(a) The secretary shall develop a priority system for projects, establish ranking criteria therefor, review applications of municipalities for loans and prepare an annual project priority list. The priority list shall include a description of each project; the purpose, cost and schedule therefor; and the municipality applying for the loan. After preparation of the priority list, the secretary shall select from such list the projects for which loans will be made available.

(b) In performing the functions and duties required by subsection (a), the secretary shall:

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(1) Exclude from the priority list any project of a municipality which has not adopted and implemented conservation plans and practices that are consistent with the guidelines developed and maintained by the Kansas water office pursuant to Kan. Stat. Ann. §§ 74-2608 and amendments thereto;

(2) in consultation with the Kansas water office, encourage regional cooperative public water supply projects in accordance with the public water supply regionalization strategy of the state water plan; and

(3) ensure that a fair proportion, at least but not limited to 20%, of the total dollar amount of loans to be made available from the fund in each year will be made available for projects of municipalities having populations of 5,000 or less, except that, if such municipalities are unable to utilize the total amount made available under this subsection, the secretary is authorized to make the unused amount available for other projects on the priority list.