Linked Deposit WQRLF & DWRLF

Overview

The Linked Deposit mechanism was designed to provide a source of low interest financing to encourage private landowners, and water system owners to implement capital improvements that will reduce the delivery of nutrients to the Chesapeake Bay and its tributaries, and provide safe drinking water. The term "Linked" refers to the relationship between the below-market rate of interest investment agreement provided to a participating lender by MDE's Water Quality Financing Administration (WQFA), and the below-market rate of interest loan that is passed on to the borrower to fund certain water quality and drinking water capital projects. The below-market interest rate loan the borrower receives is "Linked" to the below-market rate of interest investment WQFA makes with a participating lender. Any financial institution that meets the following lender qualifications is eligible to participate in the program:

1. Is eligible to make commercial loans
2. Is a public depositor of state funds
3. Agrees to receive linked deposits
4. Is insured by the Federal Deposit Insurance Corporation

Maryland lending institutions that constitutes the Linked Deposit network are listed below as Linked Deposit-List of Eligible Lenders. Applicants are encouraged obtain the best financing package by contacting several lenders and compare rates and fees.

The applicant is responsible for contacting and selecting a lender from the list provided below. Participating lenders will be accountable for processing, underwriting and servicing the loan. The bank will also evaluate the credit worthiness of an applicant according to the lenders own underwriting criteria. Each bank will be permitted to charge origination, servicing and other such fees normally associated with loans issued by the bank. Accordingly, the bank will assume all risk of default and neither the State nor MDE will be liable to reimburse a participating bank for any losses or expenses associated with loans under this program. The loan agreement is between the lender and the applicant, and not the State nor MDE.

This program, can provide low interest rate funding for:

• private water system facing expensive capital improvements, and such as treatment facility upgrades, installing or upgrading storage facilities, and distribution line replacements.
• complement federal and State grant programs for farmers facing expensive investments in structures or farm equipment for eligible non-point source nutrient best management practices (BMPs), enabling farmers to reduce soil erosion and protect water quality
• farmers share of eligible capital BMPs funded under agricultural cost-share programs
• homeowner associations to address needs such as failing and sometimes dangerous storm water management facilities
• Homeowners to repair or replace failing on-site septic systems, and for other beneficial non-point source capital improvements on private lands.

Elements of the Linked Deposit Program as Applied to the WQRLF

In the 1997 session of the Maryland General Assembly, the law governing this loan program was amended to allow the Department to provide low interest loans to private entities for eligible, non-point source pollution control projects. EPA is encouraging states to broaden the types of projects funded through the loan program, particularly for non-point source pollution control. In the 1998 session of the General Assembly the law was further amended to allow loans through the Linked Deposit program.

In addition, it has been recognized in Maryland that private landowners, including farmers, play a major role in the reduction of nutrients reaching the Chesapeake Bay and its tributaries. The loan program is a source of low cost financing to assist the private sector in these efforts. Expanding the use of the WQSRF to private entities was included as a recommendation in the 1994 "Governors Blue Ribbon Panel Report on Funding the Chesapeake Bay 40% Nutrient Reduction Goal".

Elements of the Linked Deposit Program

This Linked Deposit program will allow the Water Quality Financing Administration to enter into partnerships with community lending institutions, to provide an easy and convenient way for farmers and other private entities to take advantage of this affordable loan program for implementing eligible non-point source capital improvements. Using the lending institutions that are in the community, where farmers, businesses and private citizens bank, rather than a centralized operation in the offices of MDE, will facilitate the use of the WQRLF for these purposes. This new program is expected to be ready for implementation by November 1, 1998.

MDE and the Maryland Departments of Agriculture and Natural Resources will develop an eligible project list and a project certification process. The borrower shall obtain a "Certificate of Qualification" prior to applying for a loan, from the local approving authority (i.e.: Soil Conservation District, Health Department). The certificate will be required prior to applying for a loan.

Following a successful credit evaluation, the lender will send to MDE an investment request form identifying the landowner, loan terms, and a copy of the Certificate of Qualification. Upon approval of the financing terms by theWater Quality Financing Administation, and project eligibility by the Water Management Administration (both within MDE), funds from the WQSRF will be invested with the lender equal to the amount of the loan to the borrower, for a term equal to the loan, but in no case longer than 20 years. The interest rate on the deposit will be discounted below the lenders normal cost of funds, and this interest saving will be passed on to the borrower. As construction funds are drawn, the borrower shall in-turn make payments on the loan to the lender. The lender will then make payments of principal and interest to WQFA, in direct proportion to the borrowers scheduled payments.

Relationship of Linked Deposit Program to Pfiesteria

The control of non-point sources of water pollution has been identified as a primary focus in the States current efforts to minimize the recurrence of the Pfiesteria problem. On the Eastern Shore, this will mean that farmers, with the assistance of federal and State grants, will have to accelerate the implementation of additional best management practices, such as dead bird composters and manure storage facilities.

While grants from the Department of Agriculture will pay for much of the cost of these expensive capital projects, farmers must pay at least 12.5% of the project costs under the existing cost share program. In some instances, these costs well exceed the maximum grant allowances, resulting in a greater contribution by the farmer. The Linked Deposit loan mechanism can assist the farming community by providing a source of low interest loans available from community-based commercial lending institutions, for eligible capital project costs.

The Linked Deposit Loan Program cannot be used to design and construct facilities to address point source pollution control problems. For example, any agricultural operations defined as Concentrated Animal Feeding Operations (CAFOs) would not be eligible for such loans. The federal Clean Water Act precludes the use of WQSRF Program funds for wastewater ("point source") projects at privately owned facilities. However, non-point source pollution control projects for privately owned facilities are eligible.

For Bank Use only:

Deposit Agreement (Fillable Adobe Acrobat File)

APPLICATION FORMS

Linked Deposit Certificates of Qualification

These Quafilication Forms are intended to determine project eligibility for participation and is not a funding commitment. Funding is limited and subject to availability of funds on a first come first served basis.

Agricultural Nonpoint Source Projects (Fillable Adobe Acrobat File)

For Septic, Stormwater and Erosion Control Projects:
Nonpoint Source Water Pollution Control Projects (Fillable Adobe Acrobat File)

Underground Storage Tank Water Pollution Control Projects (Fillable Adobe Acrobat File)

Brownfields Cleanup Project(Fillable Adobe Acrobat File)

Contact Information

For general information on the Linked Deposit Program, please call Larry Love on (410) 537-3110 or Maryland WQFA on 410-537-3119.

List of Eligible Project Categories

Categories of Non-Point Source Projects Eligible for SRF Loans Through Linked Deposit Program may include:

Agricultural Best Management Practices¹ :

• Grade Control Structures
• Sediment Control Ponds
• Manure Storage Facilities
• Dead Bird Composting Facilities
• Stream Protection (Fencing)
• Grazing Land Management System (Fencing)
• Wetland Creation and Enhancement
• Manure Spreaders, Pumps and Appurtenances

Non-Agricultural Best Management Practices:

• Stream and Wetland Restoration/Non-structural Stabilization (NOT associated with mitigation for permit or violation)
• Correction of Failing Septic Systems
• Shoreline Erosion Control
• Existing Stormwater Management Facility Retrofit/Repair
• New Stormwater Management Facility (if community was developed prior to State stormwater requirements)

¹The loan program cannot be used to finance BMPs or other capital improvements on farms defined as Concentrated Animal Feeding Operations (CAFOs) or for other privately owned projects defined as point source water pollution control projects by the Environmental Protection Agency or the Maryland Department of the Environment. Private loans can be made to farms for eligible non-point source BMPs provided that these farms are not defined as CAFOs.

Elements of the Linked Deposit Program as Applied to the DWRLF

MDE develops an eligible project list through an annual priority solicitation. Private water systems which are selected and included in the Intended Use Plan (IUP) will be offered the option of applying for funding through MDE similar to a publicly owned system, or through an eligible lender under the "Linked Deposit" program. If the applicant chooses Linked Deposit, it is recommended that several lenders be contacted from the list provided and compare rates and fee structures and select the institution that provides the best financial package. The responsibility for selection of a lender rests solely with applicant, WQFA only requires the lender be on the list provided.

Following a successful credit evaluation, the lender will send to MDE an investment request form identifying the landowner, loan terms. Upon approval of the financing terms by WQFA, funds from the WQSRF will be invested with the lender equal to the amount of the loan to the borrower, for a term equal to the loan, but in no case longer than 20 years. The interest rate on the deposit will be discounted below the lenders normal cost of funds, and this interest saving will be passed on to the borrower. As construction funds are drawn, the borrower shall in-turn make payments on the loan to the lender. The lender will then make semi-annual payments of principal and interest to WQFA, in direct proportion to the borrowers scheduled payments.

Projects Eligible for DWSRF Loans through Linked Deposit Program may include:

• Water Main Distribution Line Replacements
• Water Storage Facilities
• Consolidation of Water Supplies
• Transmission and Distribution Line Replacement
• Planning and Design of Drinking Water Projects

Upgrade and Repair of a Facility to Maintain Compliance

Linked Deposit - List of Eligible Lenders

Notes:

A. Per state statute, only eligible banks, as determined by the State Treasurer's Office can participate in the Linked Deposit Program.  The bank list is subject to change.
B. Participation in the Linked Deposit Program is at the discretion of lender / bank.

Last updated 8/12

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