(a)

(1) The state is authorized to make loans to any municipality for the construction of waterworks.

(2) Such loans shall be made from the proceeds of bonds or notes issued by the authority for the purpose of making such loans.

(3) The authority shall establish the repayment schedule for the repayment of the loan, and the loan agreement, shall be between the state, acting through the department and the authority, and the municipality; provided, that at the time of approval of the loan agreement, the annual repayment schedule applicable to all approved loans to a municipality under this part, when combined with annual repayment schedules applicable to approved loans and grants to the municipality under part 2 of this chapter and former chapter 211, part 4 of this title [repealed], shall not exceed two hundred percent (200%) of the unobligated amount of annual state-shared taxes paid to the municipality as shown by the latest completed audit for the state's fiscal year; provided further, that the authority may impose more strict requirements if, in its judgment, it is deemed necessary or advisable.

(4)

(A) Nothing contained herein shall require a uniform test for all loans, it being the intent of the general assembly that the authority exercise discretion based on the facts and circumstances of each loan.

(B) In exercising its discretion, the authority shall take into consideration the general financial condition of the municipality receiving the loan and the ability of the system, for which such loan is to be made, to generate user fees sufficient to pay the costs of operation, maintenance and debt service of the system, including depreciation in accordance with generally accepted accounting principles.

(5) For purposes of determining compliance with this subsection (a), the annual repayment schedule for each loan or grant shall be, in cases prior to the funding of such grants or loans or where such grants or loans have been financed on an interim basis other than by bonds, an estimated annual repayment schedule showing debt service requirements under the grant or loan agreements as if the bonds to be issued to fund such grants or loans will bear interest at a rate per annum and mature in such manner as the authority shall establish at the time of approval of each such grant or loan and, in cases where bonds have been issued to fund such grant or loan, the actual debt service requirements on such bonds.

(b) Only municipalities receiving state-shared taxes shall be eligible to participate in the loan program; provided, that one (1) or more municipalities receiving state-shared taxes may enter into a loan agreement with the state and loan the proceeds of such waterworks loan to a municipality not receiving state-shared taxes.