The Rural Utility Service’s Rural Water Grant and Loan program is widely recognized and acclaimed as one of the most successful federal assistance programs ever passed by Congress. The program has helped fund almost 17,000 water and sewer projects serving more than 12,500 rural communities in the last 30 years. Water and sewer systems improve the public health and assure economic stability in rural America. The program is so successful because it promotes local responsibility - rural folks own these systems, they pay for them and they take care of them.
To ensure that small and rural communities would be able to repay loans, Congress included a provision [7 U.S.C. §1926(b)] in the Consolidated Farm and Rural Development Act, and recently reauthorized this provision in the 1996 FAIR Act. The purpose of 7 U.S.C. §1926(b) is to protect the integrity of the federal government’s outstanding loans by preventing any portion of a water system to be “forcibly” annexed or "cherry picked" by another system or municipality. Such annexation often results in the remaining customers being solely responsible for repayment of the loan, with fewer customers to share the burden - resulting in a higher cost (hardship) per customer and greater risk of default. This dilemma is of special concern because USDA loans are ONLY available to low-income rural communities - based on household per capita income. There are also specific USDA requirements for long-term rate structures of the water system. Any shifting of costs caused by loss of territory jeopardizes this carefully constructed financial arrangement. The 7 U.S.C. §1926(b) provision is an essential element in the program and is one of the reasons that the program works so well. It assures loan repayment, it protects the results of the hard work of rural folks in creating and operating rural systems, and it protects the national priority of providing safe drinking water to all rural America - even in our most economically vulnerable areas.
The RUS program respects ALL state planning laws. Every rural water system plan is filed with the State’s Secretary of State and every USDA rural water system is prohibited from unilaterally crossing any state’s political subdivisions. Rural water systems were initially built in the outlying rural areas that no public system wanted to serve.
When municipalities and large private water systems attempt to lay water lines parallel or lay lines in an area already served by the USDA water system there is always a discussion on who should serve the area. At stake is the alignment of the most profitable area of the USDA system - that is generally why the larger system now wants to take over after many years of sustained disinterest. 7 U.S.C. §1926(b) requires the predatory system to work out an arrangement of mutual interest to both water systems as well as for the customers. The alternative would be to allow larger systems to unilaterally move into the low cost/high revenue portion of the USDA system and jeopardize the viability and future growth of the rural system.
1926 (b) Should Be The Solution of Last Resort
Most systems are working constructively and cooperatively to resolve local conflicts. Some states have legislation requiring equitable payment agreements and methods of determining the actual value of annexed populations. Numerous neighboring water systems have worked out “good neighbor” relationships through cooperative agreement that provide the highest quality of service to all customers. Rural Water Systems should only utilize 1926 (b) in extreme cases where expanding systems attempt to unilaterally, without discussion, acquire service areas. Often old political disagreements and local rivalries fuel these arguments. 7 U.S.C. §1926(b) has resulted in these disagreements to be resolved.
CITE
7 USC Sec. 1926 (b) Water and waste
facility loans and grants (b) Curtailment or limitation of service prohibited
The service provided or made available through any such association shall not
be curtailed or limited by inclusion of the area served by such association
within the boundaries of any municipal corporation or other public body, or by
the granting of any private franchise for similar service within such area
during the term of such loan; nor shall the happening of any such event be the
basis of requiring such association to secure any franchise, license, or permit
as a condition to continuing to serve the area served by the association at the
time of the occurrence of such event.
National Rural Water Association
Rural Water - dedicated to improving
drinking water and wastewater service in rural America.
1926b@ruralwater.org