The planned $11 million expansion of the city's water reuse plant could receive $7.7 million in state grants and loans this summer once the state budget is finalized.

The money includes a $1.8 million grant from the state's Centennial Clean Water Fund and a $5.9 million loan from the Water Pollution Control Revolving Loan Fund.

Interim City Manager Linda Herzog announced the funding at the Jan. 26 city council meeting.

Expansion of the city's water reuse plant is required by the city's National Pollution Discharge Elimination System permit.

The project's Phase 1A will increase the plant's flow capacity to 1.1 million gallons a day from 800,000 gallons a day.

Karen Goschen, Sequim's administrative services manager, said the money is on the state Department of Ecology's "draft offer list."

After the 2009-2011 state budget is approved by the Legislature in late April, the final offer list and a funding letter will be sent to the city when the state's new fiscal year begins July 1, she said.

"Once the budget passes, we can call the Department of Ecology to see if a funding agreement can be negotiated right away," she said.

Ecology spokeswoman Sandy Howard said, "Sequim's project ranked fairly high. It was fifth in our priorities of what should be funded this year."

The loan's interest rate will be only 2.1 percent because Sequim qualifies as a hardship case, Howard said.

The city qualifies because its rates would have to increase by more than 2 percent to repay the loan, she said.

The city had applied for a $2.46 million grant, but Ecology proposed $1.8 million because no money was left after funding other hardship projects.

The city operates a water reclamation plant that produces about 627,000 gallons daily of "Class A" water, the highest class of reclaimed water.

It has had organic, inorganic and biological impurities removed but is not approved as drinking water.

The city uses reclaimed water to irrigate the reclaimed water demonstration site and most of Carrie Blake Park, plus street landscaping on Bell Street and remote irrigation by truck citywide.

The reclaimed water demonstration site also supplies reclaimed water to the city fishpond and stream augmentation to Bell Creek. It also supplies water for public toilets, street sweeping and two commercial users.

Brian Gawley can be reached at bgawley@sequim gazette.com.