and for the normal maintenance and operation of which the municipality is responsible and provides for such through rates and charges, a special maintenance district must be created at the time the improvement district is created pursuant to the applicable statutes in order to provide for the operation and maintenance of the project or an agreement must have been entered into at the time the loan is made between the municipality and another governmental entity, pursuant to which the governmental entity agrees to operate and maintain the project.