Let's forget about our cities and towns for now, let's just look at the people who are not connected to the big sewer pipe and have septic systems. Fundamentally, they don't really work all that well.
Joseph Jenkins writes in the Humanure Handbook:
There are currently 22 million septic system sites in the United States, serving one fourth to one third of the US population. They are leaching contaminants such as bacteria, viruses, nitrates, phosphates, chlorides, and organic compounds such as trichloroethylene into the environment. An EPA study of chemicals in septic tanks found toluene, methylene chloride, benzene, chloroform, and other volatile synthetic organic compounds related to home chemical use, many of them cancer-causing. Between 820 and 1,460 billion gallons of this contaminated water are discharged per year to our shallowest aquifers. In the US, septic tanks are reported as a source of ground water contamination more than any other source. Forty-six states cite septic systems as sources of groundwater pollution; nine of these reported them to be the primary source of groundwater contamination in their state.
Clearly we have to do better than this.