State loans funded by state bonds may be made to cities for constructing waterworks under the Waterworks Construction Loan Act of 1974. Water facility loans are administered by the Department of Environment and Conservation, which is given authority to issue necessary rules and regulations and to enter into agreements with cities with respect to such loans. T.C.A. §§ 68-221-501, et seq.

Drinking Water State Revolving Fund
T.C.A. §§ 68-221-1201, et seq., do the following:

• Create a Drinking Water State Revolving Fund in the state treasury;
• Provide for loans from the fund to water systems;
• Establish that water systems serving areas in the lower economic scale are eligible for lower interest rates on loans;
• Give priority to projects that address the most severe health problems;
• Provide for affordability criteria for loans based primarily on an area’s per capita income and property values;
• Place certain restrictions on using revolving funds, including changes in the system’s method of operation;
• Require the water system obtaining the loan to establish dedicated revenue sources to repay the loan, periodically adjust fees and charges, and maintain financial records in accordance with governmental accounting standards;
• Provide that the loans may be interest free; and
• Under certain conditions, allow extended terms for loans to disadvantaged communities.

T.C.A. §§ 68-221-1007–1015 place water systems under the water and wastewater financing board’s jurisdiction. Loans under this program also are available to entities created by cooperating local governments, such as water authorities.