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City Attorney Memo - MPCA Clean Water Partnership Loan 1 MEMORANDUM To: City of Scandia Mayor and Council Members From: Amanda Johnson, City Attorney Date: July 2, 2025 Re: Clean Water Partnership Loans for Community Septic Systems Background The City has at least two community septic systems that are either failing, or in need of significant improvements to meet the state standards that govern community septic systems. One of the biggest obstacles for these communities is securing the necessary funding. The repairs/upgrades are very expensive (estimated to be over $1 million). The homeowners’ associations do not have reserves to cover such a significant expense. The Tii Gavo developer approached the City Administrator to inquire about the City’s willingness to partner with the homeowners’ association (HOA) and apply for a clean water partnership loan through the MPCA. This memo summarizes the MPCA program and the issues the Council needs to consider. Clean Water Partnership Loans 1. What is a Clean Water Partnership Loan (CWPL)? The Clean Water Partnership program offers low-interest loans to local units of government for implementing nonpoint-source best management practices and other activities that target the restoration and protection of water resources such as lakes, streams, or groundwater aquifers. First tier loans are provided for local governments to build projects. Second tier loans allow local entities to make loans to landowners. The repair/replacement of a community septic system is eligible as a second-tier loan, provided they are not under an enforcement action 2. What is the maximum CWPL amount? The maximum loan award for a project is $750,000, with the potential to get an additional $500,000 after 75% of the original loan is disbursed. The current interest rate for a CWPL to the City is 1.5%. The repayment period is seven years. 2 3. Approval and Reimbursement Process The HOA would need to prepare an RFP outlining the project and the loan request, but the City would need to approve all documents and pass a resolution authorizing the loan. The City would enter into a loan agreement with the MPCA and would be required to administer the loan as well as provide the MPCA with ongoing reporting. The MPCA will disburse loan funds to the City on an incurred cost reimbursement basis. Meaning, there may be some lag time from when costs are incurred by the project and when the CWPL funds are available. 4. City’s Responsibilities The City is responsible for the administration and the repayment of the loan. The City must pledge its full faith and credit to ensure repayment of a project implementation loan over the 7-year term of the loan. Loan repayment will begin after the project is completed on a semi-annual basis following the requirements of the loan agreement. Issues for the Council to Consider  What is the City’s willingness to carry costs for any period of time? Because of how the loan is reimbursed, it is likely the City would have to front some costs for a period of time.  The City would enter into a loan agreement with the HOA for the septic project. The City’s interest rate with the MPCA is 1.5%. We could increase the interest rate for our loan agreement with the HOA to cover the City’s costs (i.e. attorney time, title work, loan administration, etc.). Does the Council want to require that the City’s costs are reimbursed?  The City would be responsible to ensure the loan with the HOA is repaid. Because the HOA’s property is not valuable enough to cover the loan amount and there is not a good mechanism to foreclose or go through tax forfeiture on HOA property, the City may need to find a way to encumber the individual property owners. What is the Council’s opinion on requiring that the loan is filed against all the property owners of the HOA. This would be a significant task.  The CWPL is likely not enough to cover the entire project costs. What is the Council’s opinion on requiring the HOA to secure all necessary funds to complete the project?  Because the City has more than one community septic system, it is possible the City is asked to engage in this process again. What is the Council’s opinion regarding setting precedent for partnering on CWPLs?