This section provides background information on (1) asset management for water utilities, (2) federal funding for asset management, (3) water utilities’ structures, and (4) EPA’s infrastructure needs assessments. To assist water utilities in adopting asset management, in 2003, EPA developed an asset management framework for water utilities. In 2008, EPA incorporated this framework into a best practices guide for water utilities based on similar frameworks used by water utilities in Australia and New Zealand. EPA’s asset management framework instructs water utilities to (1) assess the current state of their assets, (2) determine the level of service they need to provide to customers, (3) identify those assets that are most critical to their operations, (4) incorporate life-cycle costs, and (5) develop a strategy for the long-term funding of the repair and replacement of their assets. As shown in figure 1, EPA’s 2008 best practices guide describes the five components in EPA’s asset management framework, which are characterized by a range of practices. According to EPA’s best practices guide, these practices can be implemented at varying levels of sophistication, depending on the size and needs of the utility. For example, a small water utility with few assets can document its inventory of assets on paper, although a large water utility with many assets may use a software program. Together, according to EPA’s 2008 best practices guide, these practices make up a water utility’s asset management program and are to be documented in the water utility’s asset management plan. The asset management plan serves as a written record that the water utility can use much like a budget or strategic planning document to communicate plans, progress, and future goals and also communicate user rate adjustments and recommended infrastructure investments. According to an EPA fact sheet on building an asset management team, asset management requires water utility staff who can promote and articulate the benefits of asset management. The fact sheet further states that a successful asset management program requires resources, including time and money, to implement, as well as the support of political leaders who have the authority and willingness to commit public resources and personnel. We and others have cited examples of cost savings resulting from asset management. In our March 2004 report, in addition to the water utility in California that saved $12 million, we found that a water utility in Massachusetts used asset management and saved $20,000 in oil purchase and disposal costs for its pumps and decreased the hours spent on preventive maintenance by 25 percent from the hours recommended by the equipment manufacturer. In addition, a 2007 study of asset management by the U.S. Conference of Mayors also found that public water utilities in cities had experienced savings in capital costs and operations and maintenance as a result of asset management. Further, a 2008 EPA fact sheet about asset management for local officials stated that implementing asset management may require some up-front costs but could result in cost savings for water utilities. In their 2011 Memorandum of Agreement, EPA and USDA agreed to collaborate in promoting ways that small water utilities could better manage their infrastructure needs and highlighted the use of asset management to ensure long-term technical, managerial, and financial capacity. The agencies also agreed to coordinate agency activities and financial assistance in areas that would increase the technical, managerial, and financial capacity for small water utilities. The memorandum stated that EPA and USDA would encourage communities to implement system-wide planning, including asset management, and that the two agencies would share and distribute resources to water utilities and provide training and information. In this same memorandum, EPA and USDA stated that both agencies supported increasing the technical, managerial, and financial capacity of water utilities nationwide. EPA and USDA funding for asset management activities falls under various larger programmatic budget categories. EPA funds asset management in the following three categories: (1) grants to provide training and technical assistance to water utilities to improve financial and managerial capacity; (2) grants to selected public, private universities or colleges, and nonprofit organizations to provide technical assistance to communities on a range of EPA priorities, including improving financial capacity; and (3) drinking water SRF grants to states, a portion of which may be used for increasing water utilities’ technical, managerial, and financial capacity. USDA primarily funds asset management activities through two programs: (1) the Water & Waste Disposal Technical Assistance & Training Grants program, which provides grants to nonprofit organizations in the 50 states for managerial technical assistance, and (2) the Circuit Rider program, which provides training and technical assistance through contracted staff called circuit riders, in each of the 50 states to provide technical assistance to small water utilities on day-to- day operational, managerial, and financial issues. Appendix III provides more details about EPA and USDA funding for asset management. Small communities share some common characteristics in how they manage (govern and staff) their water utilities, according to EPA’s 2011 report on the characteristics of small water utilities. The report, and EPA, have made several observations about small water utilities and the small communities they serve. Namely, publicly-owned water utilities are typically municipalities, townships, counties, or other public entities. These entities can be governed by boards, mayors, managers, or city or town councils. Privately-owned water utilities are typically governed by corporate entities, homeowner associations, or sole proprietors. For both publicly- and privately-owned water utilities, the governing bodies are responsible for ensuring the water utility complies with state and federal laws and regulations; setting and approving annual budgets; hiring staff; and in many cases, setting and adjusting the rates that users pay. EPA’s 2011 report also states that small water utilities are typically staffed with an operator (or superintendent), managers, and administrative staff that may work part-time. In some cases, a publicly-owned water utility may hire a private company to operate and maintain its facility. EPA estimates the nation’s drinking water and wastewater utilities’ capital infrastructure needs over the next 20 years by administering to states two needs assessment surveys: the Drinking Water Infrastructure Needs Survey and Assessment and Clean Watersheds Needs Survey every 4 years. In completing the questionnaire for the drinking water needs assessment survey, utilities report infrastructure needs to EPA and for the clean water needs assessment survey states report these infrastructure needs to EPA. EPA then uses the data from the drinking water needs assessment survey to determine each state’s grant allocation for its Drinking Water SRF program. According to EPA officials, the agency does not use the clean water needs assessment survey to determine each state’s allocation of Clean Water SRF program funds, but it reports the data to Congress and the public. EPA works with states and the Office of Management and Budget (OMB) to produce the surveys. The questionnaires for both needs assessment surveys ask about water utilities’ infrastructure needs, including those assets that are in need of replacement or rehabilitation. EPA officials said that they accept certain documents as support for the states’ cost information, including SRF loan applications, capital improvement plans, and asset management plans. To support their reported infrastructure needs, some water utilities submitted documentation that showed the use of asset management practices, according to the results of the 2011 drinking water needs assessment survey, and other utilities’ supporting documentation illustrated continuing gaps in knowledge about the condition and remaining useful life of their infrastructure. The results of the 2008 clean water needs assessment survey also highlighted water utilities’ use of asset management and featured examples of states that used asset management practices to determine the costs of projects submitted to EPA. The small water utilities we interviewed in our sample of 10 states are implementing some asset management practices, and the state SRF officials we interviewed in these states said that large water utilities are more likely to implement asset management practices than small water utilities. EPA, state SRF, and USDA officials in our review identified benefits that could result from water utilities’ use of asset management practices, as well as challenges water utilities face in implementing them. Officials we interviewed from small water utilities in the selected states said that they are implementing some asset management practices, and state SRF program officials in these selected states indicated that large utilities are generally more likely to implement asset management. Officials we interviewed at the 25 small water utilities we selected for our review generally told us they were implementing some of the asset management practices EPA identified in its 2008 asset management best practices guide, but we found differences in the extent to which these small water utility officials were implementing these practices. We discuss what we found using EPA’s framework, which consists of the five components and a written asset management plan. Current state of assets. EPA’s 2008 best practices guide states that water utilities, in assessing the current state of their assets, should know what assets they own, what condition they are in, and their remaining useful life—that is, how much longer the water utility expects their assets to last. EPA recommends that water utilities (1) compile this information into an asset inventory that lists each asset’s age, condition, service history, and remaining useful life and (2) develop maps that identify the location of these assets. Officials we interviewed from 8 of 25 of the small water utilities we reviewed in the selected states told us they had an inventory listing all of their assets, and 19 of 25 told us they had an inventory that listed at least some of their assets. Of the 8 small water utilities that had complete asset inventories, 2 of 8 included information on each asset’s physical condition, and 3 of 8 included an estimate of each asset’s remaining useful life, according to the officials we interviewed with these utilities. These officials described various types of inventories, ranging from a list of assets included on insurance documents to a software program that included information about the assets’ age, condition, service history, and remaining useful life. Officials at almost all (23 of 25) of the small water utilities in the selected states told us they had maps that identify the location of at least some of their assets.