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In an era when subsidized water development is not available to municipalities, development costs are fully borne by the rate-paying clientele. Proposed water projects therefore impact consumers both through increased rates and increased water supply. Economic evaluation requires attention to the interdependent effects of both changes. Under these circumstances it is inappropriate to calculate the benefits of a project due to the enhancement of supply and then obtain net benefits by deducting project costs. A framework for the proper analysis of locally financed water development is proposed and then employed to evaluate the highly controversial Applewhite Reservoir in San Antonio, Tex. The study indicates that cost recovery will take substantially longer than proposed, net present value is negative under baseline conditions, and the project was initiated prematurely from the perspective of the welfare of local water consumers.
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