United States
Environmental Protection
Agency
Office of
Drinking Water (WH-550)
Washington, DC 20460
EPA 570/9-83-008
June 1983
Regionalization
Options for Small
Water Systems

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REGIONALIZATION OPTIONS FOR SMALL WATER  SYSTEMS
                 Prepared by:

                SMC Martin Inc.
          900 West Valley Forge Road
                 P. 0. Box 859
       Valley Forge,  Pennsylvania   19482
                 Prepared for:

     U.S. Environmental Protection Agency
           Office of Drinking Water
        Chester Pauls, Project Officer
               401 M Street, SW
             Washington, DC  20460
            Contract No. 68-01-6285
                   June  1983

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                           TABLE OF CONTENTS


                                                             Page

I.    INTRODUCTION                                             1-1


II.  UNIQUE PROBLEMS FACING SMALL WATER SYSTEMS              II-l


III. REGIONALIZATION—DEFINITION AND OPTIONS                III-l

          Definition                                        III-l
          Nonstructural Options                             III-2
          Structural Options                                III-7
          Summary                                           111-13


IV-  ANALYSIS AND SELECTION OF A REGIONALIZATION OPTION      IV-1

          Legal Authority                                    IV-2
          Costs                                              IV-3
          Policy/Political Constraints                       IV-4
          Assessment of Service Delivery Resources           IV-5


V.    IMPLEMENTATION                                           V-l



APPENDIX A     Case Histories

APPENDIX B     References and Other Sources of Information

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                            LIST OF TABLES

Table                                                             Page

  1       Regionalizetion Options                                III-3

  2       Advantages and Disadvantages of Informal Agreements    1II-4

  3       Advantages and Disadvantages of Basic
            Service Contracts                                    III-5

  4       Advantages and Disadvantages of Joint
            Service Agreements                                   III-7

  5       Advantages and Disadvantages of Regional
            Council of Local Elected Officials                   III-8

  6       Advantages and Disadvantages of Association/Non-
            Profit Water Supply Corporation                      111-10

  7       Advantages and Disadvantages of Local Special-
            Purpose Districts                                    III-ll

  8       Advantages and Disadvantages of Annexation             III-13

  9       Advantages and Disadvantages of the Areawide
            Special District/Authority                           111-14

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                            LIST OF FIGURES
Figure                                                            Page

  1       Suggested Sequence of Events for Regionalization
            Implementation                                        V-4

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                           I.   INTRODUCTION
Small water system owners and
operators, faced with situations
that adversely affect their
ability to provide an adequate
and safe supply of drinking
water, often overlook "regionali-
zation" as a remedy for their
problems.  Regionalization, as
discussed in this document,
involves the cooperation of
system owners and, perhaps, the
consolidation of financial re-
sources, physical plants, and/or
personnel.

The main benefit of regionaliza-
tion is that it pools individual
resources of two or more water
systems to obtain services or
facilities that one or both
systems may not have been capable
of obtaining by themselves.
Thus, two adjacent towns may
decide to share the services of
one full-time water quality
engineer.  Or, if they need new
treatment plants, but individually
cannot afford them, they may be
able to implement the regionali-
zation concept and build one
shared facility.

When proposed, the regionaliza-
tion concept is often viewed
solely as a means to create a
larger entity that will consume
independent water systems, re-
sulting in a loss of local policy
control.  However, even more than
the traditional and often negative
perception of physical takeover,
regionalization remedies can
include a wide range of options
that provide positive benefits to
the participating systems.

This document is designed for
individuals likely to be involved
in regionalization of water
supply entities:  (1) decision-
makers, including water supply
professionals, elected officials,
state and local governmental
representatives, and affected
consumers and (2) technical and
planning personnel responsible
for implementing the decision to
regionalize.

This document describes many
forms of regionalization and
analyzes the associated benefits;
costs; and financial, legal,
organizational, and political
aspects.  Case histories illustrate
the concepts and kinds of region-
alization options available.
This document also provides a
methodology to help communities
evaluate and tailor options for
their particular situations.

The range of alternatives presented
here implies that each community
has different water supply needs
and must find solutions to fit
its own needs.  The proper size
for a local or areawide utility
is best determined by analyses of
resources, terrain, distances,
costs, capacities, operational,
political, and institutional
considerations, and environmental
impacts.

Even in those situations where
large systems are deemed most
appropriate, such systems cannot
be created quickly; they must
evolve.  Many of the choices
offered here can be used success-
fully either as a final solution
to a local problem or as part of
an evolutionary process leading
to a new water supply entity.
                                   1-1

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To facilitate the presentation of
this information, this document
is divided into five (5) sections,
plus appendices, as follows:

Section   Subject Guide

   I      Introduction - This
          section introduces the
          concept of regionaliza-
          tion and its broad
          benefits, and briefly
          outlines the content of
          the document.

  II      Unique Problems Facing
          Small Water Systems -
          This section presents
          background on the
          status of small water
          suppliers in this
          country, outlines some
          of the problems unique
          to small systems and
          outlines some regionali-
          zation success stories.

  Ill     Regionalization -
          Definition and Options -
          This section defines
          the term regionalization
          as used in this document,
          and describes in detail
          regionalization options
          available to small
          water systems.  Advan-
          tages, disadvantages
          and ficticious illustra-
          tive examples are
          presented.

  IV      Analysis and Selection
          of a Regionalization
          Option - This section
          analyzes the options
          described in the pre-
          vious section and
          outlines issues to be
          considered  by personnel
          considering and evalu-
          ating regionalization
          options.
   V      Implementation - This
          section presents a
          suggested critical path
          model outlining steps
          in the implementation
          of a regionalization
          option.

Appendix  The Appendix is divided
          into two (2) subsec-
          tions; one presents
          three  (3) case histories
          of successful regionali-
          zation efforts and the
          second presents a list
          of references.

Regionalization options, as
defined and described in Sec-
tion III, include both "nonstruc-
tural" and "structural" options.
Simply stated, nonstructural
regionalization involves the
formulation of working relation-
ships among autonomous local
water supply entities while
structural regionalization in-
volves the creation of new legal
entities that reduce or eliminate
the autonomy of local water
supply systems.  The options
described in detail in this
document are the following:
Nonstructural Regionalization
Options

  o  Informal agreement
  o  Basic service contract
  o  Joint service contract
  o  Regional council of  local
     selected officials
Structural Regionalization Options

  o  Association/nonprofit water
     supply corporation
  o  Local special district
  o  Annexation
  o  Areawide  special
     district/authority
                                   1-2

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The ability to implement any
regionalization option is depen-
dent on many factors.  Enabling
legislation must be in place at
the state level for local govern-
ments and water utilities to
enter into agreements, form
special districts or authorities.
If such legislation is not in
place, legislative action will be
required.

Also, to successfully implement a
regionalization option, it must
be advantageous (or, at least,
not disadvantageous) to all
parties involved and must provide
the following characteristics:

  o  economic efficiency - to
     provide water supply service
     at the lowest possible cost
  o  fiscal equity - to distribute
     the cost of service equally
     among customers served
  o  political accessibility - to
     allow for high level citizen
     participation in decision
     making
  o  administrative effectiveness -
     to deliver water in an
     efficient and technically
     proficient manner

Many questions must be addressed
in the process of implementing a
regionalization program.  Some
are suggested in Section IV;
others may develop in the course
of specific regionalization
efforts.

In summary, regionalization
offers valid approaches to the
resolution of many problems faced
by small water supply systems.
Each situation is different,
however, and may be appropriately
addressed either by nonstructural
or structural options.   The
choice of most appropriate options
should be in the hands of well-
informed water supply professionals
assisted by equally well-informed
political leaders and concerned
citizens.  This document provides
the background information neces-
sary to initiate the process of
ensuring that these participants
are, in fact, well-informed.
Further, it provides a framework
that provides directon to the
search for, and implementation of,
appropriate regionalization
options.
                                   1-3

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             II.   UNIQUE  PROBLEMS  FACING SMALL WATER SYSTEMS
 "From 1961  through 1978,  drinking
 water caused  407 outbreaks of
 disease  or  poisoning,  resulting
 in  101,243  recorded  illnesses  and
 at  least 22 deaths,"(1)  according
 to  a recent General  Accounting
 Office (GAO)  report.   Indeed,  the
 apparent incidence of  waterborne
 diseases has  increased since the
 1950s,  according to  the same
 report.   During  the  period 1946-
 1970,  there were 53  outbreaks  of
 waterborne  infectious  disease  due
 to  typhoid, but  there  were 297 out-
 breaks  attributed to other bac-
 terial or viral  agents and these
 numbers  probably represent only
 the "tip of the  iceberg," since
 sporadic, random cases of gastro-
 enteritis generally  go
 unreported.(2)

 The GAO  report referenced above
 was issued  as a  review of national
 progress toward  the  goals stated
 in  the  Safe Drinking Water Act
 of  1974.  Based  on this  act, the
 Environmental Protection Agency
 (EPA)  proposed National  Interim
 Primary  Drinking Water Regula-
 tions  (NIPDWRs)  in 1975 (effec-
 tive  January  1977) and later
 promulgated Maximum  Contaminant
 Levels  (MCLs) for various
 substances.

 The Environmental Protection
Agency estimates  that  there are
 approximately 60,000 community
water systems in  the country.   Of
 these, approximately 39,000 or
 65  percent  of the  total can be
categorized as "very small"—
 serving  25  to 500 people.  An
additional  14,000 systems, or
23 percent  of the total can be
categorized as "small"—serving
501 to 3,300 people.
The existing known problems with
the U.S. water supplies are
significant, especially in systems
classified as small and very
small.  In 1980 alone, more than
900 small water supply systems
were persistent violators (in
violation more than 3 months
during the year) of the national
bacteriological MCLs, and another
1,560 systems were intermittent
violators (in violation 3 or less
months of the year).   The potential
problems with systems in these
size categories are even larger.

Small water systems,  approximately
90 percent of the systems in the
United States, suffer from the
following circumstances:

  o  Fixed capital and operation
     and maintenance costs are
     not spread over enough
     customers to keep individual
     customer costs at reasonable
     rates.

  o  Small water systems have
     limited revenues and assets;
     these systems often find it
     difficult to borrow funds
     for improvements.

  o  The low number of customers
     served tends to produce
     insufficient revenues:
     systems cannot offer salaries
     to attract and retain skilled
     managers and operators.

  o  Many small water systems are
     located in rural or other
     low density areas with low
     population growth rates;
     these systems have no predic-
     table larger customer tax
     base in the future to finance
     capital improvements.
                                   II-l

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  o  Customers served by small
     water systems often have low
     or fixed family incomes;
     instituting necessary rate
     increases is difficult.

Many small water systems operate
on a marginal basis, with little
financial and operational reserves
to ensure that reasonably high
quality water and service are con-
sistently provided.  The result,
often, is a potentially hazardous
water supply for consumers and an
inability to meetState and Federal
drinking water standards.

Because of these circumstances,
small water systems are frequently
unable to generate sufficient
resources—financial, operational,
or managerial—to correct existing
deficiencies.  In addition,
owner/operators are also unable
to respond effectively to unplanned
improvements or emergencies.  But
owner/operators of small water
systems must consistently deliver
safe and dependable supplies of
drinking water, even though they
find it inherently difficult to
manage, operate, and maintain
their systems properly.

The difficult situation in which
many small water systems find
themselves is not necessarily a
hopeless one.  Regionalization
offers an often overlooked approach
to problem solving.  It is an
approach that can easily be
tailored to the specific needs of
the utilities involved,  and one
that has met with success in many
parts of the country.   Typical of
some of the success stories are
the following:

  o  Pinellas,  Pasco and Hills-
     borough Counties,  Florida
     where a regional authority
     (West Coast Regional Water
    Supply Authority) was created
    to acquire and operate
    existing  local facilities
    and plan  new facilities on a
    regional  basis.(3)

  o  Dayton, Ohio where  the
    Cities  of Dayton and Vandalia
    and Montgomery County entered
    into  a  three-way cooperative
    agreement to expand and
    upgrade water  storage and
    transmission facilities
    without sacrificing local
    ownership or administrative
    control.(4)

  o  New Castle  County,  Delaware
    where the City of Wilmington
    has entered  into water
    supply  agreements with  the
    City  of Newark and  two  (2)
    private water  supply
    companies.(5)

  o  Washington, where the state
    via the Public Water System
    Coordination Act of 1977,
    has provided  a mechanism for
    water supply planning on a
    statewide level  and is
    encouraging the  consolidation
    of water  systems.

  o   Indiana County,  Pennsylvania,
    where a countywide  authority
    was created to  upgrade  and
    maintain the quality of
    water supplied to eleven (11)
     small communities.(6)

  o  Cowlitz County,  Washington,
    where the County Department
     of Public Works  maintains
    and operates six (6) small
    water supply systems,  five (5)
     of which are owned by the
     County and one  (1)  of which
     is handled via a service
     agreement.

This list  could continue indefi-
nitely since many regionalization
                                   11-2

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techniques are available and
practiced.  The next chapter
discusses various regionalization
options in detail.  The Appendix
includes  detailed case histories
of regionalization efforts in the
States of Washington, Pennsyl-
vania and Texas.  More information
concerning the other examples
cited herein can  be obtained from
the referenced source material.
                                     II

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             III.  REGIONALIZATION-- DEFINITION AND OPTIONS
Regionallzation of water supply
service has traditionally been
defined in two broad terms:
either the creation of an adminis-
trative organization (nonstruc-
tural) to operate and maintain
two or more water systems or a
physical interconnection of water
systems (structural).  Most
recent definitions of regionaliza-
tion have highlighted this differ-
entiation.  This document, however,
uses a modified definition to
highlight the ways in which
regionalization can occur.
DEFINITION

  Regionalization is the adminis-
  trative or physical combination
  of two or more community water
  systems for improved planning,
  operation, and/or management.
  Regionalization should be
  viewed in the context of a
  range of possible approaches,
  from the actual physical inter-
  connection of systems to an
  adminstrative and management
  arrangement to provide common
  technical, operational, or
  financial services for two or
  more systems.

This definition is keyed very
closely to the numerous methods
local governments typically use
to adapt to the changing needs
and service demands within their
jurisdictions.

Nonstructural options are general-
ly administrative or managerial
arrangements that allow for the
continued identity and indepen-
dence of the participating water
systems.   Nonstructural options
emphasize a change in "procedure";
hence, the organization and
policy control of the partici-
pating water systems and govern-
mental units remain essentially
intact and unaltered.   These
options emphasize a change in
business practice rather than a
reorganization.

Procedural changes, however, can
have secondary effects that
result in organizational changes;
the specific nature of these
Impacts is not always predictable.
For example, a basic service
contract between two water systems
for the provision of emergency
repair service could lead to a
more permanent relationship in
which the provider system takes
over the complete operation and
maintenance function for the
recipient system.

In contrast, structural options
require the creation of a new
management or political entity to
operate and maintain the water
systems.  Structural regionaliza-
tion options result in the reor-
ganization of the participating
entities regardless of their
previous ownership status.  When
implemented, the affected systems
generally do not revert back to
their original ownership and
policy control status.  Thus, the
structural options are regarded
as being more direct in their
impact on th^ existing water
supply owners than are the changes
resulting from the implementation
of the nonstructural options.

In practice, a regionalization
scheme does not have to embrace
any one specific option, but may
                                 III-l

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involve a mixture of forms or an
evolution of forms that changes
over time from the more simple to
the more complex.  The classes of
regionalization options are
summarized in Table 1.   The
options are discussed here in the
context of their broad character-
istics, requirements and advantages
and disadvantages.
NONSTRUCTURAL OPTIONS

The nonstructural regionalization
options are those that do not
affect current ownership and
policy control of the water
supply system.  The least rigid
option is the "informal agreement,"
consisting of a bartering or
trading of service or hardware,
as needed.  More formal is the
"basic service contract," a legal
purchase  (via contract) of discrete
services  (e.g., laboratory time),
which are otherwise unavailable
to the purchaser.  A "joint
service agreement" is a democratic
(equal partners) arrangement
wherein the partners agree to
jointly pursue mutual goals or
needs.  They probably are not
"buying" anything from each
other.  The regional council of
local elected officials may be a
Council of Governments-type
organization, working essentially
under an informal agreement, but
with the collected powers of
their respective governments
behind them.  The group has no
legal enforceable arrangement,
but they could unite in purchas-
ing agreements for such basic
items as chemicals or hiring
personnel, or they could explore
the cost-effectiveness of design-
ing one new water treatment plant
to serve their political
jurisdictions.
Informal Agreement

Informal agreements have their
basis in a voluntary cooperative
decision between two or more
water supply entities or other
service entity equipped to provide
a needed function to share a
commonly needed component.
Informal agreements can span long
terms or can be used on an as-
needed basis, such as when water
is supplied from one system to
another on an emergency basis to
accommodate system breakdowns.
The provision of a water supply
activity or component can involve
payment in the form of money or
services or may be provided
without charge.  Systems may
informally agree to:

  o  Share laboratory facilities
  o  Share storage facilities
  o  Share billing equipment
  o  Provide water on an emergency
     basis
  o  Share operation and mainte-
     nance (O&M) functions or
     personnel

The general benefit of informal
agreements is best summarized in
a report prepared by the Illinois
State Department of Local Govern-
ment Affairs:

  Informal agreements of this
  type are far more prevalent
  than written agreements because
  of their ease of implementation.
  In some cases, an informal
  agreement provides an operational
  basis, a "dry run," upon which
  to work out details of a formal
  agreement.  The delays in
  extended negotiations are
  removed.  As interlocal reliance
  and dependence for service
  expands, these informal agree-
  ments assume a binding quality
  since mutually relying entities
                                 III-2

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                                TABLE  1

                        REGIONALIZATION OPTIONS
  Nonstructural

       o  Informal agreement

       o  Basic service contract
               Wholesale/retail water contract
               Contract operation and maintenance  (Circuit rider
                 agreement)

       o  Joint service contracts
               Common facilities

       o  Regional council of local selected officials

  Structural

       o  Association/nonprofit water supply corporation

       o  Local special district

       o  Annexation

       o  Areawide special district/authority
  will not want to jeopardize
  their supply of services.(7)

The main advantages and disadvan-
tages of an informal agreement
are summarized in Table 2.

An example of an informal agreement
is found in two communities close
to each other, one of which is
experiencing water supply capacity
difficulties and the other finding
it difficult to provide effective
police service.  The communities
informally agree to exchange
these services—water for police
protection.  The communities
agree that there is a mutual
exchange of services of common
value and that each party is
equally compensated; thus, no
exchange of money occurs.
Basic Service Contract

The simplest formal regionaliza-
tion option is the basic service
contract, which provides for the
delivery of some aspect (or
range) of water supply service.
This contract involves the crea-
tion of a legal document between
water systems or a water supply
services company to provide a
service to the other systems.
Under a basic service contract,
policymaking and financing usually
remain with the recipient of the
service, and the provider performs
agreed on service functions.
                                  III-3

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                                TABLE  2

                    ADVANTAGES AND DISADVANTAGES  OF
                           INFORMAL AGREEMENTS
  Advantages

  Easy to create or implement
  Adjustable  to duration of need
  Forerunner  of more binding
    relationship
  Easy to terminate
  Disadvantages

  Not  legally enforceable
  Easy to  terminate
  No formal  continuity from
   administrator to
   administrator
Basic  service  contracts are the
most widely used method of re-
gional  cooperation among local
governmental units, public enti-
ties,  and private companies and
present a flexible, yet enforce-
able arrangement.  Specific
functions may  be contracted:

   o  Water purchase contracts—
     wholesale and retail
   o  Contract  Operations and
     Maintenance (O&M)—emergency
     and repair
   o  Water plant operation and
     maintenance
   o  Distribution system
     maintenance
   o  Billing and collection

The most common use of basic
water supply service contracts is
to provide water on a wholesale
or retail basis.   These contracts
usually arise  when raw water
source  quality or quantity becomes,
or is determined to be, unaccept-
able, requiring either the con-
struction of a sophisticated
treatment system or the develop-
ment of a costly new water source.
These two factors alone (unaccept-
able water quality and quantity)
have probably given rise to the
creation of  more  water contracts
than any other factors.
 These  contracts  can also  make
 available  various  types of  spe-
 cialized services  to small  water
 systems that are unable to  obtain
 the necessary  facilities  or
 qualified  staff  to  provide  the
 services for themselves.  Contract
 provision  of O&M and laboratory
 services are finding increasing
 use as water systems are  attempting
 to both upgrade  the quality of
 service to their customers  and  to
 comply with Federal and State
 regulatory requirements.  Existing
 water systems  and water supply
 service companies are both  begin-
 ning to offer  these types of
 services to small water systems.

 Specific advantages and disadvan-
 tages common to  basic service
 contracts are  shown in Table 3.

 Cowlitz County,  WA,  implemented
 its satellite  water system  support
 concept by entering into  contracts
with a number  of county organiza-
 tions to operate and maintain
 their water and  sewerage  systems.
As a part of the contract,  the
 county regularly sends qualified
water system operators to verify
 the proper operation of the water
 treatment and  distribution  systems;
these operators also  provide
                                 III-4

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                                TABLE 3

                    ADVANTAGES AND DISADVANTAGES OF
                        BASIC SERVICE CONTRACTS
  Advantages

  Easy to create
  No restrictions on  local
    autonomy or policy control
  No governmental reorganization
  Adjustable to meet  changing
    service needs and demands
  Realization of unit cost savings
    via  larger quantity purchases
    (economies of scale)
  Able to provide specialized
    services not otherwise
    available
  No voter approval required
 Disadvantages

 Easy to terminate
 Temporary solutions
   (possibly)
 Too expensive (sometimes)
regular  and  emergency maintenance
and repair services.

In Bell  County,  TX,  the Certified
Water  Service Company now contracts
with  14  water systems each of
which  serves 100 to  800 customers.
Certified Water  Service Company
provides O&M and water sampling
services, prepares water quality
monitoring reports,  distributes
monthly  bills, and collects
revenues.
Joint Service Agreement

Joint service agreements involve
the sharing or exchange of activi-
ties among two or more water
systems or other service entities.
A joint service agreement is
normally more complex than is a
basic service contract; thus, the
agreement places more restric-
tions on the participants.
Administrative decisions are
typically made by a joint govern-
ing body of representatives from
each participating system.

Joint service agreements establish
the participating systems as
partners in the provision of a
particular water supply activity;
parties to these agreements
generally have similar levels of
administrative and financial
authority and responsibility.
Planning, contracting, financing,
and/or operating costs to provide
the joint activity are shared by
the systems.

Joint service agreements can be
formed for the following purposes:

  o  Development of a water
     source
  o  Ownership of system facili-
     ties
          Storage facilities
          Laboratory
          Maintenance facility
          Vehicles
                                 III-5

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  o  Purchasing
          Chemicals
          Parts
  o  Exchange or sharing of
     service activities
          Operations and
            Maintenance
          Billing and collections

Specific advantages and disadvan-
tages common to this option are
shown in Table 4.

Two communities could discover
that their existing wellfields
are becoming insufficient to
accommodate the water supply
demands created by recent popula-
tion growth.  Their studies
indicate that ground water can no
longer be relied on for safe and
dependable supplies of drinking
water.  A nearby river could
serve as a raw water source, but
neither community can afford to
design and construct the required
water plant.  The communities
determine that, together, they
can afford to construct and
operate the plant, as well as the
transmission lines to each distri-
bution system.

The communities decide to enter
into a joint service agreement.
All responsibility for decisions
regarding the funding, operation,
and maintenance of the plant is
given to a two-member management
group composed of the communities'
town managers, who must vote
unanimously to determine policy
matters.

The cost of construction, opera-
tion, and maintenance of the
plant and transmission lines is
divided between the two communi-
ties, based on the percentage of
the capacity of the plant each
community will use.  The communi-
ties will be credited for in-kind
contributions to the system,
including personnel, equipment,
and attorney time.  In addition,
the communities reserve the right
to enter into purchase water
contracts with other users in the
area.  The rights and privileges
of municipal employees will not
be altered by their assignments.
As a result of this agreement,
the communities will be able to
meet their water supply needs
well into the future; further-
more, the supply will be far more
dependable than were their well-
based systems.
Regional Council of Local Elected
Officials

Different from the other nonstruc-
tural regionalization options, a
regional council of local elected
officials provides a forum for
the identification of problems
common to a given area.  The area
of concern is one which often
crosses jurisdictional boundaries.
Such a council encourages common
action to resolve problems so
that resources are committed more
efficiently, thus eliminating
regional duplication of effort.
Although no legal obligation
results from council resolutions,
participating members can agree
on mutual courses of action.

As an example, several adjacent
communities each own and operate
their own water supply systems.
None of the communities want to
give up autonomy in water supply,
but they realize that some degree
of joint planning will be neces-
sary, particularly to protect the
integrity of raw water sources.
The communities decide to form a
regional council of governments
and appoint elected members of
the community councils as represen-
                                 III-6

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                                TABLE 4

                    ADVANTAGES AND DISADVANTAGES OF
                       JOINT SERVICE AGREEMENTS
  Advantages

  Easy to create
  Realization of unit cost
    savings via larger quantity
    purchases (economy of scale)
  Minimal disruption of existing
    organizational and administra-
    tive structures
  More permanent than basic service
    contracts
  More uniform coordination and
    administration of services
  More efficient use of personnel,
    equipment, and facilities
  Able to provide specialized
    services not otherwise
    ava ilable
  Elimination of duplication of
    facilites
  Increase in overall efficiency
    of service
  No voter approval required
 Disadvantages

 Impact on local autonomy
   and policy control
 More difficult to terminate
   than basic service contracts
 Benefits to outside jurisdic-
   tions that do not compensate
   participants
 Sometimes difficult to distri-
   bute costs equally
 Difficult to compute and
   equally distribute some
   overhead costs
 Difficult for participants
   to provide service
   themselves if the
   agreement fails
tatives.  The initial mandate of
the regional council is to review
the water supply situation and
report back to the member communi-
ties.  None of the communities is
bound by the recommendations of
the regional council.  Funding
for regional council activities
is provided by the member
communities.

Specific advantages and disadvan-
tages common to this option are
shown in Table 5.
STRUCTURAL OPTIONS

Structural regionalization options
as defined here require (1) crea-
tion of a new water supply entity
or (2) a shift in policy control
or function among existing enti-
ties.  These adaptations thus
involve local provider, utility,
or governmental realignment or
reorganization.  Such adaptation
is accomplished either by enlarg-
ing an existing unit or by creating
a new entity to accommodate a
locality's new or changing water
supply requirements.
                                  III-7

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                                TABLE 5

                    ADVANTAGES AND DISADVANTAGES OF
              REGIONAL COUNCIL OF LOCAL ELECTED OFFICIALS
  Advantages

  Easy to create
  Provides centralized planning and
    coordination
  Provides forum for community and
    individual input to decision-
    making
  No  restrictions on local autonomy
    or policy control
 Disadvantages

 Decisions not  legally
   enforceable
 No power to raise  funds
 Relation to other  governmental
   units strictly advisory
The  structural options generally
provide more permanent solutions
to an  area's water supply problems
(although these arrangements do
require more effort by participants
to negotiate and to resolve legal
issues) than do the nonstructural
schemes.  The new or larger
entities can seek a much greater
range  of financing sources, often
critical to capital improvement
projects, and attract and support
a more talented management and
technical staff.
Association/Nonprofit Water
Supply Corporation

Associations or nonprofit water
supply corporations (hereafter
referred to only as associations)
are functionally equivalent in
their characteristics and func-
tions.  Usually created under the
authority of a state charter,
these entities commonly exist in
unincorporated and largely rural
areas.  Some,  however, have grown
to occupy a sizable portion of a
county,  either by extending
service  into previously unserved
areas or by consolidation  of
existing systems.

Associations  (and nonprofit water
supply corporations) are the
simplest structural regionaliza-
tion option available.  They are
relatively easy to create  and
usually have  little effect on
existing local government  organi-
zation and service functions.
The representatives of  the partici-
pating entities who wish to form
an association normally petition
the state for authority to operate.
As a part of  the petition, the
participants  designate  a board of
directors, responsible  for the
policy control of the association.
Decisionmaking responsibilities
rest with the board, which is
made up of at least one represen-
tative from each of the partici-
pating entities.  For a very
small association, the  directors
are selected  from the users of
the proposed  system.

Associations  have been  established
in a number of states to consoli-
date small water systems.   Their
formation has generally been
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encouraged by their ease of
creation and by their eligibility
for federal financing, primarily
by Fanners Home Administration
grants and loans.  This assistance
has been used both for water
system improvement and system
expansion.

Associations are essentially
nonprofit institutions; thus, any
and all profits from water supply
operations must be either applied
to existing short- or long-term
debt, redistributed proportionately
to the customers, or placed in a
sinking fund for system maintenance
and improvement.

Specific advantages and disadvan-
tages of associations are shown
in Table 6.

Ohio's Adams County Water Corpora-
tion is a nonprofit association
formed to join together relatively
weak water systems.  Largely by
extension of service area and
consolidation of existing systems,
this association presently serves
2,000 customers in five communi-
ties.  Four of the water systems
serving these communities have
been physically interconnected;
the fifth has retained its own
water treatment and distribution
system.  Each connected community
has a member on the board of
directors, and rates for these
communities have been set at a
level that covers only annual
operation and maintenance of the
systems and repayment of existing
debt.
Local Special-Purpose District

Local special-purpose districts
are generally units of local
government that provide a specific
service to a defined geographic
(service) area.  These districts
are differentiated from areawide
special districts (discussed
later in this section) primarily
on the basis of scale (a singular
or few versus many communities),
number of services provided (one
versus a range) and impact on
local government (minimal versus
substantial).

Local special-purpose districts
frequently offer the only mechanism
that will provide a badly needed
service (water of acceptable
quality and quantity) in a given
area.  Local governments can be
restricted by debt limitations
and tax base limitations (Proposi-
tion 13; TRIM, etc.); in addition,
governments are also restricted
by their own political boundaries.
However, a local special-purpose
district can establish boundaries
to surround the geographic territory
needing service and will have its
own financing mechanisms (bond
market, special assessments,
etc).  Also, a local district,
formed from a group of even
smaller water providers, can
often afford to employ more
technical, highly skilled personnel
than could the previous water
providers individually.

Unfortunately, some of the advan-
tages of these districts can, in
real life, create impediments to
their implementation.  Supporters
and organizers must, therefore,
take into consideration and
accommodate local pride and
individual personalities in the
communities t~ be served.  Trans-
fer of the wate.r supply function
to a new operator (the special
district) may antagonize current
owners and their customers, even
though the latter will have a
representative on the new group's
board of directors.  They may
                                  III-9

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                                 TABLE 6

                     ADVANTAGES AND DISADVANTAGES OF
             ASSOCIATION/NONPROFIT WATER SUPPLY CORPORATION
   Advantages

   Easy to create
   Authorized to acquire water
     sources and construct and
     operate a water distribution
     system
   Power of eminent domain
   Authorized to issue bonds secured
     by assets and revenues
   Not-for-profit operation
   Authorized to seek Federal
     financing
  Disadvantages

  No power to tax
  Not authorized to issue
    general obligation bonds
  Limited powers in relation
    to other governmental
    units
 well not control the new board as
 they did the old system.   And
 local pride may also surface as
 districts that  cross political
 boundaries are  formed.   In addi-
 tion, benefits  of the new system
 may accrue in the long  term while
 capital costs may accrue  in the
 short term.   This may cause
 concern and objections  among
 customers facing immediate special
 assessments who  perhaps cannot
 visualize (or totally understand)
 the future gains to  be achieved.

 Local districts  are  usually
 created by local governments,
 which receive their  authority
 from enabling state  statutes.
 Normally,  the creation of  such  a
 district  begins  with  taxpaying
 residents  petitioning for  its
 establishment.  After a hearing
 by  the appropriate state or  local
 governmental agency,  the request
 is approved or denied.  If approved,
 confirmational elections are held
 to determine voter support.
After voter approval, directors
are  either  appointed  by local
government  officials  or elected
by the  citizens  to govern the
district.   Once  the boundaries
are  set,  the  specific service is
restricted  by those boundaries,
and  revenues  to  support the
service can come  only from the
users within  that boundary.

It is difficult to characterize
the  specific  legal requirements,
organization,  and powers  of  local
districts because these entities
are  probably  the  most varied  and
least studied forms of  local
government  entities.   Nonetheless,
the most common characteristics
of local districts are  that they
possess only  the  powers they  need
to provide  a  specific service
within their  defined  boundaries.
They are semi-autonomous  in
respect to  the parent government.

Specific advantages and disadvan-
tages of local special-purpose
districts are shown in Table  7.
                                 111-10

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                                TABLE 7

                    ADVANTAGES AND DISADVANTAGES OF
                    LOCAL SPECIAL-PURPOSE DISTRICTS
  Advantages

  Often provides the only method
    to provide a badly needed
    service
  Power of eminent domain
  Authorized to levy special
    assessments
  Can match service areas with
    service needs
  More efficient than local
    government
  Greater financial flexibility
    than local government
  Less restrictive than local
    government on cooperative
    agreements
  Convenient and inexpensive way
    to provide service in rural
    areas
 Disadvantages

 General obligation bonds
   not backed by full faith
   and credit of parent
   government
 Restricted to revenue bonds,
   which can be repaid only
   by user revenues
 Powers limited directly to
   those required to provide
   service
 Quasi-governmental entity
 Susceptible to public
   opposition because of
   its permanence
Annexation

Annexation occurs as a water
system extends its service area
to include neighboring territory.
This extension can be a change in
the boundaries of a water supply
service area established by law
(water districts, authorities,
etc.) or of corporate limits
(incorporated communities).  In
the instance of private water
systems and nonprofit water
supply corporations that do not
have recognized boundaries,
extension of water service does
not involve legal annexation of a
geographic area.

Annexation procedures vary with
the governmental character of the
municipality and state involved.
A municipal water system will
ordinarily expand to serve the
area annexed by the municipality.
Also, a municipality can generally
annex territory already served by
an existing private water system
or nonprofit water supply corpora-
tion; the municipality then has
the option to invoke the power of
eminent domain to acquire the
system.  A municipality annexing
territory must generally provide
a level of service comparable to
that received by other areas
already served by the municipality.
If the quality of service is
inferior, the voters in the
annexed area may petition for
disannexation.
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Specific advantages and disadvan-
tages of annexation are shown in
Table 8.

As an example, an unincorporated
area adjacent to an incorporated
town lacks the reliable public
water service enjoyed by the town
citizens.  Conversely, the munici-
pal water department has deter-
mined that, in order to remain
solvent, it must either, substan-
tially increase rates or find new
customers.  In meetings with
community leaders and concerned
citizens, town representatives
present the concept of annexation
as a means of extending public
water supply into the unincorpo-
rated area.  (Other municipal
services, such as police protec-
tion, would also be extended.)
After sufficient interest is
generated, the question is voted
on by referendum and passed.  The
town water department makes an
initial investment by extending
mains and distribution lines into
the new section of town.  The
increased service population can
now more easily absorb the costs
of capital improvements and
operating expenses.

Areawide Special District/Authority

The areawide special district/au-
thority is distinguished from the
local special districts by size
of area affected, the larger
range of services provided (e.g.,
water and sewerage), and a higher
degree of autonomy.   In certain
instances, a distinction can also
be made between an areawide
special district and authority,
primarily on the basis of taxing
power.   The nature of water
supply,  however, results in
revenues being generated by user
fees, which tends to blend the
characteristics of these entities.
Similar to the local special-
purpose district, the areawide
special district is considered to
be a unit of government with one
or more designated functions.
The procedure for creating author-
ities varies across the country,
but the most common situation is
for states to pass enabling
legislation authorizing county
and municipal governments to
create them.  However, in some
states, authorities can be created
only by special acts of the state
legislature.

Authorities are highly autonomous
units although they generally
cannot rely on taxation or the
backing of local government for
financial support.  They must
enter the revenue bonding market
on their own and maintain an
independent bond rating.  This
autonomy, however, presents an
actual advantage in that the
authority is exempt from state-
imposed debt ceilings.  Also,
authorities can initiate projects
on a more timely and cost-
effective basis than can govern-
mental units.  Authorities are
not subject to public referendums
(which must await an election) or
bond issues; authorities can
enter the bond market on their
own.

Authorities, of course, have
their critics.  In 1977, nearly
40 percent of the authorities and
areawide special districts were
administered by appointed officials;
the potential, therefore, exists
for those running the authority
to be unaccessible and unaccount-
able to their customers.  Also,
the financing of authority projects
has caused difficulty in some
communities.  Being somewhat
outside of government, authorities
may not be permitted to take
                                 111-12

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                                TABLE 8

              ADVANTAGES AND DISADVANTAGES OF ANNEXATION
  Advantages

  Immediate increase in service
    area population
  Makes use of infrastructure of
    existing water supply entity
  Provision of service to areas
    outside original jurisdictional
    boundaries
  Annexed area acquires same rights
    and obligations as rest of
    service area
  Realization of economies of scale
  Power of eminent domain
  Applicable to municipal services in
    addition to water supply
 Disadvantages

 Not easy to implement
 Susceptable to public
   opposition from those not
   wishing to be annexed
 Voter approval may be required
 Can be politically motivated
 Not applicable to noncontiguous
   areas
 Capital expense required to
   service new customers
advantage of centralized adminis-
trative services and purchasing,
nor are they subject to govern-
mental audit services.  Local
government purchasing procedures
can be more cost-effective than
those of an authority; therefore,
an authority's projects may cost
more than those of a governmental
entity.  And last, as an autonomous
entity, the authority is interested
(and generally knows about) only
its own projects.  Its directors
are not involved in the govern-
mental budgetary process and are
unaware of the financial priori-
ties being set for the jurisdic-
tions involved.

In summary, authorities are a
highly feasible means for financ-
ing and providing service although
they frequently assume the respons-
ibility of other local governments.
Authorities appear to be an
essential element of local govern-
ment,  but their principal diffi-
culty is their inability to
create the necessary policy and
budgetary relationships with
overlapping general local
government(s).

Advantages and disadvantages are
summarized in Table 9.
SUMMARY

The regionalization options
presented in this section have
progressed in order of generally
increasing complexity.  As the
complexity of the agreement or
entity increases, so does its
ability to solve a water supply
problem increase; however, imple-
mentation also becomes more
difficult.  The increasing complex-
ity of implementation gives rise
to additional legal, political,
and administrative requirements,
which must be resolved before a
given option can become viable.
                                  111-13

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                              TABLE 9

                ADVANTAGES AND DISADVANTAGES OF THE
                AREAWIDE SPECIAL DISTRICT/AUTHORITY
Advantages                            Disadvantages

No state-imposed debt ceilings        Potential lack of accessi-
Timely access to major sources          bility and accountability
  of capital                          Activities uncoordinated
Higher salaries to attract more         with those of other local
  technical and skilled                 governments
  personnel                           Potentially less cost-
"Quasi-business"                        effective
Provision of service to areas
  that cross jurisdictional
  boundaries
Realization of economies of scale
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        IV.  ANALYSIS AND SELECTION OF A REGIONALIZATION OPTION
Regionalization options for small
water systems, to solve existing
or future supply problems, will
have unique sets of benefits and
costs.  Water supply issues are
site-specific and often impose
constraints that limit the applica-
bility, feasibility, and  charac-
teristics of a given option.

The majority of the regionaliza-
tion options presented will most
likely require the participation
of at least one local governmental
unit.  For this reason, individual
water systems and governmental
entity(s) should both indepen-
dently and collectively assess a
number of factors which can
affect the feasibility and success
of a  given approach.

The decision to implement an
informal agreement or basic
service contract will be  based
upon  the relatively simple fac-
tors  of water supply availability
and need and  the economy  of  the
arrangement.  The implementation
of the more  complex nonstructural
and structural regionalization
options will  require increasing
interaction between the par-
ticipants and a greater awareness
of the more complex factors.  In
those situations where the imple-
mentation of a regionalization
option will  result in the change
or reorganization of existing
governmental  funtional roles, the
option selected should have  the
following characteristics:
 (1) economic efficiency;  (2) fiscal
equity;  (3) political accountabil-
ity;  and  (4) administrative
effectiveness.  More specifically,
these characteristics include:
o  Economic Efficency - a given
   entity should be able to
   provide water supply at a
   monetary rate and level of
   effectiveness acceptable to
   the customers and should be
   able to benefit from econo-
   mies of scale if system
   expansions are required,
   thus providing water supply
   service at the lowest pos-
   sible cost.

o  Fiscal Equity - entities
   being considered should
   possess the ability to
   adequately finance the
   service, possess sufficient
   size to accommodate the
   costs and benefits of the
   service and be able to
   distribute the costs equally
   among the users of the
   service.

o  Political Accountability - a
   given entity will find
   greater political backing if
   it can provide for a high
   level of citizen participa-
   tion in the decision-making
   process and provide for a
   high level of accountability
   to the customers served.

o  Administrative Effectiveness
   an entity selected should
   have adequate authority to
   carry out the water supply
   service function and provide
   all aspects of that function
   in an administratively effi-
   cient and technically profi-
   cient manner.   The entity
   should be able to balance
   competing Interests and
   demands within their service
   areas.
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These considerations indicate
that the potential participants
in a more complex regional scheme
should be aware of the financial,
political, or legal burdens which
may arise to inhibit or prevent a
successful implementation.
Ideally, these conversation
subjects and negotiation points
should be identified very early
in the planning stages and cer-
tainly before any formal negoti-
ations begin.  The level of
complexity of questions to be
addressed will increase with the
more complex regionalization
options.

The general questions that the
participants should ask them-
selves before attempting to
implement a regional  approach
are:

  o  Do the state's statutes
     restrict the authority of
     the participants to implement
     the approach?  What legal
     requirements are imposed on
     the approach by these statutes?

  o  Is there adequate trust and
     a feeling of mutual coopera-
     tion among the participants?

  o  Are the pooled resources of
     the participants adequate to
     meet any increased require-
     ments created by the imple-
     mentation of the regionaliza-
     tion option?

  o  How will costs incurred in
     implementing and admin-
     istering the entity be
     distributed among the partic-
     ipants and customers served?
     What is an appropriate
     method for determining these
     costs?  What financing and
     funding sources become
     available to the entity?
Addressing these general ques-
tions early in the planning
process will help to avoid later
misunderstandings which might
otherwise arise after an approach
i s implement ed.

To aid the participants in addressing
specific legal, financial, and
political questions, this section
presents specific questions that
should be addressed.  During this
discussion, the word entity will
be used interchangeably to des-
cribe a governmental unit or
water system.   The questions are
grouped in four main categories:

  o  Legal Authority
  o  Costs
  o  Policy/Politics
  o  Assessment of Service De-
     livery Resources
LEGAL AUTHORITY

Most states have provisions for
the creation of regionalized
entities and service agreements,
but the methods of creation,
administrative structure, and
legal requirements vary.  It is
important to understand how the
courts have interpreted these
provisions under challenge to
avoid any conflicts after implemen-
tation.  For example, the issue
of "double taxation" has often
arisen when a governmental entity
extends service beyond its juris-
dictional boundary.  The partici-
pants should familiarize them-
selves with the legal interpreta-
tions of those statutory provisions
which apply to the implementation
of the regional approach under
consideration.

Assuming that the participants
have adequate authority to implement
a given regional approach, the
                                  IV-2

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following points will help to
ensure that a sufficient level of
information exists to implement
the given approach.

  o  For local governments, can
     expenditures and revenues be
     increased without going
     through a supplemental
     budgetary process?  If not,
     what steps must be taken to
     get supplemental funds?

  o  For agreements, does state
     law indicate that it is
     binding on future govern-
     mental bodies?  Does the law
     specify or suggest language
     to be used in the agreement?
     Uniform language facilitates
     multi-jurisdictional
     participation.

  o  What is the normal life
     cycle of the regional entity
     or what is the general term
     of service agreement?

  o  Who possesses the legal
     authority to create the
     regional entity or service
     agreement?  Must the regional
     entity or service agreement
     be reviewed for conformance
     with the requirements of
     state law or local charters?

  o  Under what conditions can
     the entity or service agree-
     ment be terminated or dis-
     solved?  What steps must be
     taken to initiate termination
     or dissolution?

  o  What sources of revenue are
     available to pay for the
     service?

  o  Do specific legal requirements
     address such issues as
     liability, damages, and
     property disposition at the
     termination of the service
     agreement?

  o  Does the law address require-
     ments for the hiring, release,
     or status of personnel
     affected by the service
     agreement or employed by the
     regional entity?  The trend
     toward governmental and
     quasi-governmental collective
     bargaining has a significant
     impact on labor costs, which
     generally represent the
     largest proportion of opera-
     tion and maintenance costs.
     This will have an impact on
     the competitiveness in
     providing the service.

  o  Are specific requirements
     available to amend basic
     service contracts and service
     agreements to adjust to
     different levels of service
     and attendant costs?
COSTS

A primary consideration is the
cost of providing the service and
an equitable method of computing
all contributions to   the total
cost.  Where public bodies are
involved, costs are subject to
public exposure and scrutiny.  A
prime motivation for regionalizing
water supply service is the
spreading of major capital expend-
itures over a larger customer
base.  State laws generally
require, however, that specific
improvement costs be applied only
to those recip-'-^cs of the improve-
ments or improvement in service.
Appropriate accounting practices
should be present for equitable
allocation of the costs.

  o  If a customer does not  pay
     for the actual costs of a
                                  rv-3

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   service provided, will the
   question of subsidization
   arise and what problems can
   be expected?  Subsidization
   usually reverts to the issue
   of "double taxation" when a
   provider government uses
   general taxes to support a
   service provided to only a
   portion of its jurisdiction.

o  Should an overhead factor be
   based on a prorated cost of
   all labor costs, depreciation
   of assets, rent, and liability
   insurance?  Should only
   costs identified over and
   above general overheads be
   used?  These points should
   be weighed carefully as any
   decisions during implementa-
   tion will act as precedents
   for future decisions.
   Additional administrative
   costs such as additional
   recordkeeping, budget accounts
   and personnel should be
   identified and documented.

o  What mechanisms should be
   used to adjust costs to
   reflect inflation of labor,
   equipment, and supply costs?
   Appropriate adjustments are
   very important in multiyear
   agreements to ensure quality
   service is maintained and
   adequate finances are available
   to support the level of
   service.

o  What is an adequate method
   of determining costs, method,
   and timing of payment?
   Regional water supply enti-
   ties often provide service
   to smaller water systems
   which possess rudimentary
   and inadequate methods of
   accounting and collection.

o  In determining costs, should
   consideration be given to
     the financial status of the
     individual recipient water
     systems?  How will this
     affect the delivery of
     service to the individual
     systems in terms of their
     ability to pay for the
     service?  These are very
     important considerations as
     they will affect the ultimate
     success of the regional
     scheme.

  o  What forms of Federal and
     State funding are available
     to the regional entity.
     What are the effects of
     funding requirements on the
     general financing of a
     capital improvements project?
     What are the effects of
     funding requirements on user
     charges?  These considerations
     will have a significant
     impact on the feasibility of
     a capital improvement project.
POLICY/POLITICAL CONSTRAINTS

The level of trust and cooperation
between the leaders of the partici-
pating entities must be carefully
assessed.  Local jealousy and
mistrust have been major inhibiting
factors to regionalization attempts.
Reaction by the local citizenry
to a regional approach must also
be carefully weighed and antici-
pated.  General obligation bonds
which might be considered by a
general purpose government to
support a capital improvement
project are subject to public
approval through a bond
referendum.

  o  What is the expected public
     reaction to the regional
     proposal?  Is sufficient
     public support available for
     approval of the proposal?
                                IV-4

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What is the expected public
reaction to a possible
increase in taxes or user
charges to support the
project?

Will the increase in the
level and quality of service
offset any negative public
reaction to a tax or user
charge increase?  What are
the best methods to publi-
cize the benefits accruing
from a regional approach?

To which entity should
citizens complain about the
service:  the provider or
recipient water system or
governmental unit?  The
participating entities
should identify responsibil-
ities in responding to
complaints and should estab-
lish methods to address them
efficiently.  Efficient
resolution of problems will
develop confidence and
support for the provider
water supply entity.

What policy control will the
participants lose to the
regional entity?  The nature
of respective policy control
should be clearly identified
during negotiations between
the participants to avoid
conflicts and misunderstand-
ings later.

What problems are anticipated
during the transition of
service?  Methods to address
these problems and keep
citizens informed during the
transition should be ad-
dressed and implemented to
ensure an orderly transition.
ASSESSMENT OF SERVICE DELIVERY
RESOURCES

A thorough assessment must be
made of available and additional
resources that will be required
to implement a regional approach.
Additional resources required
must be accurately identified to
ensure an accurate accounting of
costs incurred in implementing
the regional approach and to ensure
that additional resource require-
ments will not result in a lessen-
ing of service competitiveness.

  o  What changes in resources
     are expected to be necessary
     to provide the service?
     Personnel, facilities,
     equipment, etc.

  o  Are sufficient resources
     available to provide areawide
     service coverage to benefit
     from increasing economies of
     scale?

  o  Will the regional approach
     require a reallocation and
     relocation of personnel and
     facilities?  What impact
     will this have on total
     costs and should the recipi-
     ents bear the costs?

As can be seen from the number
and diversity of questions that
must be addressed, successful
implementation of a regional
option requires careful advance
planning.  Implementation of the
complex approaches requires a
full understanding of the legal,
political, and financial issues
before any formal proposals and
negotiations begin.
                              IV-5

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                          V.  IMPLEMENTATION
Previous sections in this manual
have defined and described various
structural and nonstructural
regionalization options.  The
advantages and disadvantages of
each have been reviewed, and
questions have been raised for
the consideration of concerned
individuals pursuing a regionali-
zation plan.  It is the steps in
this pursuit that are the subject
of this section.

There are no clear cut pathways
in the successful implementation
of a water supply regionalization
plan.  The so-called "path of
least resistance" is rarely the
most beneficial.  The steps
ultimately followed will primari-
ly depend on the following factors:

  o  Type of need to be fulfilled
  o  Location of water system
     needing assistance vis-a-vis
     other suppliers
  o  State enabling legislation
  o  Local political considerations
  o  Public input
  o  Cost to the participants

Also, other factors may come into
play depending on the individual
situation.

Figure 1 presents a "Suggested
Sequence of Events for Regionali-
zation Implementation."  This
chart presents, in a generalized
format, the steps most likely to
be encountered in the pursuit of
a regionalization plan.  It is
not intended to be a static,
unyielding framework.  The bottom
line in any implementation effort
is to do what works.  Figure 1 is
intended to provide water supply
planners and political leaders
with guidance as to the activities
most likely to be required in the
implementation process.  It
should be adjusted as needed to
account for local concerns and
requirements.

The "Suggested Sequence" is
divided into two (2) main branches,
one for nonstructural options and
one for structural options.
Front-end problem identification
and decision making would be
identical, however, until the
actual option to be pursued is
determined.   The procedural steps
associated with front-end activi-
ties is determined as follows:

  1. A clear determination of the
     specific problem(s) facing
     the water supplier must be
     made.

  2. An honest evaluation of
     in-house capabilities must
     be made to determine if the
     problem(s) can be solved
     independently, or if external
     assistance is required.   If
     external assistance is not
     required, then the decision-
     makers need progress no
     further in the sequence.

  3. If external assistance is
     desired,  the participant
     should identify both the
     strengths and weaknesses of
     neighboring water suppliers.
     If no reasonably close
     suppliers exist, or their
     strengths are not compatible
     with the first supplier's
     weaknesses, a structural
     remedy may be the only
     solution.
                                   V-l

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  4. If compatibilities do exist
     with nearby suppliers,
     managerial level discussions
     should be undertaken (with
     owner knowledge and input)
     to identify means of possible
     cooperation.   This should
     lead to a managerial level
     determination of the most
     appropriate regionalization
     option to pursue, and a
     determination by the respec-
     tive participants to proceed
     or not.

At this point in the sequence,
certain steps vary depending on
the type of option pursued,
although similarities exist
within the nonstructural and
structural options.   In the
pursuit of nonstructural regionali-
zation options, the following
activities should be anticipated:

  1. A negotiating team of indi-
     viduals selected by the
     water supplier(s) would work
     out the terras of any informal
     agreement or service contract.
     Each party to the agreemnt
     should fully understand both
     its obligations to the other
     participant(s)  and the
     services or compensation it
     shall receive in return.

  2. Once the terms of the agree-
     ment or contract are negoti-
     ated, a legal review by the
     respective attorneys is
     recommended.   In addition,
     input from local political
     leaders or concerned citizens
     should also be  obtained and
     considered.

  3.  The finished  agreement or
     contract is put into
     operation.

  4.  Finally,  the  document and
     its impact on operations
     should be reviewed by all
     parties at regular intervals
     to determine if its perform-
     ance is satisfactory, if it
     should be terminated, or if
     an additional step to a more
     permanent structural approach
     is in order.

The only nonstructural option not
falling into this general frame-
work would be a regional council
of governments approach.  If such
an advisory steering committee is
preferred, their close coopera-
tion must be obtained among
affected municipalities to initi-
ate operations.

Concerning structural regionaliza-
tion options, the following
anticipated tasks would be common
to all:

  1. An investigation of the
     legal authority to implement
     the structural option would
     be required.  Attorneys for
     the interested entities must
     determine if appropriate
     state enabling legislation
     is in place.  If such legis-
     lation is required, then
     contact must be made with
     the appropriate state repre-
     sentative (s) to initiate
     action.

     Concerning enabling legisla-
     tion, a word of caution is
     appropriate at this point.
     Legislative requirements
     regarding the implementation
     of structural regionalization
     options vary greatly from
     state to state.  For instance,
     California, a heavily legis-
     lated state, has individual
     statutes  concerning the
     formation of county water
     work districts, municipal
     utility districts, public
     utility districts, municipal
                                   V-2

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     water districts and water
     conservation districts.  Any
     one or several of these
     statutes could impact on the
     legal requirements for
     structural regionalization
     of water systems in Califor-
     nia.  Conversely, Arizona, a
     less heavily legislated
     state, has individual stat-
     utes concerning public
     service corporations and
     public utilities.  (Concern-
     ing the pursuit of non-
     structural regionalization
     options, it should be noted
     that all states have statutes
     governing interlocal coopera-
     tion and/or the joint exer-
     cise of governmental powers.)
     Finally, water rights may be
     an issue of concern in the
     selection of a regionaliza-
     tion option, particularly in
     the western part of the
     United States.

  2. Once appropriate general
     legal authority is in place,
     the water supplier(s) pursu-
     ing structural regionaliza-
     tion should solicit the
     interest and active support
     of political leaders and
     concerned citizens in the
     affected municipalities for
     the specific option desired.

  3. Finally, once local support
     is assured, official creation
     of the structural entity,
     with its associated elected
     or appointed directors, can
     proceed.

As indicated in Figure 1,  if at
any point in the sequence of
events progress must be irrevocably
terminated, decision making
should revert back to the mana-
gerial/owner consideration of
options step.   Also, after an
option is implemented, its per-
formance should be periodically
evaluated and adjustments should
be made as necessary.

As stated previously,  this imple-
mentation framework must be
tempered by local considerations.
It does, however, provide a
reasonable outline of  the minimum
actions required to guide decision
makers in the water supply region-
alization field.
                                   V-3

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  APPENDIX A




CASE HISTORIES

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     The following actual case histories are presented to provide the
reader with some insight into the varying complexities associated with a
range of reglonalization actions.  They reflect real world situations
and the associated benefits and problems.  These case histories pri-
marily reflect county and state level regionalization actions; however,
those considering simpler regionalization options can still gain knowl-
edge and guidance from the experience reflected therein.

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CAMERON, TEXAS

In 1973, the Salem Elm-Ridge Water Supply Corporation, a relatively
small (50 metered connections) water supplier, did not have adequate
resources to staff qualified maintenance personnel.  As a result, mal-
functioning equipment was repaired by community volunteers.   Customers
read their own meters and submitted payment.  Equipment downtime, inac-
curate meter readings and late payments were major shortcomings of the
system.

A small water service contractor was hired  to properly maintain equipment
and also to handle billing and collections.  By 1977, Marlow Water
Supply Corporation, North Milam Water Supply Corporation and Bell-Milam
Falls Water Supply Corporation, three neighboring small water systems,
were also sharing the services of the service contractor.

The four small water systems have grown over the years (total of
1,500 metered connections in 1983), but the growth has not been sufficient
for any of the individual water systems to hire staff maintenance personnel.
Thus, they expect to continue sharing the services of a system operator
for the foreseeable future.

CADDO MILLS, TEXAS

In the late 1970s, the Hopewell Water System, a small water supplier
(500 customers) in Caddo Mills, Texas, began to experience difficulty in
meeting the increased demands brought on by new customers in certain
areas.   Due to the lack of water lines and  inadequate pressure and
capacity, a waiting list existed for customers desiring new metered
connections.  New housing and a customer desire to switch from private
well water to public water supply had resulted in an overload of segments
of the system.  There were also some areas  using private wells and not
connected to the water supply system.  In 1978, the Hopewell Water
System applied to the Farmers' Home Administration (FmHA) for funds to
finance a system expansion and upgrading.

Simultaneously, the FmHA received requests  for loans from three neighboring
small water suppliers, the Floyd Water System, the Merit Water System,
and the Kellogg-Kingston Water System (total of 900 customers).   The
three water suppliers required expansions for reasons similar to those
of the Hopewell Water System.

The FmHA strongly suggested that consolidation of the four small suppliers
would result in a more efficient and, consequently, less costly operation.
They felt that a larger system would be in  a better position to improve
service to the customers.   The Board of Directors of the systems took
the suggestion and voted in favor of merging.  The FmHA loaned the funds
for expansion to the newly created entity.

The four systems are not physically connected but they will be under the
control of one administration.  They are currently in the process of
hiring a general manager to oversee construction, maintenance and operation

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of the system.  The maintenance and bookkeeping staff from the Hopewell
Water System will be maintained for the consolidated system.

Plans for construction of new lines and modification and repair of old
lines are currently underway.  In the very near future it will be feasi-
ble to accommodate any new customers desiring the service of the water
system.


INDIANA COUNTY MUNICIPAL SERVICES AUTHORITY (Pennsylvania)

In 1973, the Indiana County Board of County Commissioners created the
Indiana County Municipal Services Authority to upgrade the quality of
services provided to the residents of 11 county communities.  Seven
systems served 970 households in the central and southwestern portions
of the county.

The commissioners chose an authority (a quasi-governmental unit) as
their appropriate regionalization option because of its expected respon-
siveness to the needs of the residents, because it could move quickly to
undertake a capital improvement project, because of its eligibility for
Federal financing, and because of the success of similar entities through-
out the state.  The authority's success is well-demonstrated; the entity
is now negotiating with five more systems that are considering joining
with it.

The authority purchased the seven systems in September 1973; the systems
had been constructed in the late 1800s and early 1900s.   The communities
themselves had been built by a coal company to house employees; when the
mines closed or mechanized in the 1930s, the company sold the houses to
a local real estate company.   The houses were rented at low monthly
rates, and no attempt was made to maintain the water systems.

Eventually, they fell into poor operating and physical condition.  In
some instances, pipes completely disintegrated and water flowed through
channels of packed soil that had originally surrounded the pipes.
Community residents complained about red water, discolored laundry, and
the inadequate supply, and voiced their fear about the general water
quality.  Recognizing that the residents could not bear the costs of the
necessary improvements, the commissioners created the authority.

After purchasing the systems, the authority took immediate steps to make
short-term renovations with an interest-free loan from the county commis-
sioners.  In addition, the authority raised the flat rate charged to
customers from $4 to $10 per month in an attempt to cover the costs of
operating, maintaining, and renovating the systems.

The loan and rate increase, however, proved insufficient to cover the
authority's operation and maintenance and capital improvement costs.
Thus,  in 1974, the Authority moved to begin securing funding from the
Farmers Home Administration (FmHA) and the Appalachian Regional Commis-
sion (ARC).

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A consulting engineering firm estimated the cost of  the entire project
to be $3.8 million.  After three years of consultation with the FmHA and
ARC, the authority was awarded a $2 million grant from FmHA and a  supple-
mental grant of $330,000 from ARC.  FmHA financed the remainder with a
long term, low-interest loan.

The authority conducted its own interim financing during  construction
through the sale of short-term notes and securities  and through the use
of a no-interest revolving fund established by  the county  commissioners.
The capital improvement project, completed in 1980,  resulted  in the
construction of three new treatment plants (with processes for removal
of iron, manganese, and hydrogen sulfide); seven new storage  tanks; five
new booster stations; 26 miles of distribution  line  sized  for full fire
service; and metering of all customers.  Three  systems were consolidated,
so that five systems now serve the  11 communities.

The authority now  charges a minimum rate of $12.50,  with a block struc-
ture of $1.89 per  2,000 gallons.  This rate structure results in an
average monthly user charge of approximately $16.30  per month, consist-
ent with projections made four years ago.  Total revenues  to  date  are
sufficient to cover the operation and maintenance costs and debt service,
although the authority is having some difficulty maintaining  the reserve
fund required in the FmHA grant/loan agreement.

To facilitate and  simplify monthly collections, the  authority implemented
a coupon system.   Customers read their own meters and send in their
coupons and payments to the authority.  This approach has proven success-
ful; most payments arrive on an accurate and timely  basis.

In addition to an  administrative staff, the authority currently employs
four full-time, certified water operators.  The authority  supplements
this staff with temporary labor as much as possible  to minimize overall
labor costs.  A laboratory at one of the treatment plants performs
necessary testing.  Although the laboratory is  equipped for coliform
testing, it is not yet certified to conduct this test.

The authority's success to date can be tied to  a number of factors:

  o  Active participation of the residents affected  by the project

  o  Documentation of the need of the project through the use of surveys
     and public meetings

  o  Active support of the county commissioners

  o  Aggressive authority management;

  o  Availability  of Federal assistance and funding

The most notable factor making the authority a  reality is  the active
support and assistance of the county commissioners.  The board realized
the importance not only of providing quality supplies of  drinking  water

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to the county residents, but also of other  services,  such  as  sewerage
and solid waste management facilities.

A second major factor was the encouragement  and  active  participation and
support of the residents affected by the project,  which helped  to ensure
that  the project was conceived to best suit  their  needs.   Residents also
helped demonstrate  sufficient need to the FmHA and ARC.

Aggressive authority managers helped move the project expeditiously from
early planning stages through construction.  The management received
notification of grant and loan awards from FmHA  and ARC only  three years
after submitting preapplications  (first step in  the funding process).
Construction took only  18 months and was so  well managed that it  had
surplus funds after construction was completed.  The  efficient  and
timely construction of  the project is, in large  part, seen to be  the
result of the day-to-day involvement of authority  management.

Of particular importance to the grant approval process  was the  availabil-
ity of the documentation of the severity of  the  problem — through
survey information.

Finally, the availability of federal funding in  the form of grants and
loans was the primary factor that made the project economically feasible.
Direct grants and long-term, low-interest loans  were  the only methods
the authority could use to finance the project without  severely burdening
area  residents.
 STATE  OF WASHINGTON

 The  State of Washington has provided a mechanism to provide an orderly
 water  supply planning process and to encourage consolidation of water
 systems.  Enabling legislation which formally incorporated these  concepts
 into State policy was the Public Water System Coordination Act (PWSCA)
 of 1977.  A main reason for initiating this legislation was growing
 awareness on the part of state officials of existing and potential water
 supply problems within the state.  Specifically, they noted that  the
 state  had been experiencing several trends:

  o  Proliferation of small water systems;

  o  Non-uniform design standards;

  o  Overlapping of service areas;

  o  Conflicts between land use plans and water supply plans; and,

  o  Unnecessary duplication of water system facilities.

Due  to a lack of coordination and communication between water systems,
the  state experienced the creation of many small water systems to serve
small  developments.   This increasing number of small water systems
placed an increasing burden on state government to ensure their proper

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operation and maintenance.  Additionally, due to their small size and
lack of revenue, these water systems rarely had the financial resources
to employ qualified operators, or properly maintain equipment.

The PWSCA was conceived to develop a planning process that would help to
prevent future water supply problems from occurring as a result of the
lack of communication, cooperation, and coordination.  The two primary
objectives of the Act were to:

  o  Achieve organized development of water utilities within a given
     geographic area; and,

  o  Integrate water system development with land use planning in a
     given geographic area.

A number of concepts were incorporated into the PWSCA which promote
various aspects of consolidation.  Consideration of shared or joint use
facilities and the satellite support system concept is encouraged in the
development of the Coordinated Water System Plan.   Shared or joint use
facilities is what the name implies, a common use of all or a portion of
a facility by more than one water system.  Significant reductions in
construction and operation and maintenance costs can be realized by
implementing such an approach.

Another concept promoted by the  PWSCA is the "satellite support system"
concept.  This approach involves a single entity assuming the responsibil-
ity for the operation and maintenance of one or more small water systems.
The small water system can elect to be either owned or not owned by the
management entity.  Economies of scale to be derived from this approach
may make it possible to employ skilled personnel,  utilize common repair
parts and equipment, offer quicker response to system breakdowns and
problems, and be more able to operate systems to meet strict federal and
state drinking water standards without excessively burdensome water
rates.  Satellite systems can act as a precursor to development of a
totally regional system.

It was also the intent of the Act that the responsibility for decision
making rest with local government and the water supply utilities affected.
The Department of Social and Health Services acts as technical consultant
to the planning process, and review agency at the time of design of
facilities.

To support this process, Funding Referendums 27 and 38 were conceived
and passed to provide financial assistance for the planning, design, and
construction of water supply facilities.  Loans may finance 100 percent
of the planning and design of projects, and grants may finance 40 percent
of the eligible construction costs.  Construction grants are generally
available for water quality improvements, source development, water
storage facilities, major transmission lines, pumping facilities, equip-
ment and structures related to eligible projects,  and site purchase and
preparation.

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The general planning process established by the PWSCA is as follows:

  1) A preliminary assessment (evaluation) is prepared for existing
     water systems, documenting their problems.   Specific problems
     addressed include,  where appropriate:  unreliable water quality,
     unreliable service, or lack of coordinated planning.  Any of the
     problems can initiate the assessment.  After completion, the assess-
     ment is reviewed by the DSHS and the County Legislative Authority.

  2) If the assessment documents the presence of one or more of the
     problems, the general area affected is declared a Critical Water
     Supply Service Area.   This declaration will either be made by the
     county or the Department of Social Health Services,  and the affected
     parties are notified of this declaration.

  3) After the declaration of the Critical Water Supply Service Area, a
     Water Utility Coordinating Committee is established.  Committee
     members are appointed by the declaring body and must include repre-
     sentatives from the county legislative authority, the county planning
     agency, the county health agency, water purveyors serving greater
     than 50 customers,  and the Department of Social Health Services.
     Other members may be appointed at the discretion of  the DSHS.   The
     prime responsibilities of the Water Utility Coordinating Committee
     include the establishment of the Critical Water Supply Service Area
     and the development of the Coordinated Water System Plan.

  4) The development of external boundaries is the first task of the
     Water Utility Coordinating Committee.  These boundaries establish
     the limit of  the study area in the development of the Coordinated
     Water System Plan.   A common set of "ground rules",  (i.e., design
     standards, policies, etc.), will apply to the entire area.  The
     proposed boundaries must be delineated within six months of appoint-
     ment of the committee, and a report must be prepared justifying the
     boundary locations.  This report is submitted to the affected
     county(s) for their review and consent.  Typically,  the development
     of the boundaries will be based upon a consideration of existing
     and projected land use, physical limitations to water service,
     existing political boundaries, future service areas  of existing
     utilities, system hydraulics, and economic ability of water systems
     to meet minimum levels of service.

     After at least one public hearing, the Committee submits the proposal
     to the county(s) for final action.  The county(s) must then hold at
     least two public hearings before accepting the Committee's proposal
     with or without modifications.

  5) After the boundaries are approved, the Committee then moves to
     develop the Coordinated Water System Plan for the area.   The develop-
     ment of proposed water system improvements must adhere to specific
     minimum design standards and plan development methodologies before
     the Department of Social and Health Services grants  final  approval
     to the plan.   These minimum requirements are designed to ensure an

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adequate level of evaluation of alternative improvements, their
necessity, and compatibility of improvements with other water
systems in the planning area.

The Plan must assess needs and corresponding water system improve-
ments over a ten year period and must be revised at least once
every five years.  A time requirement of two years after boundary
approval is generally applied for the development of the Plan.

The Plan normally consists of two sections:

  o  Individual Water System Plan
  o  Areawide Supplement

The Individual Water System Plan is developed for each water system
in the Critical Water Supply Service Area, addressing the system's
existing and projected needs.  Basic descriptions include a discus-
sion of service area characteristics, existing facilities, and
anticipated improvements over a ten year period.  The detail of the
descriptions is tied to the size of the individual water systems.
Each water system prepares its own plan.

The development of the Areawide Supplement is the responsibility of
the Water Utility Coordinating Committee. This part of the Plan
addresses the interrelationships of water systems within the Critical
Water Supply Service Area.  Topics in the supplement normally
include:

  o  Assessment of related water system plans and policies

  o  Future service areas in the region

  o  Minimum areawide design standards

  o  Process for authorizing new water systems

  o  Plans for development of joint use or regional facilities

  o  Application of satellite support systems

  o  Other topics of importance to the region

  o  Compatibility of supplement with other plans and policies

  o  Role of water utility coordinating committee

  o  Considerations of the State Environmental Policy Act

Two different approaches may be taken in developing the Areawide
Supplement:

  o  Summarize the Individual Water System Plans

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       o  Develop a policy direction for Individual Water System Plans

     A summary can be developed to satisfy the Areawide Supplement
     requirements by compiling appropriate topics from each Individual
     Water System Plan.  Areawide policies can also be developed first
     in the Supplement, and individual water systems can then use these
     policies to develop their own programs to meet existing and future
     needs.

     The use of either one of these approaches will depend in large part
     to the specific philosophies and needs within the Critical Water
     Supply Service Area.  Combinations of both approaches are possible
     and allowed.

   6) The final step in the PWSCA process is receiving approval for the
     Coordinated Water System Plan.

     Approval of the Coordinated Water System Plan occurs in two stages.
     The first, at the County level, assures that the Plan is consistent
     with all adopted land use plans and growth policies.  After county
     review, the Department of Social and Health Services reviews the
     plan for completeness and adequacy of design of proposed facilities.

     If any objections from the county(s) arise during the first review
     phase, attempts are made to resolve these objections through negoti-
     ation between the county(s) and the Water Utility Coordinating
     Committee.  If these conflicts are not resolved, then the DSHS has
     the authority to determine which projects will be approved on a
     case-by-case basis.

     Once approved, all new water supply facilities within the planning
     area must be developed in accordance with the Plan.  The Department
     of Social and Health Services assumes responsibility for ensuring
     conformance with the Plan through its review of individual construc-
     tion projects.

The  success in implementing the PWSCA planning process is in large part
due  to local determinism with a team approach.  By ensuring that all
interested and affected parties have the opportunity to participate in
the  decision making process, the opportunity for developing an acceptable
plan with the necessary support for acceptance and implementation is
increased substantially.
COWLITZ COUNTY, WASHINGTON

In the mid 1960s the Cowlitz County Commissioners began to take positive
steps to assess water supply needs in various communities within the
county.   Formal actions on the county level began in 1967 when the
Washington State Legislature passed the County Area Service Act giving
counties specific authority to own, construct, operate, and maintain
water and/or sewer systems.  The Act further gave counties the authority

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to issue general obligation bonds, revenue bonds, and utility local
improvement district assessments for the improvement, operation, and
maintenance of these systems.

The first steps towards county consolidation of water and sewer systems
began in 1967 when the citizens of Toutle, an unincorporated community
in Cowlitz County, petitioned the County Commissioners to help them
solve their water supply problems.  The community had a population of
1,000 people, a public school, and the potential for significant future
growth.  Poor quality well water was cited as the major problem in the
area.  An engineering study of the area was conducted, the recommenda-
tions of which were to construct a supply, storage, and distribution
system, and to take over a water system serving a public school in the
community.  It was also recommended that the County attempt to secure a
FmHA grant/loan combination to help finance the project cost.  A Utility
Local Improvement District was proposed as the means to repay the FmHA
loan by the use of assessments.

In 1970, negotiations were completed with the school district in Toutle
and an application was submitted for FmHA funding to construct the
Toutle water system.

In the same year, the County agreed to assume the ownership and operation
of two developer-proposed water and sewerage systems.  One system was
proposed to serve a 50 unit mobile home park and the other was proposed
to serve a residential development of approximately 250 lots.  An agreement
was also reached with the Castle Rock School District for the extension
of a water main and sewer interceptor to a new high school in the County.
The water main and sewer interceptor were completed in 1971 and the
County again agreed to accept another developer-proposed water system
serving a recreational area of approximately 15 lots.

In 1971, the County instituted an organizational change, creating a
separate Department of Public Works, which took over the County's programs
in water, sewer, and solid waste.  Organizationally, this Department was
to report directly to the Board of County Commissioners.  To offset the
minimal revenues being generated at that time from water sales, the
expense of the Department was primarily paid for from property tax
revenues.

With the notice of award of grant monies for the design and construction
of the Toutle project, the County Commissioners also allocated federal
revenue sharing funds to the water project.  In order to finance the
local share of the project, a petition was circulated to the residents
of the area for the creation of a Utility Local Improvement District
which was ultimately approved and formed in 1973.  Construction began
soon after and was completed in 1974.  The completion of this project
marked the first time that the County had directed the design, construc-
tion, and district financing of a water system.

Soon after this date, the County assumed the ownership and operation of
the three previously mentioned developer built systems.  The County also

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went on to direct the design, construction, financing, and the operation
and maintenance of a regional sewage treatment plant serving the Longview -
Kelso urban area and a complete water and sewerage system for the unincor-
porated community of Ryderwood.   Additionally, the County in 1979 began
to contract services with the City of Castle Rock to operate and maintain
their water and sewage treatment plants, and with the City of Winlock to
operate and maintain their sewage treatment plant.  Contracts have also
been entered into for the operation of two private water systems, Stude-
baker Heights and Silver Firs.

The County now owns five water systems and contracts for the operation
of one system as follows:

     Camelot                       65 connections
     Toutle                       223 connections
     West Castle Rock              41 connections
     Toutle River View             17 connections
     Ryderwood                    185 connections
     Studebaker Heights            20 connections
         (Contracted)

In order to establish an orderly process for the takeover and/or construc-
tion of the project, the County also established several important
policies:

  o  The County will investigate the feasibility of constructing a water
     system after first receiving a petition signed by a majority of the
     property owners that would be affected by such a system.

  o  The County will provide  funds for the preliminary engineering
     and/or feasibility study which will become part of the project
     costs in the event the project becomes a reality.

  o  If a Utility Local Improvement District is necessary to finance the
     project, the County will proceed beyond the preliminary engineering
     and/or feasibility study stages only after its successful
     establishment.

  o  The County will create a Utility Local Improvement District only if
     petitioned to do so by the affected property owners, and if a
     serious public health or other extenuating circumstance exists.

  o  Utility Local Improvement District assessments will be developed as
     nearly as possible, according to the benefit derived by that property
     as a result of the improvement.

The County has found effective scheduling of time to be critical in the
operation and maintenance of satellite water and sewer systems.  Scheduling
is particularly important in minimizing labor costs, a major contribution
to operation and maintenance costs.   As each system served varies in
system process,  and therefore, operation and maintenance requirements,
scheduling of time was largely determined from manufacturers' and state
requirements.

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With the exception of the Ryderwood System, service routes to all the
systems were relatively easy to establish, using the Castle Rock system
as the focus.  Due to their experience in operating and maintaining the
Ryderwood System, the Public Works Department  learned that geographic
location is an important decision in determining the feasibility of
including future systems in the management system.  The Department has
learned that the cost of providing a given service is largely dependent
upon the frequency of service required and the amount of additional
travel time required per service.  Therefore,  the Department will be
much more willing to provide service to, or accept, systems close to
systems already being served or along routes to systems being served.

In recent years the Department of Public Works has been experiencing
sharply increasing costs.  This has required several rate increases, and
a continued operating subsidy from the County  to make up deficits.   The
County, in 1980, was informed by the State Auditor that this subsidy had
to be eliminated and yet was also informed by  some of the users that the
present rate was considered excessive and any  future increases would be
unacceptable.  In 1981, the City of Castle Rock and City of Winlock
terminated their contracts with the County.  As a result of this pressure,
the County was ultimately forced to ask the Department of Public Works
to study alternatives to reduce the costs of operating and maintaining
the systems under County management.

In justifying the County's role in managing a  number of water and sewerage
systems, the Department of Public Works cited  the availability of funding
to county level government as the most compelling reason.  A number of
these funding sources would not have been available to the communities
or to a water or sewer district if the communities had created them.  To
help finance the construction of capital improvement projects to upgrade
water and sewerage systems, the County had received federal revenue
sharing funds, federal grants, and state grants.

The County was also advised by their Bond Counsel and Financial Consultant
to attempt a County based management system rather than let each community
form their own ULID.  This recommendation was  based upon the ability of
a county to sell bonds easier and at a lower interest rate than small
communities.  Contributing factors were the ability of a County to
establish a single and uniform accounting system and a larger resource
base to respond to emergencies and major system repairs.

The Department identified a number of possible alternatives to consider:

  o  Return ownership of the systems to the communities
  o  Reduce labor costs
  o  Reduce overhead
  o  Reduce level of services
  o  Contract the operation of the systems
  o  Allow customers to read meters
  o  Eliminate debt service requirement

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The return of ownership of the systems to  the  communities was considered
unacceptable by the Department.  As the systems were  improved, and  a
level of debt incurred to finance these improvements,  the County  developed
a legal responsibility to the holders of the outstanding bonds.   In
addition, the communities would have to accomplish  the same  level of
service as was provided by the County.  The only  potential savings  to
the communities would be to use low paid or voluntary help to run their
systems.  This cost savings, however, would most  likely be offset by
lowering the quality of water service provided to the residents  of  the
communities.

The County or communities certainly would  not  be  able to raise funds
necessary to satisfy bond repayment and operational requirements.   On
the basis of these considerations, neither the County nor the communities
could afford to pursue this approach.

Inspection of their 1981 budget revealed that  51% of  Department  operation
and maintenance costs was allocated to labor.  They are considering
staff reorganizations to possibly reduce some  of  the  workload being
expended at a number of the systems and to possibly eliminate some  full
time positions and replace them with part  time help.   Only a minor
reorganization and staff reduction could be considered; any  further
changes other than what is contemplated would  be  expected to have a
serious impact on the level and quality of service  currently being
provided.

While minor reductions in labor costs could occur,  the Department knows
that it would be virtually impossible to achieve  any  further reductions
because of State imposed reporting and record  keeping requirements.
Delegating accounting functions and services to the communities  and
reducing this function in the Department would create legal  and  liability
problems.  Specifically, bond resolutions  stipulate certain  legally
enforceable minimum requirements for record keeping,  accounting,  etc.

Daily monitoring, testing, and reporting of water and wastewater  quality,
and the general level of service required  by permit conditions is based
upon federal and state requirements.  In addition,  state law requires
the presence of a certified operator to perform normal operation and
maintenance procedures.  As the Department's staff  includes  these certified
operators, compensation rates must be comparable  to other potential
employers to ensure their continued employement with  the Department.
Federal funding sources which were used to finance  the construction of
many of the systems also have stipulations on  proper  operation and
maintenance of these systems.   For these reasons, the Department  does
not feel that it could feasibly reduce the level  of services provided  to
its participating systems.

State law conveys the legal authority to counties to  contract with  other
local governmental units.   The most likely candidate  to arrange  a contract
agreement with would be Ryderwood, the most distant satellite system.
Ryderwood has an association which once owned  and operated the community
water system.   The other systems currently do  not have the necessary

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institutional mechanism by which to enter into such a legal agreement.
The Department does not feel that this alternative would result, however,
in any significant cost savings either to the Department or to the
communities served.

As the Department has found that it only uses eight manhours per month
to read customer meters, the cost savings of turning this responsibility
over to the customers would be offset by the time that would be required
for re-reads, correcting mistakes, pursuing delinquencies, etc.  For
this reason, the Department has dismissed this factor as a viable
alternative.

As not all of the Toutle revenue bonds are covered by the assessments
levied as a part of the Utility Local Improvement District, expenditures
are required for bond redemption.  As the County currently has a substan-
tial amount of money in its Water and Sewer Revenue Bond Fund, the
Department is considering investing those monies and their outstanding
balance in such way to reduce substantially, if not eliminate, the
difference between the special assessments and the total amount of bonds
outstanding.

It has been projected by the Department that the implementation of the
various feasible alternatives could result in a significant savings, but
an increase in rates will again be necessary in 1982 to balance the
department's budget.  After that time, the Department would anticipate
future rate increases only if the growth in revenues from new customers
does not exceed the inflationary increase in expenses.

The Department of Public Works believes that the County should continue
to support their efforts to make the present water and sewer system
management structure more cost effective and self-sufficient, and to
continue the policy of providing water and sewer service to those residents
requesting it.  Each proposed new addition to the system, however, will
be evaluated as to its financial impact prior to its acceptance.

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         APPENDIX B

         REFERENCES
             AND
OTHER SOURCES OF INFORMATION

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                              REFERENCES
1.   U.S. General Accounting Office.  Review of the Safe Drinking Water
     Act.  Washington, DC, March 1982.

2.   National Research Council.  Drinking Water and Health.  Washington,
     DC, National Academy of Sciences, 1977.

3.   Hesse, Richard J., "A Regional Approach to Public Water Supply,"
     Journal American Water Works Association, May 1977.

4.   Herman, James A. and Farr, Walten, "A Case History of Making the
     Central City's Distribution System a Regional Facility," Journal
     American Water Works Association, August  1976.

5.   Hurd, Merna, "Regionalization Opportunities and Obstacles:  A Case
     Study," Journal American Water Works Association, December  1979.

6.   Personal Communications - Mike Duffalo, Indiana County Municipal
     Services Authority, March 1981.

7.   Department of Local Government Affairs, Intergovernmental Coopera-
     tion  in Illinois,  (Illinois),  1976.

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                     OTHER SOURCES OF INFORMATION
Advisory Commission on Intergovernmental Relations.  A Handbook for Inter-
     local Agreements and Contracts.  Washington, DC:  US Government
     Printing Office, 1967.

Advisory Commission on Intergovernmental Relations.  State and Local
     Roles in the Federal Systems, A-88.  Washington, DC:  U.S. Govern-
     mental Printing Office.

AWWA Management Division, "Regionalization of Water Utilities: Needs and
     Issues", Journal American Water Works Association, December, 1979.

AWWA Regionalization Committee, "Regionalization of Water Utilities:  A
     Survey", Journal American Water Works Association, December 1979.

Bakken, J.D., "Evolution of a Regional System", Journal American Water
     Works Association, May 1981.

Bakken, J.D., "Regionalization - Development of a Regional System",
     Proceedings AWWA 1980 Annual Conference - Water for the World,
     Challenge of the 80s (Atlanta, GA, June 15-20, 1980).

Boyd, K.A. and Bell, F.A. Jr., "A Rationale for the Regionalization of
     Public Water Systems", Water Resources Bulletin, EPA Division of
     Water Supply, Vol. 9.  No. 1, 1973.

Brewer, Deborah J., "Theme Introduction—Regionalization of Water Utili-
     ties", Journal American Water Works Association, December 1979.

Bumstead, John C., "Politics of Regionalization - A Public Perspective",
     Proceedings AWWA 1978 Annual Conference - What Price Water (Atlantic
     City, NJ, June 25-30 1978).

Bumstead, John C., "The Politics  of Regionalization:  A Public Perspective",
     Journal American Water Works Association, December 1979.

Capen, Charles H., "Real or Rash Regionalization", Journal American Water
     Works Association, October 1975.

Clark, R.M.,  "Small Water Systems:  Role of Technology", Journal of the
     Environmental Engineering Division, Proceedings of the American
     Society  of Civil Engineers,  Vol.  106, February 1980.

Clark,  Robert M., "Minimize Water Supply Costs:  Regional and Management
     Options," Proceedings  AWWA Seminar on Small Water Systems Problems
     (St.  Louis,  MO,  June 7, 1981).

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Department of Social and Health Services, "Satellite Support System - A
     Means to Assure the Proper Management and Operation of Small  Public
     Water Supplies Under the Safe Drinking Water Act", Supplement to
     Status Report, November, 1975, On the State's Drinking Water  Program,
     Washington State Office of Environmental Health Programs, May 1977.

Gillean, James I.; Stevie, Richard G.; Clark, Robert M.; and Adams,
     Jeffery Q., Managing Small Water Systems: A Cost  Study, Vol.  I, EPA
     Report No. EPA/600/279/147A, Cincinnati, OH, September 1979.

Gillean, James I.; Adams, W. Kyle; and Clark, Robert M. , Managing  Small
     Water Systems;  A Cost Study, Vol. II, EPA Report  No. EPA/600/279/147B,
     Cincinnati, OH, September 1979.

Holtz, David and Sebastian, Scott, Municipal Water Systems -The Challenge
     for Urban Resource Management (Bloomington: Indiana University
     Press, 1978).

Homerosky, Frank Jr.; Bell, Frank A.; and Randall, Clifford W., Survey of
     State Programs and Attitudes on Regionalization for Public Water
     Systems.

Hooker, Donald, "A Regional Response  to Water Supply Emergencies",
     Journal American Water Works Association, May 1981.

Hooks, Donald L., Treated Water Demand and the Economics of Regionaliza-
     tion, Volume 2, Economics of Regionalization: The  Electric Power
     Example, EPA Report No. EPA/600/2-80-163, Cincinnati, OH, August 1980.

Kurd, Merna, "Economic Considerations of Regionalization of Water Supply
     Systems", Proceedings AWWA 1978 Annual Conference  - What  Price
     Water (Atlantic City, NJ, June 25-30, 1978).

Institute of Urban Studies.  Handbook for Interlocal Contracting in Texas.
     The University of Texas at Arlington, 1972.

Levin, A. and Hanson, H.F., "Small Water Systems:  What Can Government
     Do for them" Water/Engineering and Management, Vol. 128,  No. 3,
     March 1981.

Lyndon B. Johnson School of Public Affairs.  A Guide to Cooperative
     Service Arrangements for Community Water Systems.  Austin, TX:  The
     University of Texas.

 Manwaring, James F., "Viewpoint - Regionalization of Water Utilities;
     Advantages", Journal American Water  Works Association, May 1979.

McCall, Robert G., "Interim Report - Ad Hoc Committee  to Define and
     Investigate Problems in Small Water Utilities," Proceedings AWWA
     Seminar on Small Water System Problems (St. Louis, MO, June 7, 1981).

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 McCall, Robert G.;  Bennett, Glen; Clark, Robert M.; Gaston, John M.;
     Hanson, Hugh F.; Johnson, Robert K.; Kimm, Victor J.; Lamson,
     Robert R.; Leidholdt, Ralph W.; Markwood, Ira; Price, James; Sorg,
     Thomas J.; Thompson, Meredith H.; and Wubbens, Robert L., "Small
     Water Systems Problems - Panel Discussion.", Proceedings AWWA
     Seminar on Small Water System Problems (St. Louis, MO, June 7,  1981).

McCall, Robert J.; Hansen, Hugh; Thompson, Meredith; Leidholdt, Ralph;
     Hertzer, Hugh;  Markwood, Ira; Sorg, Thomas J.; Johnson, Robert;
     Clark, Robert;  Taylor, Ray; and Wubbens, Robert, "Roundtable -
     Problems of  Small Water Systems", Journal American Water Works
     Association, February 1982.

Morris, Robert C., "The Regionalization  Process," Proceedings AWWA 1981
     Annual Conference (St. Louis, MO, June 7-11, 1981).

National Association of Counties Research Foundation.  A Practical Guide
     to Intergovernmental Agreements/Contracts for Local Officials.
     Washington,  DC, 1977.

Okun, Daniel A.,  Regionalization of Water Management;  A Revolution  in
     England and  Wales London;  Applied  Science Publishers, Ltd., 1977).

Okun, Daniel A.,  "State Initiatives for Regionalization", Journal American
     Water Works  Association, May 1981.

Palmer, Robert T., "Letters to the Editor - Regionalization Effort
     Reaffirmed", Journal American Water Works Association, May 1981.

Ritsema, J.J., "Miami Pushes Regionalization to keep Pace with Population",
     Water Wastes Engineering, No. 9, 1975.

Rowntree, Norman  A.F., "Regionalization  of Water Supply in England",
     Proceedings  AWWA 1978 Annual Conference - What Price Water (Atlantic
     City, NJ, June 25-30, 1978).

Schwartz, Harry E. , "Joint Discussion - Northeastern US Water Supply
     Study:  Scope of the NEWS Study", Journal American Water Works
     Association, May 1971.

Smith, Robert G., Public Authorities, Special District and Local Government.
     Washington,  DC:  National Association of Counties, 1964.

Smith, William R. , "Regional Allocation  of Water Resources", Journal
     American Water Works Association, May 1981.

Stevie, R.G. and  Clark, R.M., "Costs for Small Systems to Meet the
     National Interim Drinking Water Regulations", Journal of the American
     Water Works  Association, Vol. 74, January 1982.

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Williams, Norman C. and Redfern, J. Martin, "The Financial Feasibility
     of Regionalization", Journal American Water Works Association,
     March 1973.

Wubbens, Robert L., "Regionalization of Water Utilities - An Interim
     Committee Report", Proceedings AWWA 1978 Annual Conference - What
     Price Water (Atlantic City, NJ, June 25-30, 1978).

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