ABSTRACT
This chapter presents financial concepts from the perspective of a government official whose responsibility it is to manage or administer a program to provide funds for municipal utility services. It presents the methodology of creating such tariffs. The chapter also presents a discussion of how such tariffs can be regulated by local governments to assure users of the basic fairness of the tariff design. It discusses the following four topics which are the major factors in formulating policy for subsidies for water and wastewater services: the need for subsidies, delivering the subsidy, targeting mechanisms, and affordability measures. The conceptual basis for any subsidy is that the goods or services subsidized would be otherwise unaffordable to consumers. Subsidies are often set and left in place for years, regardless of the intervening growth in income of those using the service. This is especially so in countries approaching market economies.
