A. The small drinking water systems fund is established in the water infrastructure finance authority of Arizona. The fund consists of monies appropriated by the legislature. Monies in the fund are exempt from lapsing under section 35-190. Interest earned on monies in the fund shall be credited to the fund.

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B. Monies from the small drinking water systems fund shall be used to provide grants, including emergency grants, to interim operators, interim managers or owners of small drinking water systems to repair, replace or upgrade water infrastructure as required for compliance with Title 40, Chapter 2, this chapter or any rule adopted under Title 40, Chapter 2 or this chapter.

C. On recommendation of the department in consultation with the corporation commission, the water infrastructure finance authority of Arizona may approve a grant from the fund to an interim operator, an interim manager or an owner of a small drinking water system pursuant to this section only if the interim operator, the interim manager or the owner demonstrates that it requires financial assistance to replace, make repairs to, rehabilitate or upgrade the drinking water system infrastructure in order to correct or avoid an interruption in water service or to comply with Title 40, Chapter 2, this chapter or any rule adopted under Title 40, Chapter 2 or this chapter. The department shall include in its recommendation to the water infrastructure finance authority of Arizona a written statement that is signed by the director and that includes a detailed assessment of the direct public benefit of the grant, a certification that disbursement of monies is in the best interests of this state and, if applicable, a determination that the grant is in response to an emergency.

D. Before disbursing monies to an authorized recipient pursuant to this section, the water infrastructure finance authority of Arizona shall enter into a written grant agreement with the recipient. The terms of the agreement shall include at least the following:

1. Performance targets and target dates for matters associated with the grant as determined by the department.

2. Terms for payment of monies to the recipient and repayment to this state as prescribed by subsection F of this section.

E. The written grant agreement may require that a reasonable percentage of the total amount of the grant be withheld until the recipient meets specified performance targets.

F. The water infrastructure finance authority of Arizona may require repayment to this state of a portion or all of the grant monies with interest at an agreed rate and on agreed terms. The repayment may be required if either of the following applies:

1. The water infrastructure finance authority of Arizona in coordination with the department finds that the grant recipient has not met performance targets specified in the written grant agreement on or before the dates specified in the agreement.

2. The written grant agreement prescribes the repayment.

G. Emergency grants made pursuant to this section are exempt from Title 41, Chapter 23.

H. For the purposes of this section, "small drinking water system" means a public water system as prescribed in section 49-352 that serves ten thousand or fewer persons.