Nicole T. Carter and Leonard Ortolano

Department of Civil and Environmental Engineering

Stanford University

ncarter@leland.stanford.edu

ortolano@ce.stanford.edu

ABSTRACT

Safe, afforable drinking water and sound disposal of sewage are needed for an urban center to function successfully. In this paper,we analize four impediments to the effective provision of water and sewer services in Mexican border cities. First, state utilities, rather than municipal governments, are responible for service to residents in Mexican border municipalities. State water and sewer utilities serve municipal customers through their local branches. Unfortunately, local branches of state utilities suffer from low motivation, capability, and accountability to customers. Moreover, local branches of state utilities have little experience managing construction projects. Second, obstacles to project financing and, third, cultural rules surrounding user fees complicate service provision, particurly because of the difficulties of undertaking construction projects. Fouth, upheavals within state utilities and their local branches that accompany changes in state administrations every six years negatively affect projects and hamper water and sewer planning.

Inadequate water and sewer services significantly detract from urban centers functioning as healthy living environments for their residents while not adversely affecting the physical environment. The chllenge of providing services to urban residents is not trivial; the number of urban residents without water supply services worldwide is expected to be 520 million in 2000 and 1.7 billion in 2020 (Bhatia and Falkenmark 1993, 8). In 1994, approximately 40% of the urban population in low-income countries lived without sanitation services (Watson 1995, 9).

In this paper, we use Mexican border municipalities as a starting place in our attempt to understand why urban areas have difficulties providing water and sewer services. We found that significant impediments to effective water and sewer services. For example, formal and informal arrangements in Mexico place responsibility for water and sewage provision with the state, not with the municipality. State utilities serve municipal customers through their local branches. Unfortunately, local branches of state utilities suffer from low motivation, capability, and accountability. Other impediments are limited financing options, inadequate user fees and poor fee collection, and changes in political administrations that disrupt activities of state utilities.

Our analysis is based on data we collected from February to December 1997 and during July and August 1998. We gathered data from thirty-five personal interviews with municipal, state, and federal officials in Mexico. Nicole Carter also undertook a five month participant observation at the U.S. Environmental Protection Agency (EPA) Region IX Border Water Group, during which she worked on a wastewater project in Tijuana, Mexico. Although there are significant environmental issues related to water and sewer services in Mexican border municipalities, such as the depeletion of groundwater resources and population growth in arid and ecologically-sensitive areas, we do not delve into these issues herein. Instead the focus is on institutional impediments to water and sewer services.

The remainder of this paper is organized as follows. Section 2 provides background information on the water supply and wastewater disposal crisis in Mexican border municipalities. In each of the subsequent four sections—Section 3 through Section 6, we analize an impediment to the provision of water and wastewater services. Section 7 details some of policy implications that we identified through this analysis.

The cities of the U.S.-Mexican border represent a set of cities whose last twenty years have been shaped largely by the forces of globalization. Mexican border municipalities illustrate how the global economy can quickly transform small communities into large urban centers. Now more than five million Mexicans and five million Americans live along the length of the border (United States Trade Representative 1997, 127); only ten years ago fewer than half of this number lived in the border area—the area within 100 kilometers of the international boundary (Spalding and Audley 1997, 8). The border region's dramatic economic growth under Mexico's "Border Industrialization Program" sparked this population boom. This program, which was initiated in 1965, granted the border region a special economic status that permitted foreign-owned industries to own and operate manufacturing plants in Mexico at which Mexican laborers assemble imported parts and materials. The finished goods are then exported, with only the value added in Mexico being taxed. These assembly plants are called maquiladoras or maquilas. By 1990, over 2000 maquiladoras directly employed 500,000 workers, primarily low-income laborers that relocated to the border from the interior of Mexico (Corcoran 1997). The Mexican government initiated the Border Industrialization Program to alleviate unemployment, to relieve population pressure on Mexico City and other metropolitan areas, and to provide a source of foreign currency. The federal government did not establish the program to produce efficient or equitable development in border communities, nor was the program accompanied by investment in infrastructure to support the resulting industrialization and expanding population.

Before the mid-1970s, the Mexican government devoted few resources to urban planning. Urban growth often consisted of unplanned, unregulated, and poverty-ridden illegal settlements established by squatters. The federal government started to invest in urban planning in the 1970s, but the process had barely begun before the economic crisis of the 1980s forced severe cutbacks. Consequently, Mexico's border municipalities are largely unplanned and lack even rudimentary water and wastewater infrastructure in many areas. For example, Ciudad Juárez, the largest Mexican border municipality houses 1.1 million inhabitants and 300 maquiladoras, yet has no wastewater treatment facilities for the 75 million gallons of sewage produced daily within its borders. Part of its wastewater is used for crop irrigation; the rest flows directly into the Rio Grande (New York Times 4 July 1998).

Population growth in border municipalities averaged 5.4% annually during the mid-1980s (Ham-Chande and Weeks 1992, 19). Half of this growth resulted from internal migration caused by the higher wages received in Mexican border cities and the possibility of emigration to the U.S. (Ham-Chande and Weeks 1992, 19). Since affordable housing was unavailable, migrants built homes on vacant land that lacked public services. As of 1994, 18% of urban households in border municipalities lacked potable water, and 40% were not connected to sewage collection systems (Betts and Slottje 1994, 23). Moreover, only 34% of the sewage collected along the border received any treatment (General Accounting Office 1996, 7).

By the 1990s, the rivers, beaches, and groundwater aquifers of the U.S.-Mexico border were severely contaminated by Mexico's municipal sewage and industrial waste. In the spring of 1991, for example, Nogales Wash—a wash that flows through Nogales, Sonora and Nogales, Arizona—caught fire in Nogales, Sonora (Ingram, Laney, and Gillilan 1995, 23). In another incident, both the City of San Diego and the State of California declared a state of emergency caused by fifteen million gallons a day of Tijuana's raw sewage flowing north across the international border (City of San Diego 1993). In 1993, almost 100 million gallons of untreated or inadequately treated sewage entered the Rio Grande daily from Ciudad Juárez, Ciudad Acuña, Nuevo Laredo, and Reynosa (Browner 1993).

In the 1980s and 1990s, the U.S. and Mexican governments attempted to address the water supply and wastewater disposal crisis along the border through the International Boundary and Water Commission (IBWC) and the Integrated Border Environmental Plan (IBEP), a special initiative for the border area, but little was accomplished. As part of the North American Free Trade Agreement (NAFTA), the U.S., Mexican, and Canadian governments adopted an environmental side-accord. In order to address the environmental consequences of economic integration on the U.S.-Mexico border area, the U.S. and Mexican Presidents signed an executive agreement creatin the Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADBank). Responsibility for overseeing the development of water and wastewater construction projects in the border region was given to BECC, which certifies that water and wastewater projects for the border area satisfy minimum criteria. NADBank finances projects, primarily through loans that are repaid through collected user fees.

Although capital is available for water and wastewater projects through NADBank and other sources, significant impediments to effective water and sewer services in Mexican border municipalities remain. Starting in Section 3, we describe four impediments to service—provision of service by state utilities, restricted financing options, difficulties in establishing and collecting user fees, and upheavals that accompany changes in state administrations. In our discussion of these four impediments, we refer to formal and informal rules as shaping the institutional context of water and sewer provision. Following North (1990, 4) and others, we define insitutions as rules that are social constructions that can be formal , such as national laws, or informal, such as unwritten codes of acceptable behavior.

Why do state utilities provide municipal water and sewer services? States have maintained the responsibility for water and sewer provision even though the municipalities have legally posses this responsibility for more than a decade. In 1983, President Miguel de la Madrid responded to threats to the Mexican regime's and his political party's stability with a policy of decentralization that concentrated on municipal reform designed to grant autonomy to municipalities. Under these reforms, Article 115 of the Mexican Constitution was changed to reserve specific functions for municipal government such as water and sewer service, public lighting, and cleaning. Even though water and sewer services were formally decentralized by constitutional reform in 1983, state utilities have continued to provide water and sewer service to border municipalities. To the extent that decentralization has occurred, it has involved granting project construction authority to local branches of state utilities; it has not involved municipal governments taking control of water and sewer systems.

States maintained their responsibility for municipal water and wastewater service through a provision of Article 115 that allows states to step in and carry out functions allocated to municipalities "when necessary and [where] state law permits." States have argued that municipal governments cannot adequately provide water and sewer services. This rationale is convincing for many of Mexico's sparsely populated and rural municipalities, which are poor and have limited administrative and technical human resources. However, it is not convincing for numerous border municipalities. Currently, the decentralized local branches serving the border's two largest municipalities—Tijuana with 1 million residents and Ciudad Juárez with 1.1 million residents—are self-sustaining financially for operation and maintenance of their water and sewer systems, and the state utilities provide little assistance in the management of those systems (Interviews with Director of Santiation in Juárez and consultant to BECC). One border scholar called Baja California's state utility an unnecessary and costly intermediary. Many of the populous border municipalities have available locally adequate technical and administrative human resources for operating a municipally-owned water and sewer utility.

Even though municipally-owned utilities are feasible in some municipalities, state utilities persist in all but one border municipality for numerous reasons. State governments wield considerable economic and political power; they exercised this influence in order to maintain responsibility for water and sewer service even after the constitutional reforms of 1983. The state governments force municipalities to allow state utilities to provide service by threatening the municipalities with funding cuts (Interviews with municipal official and former state governor). Municipal governments are also reluctant to assume responsibility for provision of services because the municipalities would inherit the problems created by the poor management of state utilities, specifically water and sewer systems that need significant rehabilitation and expansion and inefficient billing and collection systems (Interview with municipal official).

One advantage of having state utilities in charge of municipal water and sewer service is that state utilities can buffer service provision and projects from the disruptions of the three-year municipal election cycle. State utilities experience management changes every six years when state governors change, rather than every three years when municipal governments change (see Section 6). One of the most significant advantages of the six-year cycle is that it permits the planning and implementation of projects extending more than three years.

For the reasons outlined above, many municipal governments are little interested in taking responsibility for water and sewer provision. Moreover, state governments are in no hurry to decentralize these responsibilities because they have a financial interest in maintaining control over systems, such as CESPT, that yield revenues that exceed O&M costs. State politicians, especially governors, also want state utilities to maintain control over extensions of service and improvements to service in areas already served because governors use water and sewer projects to reward political supporters. The use of projects as rewards for political support is acceptable under the informal rules established under the patron-client system which has dominated post-colonial politics in Mexico. The significance of service provision as a political tool can be seen in the fact that states have not transferred to municipalities authority over those water and sewer systems which fail to cover their O&M expenses and thus drain state utilities' finances. Obviously, the states, more specifically the governors, are gaining some non-financial benefit from providing municipal water and sewer services.

How does having state utilities and their local branches providing water and sewer service affect water and sewer service? Frequently, state utilities and their local branches have few incentives or resources to provide high-quality water and sewer service to municipal customers, much less to assume debt-financing. Local branches of state utilities (especially those serving smaller municipalities) are sometimes unable to collect sufficient user fees to cover O&M cost of their water and sewer systems. Under these circumstances, the systems are either poorly maintained and quickly degenerate, or the local branches become dependent on subsidies from state and federal sources (which may be routed through the state utility if the utility remains centralized). When this occurs, the local branches are more concerned with pleasing state utility management, state politicians, and federal officials than with providing high-quality service to customers. The inability to collect sufficient user fees also results in the local branches failing to repay their loans, as shown by the dotted arrows in Figure 2. Either the state utility uses state or federal funds to repay the loans, or the loan payments are not met thus harming the local branch's credit. Either way the local branch becomes even more dependent on state and federal subsidies. Because all local branches have depended on state and federal funding for construction projects (see Section 4) and some operational subsidies, local service has been driven by agendas arising in Mexico City and the state capitals rather than locally. Because local branches of state utilities typically have no relations with the municipal governments and since the municipal government is not involved in providing water and sewer service, customers have no means of making their complaints heard locally. An exception occurs when the presidente municipal is a member of the Administrative Council for the local branch of a state utility, but even in these cases the relations are largely formal and do not provide presidentes municipales with much leverage to improve service quality. Consequently, the only recourse for municipal customers is to complain about service quality to their state politicians. In summary, the local branches' operations have been driven by state and federal politics rather than their customers, and neither state utilities nor their local branches have much motivation to provide high quality water and sewer service and to pursue debt-financed projects through BECC and NADBank.

Fortunately, two factors—decentrailization and grants—improved the situation in Mexico. In the mid-1990s, decentralization progressed in some states—those states with PAN governors, who broadly supported decentralization; some local branches were decentralized from the state utilities. During this same period, Mexico's federal water agency was heavily promoting decentralization of water and sewer services and polluter-pays and user-pays concepts. The federal agency no longer fully subsidized projects because of not only these concepts but also the peso devaluation in 1994; consequently, projects became unafforable. Specifically, the high rates on debt available through NADBank and other sources made projects financially infeasible for the local branches. The user fees required to repay loans would have been unafforable for the customers. Luckily, the U.S. Environmental Protection Agency contracted with NADBank to manage $170 million in grants for border water and wastewater projects. These grants provided sufficient financial assistance to make NADBank's loans affordable; these grants were used to decrease the interest on the loans.

The changes in the mid-1990s and the infusion of grants provided the opportunity and motivation for some local branches to seriously pursue debt-financing available through BECC and NADBank. Figure 3 illustrates how with debt-financing of projects local branches become more accountable to municipal customers because the local branch now depends on the customers fees for payment of loans.

With the decentralization of some utilities, local branched must possess sufficient capacity both to operate the proposed system and to collect the user fees to cover a loan. Unfortunately, under centralized state utilities, local branches had not developed the administrative and technical capacity to design and implement large projects. Therefore, local branches must improve their administrative, technical, and financial capabilities.

Federal and state governments can establish special programs to aid local branches in the development of projects and the strengthening of their operations and management. For example, BECC and NADBank created programs to assistance to local branches working with them on projects; BECC created the Project Development Assistance Program to assist in the development of municipal master plans, project design documents, and environmental impact statements. NADBank started the Institutional Cooperation Development Program to assist utilities in achieving effective and efficient operations.

Assistance does not always have to come from government sources or be monetary in nature. For example, the local branch of the state utility in Naco, Sonora developed a project with the help of a U.S. nongovernmental organization (NGO) based in the Arizona community across the international border whose municipal water supply was threatened by contamination from Naco's wastewater. Similarly, informal meetings between the California's State Water Resource Control Board and representatives of the local branches of the state utilities produced technical improvements and financial savings for the projects in Tijuana and Mexicali (Interviews with two EPA staff).

One of the difficulties faced by public water and wastewater providers throughout Mexico is their dependence on state and federal sources of funding for construction that results from the formal and informal rules that govern project financing. Funds for construction are limited, and their distribution among alternative projects is often a response to political and economic events largely unrelated to local needs and beyond the influence of local residents (Ingram, Laney, and Gillilan 1995, 69 and 72). Funding for projects is often sporadic, and thus many projects are built in a piece-meal fashion. Because much of the funding is distributed in annual installments, financial support for multi-year projects is highly uncertain. Moreover, state and federal governments do not generally commit large sums all at once. As a result, instead of building water and wastewater facilities to cover the demand for a ten- or twenty-year period (as is typical in the U.S.), service providers are often financially constrained to build projects that often meet only immediate needs or needs three years into the future.

Furthermore, maquiladoras, which are among the largest water and sewer users in border municipalities and are a motivating force behind the border population boom, contribute little to financing of public infrastructure because their profits accrue largely outside of Mexico and their payrolls are so low that payroll taxes are relatively insignificant (Ingram, Laney, and Gillilan 1995, 42, 45 and 205). Thus, in addition to fueling the demand for water and sewer projects, maquiladoras do not significantly contribute to the financing of water and sewer system expansion and improvement.

In principle, border states could offset their water and sewer financing problems by raising taxes. However, the ability of Mexican state governments to raise revenue via state taxes is severely limited. A former governor of Coahuila indicated that his state ran the risk of losing participaciones if the state increased taxes (Interview with former governor). This fear of having federal revenue disbursements cut because of increased state taxation caused the former governor to avoid raising taxes even though it was legally permissible to do so. More generally, the fear of losing federal disbursements produces an informal rule that constrains the states' ability to finance water and wastewater projects.

Other financing options for water and wastewater projects are legally limited or problematic for service providers throughout Mexico. For instance, state utilities and their local branches are denied access to foreign capital because of limitations on foreign borrowing by sub-federal public entities. According to the Mexican Constitution, only the Mexican federal government can have a loan in a foreign currency or with foreign creditors. Moreover, state utilities cannot work with the municipal governments to raise funds through municipal bonds (a common means of financing water and wastewater projects in the U.S.) because municipal bonds do not exist in Mexico. Debt financing through government entities such as BANOBRAS is expensive; nonetheless, competition for BANOBRAS loans is high because a BANOBRAS loan is one of the few available financing options. BANOBRAS lends at an interest rate a few points higher than the interest charged by the Mexican Treasury, which was around 26% in 1996 (General Accounting Office 1996, 12).

The existing formal rules regarding flows of funds for water and sewer projects complicates the undertaking of water and sewer projects. Utilities cannot borrow directly from a foreign entity or in a foreign currency. Another constraint on foreign borrowing is the afforability of loans; interest rates are high because of the risks associated with the volatility of the Mexican peso.

Rates charged customers are often below those necessary to cover O&M costs, and they are far below rates needed to cover O&M plus debt repayment. The formal process used to increase rates partially explains why rates have remained depressed. Depending on the degree of centralization of the state utility, either the state utility or its local branch proposed a new rate schedule for user fees and then sent it to the state Congress for approval. As one BECC director explained it, increasing rates was "political suicide" for anyone in politics or with political aspirations because rates affect every voter connected to the water and sewer system (Interview with Technical Director of BECC).

User fees were not only too low; they were frequently not collected. Collection rates often dipped below 40% (Interview with Technical Director of BECC). For many years, state utilities and their branches had trouble collecting fees because of a formal rule that made it difficult to penalize customers who failed to pay by turning off their service. Cutting domestic water service was interpreted as unconstitutional because the Mexican Constitution protects access to water as a fundamental right (Ingram, Laney, and Gillilan 1995 175). Recently, the Constitution has been reinterpreted to allow water service to be cut for nonpayment; the rationale is that only service is cut—not the right to water (Interview with Public Outreach Coordinator at BECC). In some border states, such as Chihuahua, state utilities and their local branches now possess explicit legal authority to cut water service for nonpayment of user fees (Interview with Technical Director of BECC). Low fee collection rates also developed out of a commonly held belief in the right to free water and free public services (Rodríguez 1997, 120; Interview with Technical Director of BECC). This belief, combined with the failure of utilities to aggressively collect user fees and inaction against illegal connections to water lines, yielded an informal rule among customers: it was acceptable not to pay water and sewer fees. Another reason the collection rates remained low was that local branches of state utilities had not been forced to face hard budget constraints or to operate efficiently as described in Sections 4 and 5.

Poor service was yet another factor leading to low fee collection rates. Explosive growth in border municipalities often caused the quality of water and sewer service to drop because the rapidly expanding demand exceeded the available system capacity. As a result, residents that were not adequately served often refused to pay their bills. A downward cycle was established in which the resultant lack of revenue prevented the utility from not only improving service but also adequately maintaining the system. Consequently, service quality has progressively deteriorated, thus increasing problems with fee collection.

Mexican border residents have a limited ability to pay for water and sewer service; one estimate is that 51% of Mexico's border residents in the early 1990s lived below the poverty line (Betts and Slottje 1994, 33)

Insistence on the participation of customers (beneficiaries) in project costs is difficult to implement not only because of politics, but also because many customers do not trust the state utilities and their local branches to provide quality service (Ingram, Laney, and Gillilan 1995, 176; Interview with EPA staff). Customers receiving poor quality service have difficulty accepting increases in user fees. These problems are compounded by the poor fee collection capabilities by local branches. Often, the local branches lack resources and skills to make the necessary improvements in billing and collection. For instance, they often lack the money and staff to update user registries and install working meters.

Nonetheless, user fees are essential to the long-term sustainability of projects; they provide funding for operation and maintenance. In Mexico in 1990, more than 90% of all wastewater treatment plants were nonfunctional (Yepes 1990). These plants are nonfunctional primarily because local branches have insufficient funds to operate and maintain the plants because of problems with collecting and establishing user fees (Interview with Technical Director of BECC). Moreover, the significant change in the relationships illustrated in Figure 3 is only achieved through the local branch incurring debt for the project; this debt must be repaid through user fees, thus making the local branch accountable to its customer for the quality of service it provides. In other words, the user fees have the dual function of ensuring the sustainability of a project by providing O&M funding and improving the accountability of the local branch.

Higher user fees yield two advantages for local branches of state utilities: improved operation and maintenance of their systems, and decreased dependence on construction funding from the state and federal governments. Higher water and sewer fees also provide the steady flow of funds needed to repay loans. To collect the higher user fees, local branches of state utilities have to commit to providing better service and operating more efficiently.

Implementing the higher fees, however, is difficult without public support. BECC has promoted the use of public meetings on user fee increases to facilitate public input and acceptance. Meetings clairfy the reasons for the increases and allow local branches to provide assurances that the additional money collected will go to improving local water and sewer service. This public acceptance is esstania because if the users do not pay the higher fees the arrangment shown in Figure 3. falls apart, and the local branch will default.

Local branches need to strengthen an array of their activities ranging from their user registry maintenance, metering, to water loss deterrance. Programs to decrease water loss tie directly to finances, since cutting water loss means more water available for sale and use. Inefficiencies in fee billing and collection deter potential private partners and lenders from investing in projects because they have difficult gaurantteeing a return on their investment. Insitutional development assistance can help utilities improve their operations.

Mexican state governors change every six years because they are ineligible for immediate reelection. Under an informal rule of Mexican politics, state utility management changes when governors change; this management shift yields some notable informal rules related to projects. First, managers of state utilities generally try to initiate and complete projects prior to the next election. The outgoing politicians and utility managers want to complete, or at least finalize, projects within their six-year terms of office because this improves their future political possibilities and the reelection prospects of their political parties. Under the circumstances, symbols of accomplishment such as plaques and ribbon-cutting ceremonies have significant value. Another outcome of the six-year election cycle relates to ongoing projects. New managers of state utilities usually change projects in the pipeline to reflect the political interest of their administrations and to make their mark. Interestingly, it is not only the management of the state utility and the local branches that change following elections. Staff can also be replaced, where staff includes secretaries as well as engineers and technicians (Interview with consultant to BECC).

The cyclic nature of utility management has direct consequences service provision, especially water and sewer projects and planning. Water and wastewater construction projects take years to complete, and thus they can easily extend beyond the six-year term of a single state administration. When administrations change, the new management and personnel are often unfamiliar not only with specific projects but also with water and wastewater generally.

One response to the problems created by changes in political administrations is to isolate water and sewer planning from politics by having independent utilities managed by professionals, instead of political appointees. Also the activities of the utilities should be made more transparent through the publication of balance sheets and utility policies. For example, if the utility publishes its policy on how long the utility should take to repair a malfunctioning sewer line, the public knows what constitutes acceptable service and has a more solid complaint when the local branch does not render this service. Published policies can also be used to improve the accountability of the utility and its local branches. For example, the municipal government or a customers' organization can document instances where the policies are not met and service quality suffers, and then require the utility to pay a fine. The publication of balance sheets assists in the reduction of corrruption through the documentaion of itemized expenses; corruption is a severe problem in the Mexican government although we have not discussed it herein, .

Additionally, the federal government needs to remove the impediments to foreign lending to sub-federal entities, so that utilities and those municipalities which are considering assuming responsibility for water and sewers can develop their own cedit rating for future lending and possibly bonds. Removal of these impediments would alter the attractiveness of private participation in projects. Private operation of systems is one way to overcome the weak local branches that currently exist.

Local branches serving border municipalities should also be given authority and encouraged by the state utility to pursue assistance from utilities in U.S. border cities and from knowledgeable NGOs, as has occured in a few cases that were documented earlier (see Section 3.2).

As we have seen by the dramatic changes that occured with projects developed through BECC and NADBank, debt-financing is fundamental to self-sustaining water and sewer providers, and at least partial debt-financing of projects is feasible even for many poor urban centers. NADBank illustrated that debt-financing that must be paid back from the revenues from user fees is feasilble in Mexican border municipalities. To make the debt-financing afforable for a particular community, grants can be used to reduce interest on loans. Through debt-finaning, a utility and its local branches have a vested interest in the success of a project and the customers' satisfaction. BECC and NADBank only participates in projects along the U.S.-Mexico border. Therefore, Mexico and other countries with similar arrangments of water and sewer services not under local control, for example Brazil (Watson 1995, 9) should provide debt-financing that relies on user fees in combination with grants to make projects afforable.

Programs like BECC and NADBank's to assist local branches with the development of projects and organizational capacity are essential for the developing self-sustainaing utilities, especially in circumstances where a devolution of responsibility for water and sewer services to lower levels of government occurs.

Transparency is key to combatting corruption and creating accountable water and sewer service providers. Policies, like those suggested for the Mexican utilities, can improve customers' control over the quality of service they receive. Moreover, this control and transparency leads to the improved efficiency of the utility through organizational improvements such as limiations on administrative expenses and clear job descriptions for each employees and technical improvments such as water loss control programs and increased metering of customers.

Access to safe, afforable drinking water and sound disposal of sewage are needed for an urban center to function successfully as a healthy living environment for its residents. Morover, efficient and and well-functioning water and sewer systems also limit an urban centers' adverse impact on the physical environment.

The provision of water and sewer services continues to be difficult in Mexican border municipalities not only because of insufficient capital but also because of other impediments associated with the institutional context of water and sewer services and projects. We analized how the institutional context of water and wastewater projects impede water and sewer service by focusing on four aspects of the institutional context—provision of water and sewer service by state utilities, restricted financing options, difficulties in establishing and collecting user fees, and upheavals that accompany changes in state administrations. First, A local branch of a state water and sewer utility is responsible for water and sewer provision because often municipalities are not able to effectively provide these services. Local branches are unaccountable to municipal customers' needs and for the quality of service provided unless they assume a debt for a project that requires debt repayment through user fees. Second, obstacles to project financing caused utilities to depend on federal and state subsidies. Third, the establishment and collection of user fees has been troubled in Mexico, thus fostering the utilities dependence on subsidies and distancing the utility for municipal customers. Fourth, the political nature of the state water and sewer utilities and their branches produces upheavals with each change in state administrations; this upheaval can slow or even stop projects and severly hampers water and sewer planning.

These four impediments analized herein illustrate how the institutional context restricted the response to the water and sewer needs that arose due to the massive economic and population growth of the border. This paper points to some fundamental changes required for water and sewer services to keep pace with the needs of urban centers as they evolve in reponse to the globalization of the world economy.

Figure 1. Map of the U.S.-Mexico Border and the Major Border Cities

Table 1. State Water and Sewer Utilities in Mexican Border States

Figure 3. Water and Sewer Provision with BECC and NADBank

Figure 4. Distribution of Federal Revenue

(Source: Mendoza Berrueto 1996, 177)

National governments need to evaluate the effects of their policies on the migration of people and to develop and enforce programs and policies to assist with the development of infrastructure accordingly. For example, the Mexican federal government policies in order to eradicate this uncontrolled growth; strengthen enforcement of development laws and enforcement of minimum wage; use development p lans that require companies to invest in infrastructre and housing for their employees. Change financial policies, so that industry has to pay the full cost of the infrastructure used.

3. maintenance of kapital funds, this requires that fees not cover O&M but consider the cost of the infrastructure itself; the need for pricing for the reeal cost of the water and to use other types of assistance to help the poor with this cost. #

4. need national policies and maybe even international policies because these are national policies and forces of globalization behind the rapid population growth in these border municipalities #.

8. structure that allow accountability only work if people exercize their rights to hold government officials and employees accountable. The national, state, and muinicipal governments need to create an enviornment in which citizens can express their opinions. This requires an educated citizenry.

10. public meetings like BECC to get support for increases

BANOBRAS Banco Nacional de Obras y Servicios Públicos

BECC Border Environment Cooperation Commission

CESPT Comisión Estatal de Servicios Públicos de Tijuana

COSAE Comisión de Servicios de Agua del Estado (de Baja California)

EPA U.S. Environmental Protection Agency

IBEP Integrated Border Environment Plan

IBWC International Boundary and Water Commission

NADBank North American Development Bank

NAFTA North American Free Trade Agreement

NGO Nongovernmental Organization

PAN Partido de Acción Nacional