Drinking Water: Stronger Efforts Essential for Small Communities to
Comply with Standards (Chapter Report, 03/09/94, GAO/RCED-94-40).

Meeting federal drinking water standards is a major financial problem
for about 50,000 small towns that account for 90 percent of the nation's
drinking water. In 1986, Congress amended the Safe Drinking Water Act to
increase the number of regulated contaminants and beef up the
Environmental Protection Agency's (EPA) enforcement authority. EPA has
since issued new regulations that have significantly increased the
responsibilities involved in managing drinking water programs. States
are experimenting with a variety of strategies to improve small water
systems' compliance with the Safe Drinking Water Act. They are (1)
exploring affordable, alternative treatment strategies; (2) testing
creative ways to deliver technical and financial help to small systems;
and (3) exploring options for restructuring small systems, such as
consolidating nonviable small systems with viable ones. A number of
barriers, however, are preventing the wider use of these
strategies--particularly the sheer number of systems needing assistance.
EPA needs to strengthen its efforts to help small communities use more
cost-effective technologies to protect drinking water. Moreover,
Congress and the administration need to examine the spiraling costs
associated with the act's requirements. The addition of new requirements
without a commensurate increase in resources has hobbled states' and
communities' ability to comply with basic program requirements. This
problem has disproportionately affected smaller communities because they
generally lack the economies of scale to absorb additional costs. GAO
summarized this report in testimony before Congress; see: Drinking
Water: Combination of Strategies Needed to Bring Program Costs in Line
With Resources, by Peter F. Guerrero, Director of Environmental
Protection Issues, before the Subcommittee on the Environment, Energy,
and Natural Resources, House Committee on Government Operations.
GAO/T-RCED-94-152, Mar. 14, 1994 (18 pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-40
     TITLE:  Drinking Water: Stronger Efforts Essential for Small 
             Communities to Comply with Standards
      DATE:  03/09/94
   SUBJECT:  Potable water
             Water pollution
             Federal/state relations
             Environmental policies
             State programs
             Cost effectiveness analysis
             Pollution monitoring
             Compliance
             Safety standards
             Water treatment
IDENTIFIER:  Alabama
             California
             Connecticut
             Idaho
             Iowa
             Maryland
             Mississippi
             Montana
             Pennsylvania
             Washington
             National Drinking Water Clearinghouse
             Rural Community Assistance Program
             EPA Safe Drinking Water Program
             
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Cover
================================================================ COVER


Report to the Chairman, Environment, Energy, and Natural Resources
Subcommittee, Committee on Government Operations, House of
Representatives

March 1994

DRINKING WATER - STRONGER EFFORTS
ESSENTIAL FOR SMALL COMMUNITIES TO
COMPLY WITH STANDARDS

GAO/RCED-94-40

Small Water Systems


Abbreviations
=============================================================== ABBREV

  EPA - Environmental Protection Agency
  GAO - General Accounting Office

Letter
=============================================================== LETTER


B-255093

March 9, 1994

The Honorable Mike Synar
Chairman, Environment, Energy,
 and Natural Resources Subcommittee
Committee on Government Operations
House of Representatives

Dear Mr.  Chairman: 

As you requested, this report examines the challenges facing small
community water systems in complying with the growing number of
regulations governing drinking water.  The report discusses the
barriers preventing more widespread use of cost-effective alternative
technologies and management strategies for improving compliance with
drinking water regulations as well as steps the Environmental
Protection Agency (EPA) has taken to assist small water systems in
overcoming these barriers.  The report contains several
recommendations aimed at furthering EPA's efforts to assist the
states in addressing the problems of small drinking water systems. 

As arranged with your office, unless you publicly announce its
contents earlier, we will make no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to other appropriate congressional committees; the
Administrator, EPA; and the Director, Office of Management and
Budget.  We will also make copies available to other interested
parties on request. 

This work was performed under the direction of Peter F.  Guerrero,
Director, Environmental Protection Issues, who can be reached at
(202) 512-6111 if you or your staff have any questions.  Other major
contributors to this report are listed in appendix II. 

Sincerely yours,

Keith O.  Fultz
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

In July 1992, GAO reported that a vast gap exists between the
resources available and the funds needed to fully implement the
Environmental Protection Agency's (EPA) drinking water program.\1 The
problem is particularly acute for the approximately 50,000 small
community drinking water systems that, in fiscal year 1991, accounted
for 90 percent of all the community systems in violation of drinking
water standards. 

Given this difficult situation, the Chairman, Environment, Energy,
and Natural Resources Subcommittee, House Committee on Government
Operations, requested that GAO determine (1) what cost-effective and
alternative management- and technology-based approaches are being
used to improve small water systems' compliance with drinking water
regulations, (2) what barriers prevent the effective use of these
approaches, and (3) what EPA is doing to remove any existing barriers
and promote alternative approaches at the national level. 


--------------------
\1 Drinking Water:  Widening Gap Between Needs and Available
Resources Threatens Vital EPA Program (GAO/RCED-92-184, July 6,
1992). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

To protect the public from the risks of contaminated drinking water,
the Congress enacted the Safe Drinking Water Act in 1974.  This act
requires EPA to, among other things, establish (1) drinking water
standards or treatment techniques for contaminants that adversely
affect human health and (2) requirements for monitoring the quality
of drinking water supplies and ensuring the proper operation and
maintenance of public water systems.  All states but one have the
responsibility, or "primacy," for managing their drinking water
programs.  These states receive grants from EPA to help pay for the
oversight of water systems and for other program responsibilities. 

In 1986, the Congress amended the act to increase the number of
regulated contaminants and to strengthen EPA's enforcement authority. 
To implement these amendments, EPA issued new regulations that
significantly increase the responsibilities involved in drinking
water programs.  As a result, small water systems--which make up 87
percent of all community drinking water systems--are expected to
incur enormous costs and face difficult challenges in complying with
these requirements.  According to EPA's estimates, through the end of
this century small systems will incur costs of nearly $3 billion to
comply with all regulations and an additional $20 billion to repair,
replace, and expand the basic infrastructure to deliver drinking
water. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

States are experimenting with a variety of alternative strategies to
improve small water systems' compliance with the Safe Drinking Water
Act.  These strategies include (1) exploring whether alternative
technologies can effectively treat drinking water at a cost
affordable to small systems, (2) testing creative ways to provide
technical and financial assistance to small systems, and (3)
exploring options for restructuring small systems, such as
consolidating nonviable small systems with viable systems. 

A number of barriers prevent the wider use of alternative strategies. 
Cost and performance data that the states need to assess alternative
treatment technologies are not widely available, and some treatment
technologies are too complex and costly for small systems to use. 
Also, the limited efforts EPA and the states have made to increase
technical assistance have generally been ineffective, in large part
because of the vast number of small systems that need support.  In
addition, many states lack the resources needed to identify nonviable
water systems and ensure that they are brought into long-term
compliance with drinking water standards.  Finally, although EPA
favors consolidating nonviable systems, the agency's grant formula
for providing states with funds to oversee compliance can provide a
disincentive to consolidation. 

To address some of these barriers, EPA has helped field test some
alternative drinking water technologies and has made some efforts to
improve the technical and managerial capabilities of the states and
individual water systems.  EPA has also recommended that the Congress
amend the Safe Drinking Water Act to require states to develop
viability programs.  However, EPA's current priorities for the
drinking water program do not emphasize the development of such
programs.  In addition, state and local officials told GAO that (1)
EPA's initiatives are too limited to help significantly and (2)
states will not have adequate funding to implement viability programs
properly. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      ALTERNATIVE APPROACHES ARE
      BEING USED TO HELP SMALL
      SYSTEMS
-------------------------------------------------------- Chapter 0:4.1

States are experimenting with technology- and management-based
approaches to help small community drinking water systems comply with
the requirements of the Safe Drinking Water Act.  For example,
affordable alternative technologies, such as pre-engineered packaged
treatment plants, are sometimes being used to remove contaminants. 
Management-based strategies include creative approaches for providing
technical and financial assistance to small systems.  Several public
and private organizations provide free on-site technical services to
these systems.  Private, state, and federal financial assistance
programs have also been created for these systems.  For example, the
Rural Development Administration awards grants and low-interest loans
to finance the construction of small community water systems. 

Many state and EPA officials agree, however, that the most
fundamental long-term solution is to address the small systems' lack
of economies of scale.  Connecticut, Pennsylvania, and Washington
have adopted viability programs to (1) prevent potentially nonviable
new systems from forming and (2) improve the viability of existing
systems through laws that direct the restructuring of nonviable water
systems. 


      SEVERAL FACTORS IMPEDE WIDER
      USE OF ALTERNATIVE
      STRATEGIES
-------------------------------------------------------- Chapter 0:4.2

One key barrier preventing the wider use of alternative treatment
technologies is a lack of reliable cost and performance data, making
it difficult for small systems' officials and state regulators to
evaluate whether the technologies are affordable and will meet
regulatory requirements.  In addition, many state regulators told GAO
that some of the available alternative technologies are too complex
for many small systems' operators to properly operate and maintain. 

Several barriers also limit the effectiveness of the technical and
financial assistance programs established by states and other
organizations.  The sheer number of systems needing such assistance
overwhelms available resources.  Also, some state and industry
officials maintain that the assistance programs, if not appropriately
targeted, can inadvertently perpetuate systems that will eventually
fail anyway. 

Perhaps most important, few states have been able to reduce the
number of their nonviable systems.  State officials acknowledge that
such reductions could help achieve meaningful resource savings. 
However, they stress that they cannot develop and implement viability
programs because they are using all available resources to address
other priorities that EPA deems necessary if they are to retain
primacy for the program.  Furthermore, although EPA supports the
consolidation of nonviable water systems, its drinking water grant
formula--which is based, in part, on the number of water systems in a
state--inadvertently penalizes states that consolidate their water
systems. 


      EPA HAS TRIED TO REDUCE
      BARRIERS TO ALTERNATIVE
      STRATEGIES
-------------------------------------------------------- Chapter 0:4.3

EPA's efforts to remove the barriers to alternative strategies have
included, among other things, (1) field tests of new treatment
technologies and (2) limited training and outreach programs to
improve the technical and managerial capabilities of both the states
and their systems.  To help remove disincentives to consolidation, in
fiscal year 1994 only, EPA revised its method for allocating state
grants.  In addition, EPA has proposed that the Congress require
states to have, as a condition of retaining primacy, both small
system viability programs and the authority to restructure nonviable
water systems.  The agency has also proposed a federally authorized
user fee to generate the funding needed to pay for these programs. 

GAO acknowledges EPA's progress in addressing technological and
managerial issues, particularly in light of the agency's serious
budget constraints, and agrees with the agency that the states should
develop viability programs and acquire the authority needed to
restructure nonviable systems.  However, a number of problems still
need to be addressed to ensure the success of these restructuring
efforts.  Specifically, EPA has yet to (1) revise the priorities of
its own drinking water program to place greater emphasis on
developing and implementing viability programs or (2) work with the
Congress to ensure that the proposed requirement that states develop
viability programs is accompanied by a detailed and realistic funding
strategy for implementation.  Finally, EPA has not yet made long-term
changes to its grant formula to remove disincentives for
consolidating water systems. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Administrator, EPA, (1) revise the agency's
drinking water program's priorities to place greater emphasis on
developing and implementing viability programs, (2) work with the
cognizant committees of the Congress to develop a detailed funding
strategy to accompany the agency's proposed requirement that states
develop viability programs for small systems, and (3) revise its
grant formula for public water supply supervision to remove
disincentives for states to consolidate water systems. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO discussed the facts in this report with EPA officials from the
Office of Ground Water and Drinking Water, who generally agreed with
their accuracy.  GAO has made changes where appropriate.  As
requested, GAO did not obtain written comments on the draft report. 


INTRODUCTION
============================================================ Chapter 1

Most Americans obtain their drinking water from public water systems. 
Consumers rely on these systems to provide high-quality water that
meets federal and state drinking water standards.  However, each year
many public water systems are found to be in violation of these
standards, and the consumers served by these systems risk ingesting
contaminated water.  Some contaminants found in drinking water may
cause only relatively mild illnesses, but others have been linked to
cancer, birth defects, and other serious health problems. 

Meeting new and complex drinking water regulations has become
increasingly difficult, particularly for small public water systems,
which often lack the resources and technical expertise needed to do
so.  In fact, 90 percent of the community water systems that were
found in violation of drinking water regulations in fiscal year 1991
were small systems.  EPA defines small systems as those with 3,300 or
fewer consumers. 

Many states are having great difficulty managing their drinking water
programs because an overwhelming number of small water systems
require oversight.  As we reported in July 1992,\1 in large part as a
result of the 1986 amendments to the Safe Drinking Water Act, the
complexity and number of requirements that states must meet in
managing their drinking water programs have expanded significantly
without a corresponding increase in federal or state resources.  As a
result of serious resource constraints, some states have decided to
adopt new strategies to help them deal with the large number of small
water systems that do not meet current regulatory requirements and
that are expected to have even more difficulty complying with future
requirements. 


--------------------
\1 Drinking Water:  Widening Gap Between Needs and Available
Resources Threatens Vital EPA Program (GAO/RCED-92-184, July 6,
1992). 


   PUBLIC WATER SYSTEMS SERVE MOST
   AMERICANS
---------------------------------------------------------- Chapter 1:1

A public water system is any system that pipes water to at least 15
service connections or that regularly serves an average of 25 people
at least 60 days a year.  Public water systems that serve the same
population year-round are known as community water systems.  All
others, by definition, are noncommunity water systems.\2 According to
EPA, there are about 200,000 public water systems, and about 57,000
of these are community systems.  These community systems serve over
240 million people, or about 90 percent of the U.S.  population. 

EPA categorizes community water systems by the size of the population
served.  As figure 1.1 shows, small and very small community water
systems account for 87 percent of all community water systems in the
country, although they serve only 11 percent of the population.\3

   Figure 1.1:  Community Water
   Systems and Population Served,
   by Size of System

   (See figure in printed
   edition.)

Note 1:  According to EPA's definitions, very small systems serve
from 25 to 500 customers; small systems, 501 to 3,300 customers;
medium-sized systems, 3,301 to 10,000 customers; large systems,
10,001 to 100,000 customers; and very large systems, more than
100,000 customers. 

Note 2:  As of August 1993, EPA's records showed a total of 57,477
community water systems nationwide, serving a population of 240,916
people. 

Source:  GAO's illustration based on EPA's data. 


--------------------
\2 Noncommunity water systems, in turn, are categorized as either
nontransient or transient.  Nontransient noncommunity water
systems--such as the water systems operated by some hospitals,
factories, and schools--serve at least 25 of the same people for at
least 6 months of the year.  Transient noncommunity water systems
cater to transitory customers in nonresidential areas such as
campgrounds, motels, and gas stations. 

\3 In this report, unless otherwise indicated, the term "small
systems" refers to both small and very small systems. 


   PUBLIC WATER SYSTEMS ARE
   REGULATED UNDER THE SAFE
   DRINKING WATER ACT
---------------------------------------------------------- Chapter 1:2

The Safe Drinking Water Act of 1974 established a national program to
ensure that all public water systems meet minimum standards for
protecting human health.  The act directed EPA to establish (1)
national drinking water standards or treatment techniques for
contaminants that could adversely affect human health and (2)
requirements for monitoring the quality of drinking water and for
ensuring the proper operation and maintenance of water systems. 

The act also gave EPA the authority to delegate the primary
responsibility for enforcing drinking water program
requirements--commonly referred to as "primacy"--to states that meet
certain requirements.  To assist states in developing and
implementing their own drinking water programs, the act authorized
EPA to award grants to the states and directed the agency to help
states administer their programs.  All states except Wyoming have
assumed primacy for managing their drinking water programs.  These
states receive grants from EPA to help pay for the oversight of water
systems and for other responsibilities. 

With EPA's oversight, states with primacy enforce the requirements of
the federal program and monitor the quality of the drinking water
provided by public water systems within their jurisdiction.  Water
systems are required to collect water samples at approved intervals
and locations and have the samples tested in an approved laboratory. 
The test results are then reported to the state, which determines
whether the water system complies with the regulations.  If
violations have occurred, the state is responsible for taking
appropriate enforcement action. 

By the mid-1980s, many drinking water contaminants remained
unregulated by EPA.  In addition, water systems' compliance with the
requirements and states' enforcement actions against systems that did
not comply were both uneven.  Accordingly, the Congress amended the
Safe Drinking Water Act in 1986 to, among other things, (1) establish
deadlines to accelerate EPA's efforts to set standards, (2) establish
a monitoring program for certain unregulated contaminants, (3)
require EPA to issue criteria for determining which systems that rely
on surface water must filter their water supplies, and (4) require
all public water systems to disinfect their supplies.  These new and
more stringent requirements significantly increased the
responsibilities of the federal and state governments and the public
water systems for providing safe drinking water. 


   BURDENS ON SMALL SYSTEMS AND
   STATE REGULATORY PROGRAMS WILL
   INCREASE DRAMATICALLY
---------------------------------------------------------- Chapter 1:3

According to EPA, small community water systems often lack sufficient
resources and expertise to comply with complex drinking water
regulations.  The potential for compliance problems among small
systems was understood by the Congress in 1974 when it enacted the
Safe Drinking Water Act.  At that time, there was recognition that
small systems, with their small numbers of customers, might not be
able to afford the technological improvements that would be required. 
Consequently, it was envisioned that some small systems would be
closed and replaced with more cost-effective alternatives. 

Of the 16,439 community water systems that were found in violation of
drinking water regulations during fiscal year 1991, 90 percent were
small systems.  Although the actual impact of the new requirements
will not be known until all the new regulations are implemented,
water systems are expected to incur enormous costs and face difficult
new challenges in complying with these requirements.  EPA estimates
that, through the end of this decade, small water systems will
require $3 billion simply to comply with these requirements.  These
costs are over and above the small systems' projected capital
requirements--estimated at more than $20 billion by the end of the
1990s--to repair, replace, and expand the basic infrastructure needed
to deliver drinking water to consumers. 

The states' responsibilities in managing their drinking water
programs will also significantly increase in the future as a result
of the 1986 amendments.  The costs associated with these additional
responsibilities are expected to increase by hundreds of millions of
dollars annually.  However, while the Safe Drinking Water Act
authorizes EPA to pay up to 75 percent of the cost of administering
state programs, EPA's actual contribution has been substantially
less.  As a result, states have been forced to cut back or eliminate
key quality assurance programs that help ensure that good quality
drinking water is provided to consumers. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

In view of the history of problems that small water systems have had
in complying with drinking water regulations and the impact of these
problems on the limited resources that the states have for oversight,
the Chairman, Environment, Energy, and Natural Resources
Subcommittee, House Committee on Government Operations, asked us to
determine (1) what cost-effective, alternative approaches are being
used to help small drinking water systems comply with requirements;
(2) what barriers prevent the effective use of these approaches; and
(3) what EPA is doing at the national level to remove these barriers
and promote these approaches. 

In this report, each of these objectives is addressed in the context
of the major compliance strategies that we identified during our
review, including the use of (1) cost-effective alternative
technologies; (2) training, technical, and financial assistance; and
(3) management methods to increase the small systems' economies of
scale. 

The bulk of our work was performed at the EPA headquarters' Office of
Ground Water and Drinking Water and at agencies in three states that
have drinking water responsibilities.  To obtain a nationwide
perspective, we also gathered information from national associations
representing the drinking water industry, drinking water equipment
manufacturers and vendors, state drinking water program
administrators, and providers of financial and technical assistance
to small systems.  Our review focused on community water systems,
which are the primary source of drinking water for most Americans. 
The review did not address noncommunity water systems. 

We visited Connecticut, Pennsylvania, and Washington to obtain
detailed information on state programs.  We selected these states for
review because they were generally recognized as having the most
active state drinking water programs that use alternative strategies
to improve small water systems' compliance with state and federal
regulations--especially the use of the management-based approaches
commonly referred to as restructuring or viability programs. 

In each state selected, we interviewed water program officials and
examined program policies, guidance, and reports.  In addition, we
interviewed state water utility regulators; local representatives of
national providers of technical and financial assistance;
representatives of industry associations; water utilities and
management services providers; and local officials familiar with
small water system operators and owners and the issues they face. 

To address the review's first and second objectives, we relied
primarily on the information we obtained from EPA headquarters,
national associations, and the three states we visited.  In addition,
we obtained and assessed information on available, small-scale
treatment technologies from local, state, federal, and industry
officials involved in current pilot projects that test such
technologies.  We also attended the 1992 and 1993 American Water
Works Association's annual conferences.  At these conferences,
federal, state, local, and industry officials discussed
management-based and technology-based strategies available to improve
small systems' compliance with requirements and the results of
current projects and research. 

To address our third objective, we obtained information from the
officials at EPA headquarters responsible for developing and
promoting programs intended to assist states and water systems in
improving small systems' compliance with requirements.  To determine
the states' reaction to EPA's proposals for amending the Safe
Drinking Water Act, we contacted state drinking water officials in 10
states--Alabama, California, Connecticut, Idaho, Iowa, Maryland,
Mississippi, Montana, Pennsylvania, and Washington.  We obtained
other information from officials of the Association of State Drinking
Water Administrators; American Water Works Association; National
Rural Water Association; Association of Metropolitan Water Agencies;
Rural Community Assistance Program, Inc.; Farmers Home
Administration; and Rural Development Administration. 

Our work was conducted between May 1992 and March 1994 in accordance
with generally accepted government auditing standards.  We discussed
our findings with officials in EPA's Office of Ground Water and
Drinking Water, who generally agreed with the information presented. 
We have incorporated the officials' comments where appropriate.  As
requested, we did not obtain written agency comments on a draft of
this report. 


ALTERNATIVE TECHNOLOGIES ARE
AVAILABLE TO TREAT DRINKING WATER,
BUT SEVERAL PROBLEMS IMPEDE THEIR
WIDESPREAD USE
============================================================ Chapter 2

Alternatives to constructing full-scale drinking water treatment
facilities are available to remove contaminants from drinking water,
and some small systems have successfully used these alternatives to
meet their treatment needs.  These alternatives include packaged
plant systems and point-of-entry and point-of-use devices.\1 However,
several factors prevent small drinking water systems from making
widespread use of these alternative treatment technologies.  For
example, a lack of reliable cost and performance information about
alternative technologies makes it difficult for small system
officials and state regulators to identify technologies that are
affordable and that meet specific treatment requirements.  Also,
because many small systems do not have full-time, trained operators,
technologies that are difficult to operate and maintain cannot be
considered for these systems. 


--------------------
\1 Point-of-entry units are designed to treat all water entering a
home; point-of-use units treat water from a single tap. 


   SEVERAL TREATMENT TECHNOLOGIES
   PROVIDE ALTERNATIVES TO
   CONVENTIONAL, FULL-SCALE
   TREATMENT FACILITIES
---------------------------------------------------------- Chapter 2:1

Most large drinking water systems use full-scale, traditionally
designed and constructed treatment facilities.  These facilities
typically use conventional treatment processes to remove contaminants
from drinking water.\2 Large systems usually have a customer base
large enough to absorb the design, engineering, and capital costs of
full-scale treatment facilities.  Because small systems have fewer
customers, the costs associated with constructing a full-scale
treatment facility are generally prohibitive. 

Several alternative technologies are available to remove a variety of
substances from drinking water through physical and chemical
processes.  Packaged treatment plants, which are pre-assembled units
that can be transported to treatment sites, can be designed to remove
a variety of contaminants from drinking water.  Point-of-entry and
point-of-use devices can be attractive, low-cost alternatives for
treating drinking water.  However, concerns about how to monitor the
operation and maintenance of these devices have led EPA and many
states to place restrictions on the use of these devices as a means
of complying with the Safe Drinking Water Act.  Under certain
conditions, point-of-entry devices are acceptable as a technology for
complying with drinking water regulations.  However, EPA and many
states do not accept point-of-use devices as a means of complying
with the act's requirements. 


--------------------
\2 Conventional treatment processes begin with coagulation, which is
the process of using chemicals such as alum to cause tiny particles
in water to attract one another and form larger particles.  Then the
process of flocculation is employed.  Flocculation involves the slow,
gentle mixing of water over a period of time and results in
coagulated particles colliding to form floc, or larger, denser
particles that can easily be filtered from water.  The floc-filled
water then flows very slowly through a sedimentation tank, and the
floc and other suspended matter settle to the bottom of the tank. 
When water leaves the sedimentation basin, the water moves through a
filtering material, which removes any remaining suspended particles. 


      PACKAGED PLANTS INCLUDE A
      VARIETY OF TREATMENT
      TECHNOLOGIES
-------------------------------------------------------- Chapter 2:1.1

In general, packaged plants are units that are pre-assembled in a
factory, mounted on skids, and transported to the treatment site
virtually ready to use.  An official in EPA's Office of Research and
Development described packaged treatment plants as boxes into which a
variety of technologies can be placed.  The technology chosen depends
in part on the type of contaminant that needs to be removed.  These
systems can be customized to perform one or several treatment
functions, including filtration and the removal of inorganic and
organic contaminants.  The technologies that can be used in a
packaged plant include, but are not limited to, the use of granular
activated carbon, membranes, diatomaceous earth, cartridge and bag
filters, aeration, and ion exchange.\3

Figure 2.1 shows an example of a packaged plant treatment unit. 

   Figure 2.1:  Packaged Treatment
   Plant

   (See figure in printed
   edition.)


--------------------
\3 See app.  I for a description of each of these technologies. 


      POINT-OF-ENTRY AND
      POINT-OF-USE UNITS CAN
      REMOVE A WIDE VARIETY OF
      CONTAMINANTS FROM DRINKING
      WATER
-------------------------------------------------------- Chapter 2:1.2

Point-of-entry units can be attractive alternatives for treating all
water going into an individual home.  Point-of-use systems treat
drinking water coming from a single faucet.  Basically, the same
technology used in treatment plants for community water systems can
be used in point-of-entry and point-of-use systems.  This technology
is applied to reduce levels of organic contaminants, fluoride, iron,
radium, chlorine, arsenic, nitrate, ammonia, and many other types of
contaminants. 

Point-of-entry and point-of-use technology can treat from 10 to
several hundred gallons of water per minute.  Point-of-entry devices
are, under certain circumstances, acceptable means of complying with
drinking water standards because these devices can provide drinking
water that meets the standards throughout a home.  Point-of-use
devices are mainly used to address aesthetic problems with drinking
water, such as taste, odor, color, and hardness.  EPA does not
consider point-of-use devices an acceptable means of compliance with
drinking water standards because these devices do not treat all the
water in a home and, as a result, could cause health risks due to
exposure to untreated water.  However, EPA is sponsoring an effort to
address its concerns about monitoring the performance of point-of-use
devices.  This effort may result in the approval of these devices
under certain circumstances.  Currently, these devices may be used
only as an interim measure to avoid unreasonable health risks before
full compliance with drinking water regulations can be achieved. 
Figure 2.2 shows examples of point-of-entry and point-of-use devices. 

   Figure 2.2:  Point- of-Entry
   and Point- of-Use Units

   (See figure in printed
   edition.)

   A point- of-entry unit treats
   all the water coming into a
   house.

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

   A point-of-use unit, like this
   under-sink unit, treats the
   water at one faucet.

   (See figure in printed
   edition.)


   RELATIVELY FEW SMALL SYSTEMS
   TAKE ADVANTAGE OF ALTERNATIVE
   TREATMENT TECHNOLOGIES
---------------------------------------------------------- Chapter 2:2

According to drinking water officials in each of the three states
visited during our review, relatively few small systems in each state
are using approved alternative technologies to treat drinking water. 
In Connecticut, 3 of the state's 563 small systems are using
alternative technologies; in Pennsylvania, 64 out of 2,100 small
systems are using these technologies.  In Washington state,
approximately 50 of the state's 2,200 small systems are using
approved alternative technologies.\4

In all three states, packaged treatment plants were being used to
treat drinking water.  For example, an official from the Connecticut
Department of Health Services said that he is aware of three small
water systems that have installed packaged plants in Connecticut. 
This official added that 4 or 5 of the remaining 12 water systems in
the state that must install filtration equipment will probably use
packaged plants.  A report based on a survey of state drinking water
regulatory agencies conducted by the Association of State Drinking
Water Administrators in 1991 showed that, at that time, packaged
plants were being used nationwide by at least some small water
systems in 72 percent of the 46 states responding to the survey.\5

In the three states we visited, the use of point-of-entry and
point-of-use devices varied.  For example, officials from the
Connecticut Department of Health Services and the Pennsylvania
Department of Environmental Resources said that they were not aware
of any water systems using these devices to comply with drinking
water standards in these states.  On the other hand, point-of-entry
and point-of-use devices are being used by a few small systems in
Washington, although the state has issued a formal policy
recommending that these units not be approved for use because of
concerns about their operation and maintenance. 


--------------------
\4 Connecticut and Washington define a small system as one having
less than 1,000 service connections.  Pennsylvania defines a small
system as one having less than 3,300 service connections. 

\5 Report on State Engineering Practices for Small Water Systems,
prepared for the Environmental Protection Agency by the Association
of State Drinking Water Administrators, July 1991. 


   SEVERAL FACTORS LIMIT THE USE
   OF ALTERNATIVE TECHNOLOGIES BY
   SMALL SYSTEMS
---------------------------------------------------------- Chapter 2:3

According to officials in the three states we visited, several
factors can limit the use of alternative drinking water system
technologies by small water systems.  In general, these officials
agreed that a lack of reliable information on the cost and
performance of alternative technologies makes it difficult for state
regulators to (1) identify alternative technologies that will satisfy
treatment needs and (2) grant approval of these technologies.  These
officials said that many small systems do not have the resources to
hire full-time, trained operators.  As a result, these systems must
eliminate from consideration alternative technologies that are
complex to operate and maintain.  Also, because small water systems
have few customers to share costs and have a limited ability to
obtain financing, the choice of alternative treatment technologies
must be limited to those that are low-cost. 


      LACK OF RELIABLE COST AND
      PERFORMANCE DATA FOR
      ALTERNATIVE TECHNOLOGIES
      IMPEDES APPROVALS
-------------------------------------------------------- Chapter 2:3.1

EPA and drinking water program officials from all three of the states
visited during our review said that a lack of adequate cost and
performance information about alternative treatment technologies is a
major problem in state and local decisionmakers' approval of the use
of these systems.  This type of information is required by all three
states to provide assurance that (1) the alternative technology can
effectively address any water quality problems and (2) the small
system can afford to properly operate and maintain the technology. 
The state officials said that while some cost and performance
information is available from equipment manufacturers, this
information is not always adequate for assessing site-specific
conditions that must be evaluated before the technology can be
approved.  In addition, an official from the Pennsylvania Department
of Environmental Resources expressed concern about obtaining this
information directly from equipment manufacturers because it is
usually delivered "as a sales pitch" and not as an independent
assessment of the performance of the technology.  In the absence of
such information, the states that we visited may require that
alternative technologies undergo pilot tests that last from 6 to 18
months.  One of the three states also requires equipment
manufacturers to guarantee the performance of these technologies when
the system receives funding from the state to install an alternative
technology. 

The 1991 report issued by the Association of State Drinking Water
Administrators mentioned above identified the inadequacy of data
sources as a major problem in approving the use of alternative
technologies.  This study noted that state drinking water regulatory
staff receive most of their information on new products and
technologies from sources such as technical literature and calls or
visits from suppliers.  The study also found that the travel funds
needed for state regulators to make site visits and attend trade
shows, technical seminars, and conferences to learn about new
technologies are highly limited.  The study concluded that existing
sources of information on the performance of alternate technologies
are inadequate and that expanded third-party testing by reputable
organizations, such as the American Water Works Association, NSF
International,\6 and EPA, is strongly favored by state regulatory
officials, with the caveat that such testing must be done in a timely
manner and at a reasonable cost. 

In May 1992, the Association of State Drinking Water Administrators
issued another report presenting the results of case studies of nine
small water systems that had installed low-cost technologies in an
effort to comply with the requirements of the Safe Drinking Water
Act.  The nine small systems represented a range of system sizes and
ownership types, and the technologies they chose represented a range
of the available in-place treatment technologies.  The nine water
systems ranged in size from approximately 100 to 800 service
connections.  This study found, among other things, that

  water systems need adequate facilities, qualified operators,
     technical assistance, and adequate funding to meet the
     requirements of the Safe Drinking Water Act;

  treatment technologies for small water systems are available to
     provide effective treatment of surface water and groundwater
     sources to meet the requirements of the Safe Drinking Water Act;

  continued education of water system owners, state regulators, and
     local engineers is required to encourage the use of low-cost
     treatment technologies;

  information is needed about the treatment options available and the
     performance, limitations, and costs of treatment technologies;
     and

  based on the nine systems examined, low-cost, in-place treatment
     technologies can be installed for $200 per connection or less,
     although the total cost for all required system improvements can
     be much greater, depending on the condition and design of the
     system's existing facilities.

     This report recommended that a design manual be developed for
     each major treatment technology to provide needed information to
     aid in the evaluation, selection, design, and operation of small
     water systems.\7

Although the state drinking water officials that we contacted during
our review said that more information is needed on the cost and
performance of alternative technologies, there was some debate about
who should develop this data.  Drinking water officials from two
states said that NSF International should perform third-party testing
of these technologies because NSF is generally recognized as a
credible source that has the expertise and facilities needed to
provide this service.  These officials pointed out that EPA, on the
other hand, would need to both develop this expertise and acquire
additional facilities to provide the same service.  A drinking water
official from the third state we visited said that EPA should play a
larger role in testing and certifying the performance of these
technologies because EPA could provide this service at a lower cost
than NSF.  According to equipment manufacturers, NSF charges up to
$10,000 to evaluate and certify their equipment. 

Of the six small system officials contacted during our review, all
said that small systems need more information about the cost and
performance of alternative technologies.  Most of these officials
expressed concern that without such information, small systems may
choose an alternative technology that does not address treatment
needs.  In such cases, according to these officials, a small system
that has few financial resources could be in serious trouble if it
must obtain additional funding to modify or replace an alternative
technology that is not performing as planned. 

In the opinion of three drinking water equipment manufacturers
contacted during our review, several states are so conservative in
approving alternative drinking water treatment technologies that it
is very difficult, if not impossible, for manufacturers to receive
approval for their products in those states.  For example, one
equipment manufacturer said that although the packaged treatment
plant it sells has performed successfully at over 100 sites
nationwide, many very conservative states will not approve the use of
this technology.  The same equipment manufacturer pilot-tested a
packaged treatment plant for 3 years in Ohio to prove the equipment's
performance.  After investing a great deal of time and effort in the
pilot test, the manufacturer received state approval to use the
equipment at the test site only.  The state told the manufacturer
that separate pilot tests would be needed for approval at additional
sites in the state.  Also, officials from all three equipment
manufacturers said that states do not apply the same standards for
approving technologies.  Manufacturers said that even within the same
state, approval of a system can depend on what district of the state
the technology is being tested in.  For example, one manufacturer
said that a system may be approved in one of the six districts of
Pennsylvania but not in others. 

Efforts to develop guidelines for evaluating alternative technologies
have met with limited success.  To help address problems with
obtaining state approvals for alternative drinking water treatment
technologies, a group of western states--Alaska, California,
Colorado, Idaho, Montana, Oregon, and Washington--with financial
support from EPA, has developed a uniform set of guidelines for
states to use in evaluating alternative filtration technologies.  The
goals of this effort were to

  establish a uniform set of guidelines that could be used by all
     states in evaluating alternative filtration technologies and

  recommend that a clearinghouse be established to support direct
     communication between states, equipment manufacturers,
     engineers, and water system operators on issues concerning
     alternative technologies for drinking water treatment. 

The guidelines, called the Western States Protocol, note that the
Surface Water Treatment Rule is expected to create a much greater
demand for easily operated and maintained filtration technologies.\8
The guidelines further note that the performance demonstration
requirement of the Surface Water Treatment Rule and the need to
review and accept new technologies creates a need for protocols to
review alternative technologies as well as a clearinghouse in which
reviewing authorities can have ready access to the latest technical
information. 

Although the Western States Protocol has been in effect since April
of 1992, two of the three equipment manufacturers we contacted that
have tried to get technologies approved in some of the seven western
states say that the protocol has made little difference because these
states are still following their standard, conservative practices. 
Officials from two of the western states said that they try to adhere
to the protocol but that, in some cases, it is not specific enough to
provide the data needed for approval. 

In response to the need for standard test and approval protocols that
are nationwide in scope, NSF International developed a proposal in
July 1993 to develop a set of standard guidelines for assessing
alternative affordable technologies applicable to small community
drinking water treatment systems.  According to an official of NSF,
it is envisioned that this effort would result in guidelines that
specify the initial screening or selection criteria, the laboratory
data requirements, and the pilot study protocols for each treatment
technology that can potentially achieve the requirements of each
specific rule under the Safe Drinking Water Act.  This official said
that the guidelines would be developed through a committee with
balanced representation from three major parties:  regulators,
equipment users, and equipment manufacturers.  The NSF official said
that because of the involvement of all three parties, there would be
a greater chance of developing guidelines that are broadly accepted
and widely used.  As of March 1994, this proposal had not received
funding. 

Drinking water officials from the three states we visited acknowledge
that some states are more receptive than others to the use of
alternative technologies.  In fact, an official in the Pennsylvania
Department of Environmental Resources explained that the authority to
grant permits to drinking water systems is decentralized to six
regional offices in Pennsylvania.  Because this state does not use
standard protocols for reviewing alternative technologies, a
technology could be approved in one region of the state and rejected
in another, depending on how conservative the reviewing official is. 


--------------------
\6 NSF International is a nationally recognized third-party testing
organization. 

\7 Case Studies Assessing Low-Cost, In-Place Technologies at Small
Water Systems, prepared for the Association of State Drinking Water
Administrators by the Greeley-Polhemus Group, Inc., May 1992. 

\8 The Surface Water Treatment Rule is one of several regulations
adopted to implement the 1986 amendments to the Safe Drinking Water
Act.  Under this rule, surface water systems and groundwater systems
influenced by surface water were required to disinfect and, under
certain circumstances, filter their source water by June 29, 1993. 


      COMPLEXITY AND COST OF SOME
      TECHNOLOGIES PLACE THEM
      BEYOND THE REACH OF SMALL
      SYSTEMS
-------------------------------------------------------- Chapter 2:3.2

According to officials from drinking water agencies in each of the
three states and from EPA's Office of Ground Water and Drinking
Water, concerns about the cost and complexity of alternative
treatment technologies can limit their use.  Such concerns arise
because many small systems do not have trained, full-time operators
and because most small systems cannot easily afford the design,
engineering, and capital costs of new technologies.  While some small
systems may be able to realize substantial cost savings by using
alternative technologies, state officials said that many small
systems may not have the financial resources and technical expertise
needed to use them.  Indeed, drinking water officials from the three
states we visited said that most very small systems with between 25
and 100 service connections have severely limited financial resources
and may not be able to afford any type of alternative technology. 

Drinking water officials from the three states we visited stressed
that alternative technologies for small systems must be simple to
operate and maintain because small system operators generally lack
the technical expertise needed to operate water treatment facilities. 
According to these officials, whether a system is "operator friendly"
should be a major factor in determining if a technology receives
approval. 

The 1991 report issued by the Association of State Drinking Water
Administrators cited above found that the majority of state
regulators surveyed do not believe that small system operators are
capable of providing adequate operations and maintenance services. 
The study also noted that state regulators consider this one of the
primary reasons that states are having problems identifying safe and
reliable alternative treatment technologies for small systems. 

The importance of alternative technologies that are simple to operate
and maintain can be illustrated in the case of a small water system
in Connecticut.  In this system, a packaged treatment plant was
installed in 1984 to treat raw water from a surface water source and
provide drinking water for 435 service connections.  This packaged
plant was purchased at a cost of approximately $500,000 and financed
through a 20-year loan from the Farmers Home Administration.  In the
opinion of a Connecticut drinking water official, the fact that this
system did not have a full-time certified operator is the main reason
that the system "has been nothing but trouble from day one of its
operation." According to this official, the system has been out of
compliance several times since it began operation.  Because the
system will not be able to meet requirements of the Surface Water
Treatment Rule, the system is currently seeking financing from the
Rural Development Administration to drill wells and switch to a
groundwater source.\9

For the six water systems located in the three states we visited that
have installed alternative treatment technologies, the costs of
alternative systems vary widely, depending on the technology used,
the water quality problems that need to be addressed, and the amount
of auxiliary equipment--such as storage tanks or pumps--that must be
installed in addition to the treatment technology.  Based on the
experiences of these six small water systems, it is possible for
small systems to realize significant cost savings by using an
alternative treatment technology instead of building a full-scale
treatment facility.  For example, one small water system in
Connecticut serving approximately 3,000 people saved approximately $1
million by installing two packaged treatment plants instead of
building a full-scale treatment plant.  However, one system in
Connecticut discussed earlier invested $500,000 in 1984 in a packaged
treatment plant and, in part because the system did not have a
knowledgeable, full-time operator, the system is planning to replace
the packaged treatment plant with a groundwater system. 


--------------------
\9 In accordance with the Food, Agriculture, Conservation, and Trade
Act of 1990, beginning in 1993, the Rural Development Administration
took over responsibility for handling this type of loan, which was
formerly handled by the Farmers Home Administration. 


   EPA HAS EFFORTS UNDER WAY TO
   HELP FACILITATE THE USE OF
   ALTERNATIVE TECHNOLOGIES
---------------------------------------------------------- Chapter 2:4

EPA is involved in various efforts to help facilitate the wider use
of alternative technologies as a means of helping small systems
comply with the requirements of the Safe Drinking Water Act.  For
example, the agency is developing general guidance for states on how
to identify, assess, and select alternative technologies that are
appropriate for use by small systems.  EPA is also involved in
limited efforts to help assess the effectiveness of selected
alternative technologies.  In addition, EPA is assisting other
organizations with on-going efforts to (1) create a centralized data
base that states and small systems can use to share information about
drinking water technologies that are currently in use across the
nation and (2) develop standard protocols for the assessment and
approval of alternative drinking water treatment technologies. 


      EPA IS DEVELOPING GENERAL
      GUIDANCE TO HELP SMALL
      SYSTEMS ACQUIRE ALTERNATIVE
      TECHNOLOGIES
-------------------------------------------------------- Chapter 2:4.1

EPA is developing a workbook that is intended to help small systems
acquire appropriate alternative drinking water treatment
technologies.  According to agency officials, the workbook will
provide advice and guidance to small systems on how to work with key
players in the acquisition process, such as state and local
regulatory officials, professional and consulting engineers, and
equipment suppliers and manufacturers.  The draft workbook does not
contain any information on the cost or performance of specific
alternative technologies.  Although all of the system operators we
contacted said that they believed such a document would be helpful,
they also said that they need more specific information about the
cost and performance of alternative treatment technologies. 


      EPA IS CURRENTLY SUPPORTING
      EFFORTS TO ASSESS THE
      EFFECTIVENESS OF SOME
      ALTERNATIVE TECHNOLOGIES
-------------------------------------------------------- Chapter 2:4.2

According to an official in EPA's Office of Ground Water and Drinking
Water, EPA organized a meeting in 1988 of representatives of the
agency, drinking water equipment manufacturers, state drinking water
administrators, and other interested parties to discuss how to
promote the development of low-cost technologies that would help
small systems comply with Safe Drinking Water Act requirements.  As a
result of this and subsequent meetings, EPA and various equipment
manufacturers agreed to undertake five pilot projects, collectively
called the Small System Low-Cost Technology Initiative,\10 to
determine if packaged treatment plants and point-of-entry and
point-of-use technology could be more widely used by small systems. 
For example, one of the pilot projects is an examination of the use
of point-of-use technology in a very small drinking water system to
achieve compliance with drinking water standards.  These projects are
located in five states--California, Indiana, Pennsylvania, Texas, and
Virginia.  Because EPA was unable to fund these pilot projects, the
equipment manufacturers agreed to provide the treatment equipment to
be tested at no cost or at a greatly reduced cost to the small
systems involved.  To date, testing has been completed at two of the
five sites.  A report on test results from the Texas site was issued
in January 1993, and the report for the California test site is
currently being prepared.\11

An official from EPA's Office of Research and Development who is
involved in the initiative said that, after test results from the
first site were issued, concerns were raised about the credibility of
the cost data reported.  As a result, EPA decided to reevaluate the
entire initiative by forming committees to, among other things,
redefine the objectives and future direction of the initiative,
develop a standardized method for reporting cost data for the
demonstration sites, and develop a generic strategy for approving an
alternative drinking water treatment technology.  To date, the
committee on cost reporting has developed a uniform protocol for
reporting and compiling cost information on small system technology
demonstration sites.  The committee developing the technology
approval strategy is currently reviewing a draft generic strategy
that it developed for approval of alternative technologies. 

EPA is responsible for designating certain drinking water treatment
technologies as the "best available technology" for removal of a
given contaminant.  As an official from EPA's Office of Research and
Development explained, EPA conducts lab and field tests of a
particular technology, and these data, along with data from other
researchers and utilities, are used to determine which technologies
should be designated as best available technologies.  As a part of
this effort, EPA's Office of Research and Development began
conducting field research in 1991 and laboratory evaluations in 1994
to assess whether currently available packaged plant drinking water
treatment technologies can cost-effectively meet the standards
established by the Safe Drinking Water Act's Surface Water Treatment
Rule and Disinfection/Disinfection By-Products Rule for very small
systems with between 25 and 100 service connections.  According to an
official from the Office of Research and Development, there are few
published data that establish that current packaged plant
technologies appropriate for use by small systems can meet the
standards established under these rules.  Testing is currently
limited to packaged treatment plants and point-of-entry units but may
be expanded to include other technologies at a later date. 

EPA has also cosponsored an effort with the American Water Works
Association to examine existing, in-place packaged treatment plants
and determine their ability to meet current and future drinking water
regulations.  This effort involved investigating the cost and
performance of packaged plant treatment technology installed by 48
small systems in 19 states.  The preliminary findings of this study
reveal, among other things, that state regulators, consulting
engineers, and equipment manufacturers and suppliers all play a very
important role in assisting systems in the selection of a water
treatment process.  In addition, this survey found that packaged
plants that are run by skilled operators performed better than those
that are run by operators with less training. 

In addition, EPA and the Rural Development Administration are
cosponsoring the development of a small drinking water systems data
base.  This data base, which can be accessed through the National
Drinking Water Clearinghouse, is designed to help small systems and
state regulators exchange information about alternative drinking
water technology that is in-place nationally.  Thus far, the
clearinghouse has had only limited success in getting state
regulators and manufacturers to provide information for the data
base.  An official from EPA's Office of Ground Water and Drinking
Water said that feedback on the original questionnaire used to
solicit information for the data base indicated that the
questionnaire was too long and time-consuming to fill out.  As a
result, the questionnaire and the data base have been redesigned. 
The data base should be available on the clearinghouse computer
bulletin board in the late spring or early summer of 1994. 


--------------------
\10 In January 1993, the name of this effort was changed to Small
System Technology Initiative. 

\11 Evaluation of Demonstration Technologies:  Quail Creek Water
Supply System, U.S.  Environmental Protection Agency, Office of
Water, EPA 812-R-93-001, Feb.  1993. 


      EPA HAS PROPOSED
      ESTABLISHING BEST AVAILABLE
      TECHNOLOGIES FOR SMALL
      SYSTEMS
-------------------------------------------------------- Chapter 2:4.3

EPA has recommended to the Congress that the Safe Drinking Water Act
be amended to explicitly allow EPA to establish best available
technologies for small systems that may not necessarily achieve the
general drinking water standards EPA has proposed that small systems
be eligible to comply with drinking water standards by using the best
available technology if the systems are not otherwise able to achieve
compliance through restructuring their management or operations.  The
recommendation further states that in cases in which general drinking
water standards are not met, even after installation of a best
available technology, a small system should be allowed to obtain a
streamlined, long-term variance from a state, on the basis of
criteria established by EPA.  An official from EPA's Office of Ground
Water and Drinking Water said that such variances would only be
granted in rare cases and on a temporary basis when certain
conditions prevent the system from meeting general drinking water
standards.  Although officials from 10 state drinking water programs
and the Association of State Drinking Water Administrators generally
agreed that the designation of best available technologies for small
systems could be very helpful, they said that they would be very
cautious in granting any long-term variances to systems if general
drinking water standards were exceeded.  Specifically, one state
official said that he would be concerned about having different water
quality standards for different sized drinking water systems. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:5

Officials from EPA, the states, and small systems all agree that more
information is needed to evaluate the cost and performance of
alternative drinking water technologies.  If such information is
widely available and accepted as reliable, the use of alternative
drinking water technologies by small systems could become more
widespread. 

Although EPA is involved in efforts to develop such data, limited
resources have prevented the agency from expanding its efforts to
help field test various technologies.  Past efforts by states and
other organizations to develop this information have met with limited
success.  For example, the Western States Protocol has not
facilitated the approval of alternative technologies to the extent
needed, mainly because the protocol is used by only a small number of
states and is not detailed enough to address all state regulators'
concerns.  In addition, efforts to establish a data base with cost
and performance information on alternative technologies have been
largely ineffective because it has been difficult to get state
regulators and others to submit the needed information. 

Even if EPA cannot expand its efforts to develop such information
because of resource constraints, we believe the agency could focus on
(1) encouraging state regulators, equipment manufacturers, and
equipment users to participate in efforts to develop nationwide
protocols for the testing and approval of alternative technologies
and (2) ensuring that any data developed as a result of these efforts
are effectively distributed.  Active participation by all of these
parties is essential if the resulting protocols are to be widely
accepted and widely used to facilitate approval of alternative
drinking water technologies.  In addition, we believe any progress
EPA makes in designating low-cost technologies, such as point-of-use
devices, as best available technologies for small systems could go a
long way in helping these systems remain viable.  However, because
state officials stressed that they would be very conservative in
granting any waivers on the basis of the use of these best available
technologies, EPA will need to work closely with state regulators to
address their concerns in this area.  Otherwise, best available
technologies could be of limited use to small systems. 


Chapter 3 TECHNICAL AND FINANCIAL
ASSISTANCE IS AVAILABLE BUT IS NOT
ALWAYS AN EFFECTIVE SOLUTION FOR
SMALL SYSTEMS' COMPLIANCE PROBLEMS
============================================================ Chapter 1

States are experimenting with a variety of approaches to help small
community water systems comply with Safe Drinking Water Act
requirements.  In some cases, technical assistance and training, as
well as private, state, and federal financial assistance programs,
have been created to help improve small systems' compliance. 
However, the number of systems needing such assistance far exceeds
the amount of assistance available.  In some cases, providing
technical and financial assistance can actually discourage small
systems from seeking long-term solutions to their compliance
problems. 


   A VARIETY OF TECHNICAL AND
   FINANCIAL ASSISTANCE IS
   AVAILABLE TO HELP ADDRESS SMALL
   SYSTEMS' COMPLIANCE PROBLEMS
---------------------------------------------------------- Chapter 1:1

Technical and financial assistance is available to small community
water systems from private, state, and federal sources.  This
assistance can help small systems correct deficiencies that cause
violations of state or federal safe drinking water regulations.  The
American Water Works Association recently reported that $100 million
to $200 million is being spent annually on technical assistance and
training for about 75,000 small water systems.\1 In addition, since
1940 the Farmers Home Administration has provided loans and grants
totaling approximately $16 billion to small, rural communities for
financing the construction or improvement of community water and
wastewater systems. 


--------------------
\1 Waterweek, American Water Works Association, vol.  1, no.  5, Nov. 
9, 1992. 


      TECHNICAL ASSISTANCE IS
      PROVIDED BY SEVERAL FEDERAL,
      STATE, AND PRIVATE
      ORGANIZATIONS
-------------------------------------------------------- Chapter 1:1.1

The technical assistance available to small community water systems
ranges from simple advice offered over a telephone to hands-on
maintenance and repair of plant equipment.  These services are funded
by a variety of federal, state, and private organizations.  For
example, the National Rural Water Association receives funding from
both the Rural Development Administration and EPA to provide training
and technical assistance to small water systems.  With funding from
the Rural Development Administration, the association employs
"circuit riders" to provide on-site assistance to small water
systems.  Examples of assistance provided by circuit riders include
locating and repairing leaks, setting up preventive maintenance
schedules, providing management assistance to ensure the financial
integrity of a water system, and solving problems with a system's
treatment processes.  While the National Rural Water Association
initially provided assistance only to small systems financed with
Rural Development Administration grants and loans, in recent years
the association has obtained additional funding from EPA to expand
its technical assistance services to other small systems.  According
to association officials, circuit riders made over 26,000 technical
assistance calls to water systems in fiscal year 1992 with
approximately $4 million in funding from the Rural Development
Administration.  In addition, according to association officials,
approximately 7,000 technical assistance calls were made to small
systems between May 1992 and April 1993 with about $3.6 million in
funding from EPA under the agency's training and technical assistance
program for rural and small water systems. 

The Rural Development Administration also funds the National Drinking
Water Clearinghouse, which offers a toll-free call-in service that
allows operators of small water systems to obtain technical
assistance and referrals on drinking water regulations, financing
sources, and technological issues.  In addition, the National
Drinking Water Clearinghouse offers a computer bulletin board service
that enables water system operators who have access to personal
computers to share their ideas and pose questions to one another
electronically.  The bulletin board also gives operators access to
other information of interest, and there are plans to include a data
base that identifies low-cost drinking water treatment technologies
in use in various communities. 

The Rural Community Assistance Program is a national network of
nonprofit organizations with the goal of improving the living
conditions and communities of rural residents, including their access
to safe drinking water.  The program provides a variety of services,
such as direct training and technical assistance in rural
communities; publication of books, manuals, field guides, policy
documents, and training materials; workshops and conferences; and as
well as management assistance.  The program receives funding from EPA
and the Rural Development Administration, as well as other federal
agencies and charitable trusts and foundations.  Program officials
estimate that in fiscal year 1992, almost 300 communities received
technical assistance for a variety of drinking water projects. 
During this period, the program received $1,680,000 in funding from
the Rural Development Administration to assist communities with water
and wastewater projects and $700,000 in funding from EPA to assist
communities with drinking water projects. 

Many states also run their own technical assistance programs.  For
example, Pennsylvania established a Technical Assistance Program for
Small Systems in 1989.  Technical assistance is provided through
contracts with private consultants that are experienced in water
supply treatment and systems operations.  Among other strategies for
helping small systems, Pennsylvania has established a small water
systems outreach program to provide free, on-site education and
training for small community water systems facing specific technical,
operational, or management difficulties. 

The American Water Works Association has begun a compliance support
program to increase small systems' compliance with drinking water
regulations.  According to association officials, the purpose of this
program is to increase the use of existing resources and promote new
liaisons between the association and other organizations involved in
providing support to small systems, such as EPA regional offices,
state health departments, state Rural Water Associations, Rural
Community Assistance Programs, and others.  The program is intended
to emphasize (1) technical assistance and outreach, (2) training and
education, and (3) management alternatives.  In addition, the
American Water Works Association set up a toll-free telephone line in
October 1992 to provide personnel at small water systems with
potential solutions to their problems and/or referrals to other
sources of information.  The association reported that the calls it
received during the third quarter of 1993 were distributed among the
following topics:  regulatory issues (26 percent of calls), treatment
(26 percent), management issues (20 percent), distribution (17
percent), water quality (6 percent), financial issues (4 percent),
and safety (1 percent). 

Peer assistance programs--which are currently operating or planned in
Hawaii, Massachusetts, California, Ohio, Montana, and Oklahoma--are
another means of helping small systems comply with regulations. 
Under these programs, authorities provide small systems with lists of
experts, typically from larger drinking water systems, whom small
system operators can contact for advice and assistance on a variety
of issues without the fear of being punished for violations. 
Typically, these programs are organized and administered by private
organizations, such as the American Water Works Association or large
utilities.  They are sometimes funded by EPA or state environmental
agencies. 


      FEDERAL, STATE, AND PRIVATE
      FINANCING IS AVAILABLE TO
      SMALL WATER SYSTEMS
-------------------------------------------------------- Chapter 1:1.2

Both publicly and privately owned small water systems have had
trouble financing needed infrastructure projects through capital
markets, in large part because these systems typically have low
revenues and financial reserves.  Federal, state, and private
financial assistance is available to help alleviate this problem. 

Several federal agencies offer financial assistance to small water
systems.  The most significant source of financial support is the
Rural Development Administration.  In limited circumstances, the
Department of Housing and Urban Development, the Economic Development
Administration, the Small Business Administration, and the Bureau of
Reclamation may also provide assistance to small water systems. 

The Rural Development Administration makes grants and loans available
to rural communities of 10,000 or fewer residents that are unable to
obtain financing elsewhere.\2 In fiscal year 1993, this organization
expects to loan approximately $600 million and distribute grants
totaling $390 million to small rural communities needing assistance
with water and wastewater projects.  According to program officials,
the agency currently has $3.5 billion in outstanding loans made to
7,145 borrowers to fund drinking water projects. 

The Department of Housing and Urban Development's Small Community
Development Block Grant Program offers grants for communities with
fewer than 50,000 people for community improvements that principally
benefit low- and moderate-income persons.  Examples of eligible
projects include the rehabilitation of private homes, economic
development projects for expanded employment opportunities, and
projects to address serious deficiencies in public facilities such as
water and sewer systems.  In fiscal year 1991, approximately $41
million in federal funds were available under this program for a
variety of projects. 

Other potential federal sources of financial assistance exist, though
they are smaller in scope.  For example, the Economic Development
Administration offers grants to economically distressed areas to
encourage development and increase employment opportunities.  If a
water system is part of such a program, it may be eligible to receive
funds.  The Small Business Administration offers guaranties and
direct loans to privately owned utilities unable to obtain funds
elsewhere.  The Bureau of Reclamation offers loans to finance the
repair, replacement, or improvement of existing irrigation systems;
drinking water systems may qualify if they supplement water service
to a portion of an irrigation entity's service area. 

Approximately 30 states have also established programs to assist
small communities that need financing to improve local water systems. 
For example, the Pennsylvania Infrastructure Investment Authority
(Pennvest), created in 1988, has loaned over $1 billion and made a
small amount of grant funding available to communities to improve
their water and wastewater systems.  Pennvest obtains funds from
federal and state sources and also markets investment bonds in the
private market.  Priority for the distribution of funds is based on
need, with immediate threats to public health and safety taking
precedence.  Washington state also has a program designed to help
small communities make capital improvements to small water systems. 
Program officials told us that the state operates an infrastructure
trust fund with moneys obtained from the state's cigarette tax. 
Eligible projects include constructing or improving roads, bridges,
wastewater treatment plants, and community water systems.  According
to program officials, the state currently has about $15 million
available annually to spend on infrastructure improvements statewide. 

In the private market, financial firms have recently begun to
specialize in selling marketable bonds to investors to raise funds
for small community water and wastewater projects.  Unlike large
water utilities, small systems generally have difficulty obtaining
funds from the capital markets because of their size and the fact
that these communities often do not have audited financial statements
or the legal expertise to judge the validity of bond offerings.  As a
result, these communities are unable to obtain a bond rating. 
Recently, however, some firms have arranged bond offerings for small
communities by buying insurance to guarantee the repayment of the
bonds, thereby obviating the requirement for a bond rating. 


--------------------
\2 These programs were formerly administered by the Farmers Home
Administration.  However, in accordance with the Food, Agriculture,
Conservation, and Trade Act of 1990, the Rural Development
Administration took over these functions beginning in 1993. 


   AVAILABLE TECHNICAL AND
   FINANCIAL ASSISTANCE IS
   INSUFFICIENT TO SOLVE SMALL
   SYSTEMS' PROBLEMS
---------------------------------------------------------- Chapter 1:2

Although a wide variety of technical and financial assistance is,
ostensibly, available to help small community water systems comply
with federal and state requirements, the amount of assistance is
extremely limited in comparison with the needs of small systems.  Yet
even if substantially more resources were available, such assistance
has inherent limitations and may not always be the best way for small
systems to achieve long-term compliance. 


      AMOUNT OF ASSISTANCE NEEDED
      FAR EXCEEDS AVAILABLE
      RESOURCES
-------------------------------------------------------- Chapter 1:2.1

Although assistance is available from several sources to help small
water systems comply with federal and state drinking water
regulations, the sheer number of these systems needing such
assistance greatly surpasses these resources.  Given that small water
systems accounted for 90 percent of the community water systems in
violation of drinking water regulations in fiscal year 1991, many
federal, state, and industry officials agree that it is unrealistic
to believe that there will ever be sufficient resources to provide
the amount of technical and financial assistance needed to bring
these systems into compliance. 

These officials further emphasized that small systems will soon be
required to meet upcoming regulations with which their larger
counterparts are currently having difficulty complying.  In addition,
these officials pointed out that as EPA develops future regulations
in accordance with the Safe Drinking Water Act's statutory
requirements, the burdens on small systems are expected to increase
dramatically.  In fact, EPA estimates that small community water
systems will require nearly $3 billion to comply with the
requirements of the Safe Drinking Water Act and an additional $20
billion to replace equipment and repair and expand their systems
during the 1990s. 


      TECHNICAL AND FINANCIAL
      ASSISTANCE HAS LIMITATIONS
      AS A SOLUTION TO SMALL
      SYSTEMS' COMPLIANCE PROBLEMS
-------------------------------------------------------- Chapter 1:2.2

Notwithstanding the shortage of resources available for technical and
financial assistance, some state and industry officials told us that
even limitless assistance would not be a panacea for small systems'
compliance problems.  In particular, the assistance provided does not
always address a system's long-term needs and, therefore, may
inadvertently contribute to chronic noncompliance problems. 

Drinking water officials in Washington state, for example, told us
that they have seen many nonviable water systems receive
infrastructure funding from the Rural Development Administration and
the Department of Housing and Urban Development without regard for
the ability of the systems to remain in compliance for the long term. 
Other state drinking water officials made similar observations,
noting that technical and financial assistance may often serve only
to bring a system into temporary compliance and may even serve as a
disincentive for a small water system to seek a long-term, permanent
solution to its compliance problems.  We were told of other cases in
which technical and financial assistance was provided to systems
without regard for their ability to remain in compliance in the
future or provide for future expansion. 

Officials in Washington's drinking water program explained that these
problems stem from a general reliance on short-term "fixes" for
compliance problems rather than on solutions based on assessments of
a system's ability to meet requirements in the long term.  These
officials also stated that if assistance services are provided to
small systems when longer-term solutions are warranted, scarce
financial and technical resources may be diverted from systems for
which no other alternatives exist. 

Beyond its limitations in providing longer-term solutions to small
systems' compliance problems, technical and financial assistance is
limited in at least two other respects: 

  Some small water systems do not qualify for certain types of
     technical assistance or federal or state financial assistance. 
     For example, the Rural Development Administration and the
     Department of Housing and Urban Development are restricted from
     offering grants and loans to privately owned water systems. 
     Similarly, Washington's constitution forbids state funds from
     being loaned or distributed to private enterprises.  According
     to the National Association of Water Companies, 46 percent of
     community water systems are privately owned or investor-owned,
     and the vast majority of these systems serve populations of
     between 25 and 100 people. 

  Some small water systems, even when notified of and offered free
     training and technical services, do not take advantage of this
     assistance.  EPA and state drinking water officials said that
     because small water systems are unable to attract and pay for
     qualified operators, many small system operators are part-time
     employees or volunteers who do not have time to attend training
     and technical assistance classes because they have other
     full-time jobs in addition to their responsibilities as system
     operators. 


   EPA FUNDS TECHNICAL ASSISTANCE
   AND ENCOURAGES STATES TO
   DEVELOP TRAINING COALITIONS TO
   HELP SMALL SYSTEMS
---------------------------------------------------------- Chapter 1:3

As discussed earlier in this chapter, EPA funds technical assistance
through several providers, including the National Rural Water
Association and Rural Community Assistance Program.  In addition,
small water system operators can call an EPA toll-free hotline to
obtain information on the Safe Drinking Water Act's requirements,
available guidance and public information, and appropriate local
contacts for further information.  EPA also has a mobilization
program to, among other things, help small water systems comply with
drinking water regulations.  One of the mobilization program's
objectives is to encourage state and local governments, water
systems, and private organizations to use creative approaches to find
the resources needed to assist small water systems and fund
regulatory programs. 

In 1990, as part of its mobilization program, EPA joined with several
major organizations with experience in training drinking water
professionals to form the National Training Coalition.  Other members
of the coalition include the American Water Works Association,
Association of State Drinking Water Administrators, National Rural
Water Association, Rural Community Assistance Program, National
Environmental Training Association, and Coalition of Environmental
Training Centers.  The objective of this coalition is to encourage
states to form state training coalitions and to develop and implement
state training plans.  Thus far, the coalition has helped three
states organize state training coalitions and has implemented
training plans. 

In fiscal year 1993, EPA's budget included $3.3 million to fund
training and technical assistance activities through the National
Rural Water Association and $700,000 to fund these activities through
the Rural Community Assistance Program.  In addition, EPA provided
$50,000 in funding to the National Training Coalition in fiscal year
1993. 


   FEDERAL AND STATE FUNDING
   SHORTAGES ARE THE MAIN PROBLEM
   IN PROVIDING NEEDED ASSISTANCE
---------------------------------------------------------- Chapter 1:4

While EPA has taken steps to address problems with operator training
and certification through efforts related to its mobilization
program, state officials still raise concerns that many small system
operators do not have the expertise needed to properly operate and
maintain water systems and typically do not have the time needed to
improve their skills through training classes.  State officials also
emphasize that most states do not have the resources needed to
implement operator training and certification programs. 

Furthermore, in April 1992 the Association of State Drinking Water
Administrators notified EPA's Office of Ground Water and Drinking
Water of concerns about the agency's efforts to assist states in
providing technical assistance to drinking water systems. 
Specifically, the association said: 

     "For state specific program implementation, EPA currently lacks
     a coordinated direction in this area in terms of assisting
     states in developing specific programs to meet small water
     system issues specific to that state.  Through the mobilization
     effort a number of innovative ideas and approaches have been
     developed.  However, these are generally broad concepts or ideas
     and require specific work at the state level to sell the idea
     and then implement it.  This new program development area is one
     for which few states have resources available."

While EPA provides funding for technical assistance for drinking
water systems, the agency does not provide financial assistance to
help small systems meet drinking water requirements.  State and
industry officials said that additional funding is needed to help
drinking water systems repair and upgrade their facilities in order
to comply with current and upcoming requirements of the Safe Drinking
Water Act.  These officials said that this need is particularly
severe for small systems. 

With regard to financial assistance to help small systems comply with
drinking water requirements, the Association of State Drinking Water
Administrators has said: 

     "There is currently no EPA national direction or strategy
     regarding financial assistance programs for small water systems
     in order to meet the requirements of the [Safe Drinking Water
     Act].  A number of states have grappled with this issue and have
     all approached the problem independently and differently without
     national support.  In our opinion there should be a strong
     federal program to provide support for state funding programs as
     well as provide financial assistance to small systems."

EPA drinking water officials acknowledge that more financial
assistance is needed to help water systems comply with the drinking
water requirements, and these officials also acknowledge that this
need will grow as the number and complexity of these requirements
increase in coming years.  EPA officials also recognize that there is
a need for more training and technical assistance and acknowledge
that states are having difficulty funding such assistance programs on
their own.  However, these officials point out that because of
current resource constraints, EPA cannot offer additional funds to
the states. 


   EPA HAS PROPOSED AN ADDITIONAL
   FUNDING SOURCE FOR ASSISTANCE
   TO SMALL SYSTEMS
---------------------------------------------------------- Chapter 1:5

As a part of its recommendations to the Congress for amending the
Safe Drinking Water Act, EPA has proposed that state revolving loans
be established.  EPA's proposal specifies that states should be
allowed to use up to 1 percent of their capitalization grants to
provide technical assistance to potential loan recipients for
planning activities, including identifying situations in which system
consolidation is appropriate.  In addition, the agency's proposal
recommends that (1) state revolving loan funds be provided to help
both publicly and privately owned community water systems meet
requirements under the Safe Drinking Water Act and (2) funds be used
to encourage the consolidation of small water systems in situations
in which this is the most cost-effective means to achieve compliance
with the act.  EPA proposes that $599 million be allotted to the fund
in fiscal year 1994 and $1 billion per year in fiscal years 1995
through 1998.  Even at this proposed level of funding, many state and
water trade association officials feel that only a portion of water
system needs will be met. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 1:6

During our review, state and industry officials raised concerns that
the number of systems that need technical and financial assistance to
address compliance problems far exceeds the amount of assistance
available.  EPA has made efforts through its mobilization program to
create coalitions to, among other things, help coordinate efforts to
help small systems comply with drinking water regulations.  However,
state officials we interviewed and officials from the Association of
State Drinking Water Administrators have voiced concerns that these
efforts have been ineffective.  Specifically, these officials believe
that EPA's efforts have generated broad ideas on how to improve
assistance delivery but have left the resource-intensive task of
implementing these ideas to states.  As state officials pointed out,
most states cannot afford to do so.  While EPA officials acknowledge
that more funding is needed to help states develop and implement
these programs, these officials said that resource constraints
prevent the agency from providing any additional funding. 

Because of the inherent limitations of technical and financial
assistance, even if limitless funding were available, this type of
assistance can only go so far in addressing compliance problems.  In
fact, when this type of assistance brings a system into temporary
compliance only, it can actually contribute to chronic compliance
problems by discouraging system operators from seeking longer-term
solutions. 

The Congress and EPA have recognized, through various proposals for
state revolving loan funds, that privately as well as publicly owned
water systems are in need of such assistance and that water systems
should be provided with incentives to choose long-term, rather than
short-term solutions to compliance problems.  While such efforts
could provide some help to small systems for financing needed
improvements, many state and trade association officials agree that
even if legislation establishing the fund is passed, the proposed
funding level will provide only a portion of the resources needed. 
At this time, the Congress is still considering legislation to
establish this fund, and prospects for passage of the legislation are
uncertain. 


RESTRUCTURING STRATEGIES AND
VIABILITY PROGRAMS OFFER PROMISING
ALTERNATIVES FOR COPING WITH SMALL
SYSTEMS' PROBLEMS
============================================================ Chapter 4

As shown in chapters 2 and 3, technological innovation and technical
and financial assistance offer some hope for helping small systems,
but fall short of a comprehensive solution, in large part because of
a shortage of the funds needed to help the thousands of systems in
need of support.  Furthermore, as EPA develops future regulations in
accordance with statutory requirements, this funding disparity is
expected to increase exponentially. 

EPA and the states are increasingly recognizing that the heart of the
noncompliance problem lies with the sheer volume of small systems
that are "nonviable" as presently structured and have little chance
of ever achieving compliance with the increasing number of drinking
water regulations.\1 Accordingly, several states have turned toward
restructuring strategies and viability programs to provide a more
comprehensive solution.  Restructuring is the adoption of management
and/or ownership changes that help a drinking water system address
new responsibilities and increased costs.  For example, one
restructuring strategy involves merging or consolidating a nonviable
small water system with a larger, viable system that has a larger
customer base and can better absorb costs.  Viability programs, in
general, are designed to assess the viability of water systems and
determine the best solution for bringing nonviable systems into
compliance.  State officials hope that such strategies will not only
help systems achieve greater compliance, but will also help resolve
their own financial crises by reducing the number of problem systems
they must oversee. 

However, states have experienced difficulties in using restructuring
strategies and developing and implementing viability programs. 
Ironically, while these strategies offer the states a promising way
to help reduce their own long-term program costs, one of the most
difficult barriers the states face is the lack of resources needed in
the near-term to develop and implement these programs.  And while
total resources are limited, the problem is compounded by EPA's
priorities, which emphasize compliance monitoring, implementing new
regulations, and other activities.  Other problems include (1) the
difficulty of obtaining the authorities needed to direct the
restructuring of a nonviable system's operation and management and
(2) an EPA drinking water grant formula that inadvertently
discourages states from merging or consolidating drinking water
systems. 


--------------------
\1 In general, nonviable water systems are those that lack the
technical, financial, or managerial capabilities to remain in
long-term compliance with drinking water regulations. 


   A VARIETY OF RESTRUCTURING
   STRATEGIES CAN POTENTIALLY
   PROVIDE BENEFITS
---------------------------------------------------------- Chapter 4:1

According to EPA's guidance, restructuring strategies can result in
management and ownership changes that help a water system become
viable by lessening the costs per household of complying with
drinking water regulations.  As a result, water systems, consumers,
and state regulators may all be able to benefit from restructuring. 
Potential benefits to the systems include increased economies of
scale, improved customer service, and improved planning for future
operations.\2 Benefits to customers may include improved water
quality, a reduction in water costs in the long term, and increased
reliability of supply.  Benefits to state regulators may include
fewer customer complaints, improved compliance with regulations, a
potential reduction in the number of regulated systems, and a
potential resource savings due to a corresponding reduction in
oversight workloads. 

According to EPA, many different strategies can be used to
restructure nonviable water systems.  All of these strategies can be
broadly classified as either external or internal.  External
restructuring strategies involve active collaboration with adjacent
water systems to attain the advantages of increased economies of
scale.  These strategies include arrangements in which, on the basis
of a voluntary agreement or by order of a state agency, the assets
and ownership of a nonviable system are transferred to a viable
system.  External strategies also include arrangements in which (1) a
small system extends its water main and physically merges or
consolidates with a larger, nearby system and (2) water systems form
cooperatives to pool their buying power by sharing the costs of
services.  For example, by contracting for operation and maintenance
services, a small water system may be able to take advantage of the
economies of scale already achieved by a large company that provides
operation and maintenance services to many other systems. 

Internal restructuring strategies involve changes in a system's
management or financial condition that allows a system to become
viable.  For example, a system may be able to make certain management
and financial adjustments, such as raising the rate it charges for
water or adopting acceptable accounting procedures, that allow the
system to become viable. 


--------------------
\2 Large water systems generally have greater economies of scale than
smaller systems; that is, the unit cost of providing drinking water
is generally less for large systems than for small systems.  Because
small systems generally cannot afford to purchase items in large
amounts, they typically pay high unit costs.  In addition, because
small systems generally have small customer bases, the impact of such
costs on water rates is generally greater than it is for larger
systems. 


   VIABILITY PROGRAMS CAN HELP
   IDENTIFY NONVIABLE SYSTEMS AND
   LONG-TERM SOLUTIONS TO
   COMPLIANCE PROBLEMS
---------------------------------------------------------- Chapter 4:2

According to EPA, state, and industry officials we interviewed, a
nonviable water system is one that does not have the technical,
financial, and managerial wherewithal to remain in compliance with
drinking water regulations in the long term.  According to EPA, while
a few other states are in the process of developing viability
programs and have used restructuring strategies to address nonviable
systems to varying degrees, three states--Connecticut, Pennsylvania,
and Washington--are recognized as leaders in using these programs and
strategies.  To varying degrees, all three of these states have
adopted procedures to (1) prevent potentially nonviable new systems
from forming and (2) improve the viability of existing systems
through laws that allow failing water systems to be taken over by
solvent water companies or municipalities.  Of the three states,
Connecticut and Washington have had the most success in addressing
small systems' compliance problems by incorporating viability
concepts and restructuring strategies into comprehensive water supply
plans. 


      CONNECTICUT'S VIABILITY
      PROGRAM
-------------------------------------------------------- Chapter 4:2.1

The state of Connecticut has developed a comprehensive program for
controlling the creation of new, nonviable small systems and ensuring
the viability of existing systems.  The state has achieved this
control by placing conditions on the issuance of operating
certificates for new and expanding water systems, establishing
exclusive service areas for existing utilities, and passing laws that
mandate takeovers of nonviable systems. 

Connecticut requires that new or expanding water systems serving
between 25 and 1,000 people obtain a Certificate of Public
Convenience and Necessity, which must be approved by the state's
Department of Health Services and Department of Public Utility
Control.  This certificate allows the creation of a new water system
only after it is determined that the proposed system is viable and
that interconnection or contracting for management services is not
feasible. 

The Connecticut plan establishes exclusive service areas for existing
utilities, using an areawide planning approach.  The purpose of the
areawide plan is to coordinate individual water system plans and
avoid the creation of systems unable to meet safe drinking water
standards.  A utility accepts responsibility for all the new and
existing water systems in its service area, thereby reducing the
potential for creating new nonviable small systems.  Once exclusive
service areas are established, individual water companies accept
responsibility for the new and existing water systems in their area. 

Connecticut has also passed laws intended to ensure the viability of
existing systems by granting the state's Health Services and Public
Utility Control departments the authority to order a solvent water
company or municipality to take over a failing small water system. 
In exchange for taking over a failing system, a solvent water company
is allowed to recover reasonable costs in its rate base.  If a
solvent water company refuses to take over a nonviable system, the
Public Utility Control Department has the power to order the
takeover.  Since this authority was implemented, Connecticut has used
it to restructure approximately 25 small water systems.  These
systems have been restructured both through physical consolidation
and by having larger utilities take over the smaller systems and
operate them as separate plants. 


      WASHINGTON'S VIABILITY
      PROGRAM
-------------------------------------------------------- Chapter 4:2.2

The Washington State Drinking Water Program uses its water supply
planning process and permit requirements to discourage the creation
of new small systems and to encourage the consolidation of existing
nonviable systems.  To help achieve this, Washington's Public Water
System Coordination Act establishes a planning process for counties
to, among other things, demarcate present and future water system
service areas, develop procedures for authorizing new water systems,
develop shared or joint use of facilities, and develop a support
system to provide management, operations, or maintenance assistance
to small systems. 

The support system and arrangements for systems to share facilities
are an important part of the planning process.  Small systems needing
help may become part of a support system to obtain technical,
financial, or managerial assistance from larger water utilities. 
Joint use of facilities is an arrangement whereby individual water
systems having quantity or quality problems agree to share other
systems' facilities.  The most common arrangement is the physical
interconnection of two systems.  Utilities may also share water
sources, reservoirs, or storage tanks.  This process minimizes costs
and improves water service. 

Like Connecticut's program, the Washington drinking water program has
the authority to direct the consolidation of a nonviable water
system's management when that system is in violation of safe drinking
water requirements.  Washington has the authority to place a failing
system into receivership, and the county government can ultimately
become the receiver of last resort for systems within its
jurisdiction.  Although the state has not yet used this authority to
accomplish any takeovers, the threat that it will do so has been
incentive enough to get some failing small water systems to
consolidate and achieve compliance with regulatory requirements. 


      PENNSYLVANIA'S VIABILITY
      PROGRAM
-------------------------------------------------------- Chapter 4:2.3

Pennsylvania also has mandatory takeover laws similar to Washington's
and Connecticut's, though more narrow in scope.  In June 1992, the
state passed a law that allows Pennsylvania's Public Utilities
Commission to order the takeover of nonviable investor-owned systems
with fewer than 1,200 connections.  As a result, between 200 and 250
investor-owned systems that are currently regulated by the commission
are subject to mandatory takeover if they repeatedly violate drinking
water regulations.  Systems with more than 4,000 service connections
can be ordered by the commission to acquire a small system that is in
violation of drinking water regulations.  Acquiring entities must
have the financial, managerial, and technical capabilities to operate
the troubled systems.  The purchase price is negotiated, subject to
the commission's approval, or the commission can use its eminent
domain authority to accomplish the takeover.  To date, the commission
has not exercised its power to force a consolidation.  However,
officials told us that the threat it will do so has already assisted
in consolidating some systems and, as a result, has improved overall
compliance in the state. 

Currently, Pennsylvania's takeover authorities affect only about 10
percent of the state's 2,500 community water systems.  However, the
Pennsylvania Department of Environmental Resources is developing a
more comprehensive approach to ensure the viability of all new and
existing water systems in the state.  The department is currently
developing a process for granting permits to new water systems.  As
envisioned, this process would incorporate viability into the
permitting process, and applicants requesting approval to construct a
water system would have to demonstrate that no alternative means of
providing water is available.  In addition, an applicant would be
required to provide detailed estimates of the system's total capital
cost, the total operational and maintenance costs, and the amount
required in reserves to provide for eventual system replacement. 
Finally, an applicant would need to prepare a business plan that
includes pro forma balance sheets and income statements projected 5
years into the future. 


      OTHER STATES' APPROACHES
-------------------------------------------------------- Chapter 4:2.4

Some states have accomplished the consolidation of failing water
systems without the specific authority to do so.  For example, the
Iowa drinking water program has the administrative authority to levy
fines against water systems that are in violation of requirements. 
Recently, aggressive enforcement efforts have led to the
consolidation or elimination of approximately 30 percent of Iowa's
small drinking water systems--all of which were in violation of state
and federal drinking water regulations.  The state identifies the use
of administrative fines, as opposed to the enforcement of regulations
and assessment of fines through judicial processes, as the most
significant reason for the success of its efforts. 


   STATES FACE DIFFICULTIES IN
   IMPLEMENTING RESTRUCTURING
   STRATEGIES AND VIABILITY
   PROGRAMS
---------------------------------------------------------- Chapter 4:3

EPA officials and drinking water officials from the 10 states
contacted agree that restructuring strategies, especially when they
are a part of a comprehensive viability program, can help reduce the
large number of nonviable water systems and hold promise for helping
relieve the significant resource constraints currently experienced by
state drinking water programs.  According to EPA, approximately 50
percent of the nation's small water systems are located within the
Census Bureau's standard metropolitan statistical areas and are
potential candidates for physical consolidation or shared management
arrangements.  While the consolidation of nonviable systems is not
always feasible, many EPA, state, and industry officials that we
interviewed said that it may be the best option for bringing these
systems into long-term compliance.  According to these officials,
consolidation of nonviable water systems can potentially result in
future resource savings as states reduce their oversight workload. 

However, states are experiencing difficulties in developing and
implementing restructuring strategies and viability programs.  Most
importantly, despite their long-term savings potential, most states
do not have the resources needed in the near term to plan and carry
out these activities.  In addition, some states have difficulty
obtaining the authorities needed to direct the restructuring of
nonviable systems.  In those states that have such authority, the
process of forcing consolidation is often time-consuming and
burdensome.  Additionally, although EPA supports consolidating
nonviable systems, the agency's state grant distribution formula
serves as a disincentive for states to consolidate systems. 


      STATES HAVE FEW RESOURCES TO
      DEVELOP VIABILITY PROGRAMS
-------------------------------------------------------- Chapter 4:3.1

According to officials in EPA's Office of Ground Water and Drinking
Water, although most states would support the development of
viability programs to help address small systems' compliance
problems, many states have not developed these programs because they
do not have enough resources to do so.  For example, the Chief of
Montana's Water Quality Bureau said that Montana is trying to develop
a viability program to limit the proliferation of new water systems
and to ensure the viability of existing systems.  According to this
official, Montana has developed legislation that would require small
systems to submit financial, operational, and management information
during the systems' construction permit process.  However, this
official said that although the Montana state legislature passed the
viability legislation, as a result of severe budget shortages, the
state's drinking water program lost three staff years and the state
had to discontinue efforts to develop regulations to implement the
legislation. 

In the three states we visited that have developed viability
programs, state officials said that implementing these programs can
be resource intensive.  For example, in one of the states,
implementing a viability program requires a significant portion of
the state's total drinking water grant.  For example, the state of
Connecticut has estimated that it costs approximately $125,000
annually to implement the state's viability program.  This amount is
approximately 15 percent of the total drinking water grant that
Connecticut received in fiscal year 1993.  On the basis of the
experiences of two states--Connecticut and Pennsylvania--that have
implemented viability programs, EPA estimates that the cumulative
annual costs of implementing viability programs nationwide would be
approximately $5 million. 

Officials interviewed from states that have not yet implemented
comprehensive viability programs acknowledge that these programs
could potentially help them reduce the number of nonviable drinking
water systems and, in turn, help states save resources by reducing
their oversight workload.  However, as state officials explained,
most do not have the resources to develop and implement these
programs because the available resources must be used instead to help
states meet requirements for maintaining primary enforcement
authority for their drinking water programs, or "primacy." As we
pointed out in a June 1993 report that examined EPA's drinking water
program, the states' ability to effectively carry out the monitoring,
enforcement, and other mandatory elements of EPA's drinking water
program--key activities for retaining primacy--have been jeopardized
in recent years by resource constraints.\3 This report also noted
that the ability of the states to retain primacy will be increasingly
challenged as their responsibilities continue to grow under
requirements in the 1986 amendments to the Safe Drinking Water Act. 
In recognition of the states' difficulties in meeting primacy
requirements, EPA adopted a near-term strategy in June 1992 that
assigns priorities to various aspects of the program.  In addition to
performing certain "base minimum state functions" deemed critical to
maintaining primacy, states will be required to implement the
elements EPA has designated as "Priority 1" for each regulatory
requirement, while addressing lower-priority elements as their
capabilities allow.  During a 5-year period, states will be expected
to develop the capacity, through alternative financing strategies or
other methods, to meet all program requirements after the period
expires.  This strategy does make it a priority for EPA to encourage
states to use viability concepts.  However, it does not list the use
of restructuring and viability programs as priority activities for
states despite these programs' potential to provide long-term
solutions for small systems' compliance problems.  According to an
official in EPA's Enforcement and Program Implementation Division of
the Office of Ground Water and Drinking Water, the development of
these programs is not included as a state priority activity because
the strategy sets priorities for the requirements of EPA's drinking
water program, and states are not currently required to develop and
implement viability programs. 


--------------------
\3 Drinking Water Program:  States Face Increased Difficulties in
Meeting Basic Requirements (GAO/RCED-93-144, June 25, 1993). 


      SOME STATES CITE
      DIFFICULTIES IN OBTAINING
      AND USING AUTHORITIES TO
      RESTRUCTURE WATER SYSTEMS
-------------------------------------------------------- Chapter 4:3.2

Some states are trying to develop viability programs but are having
difficulty obtaining the authorities needed to direct the
restructuring of systems that refuse to do so.  Officials from these
states cite many problems in obtaining such authority.  For example,
the Director of the Public Water Supply Branch in Alabama's
Department of Environmental Management said that the state of Alabama
developed legislation to give the state the authority to direct
existing nonviable water systems to consolidate.  However, the state
legislature was resistant to such an initiative.  The director added
that, in general, state legislators are hesitant to adopt such
legislation because they feel their constituents would not support
it.  In turn, constituents may not support such efforts because they
do not realize the critical condition that many water systems are in
and are not aware of the high costs that systems will have to bear as
the new regulations take effect.  In view of this, the state official
said that more efforts are needed to educate the general public on
these issues. 

State drinking water officials from Pennsylvania cited similar
problems with obtaining authorities from their state legislature to
direct publicly owned water systems to restructure.  As discussed
above, Pennsylvania has the authority to direct certain
investor-owned systems to restructure.  But, according to
Pennsylvania state officials, trying to extend this authority to
publicly owned systems has been difficult.  These state officials
cited problems similar to those experienced in Alabama, including a
lack of public knowledge about the growing number of requirements
being placed on water systems and about the rising costs of complying
with safe drinking water requirements. 

Some states that have viability programs and have obtained the
authorities needed to direct restructuring of noncompliant systems
cite problems caused by long delays in actually directing a system to
restructure.  According to drinking water officials from Connecticut,
it can take, on average, from 1 to 2 years to complete a takeover. 
However, this process can take significantly longer, especially in
cases involving hostile parties.  For example, in one case in
Connecticut, it took state officials over 5 years to make a small
system consolidate with another system because of court delays and
long hearing processes. 


      EPA'S STATE DRINKING WATER
      PROGRAM GRANT FORMULA
      INADVERTENTLY DISCOURAGES
      CONSOLIDATION OF WATER
      SYSTEMS
-------------------------------------------------------- Chapter 4:3.3

During our review, some state officials expressed concern that the
formula EPA uses to calculate the amount of state drinking water
grants can discourage consolidation of nonviable drinking water
systems.  Through EPA's Public Water System Supervision program, the
agency provides grants to administer state drinking water programs to
states that have primacy.  These Public Water System Supervision
grants, which totaled $58.9 million in fiscal year 1993, are
distributed among primacy states through a grant allocation formula
that considers five factors for each state, including (1) the number
of community water systems, (2) the number of nontransient
noncommunity water systems, (3) the number of transient noncommunity
water systems, (4) the land area in square miles, and (5) the
population of the state.  The first two factors combined receive a
weight of 56 percent; the third factor, 14 percent; the fourth
factor, 10 percent; and the fifth factor, 20 percent.  In general,
the grant formula is weighted so that the states with more water
systems receive more funding.  As a result, some state officials told
us that the formula provides a disincentive for states to reduce the
number of small systems in their inventory through consolidation,
especially given the current resource constraints of state drinking
water programs.\4


--------------------
\4 Some reductions in states' water system inventories occur for
reasons other than the consolidation of water systems.  For example,
some water systems are removed from inventories because they have
gone out of business.  In addition, when states update their
inventories, they remove long defunct water systems from the list. 


   EPA HAS MADE EFFORTS TO
   ENCOURAGE GREATER USE OF
   RESTRUCTURING AND VIABILITY
   PROGRAMS
---------------------------------------------------------- Chapter 4:4

EPA officials acknowledge that states face enormous problems in
bringing nonviable small systems into compliance with Safe Drinking
Water Act requirements.  Accordingly, the agency has either
undertaken or is considering actions to help overcome the
difficulties preventing wider use of restructuring strategies and
viability programs.  For example, the agency has encouraged states,
through guidance and workshops, to develop viability programs and
restructure nonviable systems.  The agency is also studying options
for modifying the state grant formula to remove disincentives for
states to consolidate nonviable systems. 


      EPA HAS DEVELOPED GUIDANCE
      TO ENCOURAGE STATES TO
      IMPLEMENT RESTRUCTURING
      PROGRAMS
-------------------------------------------------------- Chapter 4:4.1

EPA has issued guidance documents and sponsored workshops to help
states implement viability programs and restructure nonviable water
systems.  For example, in April 1989 EPA issued a document describing
case studies of four states that have established procedures to
control the creation of potentially nonviable small water systems. 
In June 1990, EPA issued a guidance document that discusses various
options that states can use to improve the viability of existing
small systems.  These options include the use of (1) contract
operation and maintenance services and (2) public mergers and
acquisitions to resolve system viability problems.  Also, in December
1991 EPA issued a training manual for state drinking water personnel
that provides a discussion of restructuring options and a description
of how to choose an appropriate restructuring option for small
systems. 

EPA has also sponsored workshops to help states share information
about viability programs and restructuring strategies.  In September
1990, EPA held a 3-day workshop during which state representatives
exchanged information about their successes and failures in
developing viability initiatives for small systems.  Also, in
December 1992 EPA cosponsored, with the American Water Works
Association and the New England Water Works Association, a workshop
to provide an opportunity for state representatives to share
information about small systems' viability issues. 

Drinking water officials in the three states that we
visited--Connecticut, Pennsylvania, and Washington--said that they
found EPA's guidance and workshops to be generally useful.  However,
these officials said that states need more than just guidance from
EPA.  They indicated that what states really need are the resources
to develop and implement viability programs.  As these officials
explained, developing the legislative and regulatory tools needed to
implement an effective viability program is resource intensive, and
financially strapped states must instead use their available
resources to meet the requirements for maintaining primacy under
EPA's drinking water program. 


      EPA HAS MADE SHORT-TERM
      REVISIONS TO ITS GRANT
      FORMULA TO REDUCE
      DISINCENTIVES FOR
      CONSOLIDATION
-------------------------------------------------------- Chapter 4:4.2

When two states in EPA Region IV (Alabama and Mississippi) and one
state in EPA Region III (Maryland) experienced reductions in their
drinking water program grants because the number of water systems in
the states was reduced, mainly through consolidation, officials in
EPA Region IV's Water Management Division became concerned that the
grant formula was actually providing a disincentive for states to
consolidate their water systems.  As a result, in December 1992 EPA
Region IV awarded a contract to develop an incentive program to
encourage states to consolidate nonviable small systems.  In April
1993, a draft issue paper was delivered to EPA by the contractor
outlining the issues involved in modifying the grant formula and
discussing options for developing an incentive program.  The
contractor recommended that EPA explore refining the grant formula to
reward a portion of any yearly increase in grant funding to states
that institute predefined viability initiatives, such as the passage
of takeover laws.  The contractor noted that, by using only the
increase in grants to fund incentives, this arrangement would keep
state grant funding relatively stable from year to year and would
also recognize the need to motivate state legislatures and governors
to pass laws that empower state primacy agencies to address nonviable
water systems. 

In August 1993, EPA and the Association of State Drinking Water
Administrators met to discuss options for revising the grant formula. 
Issues discussed during the meeting included whether (1) the grant
formula is an appropriate mechanism for encouraging states to
consolidate nonviable drinking water systems; (2) an incentive
program should be developed, using some portion of state grant funds,
to encourage states to adopt viability initiatives; and (3) EPA
should take action to stabilize state grant funding levels in light
of the large fluctuations in water system inventories experienced by
some states. 

According to an EPA official who attended the meeting, officials from
the three states--Alabama, Iowa, and Mississippi--and the four EPA
regional offices--Regions I, III, IV, and VII--attending the meeting
maintained that the grant formula is not an appropriate mechanism for
encouraging states to consolidate nonviable systems.  According to
this EPA official, the state officials generally felt, among other
things, that states that eliminate nonviable systems are better off
"in the long-run" because even though these states may loose some
funding initially, they will save much more by reducing their
oversight responsibilities in the future.  For example, Alabama
officials said that even though their state could lose $300-$400 in
grant funding for each water system eliminated, the state would spend
a lot more in the long run overseeing these systems if they were not
eliminated.  State officials also agreed that reducing water system
inventories can help states meet primacy requirements by shifting
funds from oversight to other activities. 

According to an EPA official who attended the grants formula meeting,
state officials at the meeting generally agreed that EPA should not
develop an incentive program, based on a portion of state grants, to
encourage states to adopt viability initiatives.  The EPA official
said that state officials had several concerns about developing such
a program.  First, state officials said that, for planning purposes,
states need stable funding from year to year.  They were concerned
that setting aside a portion of state grants for incentives would
upset funding stability.  Second, state officials were not
comfortable with EPA's awarding incentives to states on the basis of
arbitrary criteria designed to determine which states are doing a
better job implementing viability initiatives.  Third, state
officials felt that a one-time "shot in the arm" incentive would not
be very useful to them.  They would prefer, instead, some assurances
that grant funding will remain stable from year to year. 

According to the EPA official who attended the meeting, state
officials generally agreed that EPA should take action to stabilize
shifts in grant funding that occur when states reduce their
inventories of water systems.  These state officials felt that
stabilizing funding shifts would help remove a major disincentive for
consolidating water systems.  According to the EPA official, the
state officials generally agreed that a "short-term safety net" that
guarantees that the states cannot receive less than 95 percent of
their previous year's grant award would be acceptable.  Under this
arrangement, states that reduce their inventories could spread
funding losses over several years. 

In October 1993, the Director of the Office of Ground Water and
Drinking Water at EPA headquarters issued a memorandum notifying all
EPA regional drinking water branch chiefs of changes in the method
for calculating the state grant allotments in fiscal year 1994.  As a
result of these changes, EPA used a variation of the 95-percent
safety net discussed at the August 1993 meeting to calculate state
grant funding for fiscal year 1994.  Using this method, EPA
recomputed each state's allotment using the current distribution
formula and ensured that no state received less than 95 percent of
its final allotment in fiscal year 1993 .  According to an official
in EPA's Office of Ground Water and Drinking Water, as of February
1994, EPA has not adopted any long-term changes to the grant formula
and the 95-percent safety net was used for fiscal year 1994 only. 


   EPA RECOMMENDS AMENDING THE
   DRINKING WATER ACT TO REQUIRE
   RESTRUCTURING STRATEGIES AND
   VIABILITY PROGRAMS
---------------------------------------------------------- Chapter 4:5

Beyond its efforts to encourage greater use of restructuring and
viability concepts, EPA has recently recommended that the Congress
require states, as a condition of retaining primacy, to have both
small system viability programs and the authority to direct nonviable
drinking water systems to restructure.  The agency has recommended
that states be required to implement operator certification programs
as a condition of primacy.  EPA hopes this requirement may help
encourage wider use of certain restructuring strategies, such as
contracting for operation and maintenance services and developing
cooperative agreements to share these services.  The agency has also
made recommendations that are intended to provide the funding needed
to pay for these programs. 


      EPA PROPOSES REQUIRING
      STATES TO DEVELOP VIABILITY
      PROGRAMS AND ADOPT
      RESTRUCTURING AUTHORITIES
-------------------------------------------------------- Chapter 4:5.1

EPA has recommended that the Congress amend the Safe Drinking Water
Act to require states to implement a small system viability program
as a condition of retaining primacy.  The agency recommended that
these programs include provisions to prevent new nonviable systems
from forming, plans for assessing the viability of existing systems,
and the authorities needed to order the restructuring of nonviable,
noncompliant water systems.  While officials we interviewed from 10
states and the Association of State Drinking Water Administrators
generally agreed that such programs could be useful in addressing
small systems' compliance problems and could help states save
resources by reducing the need to oversee nonviable systems, they
raised several concerns. 

First, state officials stressed that many states do not have the
resources to develop and implement viability programs because they
are using current resources to maintain primacy authority under the
drinking water program.  These officials do not believe that
developing viability programs should be a requirement of retaining
primacy because, without the funding needed to implement such a
requirement, many states would perceive this as another unfunded
mandate from EPA.  As one state official warned, some states could
decide to return primacy to EPA as a result.  An official from
another state questioned what priority EPA would give to the
development of such programs, in light of EPA's recently adopted
5-year strategy of assigning priorities to various aspects of the
drinking water program.  State officials said that EPA should not
just add on another priority activity without providing the funding
to implement it.  An official from EPA's Office of Ground Water and
Drinking Water acknowledged that the agency's priority strategy would
need to be reviewed in light of any changes made to the Safe Drinking
Water Act.  Specifically, if the act is revised to require viability
programs as a condition of primacy, the agency would need to add
development of these programs to the state priority activities listed
in the strategy. 

Second, some state officials are concerned about how EPA will define
an "adequate" viability program.  For example, some state officials
were concerned that EPA would require states to develop elaborate
viability programs in a relatively short period of time.  Most state
officials we contacted felt that all states should be able to
implement legislation and regulations to prevent the formation of
new, nonviable drinking water systems.  However, as these state
officials pointed out, dealing with existing nonviable drinking water
systems is a much more complex problem that includes, among other
things, issues related to a locality's right to manage its own
infrastructure. 

Third, some state officials are concerned that the increased burdens
placed on small drinking water systems will force many small systems
that are otherwise viable to become nonviable.  According to state
officials, one of the most important factors in determining whether
many small systems can remain viable in the future is the complexity
of future regulations.  According to these officials, if EPA
continues to adopt drinking water regulations without regard for the
cost of implementing these regulations, many small water systems that
are currently delivering safe drinking water may be driven out of
business. 


      EPA PROPOSES REQUIRING
      OPERATOR CERTIFICATION AND
      TRAINING PROGRAMS TO
      ENCOURAGE RESTRUCTURING
      STRATEGIES
-------------------------------------------------------- Chapter 4:5.2

EPA has also recommended that the Congress require, as a condition of
primacy, that states implement a complete program for operator
certification and training that includes operators of small systems. 
The recommendation further states that small systems that cannot
afford to train staff or hire certified operators could explore
certain restructuring strategies, such as contracting for part-time
services or developing cooperative agreements with nearby systems. 
As of September 1993, EPA reported that 45 states currently have
operator certification programs.  However, many of these programs
exempt small systems to some extent.  While the state officials we
interviewed and the Association of Drinking Water Administrators
generally agree that all drinking water system operators should be
certified, they pointed out that states may find it difficult to find
the funding needed to implement such a requirement. 


      EPA PROPOSES FEDERALLY
      AUTHORIZED STATE USER FEES
      TO FUND DRINKING WATER
      PROGRAM REQUIREMENTS
-------------------------------------------------------- Chapter 4:5.3

Recognizing that inadequate funding and rapidly rising regulatory
responsibilities has placed the federal/state partnership for
protecting drinking water at risk, EPA has recommended that the
Congress establish a state user fee program to help fund state
drinking water programs.  While the details of this program have not
been worked out, EPA is recommending that if a state cannot
sufficiently fund its drinking water program, the state should have
the option of using a federally authorized user fee program to fully
fund its program.  The agency is also recommending that, if a state
loses primacy, EPA should have the authority to implement a federal
fee to fund the primacy program in that state. 

While officials from seven states and the Association of State
Drinking Water Administrators agree that a user fee program could
help obtain the resources needed to fund state drinking water program
activities, including viability programs, they raised some concerns. 
First, some state officials feel that EPA's recommendation ignores
the political difficulties involved in adopting a user fee.  For
example, Connecticut has tried to adopt user fee programs but was
unsuccessful because both public and private utilities strongly
resisted the fees and, as a result, it was difficult to get state
legislatures to adopt them.  Second, some states are concerned about
the criteria EPA will use to define an "adequate" state drinking
water program.  Third, while some state officials were pleased that
EPA recognized that the federal/state partnership for protecting
drinking water is in trouble, some state officials believe it would
be helpful if EPA further recognized the value of the drinking water
program in protecting human health by increasing the federal
contribution to it.  Currently, EPA is authorized to pay up to 75
percent of the costs of administering the drinking water programs in
the states that have primacy.  However, due to funding constraints,
the agency's actual contribution has averaged about 35 percent in
recent years.  Fourth, some state officials are concerned that, if a
user fee is adopted, EPA will not be held accountable for the cost of
the regulations that it adopts and will "just expect states to pick
up the tab" for any additional regulations by raising state user
fees. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 4:6

Experts generally agree that the best approach for addressing small
systems' compliance problems is to identify nonviable small drinking
water systems and determine how to best bring these systems into
long-term compliance.  Many of these experts also agree that the best
solution for nonviable small systems is to restructure, whenever
feasible, the operations or management of these systems so that they
have the financial, technical, and managerial capability to comply
with drinking water regulations in the long term.  For those small
water systems that cannot restructure, other solutions discussed in
previous chapters of this report, such as the use of technical or
financial assistance or the use of an affordable alternative drinking
water treatment technology, may be needed to bring these systems into
compliance.  In light of this, we believe that the states should
develop programs to assess the viability of small drinking water
systems and develop authorities needed to direct nonviable systems to
restructure.  To have the greatest impact in addressing small
systems' compliance problems, these programs should be comprehensive
in nature.  That is, they should not only consider future water
supply needs but also include provisions that facilitate approval of
alternative technologies and ensure that technical and financial
assistance is used effectively to help water systems achieve
long-term viability.  However, unless EPA makes long-term changes in
the agency's state drinking water grant formula to remove
disincentives, states could be discouraged from consolidating
nonviable systems. 

EPA has made a number of recommendations to the Congress for amending
the Safe Drinking Water Act that should result in wider use of
viability concepts and restructuring strategies.  Requiring states,
as a condition of retaining primacy, to develop viability programs
and adopt restructuring authorities should help ensure that the
states have the basic information and tools needed to effectively
address nonviable systems.  To help ensure that all states implement
these programs, development and implementation of the programs needs
to be included as a state activity under EPA's current priority
strategy.  Requiring that small water systems have certified
operators should encourage nonviable systems to seriously consider
restructuring options, such as contract operation and maintenance
arrangements.  In addition, requirements for certified operators
should help address concerns raised in chapter 2 by ensuring that
skilled operators are available to operate alternative drinking water
technologies.  As discussed in chapter 3, EPA's recommendation that
state revolving loan funds be established should also help promote
restructuring strategies by requiring small systems applying for
loans to consolidate whenever doing so is cost-effective. 

Even though state officials acknowledge that viability programs could
help address problems with noncompliant small systems and could even
help states save resources in the long run through decreased
requirements for oversight of these systems, many states do not have
the short-term resources needed to develop such programs.  In light
of this, we believe that it is important to consider what could
happen if EPA's recommendations for additional state requirements,
such as the implementation of viability for small systems, are
adopted without a detailed and realistic funding strategy.  As
pointed out in previous GAO reports and acknowledged by EPA,\5
inadequate funding and rising regulatory responsibilities have placed
the drinking water program in jeopardy.  The effect of any additional
requirements at this point, without the funding to implement them,
can only worsen the states' difficulties. 


--------------------
\5 Drinking Water Program:  States Face Increased Difficulties in
Meeting Basic Requirements (GAO/RCED-93-144, June 25, 1993); Drinking
Water:  Widening Gap Between Needs and Available Resources Threatens
Vital EPA Program (GAO/RCED-92-184, July 6, 1992). 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 4:7

GAO recommends that the Administrator, EPA, (1) revise the agency's
own drinking water program priorities to place greater emphasis on
developing and implementing viability programs, (2) work with the
cognizant committees of the Congress to develop a detailed funding
strategy to accompany the agency's proposed requirement that states
develop viability programs for small systems, and (3) revise its
public water supply supervision grant formula to remove any
disincentives for states to reduce the number of water systems in the
long term. 


SELECTED DRINKING WATER TREATMENT
TECHNOLOGIES
=========================================================== Appendix I


      AERATION
------------------------------------------------------- Appendix I:0.1


         DIFFUSED AERATION
----------------------------------------------------- Appendix I:0.1.1

A treatment process in which water is run on a bed containing air
jets and contaminants are transferred from the water into the air,
where they are removed.\1


--------------------
\1 We obtained these descriptions of the technologies from EPA.  The
following EPA publications contain further information on the
technologies:  Technical and Economic Capacity of States and Public
Water Systems to Implement Drinking Water Regulations:  Report to the
Congress, EPA 810-R-93-001, Office of Water, Sept., 1993; Very Small
Systems Best Available Technology Cost Document, Office of Ground
Water and Drinking Water, Sept.  1993. 


         PACKED TOWER AERATION
----------------------------------------------------- Appendix I:0.1.2

In this treatment process, drinking water contaminants are
transferred from a solution in water to a solution in air.  A column
of water is run parallel to a column of air, allowing for the
transferral.  The extent of the removal of contaminants from the
water is determined by the length of the column and the volatility of
the contaminants. 


      DIATOMACEOUS EARTH
------------------------------------------------------- Appendix I:0.2

This treatment process, similar to other filtration processes, uses a
thin layer of diatomaceous earth supported by a filter to remove
particles and microorganisms from the water.  The diatomaceous earth
layer must be continuously replenished to maintain the needed degree
of porosity for the filter. 


      GRANULAR ACTIVATED CARBON
------------------------------------------------------- Appendix I:0.3

This treatment process uses a filter containing activated carbon. 
The carbon bonds with specific contaminants and traps them inside the
filter. 


      INDUSTRIAL CARTRIDGE FILTERS
------------------------------------------------------- Appendix I:0.4

In this treatment process, disposable cartridges are used to filter
the drinking water. 


      ION EXCHANGE
------------------------------------------------------- Appendix I:0.5

In the ion-exchange system, synthetic resins are used to replace ions
in the water with ions of similar charge that are fixed to the resin. 
Through this process, various contaminants can be removed from the
water. 


      MEMBRANES
------------------------------------------------------- Appendix I:0.6


         MICROFILTRATION,
         ULTRAFILTRATION, AND
         NANOFILTRATION
----------------------------------------------------- Appendix I:0.6.1

These types of membrane filtration remove particulates and
microorganisms above a specific size as delineated by the filter
used. 


         REVERSE OSMOSIS
----------------------------------------------------- Appendix I:0.6.2

This pressure-driven treatment process uses a specially prepared
membrane that permits the flow of water through the membrane but acts
as a selective barrier to contaminants. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   RESOURCES, COMMUNITY, AND
   ECONOMIC DEVELOPMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Bernice Steinhardt, Associate Director
Charles M.  Adams, Assistant Director
Steven L.  Elstein, Assistant Director
Gregory A.  Kosarin, Advisor
Lisa T.  Pittelkau, Staff Evaluator


   BOSTON REGIONAL OFFICE
-------------------------------------------------------- Appendix II:2

Ellen Crocker, Regional Management Representative
C.  Jeff Appel, Evaluator-in-Charge

