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Question: You have been hired as a consultant to an urban water agency. They want to improve the reliability of their water supply. They have one of the categories of water reliability - a large fund of money - available. They are asking you how they should invest it to improve water reliability. Based on the other categories (not including "expectations"), list the four remaining categories and say which one you think is the most important and why.

2. Access to natural resources. How wet or dry is a given region? Natural resources are sometimes called "natural capital." If a region has immense water resources (e.g., Canada), it is in a position to provide the water its cities and regions need. A dryer region, such as northern Chile, faces a greater challenge to meet water resources supply goals. The more high quality water there is nearby, the easier it is to provide a reliable supply.

3. Human capitalalso contributes to water reliability. A well-trained staff at a water agency can maintain and upgrade equipment and infrastructure, carry out necessary water tests, interact successfully with the public, and keep a lid on costs. Human capital is needed for special repairs for which the agency contracts with the private sector, as well as to develop new technologies that lower costs and improve the efficiency of water systems. Human capital typically focuses on the quality of employees directly involved with water but one can extend the concept to include residents and business people who can install and manage systems in their homes/businesses that conserve water. Every water agency also needs skilled, dedicated leadership. Leaders set the tone for everyone working at the agency through their personal commitment to hard work, integrity, and full compliance with all laws and regulations.

4. Financial resources are needed to pay for equipment installation and repair, including water pipes, meters, filters, and other items. Funding typically comes from monthly or bi-monthly billing of water customers. The agency should keep good records of who has paid and who hasn't, and should have a system in place for collecting unpaid water fees. The incoming money should go to the right accounts and all the money should be accounted for.

Water agencies also often apply for and receive government grants. These grants often go to projects that help the broader region, such as improved wastewater treatment or water conservation that helps the entire watershed. When a new project benefits more than just the service territory of the agency, it justifies using taxpayer dollars from the broader public.

Another aspect of financial resources is the ability of the water agency to borrow large amounts of money (millions of dollars) from banks or other financial institutions. This enables the agencies to build large water treatment facilities and water distribution systems. The agency needs a good credit record and enough financial expertise to engage in large transactions like these.

5. Physical or constructed capital – are the existing installations (pipelines, pumping stations, treatment plants) and equipment in good working order and up to date? Are there spare parts readily available in case something breaks down? Linking physical capital with human capital, is there staff available that can operate and repair the equipment? For specialty equipment, is there a private company nearby that has the expertise and can be called on to make the repairs or adjustments on short notice? This often means having a contract already in place so everyone is ready to take quick action if needed.

6. Governance capacity. Governance involves the laws and regulations that create responsibilities, incentives, and consequences for water operators. The laws and regulations need to be clear; consistent with the resources, duties, and capabilities of the water agency; and need to have substantive consequences for non-compliance. The water world is highly regulated since so much is at stake – human health, public safety, environmental protection, and economic productivity. Regulatory agencies, courts, and legislatures carry out the governance of the water sector.

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