University of Wisconsin–Madison

Water Cooperatives

Overview


Water cooperatives are most often found in suburban and rural areas that are located too far from municipal water companies to receive service. They can used to provide safe and reliable sources of water for drinking, fire protection, irrigation, as well as wastewater services, at a reasonable cost.

Most water cooperatives are small, serving less than 5000 consumers.

History


The association between disease and polluted water was recognized by the early 1900s, and steps were taken to treat water before its distribution for human consumption. Early water systems were owned by private, for-profit entities. However, as cities and towns grew exponentially and the capital needed to develop water infrastructures increased, municipal governments assumed control of private utilities.

After World War I, Congress exempted municipal bond interest from Federal taxation, enabling cities and towns to issue bonds at low-interest rates that were still attractive to investors. Much of the country’s water infrastructure has been supported by these tax-advantaged municipal bonds. Today most water systems are owned by municipalities.

As is true of other utilities, the expense of providing water to rural residents is considerably higher than providing it to urbanites, due to the large distances water must be transported. The number of rural water cooperatives and mutual associations increased significantly during the late 20th century as old farm wells ran dry or became contaminated and unsafe.

Water cooperatives have long benefited from government support. In 1946, the Farmers Home Administration was given responsibility for implementing water programs. Since 1990, the programs have been administered through the USDA’s Water and Waste Disposal programs.

Many water cooperatives were developed with significant assistance from rural electric cooperatives, and local rural electrics have expanded into providing water services as well.

Organizational Structure


Water cooperatives are incorporated under state statutes specific to cooperatives, mutual associations, or nonprofit corporations. The term “water cooperative” is used here to indicate all of these organizational forms. Like other utility cooperatives, water cooperatives are considered nonprofit corporations and are granted Federal tax-exempt status under IRC section 501(c)(12), which requires that they operate on a nonprofit basis, provide water and/or wastewater services, and meet the 85% income from members rule. These cooperatives are found primarily in rural and suburban areas and provide water and wastewater services at cost.

Rural water cooperatives typically are organized by households and businesses that cannot connect to existing water systems, usually because they are located too far from an existing system to make service financially feasible. In contrast, most mutual water associations were created to buy out the real-estate developers who built water systems to service their development properties.

Water cooperatives are governed by a board of directors that establishes policies and provides oversight. Members elect the board of directors from among the membership. The number of directors on the board varies, depending on the size of the cooperative and the responsibilities of the board members. Since most water cooperatives are very small, there are usually no employees and the work is performed on a volunteer basis, often by the board members.

The members typically elect 5 or more board members. While larger cooperatives hire staff to perform operational functions, board directors make most of the everyday decisions. Usually, directors are not compensated for their service. Members usually vote only to elect board members.