MEMO. kitsappublichealth.org

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1 MEMO To: From: Kitsap Public Health Board Stuart Whitford, Water PIC Program Manager Date: July 7, 2015 Re: Hood Canal Regional Septic System Repair Loan Program Resolution Requesting Kitsap County Finance Committee Meeting The purpose of this memo is twofold: 1) To provide information about an opportunity to re-fund the Hood Canal Regional Septic System Repair Loan Program (which covers Kitsap, Jefferson, Mason, and Clallam counties) for the biennium; and 2) To seek Board approval of a resolution that requests the Kitsap County Treasurer to convene a meeting of the Kitsap County Finance Committee to consider guaranteeing a State Revolving Fund loan agreement, on behalf of the Health District, that would fund the regional septic repair loan program at the maximum level. Background. The Hood Canal Regional Septic System Repair Loan Program ( Loan Program ) was created by a 2007 Interlocal agreement executed by Jefferson County, Kitsap County, Mason County, Port Gamble S Klallam Tribe and the Skokomish Tribe. The purpose of the Loan Program was to provide financial assistance to homeowners to repair their failing septic systems in order to protect and enhance public health and water quality. The loans were, and continue to be, issued through a sliding scale to provide financial assistance, at competitive rates, to property owners to repair their failing septic systems. Between 2007 and 2011, Kitsap County administered $3 million in grants from the Department of Ecology that were combined with approximately $3 million in private foundation grants (Gates and Russell foundations) to fund the Loan Program. Kitsap County contracted with Shorebank Enterprise Cascadia (now known as Craft3) to administer the program on behalf of the partner counties. Once the Ecology grant dollars were successfully expended, the grant agreements were closed out and Kitsap County ceased it s involvement in the program. Since 2011, Craft 3 has been utilizing private foundation dollars and revolved Ecology grant dollars to fund the program. However, this funding has been exhausted for the time being. The Kitsap Public Health District has been serving on an Advisory Committee with other program partners that provides oversight for the program and its lending guidelines. kitsappublichealth.org

2 Memo to Kitsap Public Health Board July 7, 2015 Page 2 Although the Loan Program was initiated to address septic system failures in the Hood Canal Watershed, it was quickly expanded to cover the entire geographical territory of each county after the local health jurisdictions demonstrated that financial assistance needs for each county extended well outside of the Hood Canal Watershed area. The Craft 3 program has been quite successful over the years, totaling over 500 loans issued and closed, with $11.4 million loaned to homeowners to repair their failing septic systems (see Attachment 1 for a map summarizing the septic repair loans and the Craft3 Clean Water Loan brochure; note that Pierce and Pacific counties are not part of the Hood Canal Regional Loan Program, but they have recently signed agreements with Craft3 to help manage their loan programs). Nearly half of these loans went to low income families that may not have received financing from standard markets. Sixty-one percent (61%) of the loans included full or partial deferred payments, lessening the financial impacts of costly septic system repairs. However, the state grant funding for the program has expired, and new funding is required to replenish the program at the previous levels for the next two years. In order to re-fund the Loan Program, the Health District applied to the Washington State Department of Ecology for additional loan capital in Fall In July 2014, the Health District was awarded $1,695,000 from the Washington State Department of Ecology to re-fund the Loan Program: $695,000 Centennial Clean Water Fund grant, and $1,000,000 in state revolving loan funds. Re-funding the Loan Program at this level will provide enough capital to fund a minimum of 96 loans to complete septic repairs that will address at least 12 million gallons of wastewater per year from failing septic systems over the period. The difference in Ecology s 2014 Loan Program fund offering, as compared to the Loan Program fund offering, is that only grant dollars were offered previously, whereas for 2014, only $695,000 of grant funding was offered, along with $1,000,000 in loan funds. The loan fund offering is problematic for the Health District because the loan agreement language is specifically targeted to a county or city that operates a water or sewer utility, or a state approved water or sewer utility --- of which the Health District does not qualify as either (the Health District does not have authority to tax or issue liens on private property or issue bonds to ensure repayment of the loan, whereas counties, cities, and utilities do have that authority). Since the majority of failing septic systems have been located in unincorporated Kitsap County over the time period, and because Kitsap County does operate a sewer utility and does have the ability to tax, lien, or issue bonds, the County is qualified and could guarantee a State Revolving Fund loan agreement on behalf of the Health District to fund the Loan Program at the maximum level.

3 Memo to Kitsap Public Health Board July 7, 2015 Page 3 To be clear, the Loan Program could be re-funded at a lower level, without County assistance, because the grant agreement is suitable for the Health District to execute alone because it does not require the grantee to have taxing, lien, or bonding authority. However, it is important to note that if the Loan Program were re-funded at this lower level (with only the grant offering of $695,000), only about 39 loans could be offered (versus about 96), treating up to only about 5 million gallons of sewage/year (versus about 12 million gallons/year). In order for the Health District to be able engage Kitsap County in a discussion about guaranteeing a State Revolving Fund loan agreement between the Health District and Ecology to re-fund the Loan Program at the maximum level, the County will need a recommendation from its Finance Committee. In order to convene a meeting of the County s Finance Committee, the Kitsap County Treasurer (Chair of the Finance Committee) has asked that the Health Board submit a written request to her to convene the Finance Committee. A resolution making the request to convene the County s Finance Committee is contained in Attachment 2. Stuart Whitford is here today to make this request for the Health District and to answer any questions that you may have concerning this matter. Requested Health Board Action: The Health District requests the Health Board to consider approving Resolution , Requesting Kitsap County Treasurer to Convene the Kitsap County Finance Committee to Consider Whether Kitsap County should Guarantee a State Revolving Fund Loan Agreement on Behalf of the Kitsap Public Health District to Re-Fund the Regional Septic System Repair Loan Program. Attachments (2)

4 Lending to people, Investing for resilience Clean Water Loan Celebrating over 500 borrowers committed to cleaning the waters of Washington State Clallam Strait of Juan de Fuca Jefferson Puget Sound Hood Canal Kitsap Mason Pierce Willapa Bay Pacific CLEAN WATER LOAN FEATURES 100% financing with no up-front costs Affordable fixed rates Flexible qualification criteria Residential and commercial properties Owner and non-owner occupied Commercial rates/terms may vary Deferred payment options for qualifying incomes Includes up to $1,750 for future repairs and maintenance Clean Water Loan Production by Year Clean Water Loans made 1/1/03-3/31/15

5 Celebrating Clean Water Success Lending to people, Investing for resilience There are over 600,000 small decentralized onsite sewage (septic) systems in the Puget Sound. When functioning properly, wastewater is treated and public health and water quality protecting. Yet, at any given time, 1% of all systems are failing. Repairing or replacing a septic system is extremely costly and many are in danger of losing their property because they cannot obtain a loan or pay out of pocket. Craft3 offers an inclusive, affordable Clean Water Loan to cover the costs of designing, permitting, installing and maintaining residential and commercial septic systems. In selected areas, the loan can also be used to connect to municipal sewer systems. Business Loans are also available to septic professionals to start or grow their business by financing real estate, working capital and/or equipment. Elizabeth MacIntosh, Clean Water Loan client Clean Water Loan Outcomes (as of March 31, 2015) $11.4M Clean Water Loans made Craft3 was by far the easiest process and best terms for a loan I ve had in a long time. This was a huge expense for us, and having a company that could step in and assist me, with the loan I needed, and low rates and easy terms was such a benefit. It made the entire process much easier to deal with. - Elizabeth MacIntosh, Clean Water Loan customer 508 septic systems repaired or replaced 46% loans assisted low-income families $577M Cumulative gallons of waste water treated that would have threatened public and environmental health Craft3 delivers more than expected, they have the experience, support systems and capacity to deliver high quality service. - Terri Jenkins-McLean, Public Health Seattle-King County $109M local ownership of real estate preserved contributed to the improvement of local shellfish harvest areas 235 loans to low-income families 225 local septic businesses have worked on Clean Water Loan projects Hercules Hubbell, All County Operations Clean Water Loan Contractor Meeting Local Needs with Flexible Repayment Options* 39% 61% Full Monthly Payments Payments Deferred (full or partial) *Fully amortizing and deferred payment options are available, depending on household income. Revolving Loan Fund Growth 26% 25% 31% 43% Public Funds Private Funds Repaid and Revolved Funds When you tell a customer they need a new system, it s a big impact on them. It s nice that homeowners have Craft3 as an option when there is a problem with their septic system. Craft3 has helped a lot with stabilizing our business. It s a win-win for the homeowner and the contractor. - Hercules Hubbell, All County Operations TO APPLY OR TO LEARN MORE >> >> >> CleanWater@Craft3.org >> Support for the Clean Water Loan has been provided by: Bill & Melinda Gates Foundation Clallam County Greater Tacoma Community Foundation Hood Canal Coordinating Council Jefferson County Kitsap County Kitsap Health District King Country Laird Norton Family Foundation Mason County National Fish & Wildlife Foundation Pacific Coast Shellfish Growers Association Pacific County Pierce County Port Gamble S Klallam Tribe Public Health Seattle-King County Puget Sound Partnership Skokomish Tribe Tacoma Pierce County Health Department The Boeing Company Charitable Trust The Russell Family Foundation Titcomb Foundation University of Washington Sea Grant Washington Onsite Sewage Association and participating On Site Sewage Professionals Washington State Department of Ecology Washington State Department of Health Washington State Legislature Washington State University Extension Wells Fargo Cumulative data reflects Clean Water Loans made between 2003 and 3/31/15. Low-income families is defined as an annual income adjusted for family size of not more than 80% of the applicable county s median annual household income, per census data for Craft3 NMLS ID# Craft3 is an equal opportunity lender, provider and employer.

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8 KITSAP PUBLIC HEALTH BOARD RESOLUTION Requesting Kitsap County Treasurer to Convene the Kitsap County Finance Committee To Consider Whether Kitsap County should Guarantee a State Revolving Fund Loan Agreement On Behalf of Kitsap Public Health District To Re-Fund the Regional Septic System Repair Loan Program WHEREAS, Washington State Department of Ecology has agreed to provide a State Revolving Fund loan to Kitsap Public Health District to re-fund the regional septic system repair loan program administered by Craft 3 for Kitsap, Mason, Jefferson, and Clallam counties; and WHEREAS, Kitsap Public Health District is the lead for the regional septic system repair loan program which has provided financial assistance to over 500 private property owners since 2007 to repair their failing septic systems; and WHEREAS, failing septic systems in Kitsap, Mason, Jefferson, and Clallam counties degrade surface and ground water quality, commercial and recreational shellfish beaches, and swimming beaches, and as such pose a threat to public health; and WHEREAS, re-funding the Craft 3 regional septic system repair loan program with a State Revolving Fund loan will allow the program to operate at full capacity, will help to get septic system failures corrected in a timely manner, and will help to protect public health; and WHEREAS, the State Revolving Fund loan requires a guarantee of repayment from a county or city operating a state recognized water or sewer utility, or a state approved water or sewer utility, and the Kitsap Public Health District does not quality as a water or sewer utility; and WHEREAS, Kitsap County does operate a state recognized sewer utility, and the majority of septic system failures do occur in unincorporated Kitsap County; and WHEREAS, Kitsap County could guarantee a State Revolving Fund loan agreement on behalf of the Kitsap Public Health District; and WHEREAS, the Kitsap County Finance Committee advises Kitsap County on matters such as whether to take on the financial commitment of a guaranteeing a State Revolving Fund loan; and WHEREAS, Kitsap County Finance Committee is chaired by the Kitsap County Treasurer, and the Treasurer has requested a written request from the Kitsap Public Health Board in order to convene the Finance Committee for consideration of guaranteeing a State Revolving Fund loan agreement on behalf of the Kitsap Public Health District. NOW THEREFORE BE IT RESOLVED that the Kitsap Public Health Board respectfully requests the Kitsap County Treasurer to convene the Kitsap County Finance Committee to evaluate whether or not Kitsap County should guarantee a State Revolving Fund loan agreement on behalf of the Kitsap Public Health District to re-fund the Craft 3 regional septic system repair loan program.

9 KITSAP PUBLIC HEALTH BOARD RESOLUTION APPROVED: July 7th, 2015 Commissioner Rob Gelder, Chair Kitsap Public Health Board