Depopulation is a major drawback for local government when it comes to managing technical infrastructure. In water and wastewater systems management, overcapacity is not only a problem in economic terms. In addition, it brings with it serious technical problems and can also cause health problems for residents. In the context of Sweden, previous studies have recognised that shrinking municipalities fail to plan for or to maintain their fixed assets adequately, despite clear goals and guidelines stating that each generation should pay its legitimate share of what municipal operations cost. Despite these clear policy goals, many shrinking municipalities in Sweden have not prioritised the maintenance of fixed assets in water and wastewater. We know that these problems exist, but we know little about what lies behind them. This paper seeks to address this knowledge gap. By drawing upon theories of failure in public policy and administration and a case study of the municipality of Laxå, this paper seeks to arrive at a deeper understanding of policy failures in water systems management in shrinking municipalities in Sweden. The paper discusses three interrelated research questions: (a) What kind of failure are we dealing with here; (b) What organizational behaviours preceded the policy failure itself; and (c) What are the conditions that precipitated the observed failure(s)?