Communal Systems and Municipal Services Corporations

Decentralized wastewater management systems are permanent sustainable systems that treat wastewater at or near the source where it is generated. They operate independently of centralized/municipal wastewater collection and treatment infrastructure.  Public or private decentralized systems use a variety of approaches for collection, treatment, and dispersal/reuse of wastewater for individual dwellings, industrial or institutional/commercial facilities, clusters of homes or businesses, and small communities where it is not technically or economically feasible to extend centralized/municipal wastewater services.  They provide a range of treatment options from simple, passive treatment with soil dispersal (commonly known as septic or onsite sewage systems), to more complex and mechanized approaches such as advanced treatment units.  Treated effluent may be discharged either to surface water or subsurface by infiltration. Decentralized systems come in two varieties:

1. Onsite systems are standalone systems serving a single building, generally on the same property, where wastewater treatment and disposal is provided
2. Communal or shared systems, where some portion of the wastewater management system is connected to more than one lot.” – OOWA

Image collected from the Frontenac Municipal Services Corporation (FMSC)

Why communal or decentralized water and wastewater treatment? 

Decentralized wastewater treatment can be a smart alternative for communities considering new systems or modifying, replacing, or expanding existing wastewater treatment systems. For many communities, decentralized treatment can be:

• Cost-effective and economical
• Avoiding large capital costs
• Reducing operation and maintenance costs       
• Green and sustainable              
• Benefiting water quality and availability
• Using energy and land wisely, including the unlocking of land otherwise not usable
• Responding to growth while preserving green space
• Safe in protecting the environment, public health, and water quality
• Reducing conventional pollutants, nutrients, and emerging contaminants 
• Mitigating contamination and health risks associated with wastewater

Why should I adopt decentralized methods?

This method is a sustainable alternative to manage water and wastewater both as a resource as well as a pollutant. The domestic sewage generated can be recycled and reused at local level which significantly reduces the burden on the centralized treatment plant and also help in managing and reducing demand of fresh water.

Decentralized water and wastewater systems are not new. These technologies have been in use around the world for over 30+ years. This includes extensive use in the US and Canada.

It is important to know that there are many different technologies when it come to decentralized systems. The adoption of technology is specific to the demands of the area in which it is being implement and the need of those using the system.

What specifically are the benefits of decentralized servicing to residents?

Residents on decentralized servicing can be confident in their water and wastewater treatment systems. Residents will also have a wider choice of housing options, including housing types and locations. And citizens will also have confidence in good stewardship in the use of water resources in their area.

What happens when communal systems fail?

What is the Province of Ontario’s Policy with respect to decentralized services?

The Province of Ontario (Provincial Policy Statement S.1.6.6.1 (https://files.ontario.ca/mmah-provincial-policy-statement-2020-accessible-final-en-2020-02-14.pdf) requires either full municipal services or decentralized services as the preferred servicing option. The Policy Statements are mandatory for all municipalities in Ontario.

How is public safety factored into decentralized systems?

Public safety is a critical consideration in the management and operation of decentralized water and wastewater systems. Decentralized systems refer to smaller-scale facilities that serve local communities or neighborhoods, as opposed to centralized systems that serve large urban areas from a single location.

• Water quality monitoring: regular monitoring of water quality is essential to ensure that decentralized systems meet regulatory standards and are safe for consumption and use. Parameters such as pH levels, turbidity, disinfectant residuals, and microbial contaminants are monitored to prevent waterborne diseases and ensure public health.
• Treatment processes: decentralized systems often employ various treatment processes tailored to local needs and conditions. These may include filtration, disinfection (e.g., chlorination, UV treatment), and sometimes advanced technologies like membrane filtration or reverse osmosis. Proper operation and maintenance of treatment facilities are crucial to maintaining water quality and safety.
• Emergency response planning: decentralized systems must have comprehensive emergency response plans in place to address potential hazards such as equipment failures, chemical spills, or natural disasters. Clear protocols for notifying residents, coordinating with local authorities, and providing alternative water sources during emergencies are essential for public safety.
• Regulatory compliance: decentralized systems are subject to local, state, and federal regulations governing water quality and safety. Compliance with these regulations ensures that systems operate within safe parameters and that necessary actions are taken promptly to address any violations or risks.
• Infrastructure maintenance: regular maintenance of infrastructure components such as pipes, pumps, valves, and storage tanks is essential to prevent leaks, contamination, or system failures that could compromise public safety. Scheduled inspections and proactive repairs help identify and address potential issues before they escalate.
• Community engagement: engaging with local communities and stakeholders is key to building trust and ensuring that public safety concerns are addressed. Community feedback can also provide valuable insights into local conditions and concerns that may impact system operation and maintenance.
• Health and safety training and certifications: operators and staff responsible for operating decentralized systems should receive appropriate training on system operation, maintenance, safety protocols, and emergency response procedures. Well-trained personnel are critical to ensuring that systems operate safely and efficiently.

The cost of extending or installing traditional or centralized water and wastewater infrastructure is not feasible for many municipalities. Small and rural communities do not have the tax base or the growth rate of an urban area to support this. These municipal systems are designed for over-capacity to accommodate growing populations, where decentralized systems are modular and can be expanded as needed and are likely better suited for the slower rate of growth in rural communities.

Does it cost more than a centralized wastewater collection and treatment system? 

There is no simple answer to this question. However, onsite or decentralized wastewater systems tend to be used where development densities are lower, that is, where there is more land space which is available for land-based wastewater treatment systems and where centralized services cannot be extended. As development density levels decrease, onsite (decentralized) wastewater systems tend to become more cost-effective than a centralized system. This cost effectiveness over a centralized system is due to the fact that with fewer customers connected to a centralized system, per length of pipe, there would need to be higher user charges and capital recovery fees to pay for the system.

What is the cost associated with decentralized systems?

Costs associated with the buying, installation and operation of decentralized systems vary from manufacturer, operators, technology being deployed, size of the system required and to buy a decentralized system pricing can range from $250,000 to $2 million.

For further information within the Province of Ontario:

• Ontario Onsite Wastewater Association (OOWA) https://www.oowa.org/about/
• Ontario Water Works Association (OWWA) https://owwa.ca/ 

What is a municipal services corporation (MSC)?

A municipal services corporation is a corporation whose shares are owned by one or more municipality, or a municipality and one or more other public-sector entity. These corporations are connected to the municipality but are at arms-length as they have autonomy over their operations. A municipal corporation is overseen by a board of directors, with regular reporting to the municipality.

Section O. Reg. 599/06: MUNICIPAL SERVICES CORPORATIONS under Municipal Act, 2001, S.O. 2001, c. 25 allows municipalities and townships to create a Municipal Services Corporation. 

Who governs a municipal services corporation?

MSCs are governed by a board of directors, with representatives appointed by the municipality.

A municipal services corporation (MSC) is typically governed by a board of directors or trustees appointed by the municipal government or elected by shareholders, depending on its structure and legal framework. Unlike the boards of municipalities, MSC boards can be entirely made up of subject matter experts.

• Board of directors/trustees: the board of directors or trustees is responsible for overseeing the operations and strategic direction of the MSC. Members of the board may include appointed officials from the municipal government, representatives from local businesses or community organizations, and sometimes independent experts with relevant experience.
• Appointment or election: in many cases, the municipal government appoints the initial members of the board of directors or trustees. These appointments are typically made based on qualifications, expertise, and their ability to represent the interests of the community.
• Roles and responsibilities: the board of directors or trustees has fiduciary duties to act in the best interests of the MSC and its stakeholders, including the municipality and its residents. Responsibilities include setting policies, approving budgets, hiring executive leadership, and ensuring compliance with legal and regulatory requirements.
• Accountability: the board of directors or trustees is accountable to various stakeholders, including the municipal government, shareholders (if applicable), and the community at large. Regular reporting on financial performance, operational efficiency, and strategic initiatives helps ensure transparency and accountability.
• Legal framework: the governance structure of an MSC is guided by state or provincial laws, municipal charters, and the corporation’s bylaws. These documents outline the powers and responsibilities of the board, as well as procedures for board meetings, decision-making, and conflict resolution.
• Public oversight: depending on local regulations and community expectations, there may be mechanisms for public participation in the governance of an MSC. This can include public meetings, opportunities for public input on key decisions, and transparency in board operations.
• Professional management: while the board sets policies and strategic direction, day-to-day operations are typically managed by professional staff and executives hired by the MSC. The board provides oversight to ensure that management implements policies effectively and operates in accordance with the board’s directives.

What control will municipal councils have over an MSC and their decisions? 

Depending on how the MSC is setup, municipalities and townships can retain complete and full ownership of the corporation. When it comes to MSCs governing of water and wastewater infrastructure the municipality and/or township is the sole owner of the MSC, private shares are not possible.

What is the required process for creating a MSC? 

Ontario Regulation 599/06 requires municipalities to complete the following steps before creating an MSC: 

“Duties of A Municipality

Business case study[MS1] [2] [KM3] 

6. A municipality shall adopt a business case study before it uses the powers referred to in section 3, 4 or 5 to,

(a) establish a corporation either alone or with one or more other public sector entities;

(b) purchase securities in a corporation established by one or more public sector entities other than the municipality;

(c) become a member of a corporation established by one or more public sector entities other than the municipality; or

(d) submit, with respect to a corporation for which a study was undertaken under clause (a), (b) or (c), or cause a corporation for which a study was undertaken under clause (a), (b) or (c) to submit, articles of amendment or any other articles or supplementary letters patent.  O. Reg. 599/06, s. 6.

Asset transfer policies

7. (1) A municipality shall adopt and maintain policies on asset transfers to corporations.  O. Reg. 599/06, s. 7 (1).

(2) A municipality shall not transfer any of its assets to a corporation before the municipality adopts the policies referred to in subsection (1).  O. Reg. 599/06, s. 7 (2).

Public participation

8. Before establishing a corporation under section 3, a municipality shall consult with the public about the proposal to establish the corporation.  O. Reg. 599/06, s. 8.”

Are taxpayer’s dollars used by municipal services corporations?

Yes, taxpayer dollars can be used by municipal services corporations, depending on how these corporations are structured and funded. Municipal services corporations (MSCs) are typically entities created by local governments to provide specific services such as water supply, waste management, or public transportation. 

Funding for MSCs can come from various sources, including:

• Tax revenue: many MSCs are funded through taxes collected by the local government. This could include property taxes, sales taxes, or specific taxes earmarked for the services provided by the corporation.
• User fees: MSCs often charge fees for their services, such as water bills, waste collection fees, or public transportation fares. These fees can supplement tax revenues to fund the operations of the corporation.
• Grants and loans: sometimes, MSCs receive grants or loans from state or federal governments to support specific projects or to improve infrastructure.
• Bonds and debt financing: municipalities may issue bonds to finance large projects undertaken by MSCs, with the expectation that future tax revenues or user fees will be used to repay the debt.
• Private investment: in some cases, private investment or partnerships with private companies may supplement public funding for MSCs, especially in areas like public transportation or utilities.

Are municipal services corporations for every municipality?

Not necessarily. While MSCs provide a vehicle to deliver services separately but still within arms length of a municipality, MSCs are not necessarily the answer for every municipality. A needs assessment and feasibility study should be sought before considering whether an MSC is right for your municipality. A business case is also necessary for incorporation. 

What are the benefits of a municipal services corporation for municipalities?

Municipal services corporations (MSCs) offer several benefits to municipalities, which include: 

• Specialization and focus: MSCs are typically created to focus on delivering specific services like water supply, waste management, or public transportation. This specialization allows them to develop expertise in these areas, potentially leading to more efficient and effective service delivery compared to general municipal departments.
• Operational flexibility: being separate entities from the municipal government, MSCs often have greater flexibility in terms of hiring practices, procurement procedures, and operational decisions. This can streamline processes and allow for quicker adaptation to changing needs or technological advancements.
• Financial management: MSCs can manage their finances independently, which can lead to improved financial accountability and transparency. They can also access funding sources (such as bonds or grants) that may not be available to traditional government departments.
• Improved service quality: by focusing solely on specific services, MSCs can prioritize service quality and customer satisfaction. They may have incentives to innovate and improve service delivery methods, ultimately benefiting residents and businesses within the municipality.
• Reduced burden on municipal budgets: MSCs can generate their own revenue through user fees or charges for services, reducing the strain on the municipal budget. This can free up resources for other municipal priorities such as infrastructure maintenance or community development.
• Risk management: MSCs can manage risks associated with service provision more effectively. They may have insurance or contingency plans in place to handle emergencies or unexpected events without impacting other municipal services.
• Economic development: well-managed MSCs can contribute to economic development by providing reliable and efficient infrastructure services that attract businesses and residents to the area. This can stimulate local economic growth and increase property values. 

What are the risks associated with municipal services corporations?

While municipal services corporations (MSCs) offer several benefits, they also come with certain risks that municipalities need to consider and manage: 

• Financial sustainability: MSCs rely on revenue from user fees, charges, or subsidies from the municipality. Economic downturns or changes in local demographics can affect revenue streams, potentially leading to financial challenges or the need for rate increases that may be unpopular with residents.
• Operational risks: MSCs may face operational challenges such as aging infrastructure, regulatory changes, or the need for costly upgrades to meet environmental standards. Poor management or inadequate planning can result in service disruptions or increased costs.
• Political and governance risks: since MSCs are typically separate entities, there may be challenges in aligning their objectives with those of the municipal government. Differences in priorities, leadership turnover, or political interference can affect decision-making and operational effectiveness.
• Legal and regulatory risks: MSCs must comply with various regulations and standards, including environmental regulations, labor laws, and procurement rules. Non-compliance can lead to fines, lawsuits, or reputational damage.
• Community and stakeholder relations: changes in service delivery or pricing can impact community relations. Stakeholder engagement and transparency in decision-making are crucial to maintaining trust and support from residents and businesses.
• Long-term liabilities: infrastructure projects funded through bonds or loans can create long-term liabilities for the municipality if not managed carefully. Debt servicing costs and the need for future capital investments must be balanced against revenue projections and economic conditions.
• Technological and innovation risks: rapid technological advancements in sectors such as utilities and transportation require MSCs to continually invest in innovation. Failure to adopt new technologies or adapt to changing consumer preferences can lead to competitive disadvantage or service obsolescence.
• Cybersecurity and data privacy: as MSCs increasingly rely on digital infrastructure for operations and customer service, they become targets for cyberattacks. Ensuring robust cybersecurity measures and safeguarding customer data are essential to protect against breaches and maintain public trust.
• Dependency on leadership and talent: MSCs rely on skilled leadership and workforce to manage operations effectively. Recruitment, retention, and succession planning are vital to ensure continuity and expertise within the organization.

I am interested in learning more about MSCs, where can I go to learn more?

Municipally owned corporations vary across Canada’s Provinces and Territories, including their name, policies and legislation.

For further information on MSCs in Ontario:

O. Reg. 599/06: MUNICIPAL SERVICES CORPORATIONS

under Municipal Act, 2001, S.O. 2001, c. 25

https://www.ontario.ca/laws/regulation/060599