Water System Consolidation: Pros, Cons, and Potential Solutions

Quick Facts

Water systems in small and underserved communities face capacity, financial, and operational challenges when it comes to providing safe and affordable drinking water. Effective water systems not only require technical expertise, but there’s an important managerial component necessary for reporting and administration, funding applications, and community advocacy. Small, rural, and underserved communities around the country are falling short of these basic requirements with their water system management—often landing them in a vicious cycle that’s nearly impossible to escape.

There’s a push from state and federal levels to consolidate water systems into larger, regionalized utilities to help break or prevent the cycle. Consolidation presents real advantages in terms of improved health and financial equity:

• Enhanced water quality
• Proactive compliance with drinking water regulations
• More equitable rate structures

Complex factors like the political climate, changing regulatory environment, and population shifts affect consolidation. Revenue streams from the existing tax base take a hit as the population decreases, similar to what happened in the City of Highland Park. Municipalities end up in financial distress when residents or industries leave town, creating a measurable income shortfall to cover infrastructure maintenance costs. Highland Park was once a community of 28,000 and now the city is 50% vacant. When MCA came on board, the city was not replenishing their general and utility funds; they were already in financial hardship and under Administrative Consent Order (ACO). They needed professional representation to keep up with water quality standards.

While the City’s water supply came from the Great Lakes Water Authority (GLWA), there was talk of consolidating the distribution system, which would have provided benefits, but it may have left a gap in local representation and advocacy.

As water systems across the country restructure and regionalize, it’s important to weigh the pros and cons. The benefits often outweigh the drawbacks, but each locale has a unique set of circumstances that make it hard to generalize. On a high level, here are just a few of the pros and cons we’ve experienced with consolidation.

Pros to Regionalized Water Systems

Meeting Compliance

Here in Michigan, one thing driving consolidation in small, rural, and underserved communities is the lack of staff resources and the ability to maintain compliance. Water systems are required to do a certain amount of testing and reporting each year specific to the lead and copper rule, along with general water quality measures like total chlorine residual levels, trihalomethanes (TTHM) levels, and a slew of others. Meeting these standards is key to public health and safety and prevents costly violations. Consolidation transfers the compliance and management of the water system to another party. We’re seeing many communities that can’t keep up, and consolidation is a solution for consideration.

Meeting compliance standards is a primary benefit of regionalization – not only regarding the infrastructure itself but also having a certified water operator in place who can keep up with the technology, testing, and staffing required to maintain compliance.

Water utilities aren’t regulated the same way as other public utilities. For example, in the state of Michigan, electric, natural gas, and telecommunication utilities are governed by the Michigan Public Service Commission to ensure safe, reliable, and accessible services at reasonable rates. There is no equivalent for water utilities in the state and this void is concerning, especially for underserved communities and their water customers.

In smaller communities, it’s typical to have operators who have been running the system for 25-30 years. With an aging workforce and increasing regulations, today’s municipalities need trained, certified staff members to manage the system and realize operational efficiencies.

Leveling the Field for Grant Money

Competition for grant money is high and small communities often go head-to-head with their larger, regional neighbors for access to critical funds.

To effectively compete for grant money, a community must demonstrate its need for funding using data-driven plans that align compliance requirements, infrastructure conditions, and community goals.

This is best done using up-to-date asset management plans that showcase key infrastructure data points such as criticality and consequence of failure and prioritization criteria.

Cons of Consolidation

The Politics of Funding

Meeting the EPA’s aggressive consolidation goals requires structure to make it work, and that’s where the Water System Restructuring Assessment Rule (WSRAR) comes in. The rule intends to boost the capacity of drinking water systems and ties closely to operator certifications and asset management. As part of the rule, the EPA’s mandatory assessment authority identifies feasible and affordable actions for a community to take to reach compliance, which, in some cases, can force a community to consolidate. Additionally, the EPA offers restructuring incentives that can immediately qualify a community for a revolving loan, and while tempting, the funding opportunity can backfire for struggling communities operating on a fixed income who can’t take on additional debt.

Public Perception

One real fear of consolidation, especially when it’s forced, is the loss of control. Often when consolidation happens, the structure goes from public system to private utility and residents lose their voice and their representation alongside a rate hike. Unfortunately, this is happening in communities across the country, leading to trust issues and a politically charged environment.

Potential Solutions

A Phased Approach

One way to reap the benefits of consolidation while minimizing the drawbacks is to adopt a phased approach. Establishing a consortium of neighboring communities and working together to identify and prioritize issues to collaborate on could pave the way toward consolidation and alleviate the fear of sudden change. A partnership approach also eliminates competing against each other and enables the group to lobby for more considerable funds to address everybody’s needs. It’s a bigger ask but has bigger benefits for a group that have self-identified common issues and banded together to address them. Should consolidation come regardless, everyone already has a seat at the table.

A Shared Certified Water Operator

Sharing a certified operator between three or four different communities could help meet compliance within budget constraints while maintaining a certain level of independence. Small, rural, and disadvantaged communities may not have the budget or career opportunities to competitively recruit skilled talent. A shared resource could level the playing field.
In a way, it’s a smaller version of consolidation in place of a big conglomerate coming in to absorb each entity. Given the focus on consolidation, recognizing a need for shared resources can go a long way.

Inclusive Decision Making

Consolidation doesn’t need to equate to marginalization. One way to consolidate AND provide communities with local representation is to engage local advocacy groups and people in the smaller communities at the regional levels. While Highland Park wasn’t a consolidation situation, the lessons we learned there, shown in the table below, hold true. Getting involved in the community itself and including people and advocacy groups as part of the process helped establish trust.

Strategies to Improve Public Perception

If you meet people in their space and have real conversations instead of issuing mandates, the process is less bumpy and more effective for everyone. Relationships take time, and while the EPA wants to accelerate the process, these conversations are subjective, can be politicized, and become unproductive if not approached in a meaningful way. For anything to get done, there needs to be a defined process, the right people must be involved, and everybody must be on the same page working toward a common goal.

Where Metro Consulting Fits In

At MCA, we’ve been on both sides of these issues and offer a unique perspective. Often, we’re the glue between regulatory agencies, the municipality, and the community. We can run a department from a city employee perspective, interact with the regulatory agencies, and interact with the end customer. We like to say that we’re bridging gaps and bringing people to the table together. It’s something I’m passionate about and our firm is passionate about.

Our Technical, Managerial, and Financial (TMF) Capacity Evaluation tool is what we use to help communities develop a plan of attack for a sustainably funded and properly staffed water system to meet goals and compliance requirements. It’s tailored to the community; it helps water departments identify top priorities and provides tactical recommendations on everything from document control to financial and managerial guidance. Capacity development using TMF provides:

• A process for water systems to acquire and maintain adequate technical, managerial, and financial (TMF) capacity
• Provides an objective assessment of community status
• Uncovers gaps and prioritizes needs to create an incremental roadmap
• Enables water systems to have the capability to consistently provide safe drinking water to the public

Overall, the evaluation tool enables short-term and long-term planning for small and large water systems.

I’m proud of our ability to help rescue, rebuild, and restore communities, especially those who are underserved. If you’re facing consolidation, we’d love to help guide you through it. Let’s work together.

Public Water System Policy Roundup

Safe Drinking Water Act (SDWA): established to protect the quality of drinking water in the U.S. This law focuses on all waters actually or potentially designed for drinking use, whether from above ground or underground sources. SDWA establishes minimum standards to protect tap water and requires all owners or operators of public water systems to comply with these primary (health-related) standards.

Lead and Copper Rule (LCR):established in 1991 to protect public health and reduce exposure to lead in drinking water by establishing a Maximum Contaminant Level Goal (MCLG) of zero for lead.

Drinking Water State Revolving Fund (DWSRF): An amendment of the SDWA. It’s a partnership between the EPA and the states. The DWSRF is a financial assistance program to help water systems and states to achieve the health protection objectives of the SDWA. This loan program covers things like water system infrastructure improvements, improving the treatment of drinking water, fixing or replacing water storage tanks.

Water System Restructuring Assessment Rule (WSRAR): Falls under the SDWA amendments established by the America’s Water Infrastructure Act (AWIA) of 2018. The WSRAR will include three main elements: (1) a new mandatory assessment authority for primacy agencies; (2) three restructuring incentives for public water systems; and (3) new requirements for primacy agencies to demonstrate that they are able to implement the mandatory assessments and restructuring incentives as required by the SDWA.