A city which is contiguous to any tract of land upon which is situated a public institution of the state is authorized: (1) to extend the service facilities of any public utility or sewage system thereof beyond the corporate limits of the city to provide service for the public institution, provided the cost of construction of the extension is paid by the state if the state does not itself construct the extension; (2) to operate and maintain such extension and provide the public utility and sewage services upon payment of compensation therefor by the state in such amount as may be agreed upon by the city and the state.
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