With a COP, facilities are built or acquired by an agency of the city, and leased to the city, for which the city makes lease payments equal to the principal repayment plus interest. A city, non-profit corporation, or a community redevelopment agency must be used as the intermediary leasing entity, but that agency must give the facilities to the city free and clear without added expense when the indebtedness is repaid. Bond pools increase access to bond funds for smaller water agencies who might not otherwise be able to obtain funding. Bond pools use a JPA to combine several small bond offerings into a single financial package, minimizing the cost of bond issuance for participating water agencies. The Association of California Water Agencies and the WateReuse Association offer such financial packages.
Privatization can offer advantages.
For example, it may provide cheaper or more accessible financing, and it may provide substantial tax advantages to the private sector. Privately arranged financing may be an attractive option when a publicly owned water agency's access to the financial markets is diminished or nonexistent, as is the case for many smaller utilities. Another potential opportunity for water agencies involves the provision of funds by one agency for water system or on-farm improvements by another agency, in exchange for use of the water conserved. Although not financing methods, credit substitution and enhancement can assist local agencies in obtaining financing and in lowering the costs of financing. Credit substitution occurs when an agency substitutes its own credit for that of a local agency that is seeking to finance a project.