(a) In 1996, the U.S. Congress found that the requirements of the Safe Drinking Water Act, 42 U.S.C. 300 et seq. (SDWA) exceeded the financial and technical capacity of some public water systems and that States needed increased financial resources and appropriate flexibility to ensure the prompt and effective development and implementation of drinking water programs. To this end, Congress enacted the Safe Drinking Water Act Amendments of 1996 (PL 104-182)  (Amendments of 1996) which provides for water protection programs, changes to regulatory programs, small systems technology and funding for States and water systems. The Amendments provide for the establishment of drinking water treatment revolving loan funds  (DWSRF) by states in order to receive capitalization grants through the United States Environmental Protection Agency (USEPA) for the purpose of furthering the health protection objectives of the SDWA. To be eligible to receive a grant, a State must establish a DWSRF and comply with the provisions of the Amendments of 1996.     
      (b) The Texas Water Development Board (board) provides financial assistance for the construction of water facilities and pursuant to the terms of Chapter 15, Section 15.602(1) Texas Water Code, is authorized to establish an additional state revolving fund to provide financial assistance to eligible applicants for public works in accordance with capitalization grant program requirements established by a federal agency.     
      (c) Texas Natural Resource Conservation Commission (commission) through the "primacy" approval granted the State of Texas in 1978 is responsible for implementing the drinking water regulatory scheme established by the Safe Drinking Water Act and for enforcing the national drinking water standards set by USEPA. The commission is also charged with the administration of Chapter 341, Subchapter C of the Health and Safety Code to ensure safe and adequate sources of drinking water from public water systems.     
      (d) The commission and board (parties) now intend to enter into a Memorandum of Understanding (MOU) pursuant to the authority, respectively, of Chapter 5, Section 5.104 and Chapter 6, Section 6.104, Texas Water Code, for the purpose of seeking out the respective duties and responsibilities of the Parties and to improve the efficiency and effectiveness of the board and commission operations in administering the provisions of the Amendments of 1996.      
        (1) The board will manage the financial administration of the DWSRF pursuant to State and Federal laws and will ensure compliance with the USEPA programmatic requirements for the DWSRF program.       
        (2) The commission will establish assistance priorities for the use of funds from the DWSRF and will provide the board with all information and reports necessary for the board's compliance with the USEPA programmatic requirements of the DWSRF program.       
        (3) The board will be responsible for the following activities under this MOU:                  (A) prepare and adopt rules, and establish and maintain accounts necessary for the financial administration of the DWSRF;                   (B) prepare and enter into capitalization grant agreements with USEPA;                   (C) annually prepare contracts to be entered into by the board and commission which provide for the transfer of set-aside funds to the commission;                   (D) communicate applicable Federal audit requirements to the commission;                   (E) prepare and submit to USEPA project priority lists and annual intended use plans consistent with the priority system developed by the commission;                   (F) act on applications for assistance, and draw down federal funds and transfer construction funds to assistance recipients;                   (G) prepare and submit to USEPA biennial reports on the DWSRF;                   (H) participate in annual DWSRF audits and USEPA oversight efforts;                   (I) review and approve engineering plans and specifications for DWSRF funded water projects in conformance with the Letter of Agreement between the board and commission dated September 21, 1992;                   (J) provide technical assistance to potential applicants seeking access to the DWSRF;                   (K) assume responsibility for administering each loan project funded from the DWSRF;                   (L) provide the required 20% State matching funds for the DWSRF capitalization grant to the extent that State law allows for the use of both appropriated funds and bond proceeds for such intended purpose; and                   (M) serve as the official public contact for the State of Texas with regard to all DWSRF related activities.         
        (4) The commission will be responsible for the following activities under this MOU:                  (A) develop and provide to the board a system for establishing assistance priorities;                   (B) provide the one to one matching funds for all §1452(g)(2) set aside activities;                   (C) provide to the board planning information as may reasonably be required for the board to prepare and submit intended use plans and biennial reports to the USEPA, including projections for the uses of funds and documentation that match requirements, when applicable, have been met;                   (D) develop and submit to USEPA, programmatic elements as required to maximize capitalization of the DWSRF with evidence of the submittal provided to the board;                   (E) cooperate with the board in developing any information necessary to complete the annual capitalization grant application, the Annual Report or any audits as required;                   (F) establish adequate fund accounting as necessary to administer funds transferred from the DWSRF to the commission; and                   (G) establish financial accountability procedures that meet applicable federal accountability requirements;         
      (e) The board and the commission agree that all rules and guidance related to DWSRF will be developed cooperatively.     
      (f) This MOU shall continue in full force and effect until canceled or superseded by either party. The party requesting cancellation shall give 90 days advance notice of intent to cancel and shall advise the other party in writing of the reasons for the cancellation.     
      (g) Should any one or more provisions of this MOU be held to be null, void, or for any reason without force or effect, such provision(s) shall be construed as severable from the remainder of this MOU and shall not affect the validity of all other provisions of the MOU, which shall remain in full force and effect.     
      (h) This MOU may be amended in writing at any time by the mutual consent of the parties and through the designated officials indicated below.     
      (i) This MOU shall be effective when signed by the designated representatives of the board and the commission and when adopted as a rule by the board.     
     Source Note:        The provisions of this §354.3 adopted to be effective December 9, 1999, 24 TexReg 10875