socio-economic impacts of rural water supples

WATER RESOURCES BULLETIN VOL. 10, NO. 1 AMERICAN WATER RESOURCES ASSOCIATION FEBRUARY 1974

SOCIO-ECONOMIC IMPACTS OF RURAL WATER SUPPLES’

D. C. Williams, Jr. and Charles P. Cartee’

ABSTRACT. Development of community water systems in rural areas through the Farmers Home Administration, U. S. D. A., has been marked since the initiation of the program in the early l%O’s. System development in Mississippi has been very rapid and now numbers the largest among the states excepting Texas. Concurrent with this growth, however, has been a concern for operational quality and efficiency as well as questions of community impacts. The paper is purposed with describing the results of research conducted relative to these areas and methods currently being employed or considered for dealing with problematic items. (KEY TERMS: rural water systems; water system deficiencies; alternative operating frameworks; managerial economies; economic and social impacts)

The 1961 Agriculture Act and its 1965 Amendment, aimed at developing rural areas, gave the Farmers Home Administration, U. S. Department of Agriculture, the authorization to make loans and grants t o rural communities for the development of water and sewer systems. The need for such a program is clear in that there were an estimated 34,000 U. S. communities with a population of less than 5,500 that lacked public water facilities as of January, 1963. [Craun and Jenelle, 19711 Part of this need has been met as evidenced by the fact that by the end of FY 1973, FHA-financed water and sewer systems nationwide totaled 7,561 representing an expenditure of almost $2.1 billion. The majority of the systems were for rural domestic water supplies which numbered 5,480, or over 72 percent of the total. As of the same date systems in Mississippi numbered 689 at a cost of over $147 million which ranked second only to Texas. The majority of these systems, 608 of 689 or 88 percent, were for domestic water supplies which is the main concentration of this paper. (U.S.D.A., 1973) Overall, domestic water systems in Mississippi accounted for over 11 percent of such systems nationwide a t the end of FY 1973 indicating their concentration in the State.

Coupled with the marked growth of rural water systems, however, has been a gorwing concern by the involved regulatory, inspection, and financing agencies, both state and federal, as to the efficiency and adequacy of system operations. Recent research conducted by the authors was purposed with examining aspects of this question. A

‘Paper No. 73137 of the Wuter Resources Bulletin. Discussions are open until August 1,1974. Respectively, Director of the Bureau of Business Research and Associate Professor of Economics,

and Research Assistant and Assistant Professor of Economics, University of Southern Mississippi, Hattiesburg, Mississippi 39401.

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SOCIO-ECONOMIC IMPACTS OF RURAL WATER SUPPLIES 145

discussion of some of the major findings of this research serves as one of the main objectives of this analysis, particularly as it relates to the State of Mississippi. Particular emphasis is directed to managerial practices of rural, community water systems.

While the mangerial survey concentrated for the most part on identifying deficiencies and analyzing alternatives for dealing with these, it is also apparent that rural water systems have had significant positive impacts on rural communities, both economic and social. Thus, the second objective shall be to enumerate several of these impacts and their ramifications to rural communities. While the scope of the analysis shall be delimited to Mississippi in most cases, it is apparent that many of the findings and conclusions have ramifications for other states and areas as well. Analysis from both of these areas shall serve as the basis for examining alternative frameworks with respect to the organization, operation and maintenance, and expected impacts from the development of rural water supplies.

OVERVIEW OF PROCEDURES REQUISITE TO SECURING A RURAL WATER SYSTEM

In Mississippi, several criteria must be satisfied by a community before a rural water system loan can be consummated under FHA’s program. Specifically, (1) a non-profit association must be established to plan, coordinate and control the construction and operation of the system; (2) a genuine demand must be demonstrated which requires customer solicitation and signing of members; (3) an effective plan for securing and distributing water must be developed that meets FHA criteria; (4) plans must be prepared by and construction supervised by a registered professional engineer; (5) economic feasibility or means of repaying the loan must be available. In addition to these requirements, the State Public Service Commission is required to approve the engineer, review the total plan, and regulate costs. Finally, the State Board of Health must make a review of the plans and specifications before approval is given. Since many of these requirements interface, either directly or indirectly, with many of the findings to be noted in the discussion, they are presented here as an overview to be referenced later.

SURVEY OF SELECTED MANAGERlAL PRACTICES

A survey conducted by the authors relative to managerial practices of rural water systems in the State revealed several pertinent findings. [Cartee and Williams, 19731 The survey produced a 34 percent return out of 534 systems and was considered representative of the universe. Of particular significance were characteristics of water system operators. Results showed almost 87 percent of the operators were part-time while the annual salary of almost 70 percent was $1,000 or less. Although mandatory operator certification is not a State requirement at this time, a voluntary program is available. Only a very limited number were engaged in the program, and in fact, over 75 percent of the system operators were not aware such a program existed. This finding, however, is not limited to the State or to rural water systems. A 1969 nationwide survey conducted by the Bureau of Water Hygiene, U. S . Public Health Service, of nine sample areas of the U. S. showed that 61 percent of the operators had not received any water treatment training at a short-school level or higher and many of the operators were only part-time with very low salaries. [Leland, et. al., 19701 These State and national findings, however, suggest the need for more formal training in the operation of water systems.

146 Williams and Cartee

Related to the above analysis is the survey finding that only 20 percent of the systems had an in-house. program for testing the water for some aspect of water quality. The State requirement of at least one bacteriological sample per month was usually satisfied though by the State Board of Health. Nonetheless, over 53 percent of the systems reported no form of water treatment. Based on a new directive, however, all new systems will be required to have chlorination as a minimum State requirement.

Financially, it was found that about three-fourths of the systems were constructed for $250,000 or less and most utilized an insured loan by FHA as the financing mechanism. About 16 percent received a full grant or a grant in combination with some other financing method. Thirteen percent of the systems were not financially current at the time of the survey, the basic causal factor being initial inflated membership rosters. It was noted that many members of the required non-profit association became part of the association in order to make it economically feasible but later refused to connect and use the system’s water for various reasons. This is reflected by the fact that one-fourth of the systems reported present memberships as being less than their original enrollments which indicate the need for more stringent screening programs.

Relative to selected operating procedures, the survey showed that almost all system employees handling money were bonded; however, in about one-third of the cases the same person handled both the meter reading and bookkeeping functions which largely negated an adequate internal control system. Most of the systems had a formalized procedure for handling delinquent accounts and followed it relatively close. Also, about 30 percent reported that the central water supply and distribution system was not metered while about 13 percent had experienced a well failure since beginning operations. Most of the complaints received were related to high water rates, water quality consistency, and service interruptions.

In short, these are some of the major findings as related to operational characteristics. The following section is devoted more specifically to the managerial economics of the water systems.

ECONOMICS OF RURAL WATER SYSTEM OPERATION

Contrary t o the belief that there would be general economies of scale associated with the operation and maintenance of larger systems, the Mississippi survey indicated otherwise. Specifically, an in-depth historical analysis of eight sample systems showed the operation and maintenance expense to range from as low as approximately $22.00 per customer per year to a high of almost $53.00 per year, the former system consisting of 310 customers and the latter representing the largest system in the State with about 2,200 customers. The data were based on annual observations from 1966 through 1971.

A review of the nature of operations characterizing the smaller systems versus the larger systems, however, readily accounts for this phenomenon. Of major significance to the difference is the large volume of contributed services found in the smaller community systems. In fact, the survey showed that over half of the systems rely on operations and maintenance work performed by members to some degree, especially in the smaller systems. The failure of these contributed services to receive their market value or remuneration in the smaller operations significantly reduces the 0 & M costs per user in contrast to the larger systems where most if not all services are purchased and receive full market price in the accounting process. Thus, the 0 & M cost per user of the smaller systems are dictated mainly by the nature of the facility. Size controls resources, and the


latter in turn the need for contributed services which appear to be needed in many cases to keep some systems financially viable. As noted previously, this procedure is often prompted by inflated initial memberships, which lead to a reduction in anticipated revenues especially in the early years of operation.

Subject to explanations of the above analysis, however, economies were found to characterize the larger systems in certain areas of operation and maintenance - namely meter reading and bookkeeping cost. Meter reading costs were found to show a general pattern of decline from $0.53 per customer per month for those systems in the 75-100 customer range down to $0.17 for those systems in the 501-600 user range with the average for all systems examined being $0.35. Bookkeeping costs also exhibited a general pattern of decline from $0.51 for systems from 26-50 users to a low of approximately $0.23 per user for systems of 601-700 users. The overall average was $0.39.

Costs of these items were also compared with that offered by contracted services, e.g. computer firms. Costs offered by these firms were found to compare favorably with the in-house cost of performing the same functions. Moreover, the survey showed an increased tendency for more systems to move to this type of arrangement in canying out this phase of operations. In many cases this approach represents an excellent way of acquiring efficient and qualified operational skills often lacking internally and at a comparable cost.

OPERATIONAL ALTERNATIVES AND RECOMMENDATIONS

From this cursory review of survey findings, it is apparent that many of the rural water systems in the State manifest operational and management deficiencies. Many of the same deficiencies characterize other areas as well as pointed out in other research. [Craun and Jenelle, 197 11 Several alternatives are presently being employed, however, which offer promise in upgrading the operational programs of systems in Mississippi. They are presented here from an experience exchange premise in order to acquaint those vested with responsibilities in this area as to the way these problems are being addressed in the State.

Integration of System Opemtions By Contracted Services

One approach which appears to have promise is the cost-sharing of full-time operational personnel by several small systems. As noted, most systems are too small to justify full-time operational personnel. Moreover, they are constrained from doing so by available resources. These factors usually lead to the employment or the contribution of services by someone in the community - not necessarily qualified to cany out responsibilities as a water plant operator which may lead to many of the deficiencies noted. The cost-sharing approach with operations provided by outside contractors is being tried in a few communities in the State and apparently with success.

Based on the statewide survey, however, the majority of the responding systems, 60 percent, indicated that integrating operational functions on a cost-share basis was not practical for them. One of the most frequently noted reasons was that a lot of community time and effort had been expended in obtaining the system and making it functional (even if there were shortcomings) and there was reluctance to turn operations over to an “outside” party. For many systems, combined operations represented a loss of operating autonomy, depersonalization of membership relationships, and a situation that


could lead to poor coordination. Distance between systems was considered to be a problem in certain areas which led many to doubt efficiency of service in times of emergencies. Problems of prorating overall costs with other systems, coordination, and reluctance t o work with systems with major problems (e.g. financial, maintenance, etc.) were also noted. This finding leads to the conclusion that many rural water systems have sewed as an instrument to bring community leadership together, promote community cohesiveness, and provide a focus of community pride. Moreover, attempts to disintegrate this local social system were not welcomed. The “closed” society character of many such communities represent barriers for instituting some of the programs to improve operational quality such as water operator certification, use of full-time operators, etc. Many systems contend, however, that they can perform operational functions cheaper than contracted services. This result, as noted earlier, no doubt stems from the use of contributed services.

Combination of Individual Water Systems for Operation and Management

Unlike the previous alternative where small individual systems cost-share services of outside contractors, this approach calls for the dissolvement of individual non-profit charters and the creation of a new charter integrating all systems under one organizational and management framework. One of the first and largest of such combinations was executed in Mississippi in June, 1971, which involved the merger (organizationally, not physically) of five different systems. Presented below are some of the factors which may make this appraoch feasible.

Some of the main incentives which make this approach workable are when several small systems within reasonable geographic boundaries are characterized by (1) failure to stay financially current or viable; (2) raw water quality dictates sophisticated treatment plants and; (3) quantity and consistency of service complaints are frequent. Each of these factors was present in the case noted, and in fact, these common problems served as the incentive for merger.

Under special arrangements through the Farmers Home Administration, one of the five systems agreed to assume the assets and liabilities of the other four systems, and members of the assumed systems became part of the new non-profit corporation. The new Board consisted of one board member from each of the previous associations. The total outstanding balances were refinanced by FHA under a new loan. Since the merger several benefits have accrued. First, the new system which totaled about 1,100 customers was now large enough to make it economically viable and manageable which led to the employment of full-time water operators, maintenance personnel, and office staff to handle bookkeeping and meter reading. Quality of service improved and complaints decreased. Although operations and maintenance cost per user naturally increased, revenue per user also rose due to larger water use and other factors. As of the first two years of operation the system was financially current and apparently operating successfully .

While it is not within the scope of this analysis to present the complete details of this type of merger plan, as some of the procedural elements would vary by states, it is significant t o note that FHA now recognizes and permits mergers of this type in attempting to assist systems that are plagued with financial and management difficulties.


This remedial policy seems to be a relaxation of the trend of a few years ago when it was felt that individual communities should not be forced to cooperate in forming systems if they chose not t o do so. The survey in Mississippi showed that about 28 percent of the systems were within one mile or less of another system and over 39 percent were within two mdes which partially reinforces this earlier policy. However, due to the lack of comprehensive county water and sewer plans, and the differences in community leadership and interest in a water system, this is not an unexpected result. As a remedial action, however, our indepth case study of this system indicates that this approach has considerable merit under certain conditions.

County- Wide Rural Water System Planning, Development and Operation

Another alternative for alleviating or eliminating the difficulties many small systems are having in the operations, management, and financial viability areas is that offered under a new bill passed by the Mississippi Legislature in 1972, Senate Bill 2012. Although rural water system characteristics will vary by states and, therefore, make features of the scope of this bill inapplicable, it would seem that there are several features of the bill that deserve attention. An overview of this bill is presented in the following analysis subject to this limitation.

In short, this bill provides for the incorporation of water, sewer, garbage and waste collection and disposal, and fire protection districts, or combinations thereof, in any county in the State. The bill excludes areas within the corporate boundaries of existing municipalities. When properly approved and established by a county’s electorate and its Board of Supervisors (the designated county governing board) numerous powers become effective and are vested in an appointed Board of Commissioners. Among these powers are the right t o acquire, construct, improve, extend, consolidate, and maintain and operate water and sewage systems and to make regulations to protect the health of those in the district. This vehicle is also designated to enter into agreements with state and federal agencies for loans, grants, and grants-in-aid and other forms of assistance including participation in the sale and purchase of bonds. County Boards of Supervisors may also levy a special tax not t o exceed 2 mills on all taxable real property in the district to be used by the district’s Commissioners for carrying out designated district functions.

The specific powers of tax levy, entering into agreements with federal and state agencies relative t o revenue-sharing, and various forms of police power were not available to the individual non-profit rural water systems in contrast t o the new district system. Additionally, the district could provide a ready mechanism perhaps for assuming obligations of systems with various managerial and financial problems, thus combining operations and maintenance from a centralized perspective with full-time professional personnel. Greater flexibility in raising revenues and receiving outside funds would also be available notwithstanding the multi-purpose approach of the bill which involves services other than domestic water and sewerage. This approach also has potential in eliminating the redundancy now encountered by FHA in dealing with numerous individual non-profit corporatons used for establishing rural water systems.

Due to the recent passage of the bill, there has not been enough time for counties to respond to this new approach or to test the efficacy of its potential. On the surface, however, it appears to offer a solution to many of the deficiencies noted earlier in rural water system operations.


ECONOMIC AND RELATED IMPACTS OF RURAL WATER SYSTEMS

In contrast to the deficiencies noted for rural water systems and the various plans suggested for dealing with them is the fact that many favorable impacts, economic and social, have resulted from the development of these systems. [Landry, et al., 19731 In addition to the direct expenditures, which as of June 30, 1973, totaled almost $147.4 million in Mississippi, there are the many derivative impacts. Based on estimates stemming from budget analysis of system operations in Mississippi, the average operations and maintenance expense was found to be approximately $34 per customer per year. Wages alone were estimated to be almost 36 percent of this total, or an estimated $1.6 million in 1972, thus providing employment for over 300 full-time equivalent positions. (Most systems employ only part-time personnel. Thus, actual employment would probably be twice this figure.)

Incentives for residential and some commercial and industrial development have also been provided by the availability of adequate rural water supplies. Of the new residential construction reported in rural areas by systems surveyed, it was found that they were providing water for 96 percent of all new residences. Moreover, many systems reported that the water supply was probably the strongest incentive for those who chose to build new residences in their service areas. Thus, the systems are playing a part in the population stabilization of many rural areas that have been characterized by out- migration for many years.

As would be expected, increased residential construction has also been instrumental in affecting land use changes. A significant number of systems reported the conversion of idle rural acreages to that of subdivisions, and mobile home parks and sites. Concurrent with this movement has been an escalation in land prices in these areas according to many systems. The water development has played a major part in these increased prices making many properties attractive that were otherwise idle.

In addition to accommodating certain commercial and light industrial users, systems have played a major role in complementing the growth of the poultry industry, one of the State’s leading agricultural industries. A survey showed that over 400 poultry farms were dependent on water furnished by FHA systems in the State in addition to over 450 other commercial farms as reported from a 60 percent return from all systems. Availability of a water supply with consistent levels of quality and pressure has also permitted the introduction of more modern poultry equipment heretofore not possible.

Quality of rural life as measured by selected indices has also improved due to the addition of rural water systems. In 1960, 28 percent of all households in Mississippi lacked a piped source of water inside their houses, and were dependent upon hand pumps, open wells, springs, cisterns, etc., for a source of water. However, by 1970 this figure had dropped to 14 percent. It is obvious that among the 147,111 families nationwide served by rural water systems at the end of FY 1973 were many low-income rural residents who otherwise could not have afforded an adequate water supply. The early initiation of the FHA program in Mississippi in 1962 made significant contributions in this area, especially in lower level socio-economic communities where lack of water supplies were marked, as evidenced by the distribution of almost $8.7 million in grants by February, 1973.

Increases in households with adequate water supplies also prompted the addition of other amenities to rural residences. The survey showed that almost 70 percent of the systems reporting (316) indicated the residences in their service areas had added such

SOCIO-ECONOMIC IMPAmS OF RURAL WATER SUPPLIES 151

items as dishwashers, automatic washers, and other facilities since the introduction of the water system. Many of these items were previously unfeasible to use due to lack of adequate water pressure and quality of water.

Changes in the amount of domestic water used per household is another generally accepted criterion in measuring quality of life. A comparison of water usage five years ago and today showed a marked increase in domestic water consumption. Whereas 52 percent of the responding systems (141 systems) reported an average monthly consumption of 4,000 gallons or less five years ago, only 21 percent reported a comparable figure presently. Thus, the cause-effect relationship between new household amenities and increased water consumption seems apparent.

Other benefits stemming from rural water systems are also present. Improved fire protection has resulted despite the fact certain materials, e.g. types of plastic pipe, may not necessarily conform to certain fire code standards. Nonetheless, the presence of the system has augmented the potential for handling fires. The organization of the community required in securing the system has also had carry over effects. The new sense of cohesiveness has provided the catalyst needed in carrying out other community efforts such as promotion of areas for residential, commercial, and industrial development. Thus, many rural communities which could previously offer only land, now have an additional infrastructure (in addition to REA) to offer prospects.

CONCLUSIONS

It is clear from this brief analysis that the marked development of rural water systems in Mississippi has created some unique operational problems but at the same time has resulted in numerous positive impacts, both economic and social. However, the evidence suggests that there are several viable alternatives for dealing with some of the more glaring deficiencies, and systems are increasingly evaluating and favoring these new approaches. It also appears that as rural water systems become completely of age attention will be directed somewhat away from the short range provisions of single-purpose systems providing only domestic water to that of long range needs and goals of many rural areas. This trend appears inherent in future system developments and will no doubt approximate the growth and movements of REA in the past providing the basis for additional economic and social impacts on rural communities.

ACKNOWLEDGMENTS

This paper is based, in part, on previous research projects. Thus, the work upon which this paper is based was supported in part by funds provided by the United States Department of the Interior, Office o f Water Resources Research, as authorized under the Water Resources Research Act of 1964.

LITERATURE CITED

Landry, B. M., Charles P. Cartee, and D. C. Williams, Jr. 1973. Economic and Related Impacts of Rural Water Systems in Mississippi. Water Resources Research Institute, Mississippi State University. 6 7 pp.

Cartee, Charles P. and D. C. Williams, Jr. 1973. A Study of Managerial Practices in Rural Water Systems. Water Resources Research Institute, Mjssissippj State University. 125 pp.

U. S. Department of Agriculture. NEWS. USDA 2617-73.


Craun, Gunther F. and Ernest M. Jenelle. 1971. An Evaluation of Rural Public Water Systems. Virginia Polytechnic Institute and State University. 466 pp.

Leland, J. McCabe, James M. Symons, Roger 0. Lee and Gordan G . Robeck. 1970. Survey of Community Water Supplies. Journal. American Water Works Association. November, 1970. pp. 670687.

socio-economic impacts of rural water supples

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