(a) In determining whether an expenditure or proposed expenditure by a municipality, village, or school district is eligible for a grant under AS 29.60.510, the department shall consider the

(1) degree to which the effect on the municipality, village, or school district is directly caused by the oil or hazardous substance release or the response to the release;

(2) availability of money to the recipient from other sources that can meet the costs of providing the functions or services; and

(3) severity of the effect addressed in the grant application.

(b) The department may reject an application for a grant under AS 29.60.510 or approve an application for a grant in an amount that is less than the amount requested by a municipality, village, or school district if the department determines that payment of the amount requested is not warranted under (a) of this section.

(c) The department shall adopt, by regulation, criteria by which to rank all or a portion of applications for the purpose of establishing the priority order of awarding grants if money requested by eligible municipalities, villages, and school districts under this section exceeds the amount available. The criteria must be based on the elements set out in (a) of this section. If the total amount of money requested by eligible municipalities, villages, and school districts under this section exceeds the amount available, the department shall rank applications for the purpose of establishing the priority order of awarding grants in accordance with the regulations.