BOSTON PUBLIC LIBRARY
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Boston Water and Sewer Commission A Tl^adition of Service
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Message from Chairman lye
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TheBoston Water and Sewer Commission was established nine years ago by the State Legisjature " • " • •*'>>>ikV to assume ownership and responsibility for maintenance and operation of water and sewer ser^esto Boston residents, visitors, businesses and institutions.
At present, the Commission is providing the City of Boston with some of the purest water in the nation and is meeting the challenge of properly utilizing a wastewater disposal system that is over 1 00 years old.
This annual report documents the Commission's impressive record of achievement. We have repaired and upgraded substantial portions of the water and sewer infrastructure, installed a modern metering system, improved stability of financial operations, and begun the long battle to end pollu- tion of Boston Harbor,
The Commission has also made significant improvements in its pricing system. With increased metering, more parties are held responsible for their water use. The institution of an inclining block rate has encouraged water consen/ation among both domestic and industrial users.
An important result of these efforts has been a growing respect for the Commission in both envi- ronmental and financial communities. Recently, the Massachusetts Audubon Society honored the Commission for outstanding achievement in environmental consen/ation. Additionally the Commis- sion's bond rating, a substantial indication of financial stability, has been upgraded by the nation's two leading rating agencies.
My fellow Commissioners join me in thanking the highly competent and professional staff who have worked so hard to help make the Commission one of the best providers of water and sewer ser- vices in the country.
As we continue with our mission, I know that Bostonians, and people from all over New England, also share my wish that some day soon we shall witness the rebirth of Boston Harbor as a renewed source of commerce and recreation. While that vision may still be far away, it will guide the Commis- sion today as we plan for tomorrow's clean Harbor.
Sincerely
A. Raymond Tye Chairman
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Message from Chairman lye
The Boston Water and Sewer Commission was established nine years ago by the State Legislature to assume ownership and responsibility for maintenance and operation of water and sewer services to Boston residents, visitors, businesses and institutions.
At present, the Commission is providing the City of Boston with some of the purest water in the nation and is meeting the challenge of properly utilizing a wastewater disposal system that is over 1 00 years old.
This annual report documents the Commission's impressive record of achievement. We have repaired and upgraded substantial portions of the water and sewer infrastructure, installed a modern metering system, improved stability of financial operations, and begun the long battle to end pollu- tion of Boston Harbor
The Commission has also made significant improvements in its pricing system. With increased metering, more parties are held responsible for their water use. The institution of an inclining block rate has encouraged water conservation among both domestic and industrial users.
An important result of these efforts has been a growing respect for the Commission in both envi- ronmental and financial communities. Recently the Massachusetts Audubon Society honored the Commission for outstanding achievement in environmental conservation. Additionally the Commis- sion's bond rating, a substantial indication of financial stability has been upgraded by the nation's two leading rating agencies.
My fellow Commissioners join me in thanking the highly competent and professional staff who have worked so hard to help make the Commission one of the best providers of water and sewer ser- vices in the country.
As we continue with our mission, I know that Bostonians, and people from all over New England, also share my wish that some day soon we shall witness the rebirth of Boston Harbor as a renewed source of commerce and recreation. While that vision may still be far away it will guide the Commis- sion today as we plan for tomorrow's clean Harbor
Sincerely
A. Raymond Tye Chairman
To solve the problem of digging a sewer in ttie congested Cause- way Street area in 1884, engineers devised a unique system. They devel- oped tressels to carry buckets of gravel and dirt out of the hole so workers could place pipes in the ground. Then, traveling over- head, the buckets would return with the gravel and dirt for fill — a most effi- cient operation to keep the horse and carriage traffic moving.
Looking Back
Because of an abundant water supply, early travelers to America chose Boston as a primary settlement site. Landing at Charlestown in June of 1 630, English travelers confirmed reports of an excellent spring at what is now Dock Square. The Indian name for the region held promise— Shawmut, the place of living springs.
The town's first reservoir was constructed to hold a central supply from these local springs and wells. But, as Boston began its inexorable
growth, springs and wells ran dry, watersheds were supplanted, and the need for new sup- plies became acute.
A dramatic and innovative solution was first offered by private interests who founded the Boston Aqueduct Corporation to transport water from Jamaica Pond to the City of Boston— a distance of over 1 5 miles. For over fifty years the Corporation supplied some 1600 households and numerous other buildings and businesses, storing 3.2 million gallons of water for customer use. Soon, that was not enough.
As continued expansion transformed Bos- ton from a town into a city, officials adopted an even more progressive plan to bring water 18 miles from Long Pond, now called Lake Cochi- tuate, toa reservoir on Beacon Hill. Fed by this fresh supply Boston's waterworks continued to spread across the City meeting the needs of an ever-increasing population.
The first sewers, constructed before 1 700, were designed primarilyto deal with storm run-
off. Following the common practice of the time, residents were disposing of waste by burying it, or dumping it in nearby rivers and streams. Until Boston was granted its city charter, sewer ser- vice continued to be supplied by independent private interests.
The first half of the nineteenth century wit- nessed two significant milestones in Boston's water and sewer services— the City's decision to allow the disposal of waste in the drainage sys- tem, and the advent of the flush toilet. As a result, by the 1870s, Boston was faced with a major health hazard.
When the Board of Health requested a solution, a three-member panel of civil engi- neers designed a unique plan. They proposed construction of two main drainage systems north and south of the Charles Riverto tie togetherthe City's 32 independent sewer dis- tricts, and allow the sewage to be pumped fur- ther out into the Harbor Although this plan was simplistic by today's standards, it established a precedent in the City of Boston for planning
water and sewer services to meet future needs and demands.
In 1 884, the southern system was com- pleted, followed by the northern system in 1890. By that time, state lawmakers had consol- idated the provision of eastern Massachusetts sewer services.
Demand on the City's sewer system con- tinued to increase as the annexation of Charlestown, Dorchester and Roxbury, and a continuous flow of immigrants, boosted Boston's population to over 500,000 at the turn of the century. In addition, raw sewage from dozens of area cities and towns was being dumped into Boston Harbor off Moon, Nut, and Deer Islands.
In an attempt to strengthen services, east- ern Massachusetts water and sewer operations were merged by the State Legislature in 1919 into a single organization— the Metropolitan District Commission. When the addition of new water sources such as the Sudbury River and the Mystic Lake still failed to meet the need of the
metropolitan area, MDC engineers envisioned an expanding supply beginning with the con- truction of the Wachusett Reservoir in central Massachusetts and culminating further west with the massive Quabbin Reservoir
Completed in 1939, the Quabbin's capacity of 412 billion gallons made it the largest man- made water supply in the world. Through an intricate series of smaller reservoirs, pumping stations and deep rock tunnels, Boston resi- dents and visitors could enjoy an ample supply of clean water transported 65 miles to the city The Quabbin Reservoir was and remains today an impressive engineering feat; its existence, a tribute to the remarkable vision and foresight of its planners.
However, by the 1970s, Boston had grown so rapidly that City officials were faced with the need for a more consolidated approach to the management of water and sewer services. The MDC sewage treatment facilities on Nut and Deer Islands were at capacity and water and sewer rates were insufficient to maintain the system properly
The Calf Pasture Pumping Station in Dorchester went on line on January I, 1884. Powered by a giant steam engine, its massive fly wheels were over 30 feet tall. Today the station is powered by electric- ity and is still func- tioning as a pumping station for Boston's sewer system. Its graceful stone facade and elegant architec- tural style is admired by historians throughout New England.
From Lto R: Calf Pasture Pumping Station, Dorchester; Stony Brook Channels near Fenway; Construction Site at Turn of the Century
Dating back to 1890,
this Commission map
is one of a senes of
original calligraphied
maps completed during the 1800s to represent Boston's sewer system. On occasion, these historical documents have assisted current
Commission engineers in solving
serious drainage problems in the more
than 100 year old system. The compari- son of older maps w/ith their modern counterparts can often show the various changes in the topography of Boston.
The Boston Water and Sewer Commission
It was evident during tine mid 1 970s that a total restructuring of the water and sewer sys- tem would be necessary to ensure badly needed repairs to the more than 1 00 year old system and to provide an increase in funding levels for maintenance and new construction.
Responding to this need for decisive action, officials designed an innovative strategy. They proposed the creation of an independent agency with the authority to set rates at ade- quate levels, and the fiscal autonomy to develop a rangeof financing techniques.
Passing a Home Rule Petition, the City Council and the Mayor sent legislation to the State House which resulted in the creation of the Boston Water and Sewer Commission.
Under the bill's provisions, a three-member commission would oversee operation of a newly formed organization to take possession of the City's water and sewer systems, retain all current personnel, hire additional staff as needed, and run the system in a manner similar to a private corporation.
The Boston Water and Sewer Commission would be required to set water and sewer rates at sufficient levels to meet all costs for operation and maintenance. It would also have the fiscal power to raise money for capital improvements through the sale of revenue bonds. Addition- ally, experienced management personnel would provide the professional support neces- sary for the effective operation of a multi- million dollar agency.
Citing the need "to avoid the . . . deteriora- tion of the financial . . . and physical condition" of Boston's water and sewer system, the need to "protect natural resources" and "insure the availability of . . . services at fair but sufficient rates," the State Legislature granted authority to the Boston Water and Sewer Commission on July 18, 1977.
In January of 1978, the Commission pur- chased the City's water and sewer system along with all of its equipment for $24 million, and assumed responsibility for maintenance, repair and upgrading of the aging infrastructure.
In its eight years of operation, the Commis- sion's tangible accomplishments and profes-
sional standards have made it a national model for the provision of high quality municipal water and sewer services. Its emphasis on planning, controlling costs, and providing quality service to customers will ensure this continued level of excellence in the future.
MASSACHUSETTS WATER RESOURCES AUTHORITY
Until 1985, the Metropolitan District Commission (MDC) provided water and sewer services to the cities and towns of Eastern Massachusetts. Mirroring the concerns which
created the Boston Water and Sewer Com- mission, state lawmakers established the Massachusetts Water Resources Authority (MWRA) to succeed the MDC.
The MWRA is an independent agency serv- ing 60 communities in the metropolitan Boston area. Its dual mission is to repair and upgrade the former MDC water and sewer systems and to oversee the clean-up of Boston Harbor.
The MWRA provides water and sewer ser- vices to each city or town within its system, but each community is responsible for the mainte- nance of those services within town lines. The Authority also operates and manages the sewage disposal facilities on Nut Island and Deer Island in Boston Harbor.
The Boston Water and Sewer Commission is the Authority's largest customer, providing a third of total sewage revenue and almost half of total water revenue. The two agencies work together closely on such issues as water conser- vation, industrial waste control, and harbor clean-up.
A major reason for creation of the MWRA was the need for massive financial resources to modernize water and sewer services and to manage the clean-up of Boston Harbor. Because the MDC was within the state budget system, it was restricted by Proposition V/2 and legislative oversight. As an independent author- ity MWRA has the flexibility to set rates and issue revenue bonds to raise the dollars its mis- sion requires.
As such, the Authority has instituted sub- stantial rate increases to cover all costs of opera- tion. Rates will continue to increase as the Harbor clean-up program gets fully underway.
The Authority has made an encouraging start on Harbor clean-up with the siting of a $1 .4 billion secondary sewage treatment facility on Deer Island. While the Commission recog- nizes the need for this investment, it also appre- ciates the impact of subsequent rate increases and will monitor Authority rate methodology while working with MWRA to achieve its worthy goals.
Dating back to the
1 700s, these wooden
pipes were removed
during construction
oftheFaneuilHall
Marl<etplace in the
1970s. Made of a
hard wood, usually
oak, wooden pipes
were the basis for the
water and some of
the sewer system in
Boston. The pipes
were gravity fed from
water sources at relatively low eleva- tions and as a result
were not able to develop much pres- sure in the system - Although not in use
today miles of wooden pipes are still in the ground and remain intact and free from wood rot as long as they are kept wet.
The brick work in the
sewers of Boston is
some of the most
interesting in the City.
Fired hard and set using a mortar with a low lime content, this brick resists deterio- ration from sewer gasses. Boston's orig- inal sewers in the early to mid 1 700s were wood, followed by stone and slate — then brick by the turn
of the century.
Masons still use brick
to repair and adjust
manhole and catch
basin covers to
street grades.
A Record of Achievement
BUILDING A MODERN SEWER SYSTEM
The Commission's sewer system, which col- lects the City's waste water and storm drainage, connects ninety thousand service pipes extend- ing over a length of 1 300 miles. Numerous related facilities— pumping stations, gate houses, regulators, and tidegates— complete the system.
the Boston Main Drainage System has served the City for more than 1 00 years and continues today as the system's central ele- ment. However, since its installation, the popu- lation it serves has grown to over 571 ,000. Added to this increased burden are over yi mil- lion commuters, shoppers and tourists visiting the City each day.
REPLACING THE BOSTON MAIN INTERCEPTOR
One of the major challenges facing the Commission was the need to expand the sewer system's capacity to keep up with growing demand and to counter serious deterioration affecting parts of the original system.
In 1981, an ambitious plan was initiated to build two new large interceptors to replace
sections of the old system . Construction of the new Boston Main Interceptor and East Side Interceptor is ahead of schedule and tar- getted for completion by 1 990.
PLANNING FOR WASTE WATER FACILITIES
A year after construction began on new interceptor pipes, the Commission launched a comprehensive study of the entire wastewater system.
Completed in 1 985 the study included eval- uation of all large sewers, and those smaller sewers where problems were reported. It pro- duced an up-to-date set of maps, an inventory of all sewers and storm drains, evaluation of the condition and capacity of interceptors and major sewers, and predictions of future demands on the system .
The sewer system, although more than a century old in many parts, was found to be in generally good condition. Suggestions for improvements ranged from cleaning of existing pipes, replacement or rerouting of others, to the institution of a maintenance program to clean and monitor major sewers on a routine basis.
Sewerage Service Area
■ BWSC sewerage system
CLEANING UP BOSTON HARBOR
The Boston Water and Sewer Commission is joining the Environmental Protection Agency, the Department of Environmental Quality Engi- neering, and the Massachusetts Water Resources Authority in an aggressive program to end the pollution of Boston Harbor.
Chief among the Commission's efforts to end this environmental crisis is the installation of new sewer interceptors. With the addition of these pipes, sewage will no longer back up into Harborwatersduring periods of peak demand. The elimination of dry weather sewage over- flows will help keep area beaches free of debris and eliminate sources of coastal pollution.
Approximately one third of Boston's sew- age system is constructed to combine collection of wastewater and storm drainage. This design, championed in the 1800s, did not considerthe effect of rapidly increasing demand. As rain water and wastewater enter the system at the same time, sewage can overflow at 58 locations throughout the city These combined sewer overflow (CSO) points are a source of Harbor pollution.
One remedy is the separation of combined sewers to increase capacity Separation projects
are now underway in the South End, Dorches- ter, Hyde Park, Jamaica Plain, Allston, Charles- town and South Boston.
A second solution is treatment of the over- flow before it enters the Harbor Facilities for such treatment have been constructed at CSO sites at Cottage Farm and at Boston Sand and Gravel. Initiated by the M DC, these projects are now managed by the MWRA. A third facility has recently been completed at Constitution Beach in East Boston, and additional facilities are in the design stage at Fox Point and Com- mercial Point in Dorchester.
A third approach to CSOs is storage of the overflow until the system regains the capacity required for proper treatment.
As part of the recent comprehensive exami- nation of the sewer system, areas of excessive infiltration and inflow were identified for reme- dial action. To help prevent illegal discharges, the Commission conducts monthly inspections of storm drains, and performs dye tests on homes and businesses to detect illegal connections.
Although the City of Boston is not solely responsible for Harbor pollution, the Commis- sion will continue to seek cost-effective and responsible strategies to help improve the envi- ronmental quality of Boston Harbor.
Some manhole cov- ers are over 100 years
old. Made of cast
iron, covers like these
are still seen on the
streets of Boston.
Their sizes and
shapes document the
history of the
changes in the
Boston Water and
Sewer systems. The
older covers have
large knobs and
letters which were
designed to keep
horses with heavy
loads from slipping
on wet streets.
Before the 1940's
foundries competed
to design the most
attractive and
distinctive covers.
Unfortunately those
variations of designs
were eliminated after
the '40s when it
became more cost
effective to make the
covers uniform.
The Lowry pre-dates the postfire hydrant. It was used in areas of
the City like Down- town and the North
End where there were no sidewalks or
room for standing hydrants. Strapped
on fire trucks, the
Lowrys would be attached to under- ground connections at the scene of a fire. They were also used
at the end of dead end streets to blow
out stagnant and rusty water Today it
is possible to see a
Lowry carried on a
pumper truck
because some are still
needed for service
in certain Boston
neighborhoods.
BRINGING CLEAN WATER TO BOSTON
Currently the Commission buys 120 million gallons of water a day for the City of Boston. This water, among the purest in the nation, is purchased in bulk from the MWRA by the Commission at 29 metered connections and is distributed through the system's 1 080 miles of pipe to over 87,000 homes, apartments, businesses and institutions.
When the Commission took possession of Boston's aging water system in 1 978, somehow, half of the water provided to the system, some 74 million gallons each day, could not be accounted for. Although some loss is common for any water system, this rate was unusually high.
The sources of the problem lay in two areas; first, pipe deterioration within the aging system; and secondly, a lack of properly func- tioning meters to measure water usage.
However, by 1985, unaccounted for water in the City of Boston had been reduced by almost thirty-five percent. The results of the Boston Water and Sewer Commission's Leak Detection and Metering Program were profound.
LEAK DETECTION AND REPAIR
Leaks are inevitable along a thousand miles of pipe, much of which has been underground for over a century. Causes include pipe deterio- ration, soil condition around pipes causing shifting or corrosion, frost upheavals, vibration from heavy traffic, and "water hammer"— rapidly changing flow direction and pressure caused by opening and closing valves and hydrants.
To combat water loss, the Commission plans the rehabilitation of eleven miles of pipe each year with the goal of replacing or relining all water mains, 100 or more years old, by the turn of the century. During the last three years, thirty-five miles of pipe have been repaired, keeping this program ahead of schedule.
To reduce cost and minimize disruption of traffic flow and residential service, pipe rehabili- tation is scheduled to coincide as much as possi- ble with other municipal and state public works projects.
The Commission's Leak Detection Program is one of the most successful in the country and is considered a model for other cities.
Water Sen/ice Area
•Major water main
MODERN METERS
The second phase of the Commission's efforts to reduce water loss is the repair of exist- ing meters when appropriate or the installation of modern meters where necessary.
Of the 87,000 water accounts serviced by the Commission, some 75,000 are residential customers. The residential metering program, since its inception in 1978, has resulted in the installation of 40,000 new meters with remote reading capability Plans call for additional installations at a rate of 5000 a year. After new meters are installed, they will be replaced on a 1 5-year cycle, as they tend to be less accurate overtime.
System-wide distribution of accurate meters fairly allocates costs and reduces esti- mated bills. The Commission is also rerouting meter-reading sequences to increase pro- ductivity of meter-reading personnel. Options for use of advanced technology to further auto- mate and centralize the process are under consideration.
Prior to creation of the Commission, use of water by the City was not metered . Meters have now been installed in many City departments, including Fire, Libraries, Police, Public Works,
Schools, and Traffic and Parl<ing, making the City the system's second largest consumer Metering efforts are now focusing on the Health and Hospitals Department.
The Commission's Metering Program has significantly reduced unaccounted for water and stimulated water conservation measures by system users.
FIREFIGHTING
As part of its water distribution system, the Commission maintains over twenty-two miles of high pressure fire pipes and over 1 3,000 hydrants.
The City is fortunate to be served by a water system which provides both elements critical to successful firefighting— adequate volume and sufficient pressure.
The Quabbin Reservoir is situated 530 feet above the base level of Boston. The force of gravity propels water through aqueducts and tunnels to Boston where this natural pressure is utilized for firefighting, eliminating the need for expensive pumping, except in the case of sky- scrapers, which are serviced by high pressure pipes. Volume is provided by the over 470 billion gallon joint capacity of the Quabbin and Wachusett Reservoirs.
To build Boston's brick pipes, engi- neers had to design gigantic wooden structures to aid in their construction. In the conduit near the Fenway, bricks for the bottom half of a pipe were laid and then a collapsible wooden frame was placed over them. Bricks were then placed over the structure to form the top half of the pipe. When the top section was com- pletely dry, the struc- ture was collapsed and moved down to the next section to begin again. This construction process was arduous and sometimes danger- ous for the workers involved.
In 1 795 when wells proved unable to supply the town of Boston with water, the Boston Aqueduct Corporation devel- oped an innovative solution to the problem. They transported water a distance oil 5 miles from Jamaica Pond to downtown Boston. For over fifty years Jamaica Pond was the primary source of clean water to Bos- ton. Today the pond is used solely for rec- reational boating and fishing while Boston
receives its water from the giant Quab- bin and Wachusett reservoir system in the western part of the state.
Community Affairs
Public interest in water and sewer issues has increased profoundly over the last few years. Part of this interest results from higher rates and the disruption of some neighborhood thoroughfares for maintenance and improve- ment. In addition, the critical issues of water conservation and pollution control have required the Commission to make every effort to increase public understanding of theiropera- tionsand goals.
The Commission's Community Affairs Department has excelled at highly effective, cost-efficient methods of educating and informing its customers. Attractively designed and clearly written notices mailed with quar- terly bills, advertisements in neighborhood newspapers and regular appearances on news and talk shows all contribute to a high level of public understanding of Commission activities.
More effective than any other method of outreach, however, the Department's commit- ment to go out to the neighborhoods and meet with residents has produced unified acceptance of the need to upgrade water and sewer ser- vices and clean up the Harbor
Recent public information efforts have tackled issues such as the institution of an
inclining block rating system and future increases in rates. By installing safety caps and locks on hydrants, the department has also moved to reduce the incidences of unauthor- ized opening of fire hydrants during summer months, a practice which lowers water pressure and endangers lives.
In the area of water conservation, the department joins with the MWRA to distribute and display educational material offering con- sumers simple and practical ways to reduce their use of water
The Commission recognizes that along with properfinancing and sound planning, an essential prerequisite for the successful imple- mentation of modern water and sewer services will be an informed public.
During the coming years, as Harbor clean- up impacts neighborhoods and forces contin- ued rate increases, the Community Affairs Department will be challenged as never before.
Professional Management
As an independent agency with a single focus, the Commission has been able to improve dramatically top management.
A three-member Board of Commissioners, appointed to four year terms by the Mayor sub- ject to confirmation by the City Council, has responsibility for the formation of basic policy. Members meet on a regular basis for consider- ation of Commission business.
The Commission Chairman is A. Raymond Tye, serving his second term after being reap- pointed in 1984. Chairman Tye is Chairman of the Board of United Liquors, Ltd., a wholesale beverage distribution firm. Active in civic affairs, he is a Trustee of Beth Israel Hospital, an Honor- ary Trustee of the Combined Jewish Philanthro- pies and a member of the Board of the Greater Boston Convention and Tourist Bureau.
Commission member Lisa Chapnick, appointed to the Board in 1 985, is Director of the Public Facilities Department of the City of Boston. Commissioner Chapnick is a member of the Mayor's Development Cabinet and serves as the City's liaison to the Commonwealth on housing and development issues. Her wide range of public sector experience includes ser- vice as Commissioner of the City's Traffic and Parking Department, and as a member on the MBTAAdvisory Board, the Boston Public Schools Task Force, and the Allston Civic Association.
Commission member Mary Nee, Director of the Mayor's Office of Capital Planning, was appointed in 1986. Experienced in budget man- agement and long range capital planning, Commissioner Nee provides the financial exper- tise required by statute. She also serves on the Mayor's development and financial commit- tees, and on the Board of the Boston Industrial Financing Authority
The organization is structured underthe Office of the Executive Director, and includes departments managed by the Director of Administration, the Chief Engineer, the General Counsel, the Director of Management Informa- tion Systems, and the Treasurer.
The Commission staff has remained at a stable complement of approximately 500 since 1 980 and includes personnel with professional qualifications in finance, accounting, engineer- ing, construction management and law, as well as the technical skills required to maintain water and sewer services.
The advent of the
flush toilet in the
1820s and the City's
decision to allow
disposal of waste in
the drainage system
caused a major
health hazard. In
response, engineers
developed the unique plan to pump sewage away from the City out to Moon Island. At Columbia Point the sewage was
pumped through channels to the Shaft House where it fell through a 4-foot diameter conduit, a distance of 170 feet, to the 7-foot diame- ter tunnel below, which carried the flow to the holding tanks of Moon Island. The tanks were opened with the outgoing tide and the sewage was washed out to sea.
A. Raymond Tye
CHAIRMAN
Mary Nee
COMMISSIONER
Lisa G. Chapnick
COMMISSIONER
David L. Conlon
TREASURER
Francis W. Gens
EXECUTIVE DIRECTOR
Cliarles Button
CHIEF ENGINEER
Riclnard Luccio
GENERAL COUNSEL
Michael T. Feeney
DIRECTOR OF ADMINISTRATION
Edmund Ackerson
DIRECTOR OF M.I.S.
Water and Sewer Rates
A major impetus for creation of the Com- mission was the need to generate adequate rev- enue to meet the cost of proper operation and maintenance of the City's water and sewer systems.
Priorto 1977, all revenue from water and sewer charges was placed directly in the City's general fund. The Department of Public Works Water and Sewer Divisions were forced to com- pete with other departments for annual fund- ing. Because these divisions never received enough budgetary support and rates were not in line with the actual costs of delivering these services, the system suffered physical deterioration.
Currently, rates must be established at a level sufficient to generate revenues to recover the full cost of operations on a fair and equita- ble basis, with 1 5% water discounts in place for the elderly and fully disabled. If an operating deficit occurs, it must be recovered the follow- ing year, and any surplus must either be applied to the next year's rate level, or returned to the City. The rate making process considers legisla-
Combined Water & Sewer Rates (/1000CU.FT.)
Combined Yearly Rate In Dollars
83 84 85
r^ 48.7 I Yearly Pert
13.4 4.0 — 7.8 3,6 Percentage Increase
7.5 7,0~~]
Revenue Analysis (SOOO's)
PriorSurplus 1.1%
(Deficit)
$772
1985Total Revenue Requirement: $68,644
tive, financial, legal and consumption analyses.
Capital improvements defined as system replacement or repair are included in the cost of operations; improvements or extension of ser- vice are financed through the sale of bonds. The debt service on these bonds, paid out of operating expenses, also affects rate levels.
During the Commission's first year, water and sewer rates were increased by 49%, raising them to adequate levels sufficient to fund oper- ations. However, since the first year, rate increases have tempered to an average of 8% a yearthrough 1985.
The Commission's customer base includes City residents, businesses and institutions. While residents make up 86% of all accounts, they consume only 24% of total services. Twenty large volume customers— the City, State and Federal governments, area hospitals, hotels and universities— account for one-quarter of all charges.
Charges to customers produce more than 80% of the Commission's total revenue. Addi- tional revenue is generated through special
Average Annual Increase; 8.15
service fees and charges, state and federal reinnbursements, and income from investments.
The creation of the MWRA has had a sub- stantial effect on Commission rate levels. As the Authority embarks on a Harbor clean-up pro- gram, MWRA communities are feeling the impact. Today charges for MWRA services have accounted for approximately one-third of the Commission's annual expenses.
Expenditures by the Authority are likely to produce average annual rate increases of approximately 1 5% for the next five years. Whilethe Commission's financial stability will not be threatened because it has prepared for this necessary period of intensive capital invest- ment, Boston Water and Sewer customers will be faced with continued rate increases.
To assure accurate rate levels, the Commis- sion carefully monitors metering at the 29 points where water is delivered by the MWRA,
Combined Capital Improvements to Water & Sewer Property
$96,015,164 $93,753,284
$70,296,763 $65,816,991
$58,882,238
$54,419,330 $51,151,258
$43,542,231 B $37,427,351 I I
I 1 1 1
Combined Water & Sewer Projected CIP Spending Levels
1986 87 88 89
and independently reviews Authority rate- making methodology
INCLINING BLOCK WATER RATES
The MWRA is required by its enabling legis- lation to conduct a review of the environmental, social and economic impacts of its charges for water and sewer sen/ices. The legislation also encourages MWRA service area communities to institute innovative rate-making strategies to promote water conservation.
In response, the Commission had the fore- sight to institute the inclining block rate in 1985. The inclining block rate structure is com- posed of ten steps designed to correspond to customer consumption, ranging from single family household to large industrial users. Its impact on water use is closely monitored to con- tinually assess the value of the program.
At present the MWRA is asking service area communities to follow the leadership of the Boston Water and Sewer Commission and insti- tute the inclining block rate structure in their communities.
1977 78 79 80 81 82 83 84 85 86* 'Through 6/30/86
Financial Management
FINANCIAL STABILITY
Since acquiring the water and sewer sys- tems fronn the City of Boston, the Commission has employed a series of innovative financial strategies which have allowed substantial capi- tal improvement, while at the same time secur- ing a reputation for the Commission as one of the best managed public utilities in the country.
The initial step towards stability most visible to Boston residents was a 49% rate increase in the Commission's first year. This single large jump was required by the loss of rate subsidies formerly provided by the City because rates had been held below levels required to properly fund the system. Rate increases have since mod- erated, averaging approximately 8% a year through 1985.
Revenue from rates, however, only funds operation and maintenance. Improvements to modernize service and end pollution of Boston Harbor are funded through the sale of bonds.
The Commission first acquired substantial debt when it purchased the water and sewer
system for $24 million. Added to that was $13.2 million in outstanding obligation bonds previ- ously issued by the City. To cover those costs and to generate funds to begin capital improve- ments, the Commission issued its first series of bonds. Because this first issue of $45 million was guaranteed by the City the Commission was required to accept a number of covenants restricting its financial flexibility
Within the next few years, however, the Commission developed a reputation for fiscal integrity and stability Its overall debt manage- ment policy allowed independent access to the financial marketplace and use of a broader range of financing strategies.
FINANCIAL INNOVATION
By 1984, the Commission was ready to establish a debt structure which would provide the foundation for funding of all future capital requirements.
The first step was to issue $69.7 million in General Revenue Bonds to refinance the Com-
mission's debt, fund capital improvements, and institute a state-of-t lie-art bond resolution to allow maximum flexibility within the everchang- ing financial marketplace. The Commission's 1984 Revenue Bonds were structured as junior lien bonds, subordinate to future debt, provid- ing future increased debt capacity.
In 1 985, the Commission took advantage ofthe flexibility of its new bond resolution by issuing $51 millionof variable rate debt. Under this "flexi-note" program, the Commission accessed the short-term bond market which historically had traded at lower interest rates than the long term market, thus generating substantial savings to the Commission.
The final element of what is termed the Commission's "Financial Trilogy" culminated in August of 1 986 with the execution of a combi- nation Rolling Cross-Over Refunding and New Money Issue of $85 million in general revenue Bonds.
The Rolling Cross-Over Refunding allows the Commission to pay the low short-term inter-
est rates associated with the 1 985 "flexi-note" program; at the same time, it secured a take out forthe 1 985 issue at historically low long-term rates in the event of future higher short-term rates. The 1986 Revenue Bonds also provide funds for capital improvements through 1989.
The combined result of the Flexi-note and Rolling Cross-Over Programs has been a savings to the Commission estimated by Goldman, Sachs to be nearly $40 million in debt services costs over the next 30 years.
Citing "continued good financial perfor- mance, continued increased operating efficien- cies, and capable management," Standard & Poor's has assigned the Commission an "A" rat- ing. Moody's has also recently raised its rating from Baa to Baal . Sophisticated financial plan- ning and proper management of revenue has achieved forthe Commission a clean audit opin- ion for eight straight years.
As the Commission prepares to enter a period of maximum capital expenditure, its financial foundation has never been stronger.
Preparing for the Future
Since the City's earliest days, provision of water and sewer services has required careful planning. Preparing for the future remains essential as Boston continues to grow.
For the short term, the Comnnission pre- pares a plan each year which projects activity for the coming three-year period. Generating an average of 30 projects annually capital improvement programs fulfill the Commission's statuatory responsibility to repair and modern- ize its water and sewer system.
The infrastructure now in place has an approximate value of $5 billion. During the last eight years, the Commission has invested $133 million to improve its property, plant and equipment.
The Commission's achievements include construction of the new sewer inceptors to replace substantial portions of the Boston Main Drainage System, repair or replacement of 10 miles of sewers, installation or maintenance of all the tide gates in our system, rehabilitation of 80 miles of water pipe, installation of 40,000 remote reading meters and improved metering of City facilities.
Plans for the next three years focus on sewer projects to increase capacity of the sys- tem to minimize sewer overflows and thereby significantly contribute to the cleanup of Bos- ton Harbor. Investment in the water system will include additional pipe construction as part of the Commission's goal of rehabilitation of all 1 00 year old water mains by the year 2000, and continued installation of residential and public meters.
The projected costs in the 1986-1988 Capi- tal Improvement Program are $22.8 million for water and $35.2 million for sewer, totalling $58 million.
Concurrent with the Commission's capital improvement program is MWRA's investment in its delivery and recovery systems. For the same period. Authority costs will total $275 million for water and sewer projects.
A comprehensive study of the downtown area is now underway to assess water, waste- water and storm drainage capacity in light of rapid development. Also nearing completion is a detailed examination of those sewer system areas identified as potential points of high
ground water and surface runoff resulting in excessive inflow and infiltration. This study will analyze each indicated trouble spot in detail to determine cost effective remedies.
The Commission is also moving to comput- erize its maintenance to respond more quickly
clockwise from Upper Left: Jamaica Pond, Haveys Beach, Quabbin Reservoir
to customer needs and to target preventative measures. With the impending acquisition of a site for consolidation of headquarters and all field operations, customers can look forward to reduced costs and better service from improved coordination.
WATER CONSERVATION
As one of the most effective programs of its kind anywhere in the country, leak detection will continue to be at the heart of the Commis- sion's water conservation program. Few conser- vation efforts can boast a savings of tens of millions of gallons each day As an added mea- sure, the institution of the successful inclining block rate structure further encourages conser- vation through price inducement. Educational material, highlighting simple ways to save water will also continue to be distributed to customers on a regular basis. As a result of improved awareness, Boston's per capita residential con- sumption is already well below the national average at 65 gallons a day
THE NEXT CHALLENGE
Much has been accomplished in the last eight years towards the Commission's goal of providing superior water and sewer services to the City of Boston. But even as this task is mas- tered, greater challenges now begin— the clean-up of Boston Harbor and the long-term provision of an adequate water supply
Financial resources and political initiative are in place. The same vision that guided plan- ners to tap Long Pond, construct the Boston Main Interceptor System, and build the Quab- bin Reservoir must guide us to shape our future as well.
The restoration of Boston Harborwill con- tinue to impact the health and growth of the City of Boston. We will not see immediately the fruits of our work. Yet, a day will come when Boston Harbor will once again be a source of pride and commerce and our children will thank us as we thank those whose foresight and planning has enriched and improved our lives.
Boston Harbor
! the balance sheet, of the Bost< -d statements of operations, o' c-n ended, Our examination wo l accordingly included smc'-' t^--- we considered ne. ■.:;• Commission fc;
Auditors' Opinion
Boston Water and Sewer Commission:
We liave examined tlie balance sheet of tiie Boston Water and Sewer Commission as of December 31 , 1985 and the related statements of operations, of Commission equity and of changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly included such tests of the accounting records and other such auditing procedures as we considered necessary in the circumstances. The financial statements of the Boston Water and Sewer Commission for the year ended December 31,1 984 were examined by other auditors whose report, dated April 1 9, 1 985, expressed an unqualified opinion on those statements.
In our opinion, the financial statements for 1985 present fairly the financial position of the Boston Water and Sewer Commission at December 31 , 1 985 and the results of its operations and changes in its financial position for the year then ended, in conformity with generally accepted accounting princi- ples applied on a basis consistent with that of the preceding yean
April 11, 1986
Balance Sheets, December 31, 1985 and 1984
ASSETS
CURRENT ASSETS:
Cash
Trusteed assets
Nontrusteed assets
Accounts receivable— customers, less
allowances of $4,389,000 in 1985 and
$7,274,000 in 1984 Earned revenues in excess of billings,
less allowances of $632,000 in 1 985
and $945,000 in 1984 Accounts receivable— federal and state
construction grants Prepaid expenses Deferred charges Total current assets
TRUSTEED ASSETS
NONTRUSTEED ASSETS
PROPERTY, PLANT AND EQUIPMENT NET
DEFERRED CHARGES
DEBT ISSUE COSTS, LESS AMORTIZATION
TOTAL
NOTES
4,7 4
1985
1984
1,2,7
616,806 $ 521,626 22,034,432 13,533,696
19,313,246 3,401,999
27,338,903 27,626,887
7,578,599
8,714,809
8,312,284 4,804,263
1,194,653 950,532
8,825,590 2,064,092
|
95,214,513 |
61,617,904 |
|
|
4 |
22,904,826 |
15,863,663 |
|
4 |
33,809,763 |
5,122,472 |
|
3,8 |
156,400,245 |
135,415,016 |
|
1,2 |
18,588,284 |
10,843,828 |
|
3,679,475 |
2,627,256 |
|
|
$330,597,106 |
$231,490,139 |
See notes to financial statements.
LIABILITIES AND COMMISSION EQUITY
CURRENT LIABILITIES: Payable from current assets:
Accounts payable
Other accrued liabilities
Due to City of Boston, net Total Payable from restricted asset funds:
Massachusetts Water Resources Authority assessment for water and sewerage
City Bonds, including accrued interest Total General Revenue Bonds, 1984 Series A,
including accrued interest General Revenue Bonds, 1 985 Series A,
including accrued interest Deferred revenues Total current liabilities
OTHER LIABILITIES:
Massachusetts Water Resources Authority
assessment for water and sewerage City Bonds General Revenue Bonds, 1984 Series A,
net of unamortized original issue
discount General Revenue Bonds, 1 985 Series A Deferred revenues Other liabilities Total other liabilities
COMMISSION EQUITY: Contributed capital Accumulated deficit Total Commission equity
TOTAL
NOTES
1985
1984
4,301,686
11,083,122
5,481,835
2,764,257
10,320,884
6,718,817
20,866,643 19,803,958
27,245,808 849,224
20,849,040 889,365
|
28,095,032 |
21,738,405 |
|
|
4 |
3,978,413 |
554,735 |
|
4 1,2 |
784,375 18,973,734 72,698,197 |
10,528,478 52,625,576 |
|
5 4 |
16,121,457 4,215,000 |
10,825,438 4,995,000 |
|
4 4 1,2 |
64,372,068 50,800,000 51,799,980 3,622,871 190,931,376 |
64,662,848 43,395,309 1,475,000 125,353,595 |
|
1 |
72,514,229 (5,546,696) 66,967,533 |
59,057,664 (5,546,696) 53,510,968 |
|
$330,597,106 |
$231,490,139 |
statements of Operations
for the Years Ended December 31; 1985 and 1984
TOTAL WATER SEWER
NOTE 1985 1984 1985 1984 1985 1984 OPERATING REVENUES:
Water and sewer usage $50,776,445 $47,684,778 $27,277,897 $26,782,406 $23,498,548 $20,902,372
Firepipe 951,135 807,807 951,135 807,807
Other 377,776 248,565 202,866 137,954 174,910 110,611
Total operating revenues 52,105,356 48,741,150 28,431,898 27,728,167 23,673,458 21,012,983
OPERATING EXPENSES:
Operations 32,700,176 32,258,714 18,337,123 18,457,671 14,363,053 13,801,043
Engineering and administrative 9,470,741 9,178,404 5,085,788 5,094,015 4,384,953 4,084,389
Maintenance 3,433,962 4,321,214 1,810,639 2,564,547 1,623,323 1,756,667
Depreciation 2,691,923 2,539,940 1,371,682 1,273,349 1,320,241 1,266,591
Total operating expenses 48,296,802 48,298,272 26,605,232 27,389,582 21,691,570 20,908,690
TOTAL OPERATING INCOME 3,808,554 442,878 $ 1,826,666 $ 338,585 $ 1,981,888 $ 104,293
OTHER INCOME (EXPENSE):
Interest income 9,646,691 6,573,862
Interest expense (9,313,374) (6.835,637)
INCOME FROM CURRENT
OPERATIONS 1 4,141,871 181,103
PRIOR YEAR RATE SURPLUS RECOGNIZED IN
CURRENT YEAR 772,365 591,262
CURRENT YEAR RATE SURPLUS DEFERRED TO
SUBSEQUENT YEAR 1 (4,914,236) (772,365)
NET INCOME $ -0- $ -0-
See notes to financial statements.
statements of Commission Equity
for the Years Ended December 31, 1985 and 1984
BALANCE, JANUARY 1, 1984
CONTRIBUTIONS IN AID OF CONSTRUCTION
AMORTIZATION OF RELATED FIXED ASSETS
BALANCE, DECEMBER 31, 1984
CONTRIBUTIONS IN AID OF CONSTRUCTION
AMORTIZATION OF RELATED FIXED ASSETS
BALANCE, DECEMBER 31, 1985
TOTAL
CONTRIBUTED ACCUMULATED COMMISSION
CAPITAL DEFICIT EQUITY
$51,163,589 $(5,546,696) $45,616,893
8,268,075 8,268,075
(374,000) (374.000)
59,057,664 (5,546,696) 53,510,968
13,902,552 13,902,552
(445,987) (445,987)
$72,514,229 $ (5,546,696) $66,967,533
See notes to financial statements.
statements of Changes in Financial Position for the Years Ended December 31, 1985 and 1984
7985
1984
CASH FROM OPERATING ACTIVITIES:
Net income
Depredation and annortization (no cash
required) Realized from (used for) operating
activities:
Accounts receivable— net
Earned revenues in excess of billings- net
Deferred charges
Accounts payable assessments accrued liabilities and other
Deferred revenues Total
CASH FROM FINANCING ACTIVITIES: Bond proceeds Bond liquidation Bond payments
Contributions in aid of construction- net Debt issue costs Total
|
$ -0- |
$ -0- |
|
3,293,589 |
2,728,220 |
|
(3,220,037) |
(3,781,377) |
|
1,136,210 |
(1,573,987) |
|
(14,505,954) |
(11,489,104) |
|
18,012,134 |
12,181,104 |
|
16,849,927 |
4,057,469 |
|
21,565,869 |
2,122,325 |
|
51,000,000 |
64,662,848 |
|
(64,042,331) |
|
|
(815,000) |
(1,405,000) |
|
13,456,565 |
7,894,075 |
|
(1,294,665) |
(1,153,803) |
|
62,346,900 |
5,955,789 |
CASH USED FOR INVESTING ACTIVITIES: Purchase of property, plant, and equipment
(23,677,152) (19,250,022)
CASH AND SECURITIES: Increase (decrease) during year Balances at beginning of year
Balances at end of year
60,235,617 38,443,456
(11,171,908) 49,615,364
$ 98,679,073 $ 38,443,456
YEAR END BALANCES COMPRISED OF:
Cash
Current portion:
Trusteed assets
Nontrusteed assets Noncurrent portion:
Trusteed assets
Nontrusteed assets
TOTAL CASH AND SECURITIES
$ 616,806 $ 521,626
22,034,432 19,313,246
22,904,826 33,809,763
13,533,696 3,401,999
15,863,663 5,122,472
$ 98,679,073 $ 38,443,456
See notes to financial statements.
Notes to Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Boston Water and Sewer Commission (the Commission) was created by the Boston Water and Sewer Reorganization Act of 1 977 (the Enabling Act) to take over operations, assets, and certain liabilities of the City of Boston (the City) and its Department of Public Works (the D.P.W.) pertaining to the City's water and sewerage works systems.
The Enabling Act requires that the Commis- sion maintain its books and records and present its financial statements on an accrual basis in accordance with generally accepted account- ing principles. The Commission has also adopted accounting policies and practices to be utilized in connection with its rate setting pro- cess. These policies and practices, which are in conformity with sound and appropriate rate making practices used by similar organizations, require recognition of certain expenses and expenditures on a basis different than generally accepted accounting principles for a nonregu- lated business.
The Commission has adopted Financial Accounting Standards Board Statement (FAS) No. 71 , "Accounting for the Effects of Certain Types of Regulation." Under that Statement, revenues which are raised currently to pro- vide for certain costs that are expected to be incurred in the future are recorded as deferred revenues. Additionally, certain costs are deferred if future revenues result in amounts equal to the deferred costs. The effect of these changes allow a more meaningful presentation of the results of operations, in that the financial statements under generally accepted account- ing principles more closely reflect the Commis- sion's rate setting financial results.
The following is a reconciliation outlining the effects of FAS No. 71 on the statement of operations forthe years ended December 31, 1985 and 1984.
1985
1984
Net income (loss)
prior to deferrals $5,294,324 $(7,431,636) Revenues and expenses deferred in accordance with FAS No. 71: Deferred revenues: Excess of reve- nues raised over
expenditures (2,096,566) Other (4,388,437) (3,876,365)
Deferred expenses 5,332,550 11,489,104 Income from current operations $4,141,871 $ 181,103
The Enabling Act requires that any net sur- plus or deficit, as defined by the rate setting process, must either be returned to the City or applied to offset water and sewer rates forthe following year The Commission has applied $4,91 4,236 and $772,365 for the years ended December 31, 1985 and 1984, respectively to offset rates in the respective subsequent years.
REVENUES
Water and sewerage fees are billed to users of the systems on a quarterly cycle basis. Reve- nues are accrued for periods between the termi- nation of billings for the various cycles and the end of the year
SHORT-TERM INVESTMENTS
Short-term investments, consisting of direct and unconditionally guaranteed obliga- tions of the U.S. Government; repurchase agreements and money market units secured by government securities, are stated at cost plus accrued interest (approximating market).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided on the straight- line method based on the estimated useful lives of the various classes of assets. Maintenance and repairs are charged to expenses as incurred. Major renewals or betterments are capitalized and depreciated overtheirestimated useful lives.
Contributions received in aid of specific construction projects are considered contrib- uted capital and are included in Commission equity. Accordingly, amortization of the related fixed assets is charged directly to Commission equity and is not included in the accompanying statements of operations.
The ranges of estimated useful lives used in computing depreciation are as follows:
|
Water: Works |
60 to 100 |
|
Meters and hydrants |
lOto 40 |
|
Sewerage: |
|
|
Works |
40 to 75 |
|
Pumping station |
35 |
|
Other |
3 to 15 |
2. DEFERRED CHARGES AND REVENUES
The following is a summarization of the major components of deferred charges and revenues as reflected in the accompanying balance sheet:
The Commission capitalizes interest cost related to construction of assets for its own use. Inter- est totaling approximately $722,000 and $6 13,000 was capitalized in 1985 and 1984, respectively.
BOND ISSUE COSTS
Expenses related to the issuance of bonds are amortized on a weighted-average basis over the life of the bonds.
RECLASSIFICATION
Certain prior year amounts have been re- classified to conform to current year presentation.
Deferred charges: Provision for pension
settlement (see
Note 7). Excess of amounts
accrued for water
and sewerage
assessments over
cash payments Provision for
litigation claims Provision for
adjustments Total deferred
charges Current deferred
charges Noncurrent deferred
charges Total
1985 1984
(OOO's OMITTED) $ 8,300 $ 8,300
14,400 2,763 1,744 1,845 2,970 -
$27,414 $12,908
$ 8,826 $ 2,064
18,588 10,844
$27,414 $12,908
|
(OOOS OMITTED) |
||
|
Deferred revenues: |
||
|
Capital |
||
|
improvement |
||
|
reimbursements |
$34,391 |
$31,046 |
|
Principal payments |
||
|
on long-term |
||
|
debt |
8,814 |
8,835 |
|
Allowance for |
||
|
slow collection |
12,196 |
9,682 |
|
Other |
15,373 |
4,360 |
|
Total deferred |
||
|
revenues |
$70,774 |
$53,923 |
|
Current deferred |
||
|
revenue |
$18,974 |
$10,528 |
|
Noncurrent deferred |
||
|
revenue |
51,800 |
43,395 |
|
Total |
$70,774 |
$53,923 |
3. PROPERTY, PLANT AND EQUIPMENT
The cost of water and sewerage plant and equipment in service and related accunnulated depreciation at December 31, 1985 and 1984 are summarized as follows:
Water:
Works
Meters and hydrants Total water
Sewerage:
Land
Works
Pumping station Total sewerage Other Total Less accumulated
depreciation Total Construction in
progress Total
|
1985 |
1984 |
|
$ 58,285,036 |
$ 42,088,279 |
|
7,574,543 65,859,579 |
7,079,891 49,168,170 |
|
195,482 51,397,296 6,772,785 58,365,563 5,037,862 129,263,004 |
195,482 44,675,126 6,729,843 51,600,451 4,767,545 105,536,166 |
|
18,711,037 110,551,967 |
15,565,727 89,970,439 |
|
45,848,278 $156,400,245 |
45,444,577 $135,415,016 |
1^84_ 4 BONDS PAYABLE
REVENUE BONDS
In April 1985, the Commission issued 1985 Series A General Revenue Bonds (1985 Bonds) in order to provide funds for projects under the Commission's ongoing capital improvement programs and other capital and operating needs. The bonds have a principal balance of $51 ,000,000 at December 31,1 985, bearing variable interest rates (6.375% and 7.375% at December31, 1985), maturing in two equal amounts on November 1, 2014and 2015 and require annual sinking fund contributions through the year 201 4.
In December 1 984, the Commission issued 1 984 Series A General Revenue Bonds (1 984 Bonds) in order to advance refund a series of 1980 System Revenue Bonds. The bonds have a principal balance at December 31 , 1 985 and 1 984 of $69,670,000, bearing interest rates ranging from 6.75% to 10.5% with maturity dates ranging from January 1 , 1 986 to January 1 , 2011 . Under the Refunding Trust Agreement, the Commission deposited sufficient funds with the 1 980 Bond Trustee to pay when due, the principal of and interest on all 1 980 Bonds through January 1 , 2001 , the final maturity date thereon. By depositing such funds with the 1980 Bond Trustee under the Refunding Trust Agreement, the Commission caused the 1 980 Bonds to be no longer outstanding under the 1980 Resolution. The 1980 Bondholders have no right, title, interest or liens in any other funds, real or personal property or assets of the Commission otherthan the amounts held underthe Refunding Trust Agreement and pledged for their benefit thereunder.
The Resolution Establishing Issue of Reve- nue Bonds adopted by the Comnnission on December 6, 1 984 places certain restrictions on the Commission's operations. It requires that rates, charges and fees be set at a level suffi- cient to meet a net revenue test on an annual basis and requires that all revenues, as defined, be deposited in a Revenue Fund maintained by a fiscal agent. Amounts held in the Revenue Fund are to be disbursed to and withdrawn from other funds provided for in the Resolution. The Resolution provides that all excess cash be held in the Revenue Fund until the last business day ofthefiscalyear. At that time, if certain conve- nants are met, the Commission has the option to remove any excess cash from the Revenue Fund and place such cash in a fund not restricted by the Resolution.
In compliance with the Resolution, the Commission has established both trusteed and non-trusteed funds with assets, principally short-term securities, which are restricted for payment of specified liabilities. The Commis- sion has options for early redemption of reve- nue bonds starting in 1995 at prices ranging from 1 03 to 1 00 percent of face value.
CITY BONDS
At the time of its creation, the Commission assumed general obligation certificates of indebtedness of the City (City Bonds) pertaining to the water and sewerage works systems with aggregate principal balances of $4,995,000 and $5,81 0,000 at December 31 , 1 985 and 1984, respectively, bearing interest rates rang- ing from 4.25% to 8% with maturity dates ranging from November 1 986 to December 1999. Payments for principal and interest are made directly to the City in accordance with the original maturity and interest schedule.
Bond maturities and sinking fund require- ments of the 1 985 Bonds, the 1 984 Bonds, and the City Bonds, in aggregate, at December 31, 1985 are as follows:
1986
1987
1988
1989
1990
Thereafter
Total
Unamortized debt discount
Accrued interest
Total bonds payable
1985 Bonds 1984 Bonds City Bonds Total bonds payable
$ 1,630,000
1,660,000
1,920,000
1,950,000
2,050,000
116,455,000
125,665,000
(4,647,932)
3,982,012
$124,999,080
$ 51,584,375
68,350,481
5,064,224
$124,999,080
S.MASSACHUSETTS WATER RESOURCES AUTHORITY
On January 1 , 1 985, legislation became effective creating the Massachusetts Water Resources Authority (the Authority) which transferred possession, control and operations of the Metropolitan District Commission (MDC) Waterworks and Sewer System to the Authority. The Authority commenced operations on July 1,1985.
The Authority (previously MDC) provides all the Commission's water and sewer treatment requirements and assesses the Commission for its actual operating and capital expenses. Pay- ments for the prior calendar year's water and sewer treatment assessments are due semi- annually in November of the current year and in May of the subsequent year Interest is not charged on the outstanding balance. Estimated charges and assessments for 1 985 and actual amounts for 1 984 are as follows:
1985
1984
Water charges Wastewater
assessments Total
$14,141,000 $11,524,000 17,563,000 9,541,000
$31,704,000 $21,065,000
In 1985 and 1984, approximately 66% of water purchased from the Authority was billa- ble to customers. Since its inception, the Com- mission has increased the percentage of billable water from 52% in 1977 to the current level of 66% in 1 985 and is continuing to take steps to improvethe amount of water billable, including replacement of old and defective meters and a comprehensive leak detection and repair program.
6. TRANSACTIONS WITH THE CITY OF BOSTON
The Commission's ongoing program to meter City facilities has resulted in billings to nine City departments based on actual con- sumption of $707,000 and $579,000 in 1 985 and 1984, respectively The remaining four City departments were billed based on estimated consumption for $988,000 and $932,000 during 1985 and 1984, respectively
The City provides services to the Com- mission, including paving and facilities rental. Operating costs billed by the City were $924,000 and $1 ,540,000 during 1 985 and 1984, respectively Capital costs billed by the City were $684,000 and $2,735,000 during 1985 and 1984, respectively
7. RETIREMENT BENEFITS
Retirement benefits for eligible employees are provided underthe State— Boston Retire- ment System (Boston System) which is a "pay as you go" system requiring participating mem- bers to reimburse the System on a proportional basis of all pension benefits currently paid by the system based on current regular compensa- tion of covered employees. Because of the dis- pute with the Retirement Board of the Boston System, as noted below, the Commission is not a participating member of the Boston system. The Commission's policy is to accrue currently for its employee base the normal cost of future retirement benefits using 1 1.14% of regular compensation based on an actuarial valuation.
Pension expense was $1,1 79,000 and $1,140,000for1985and1984, respectively. In order to provide a funding mechanism forthese retirement obligations, the Commission has voluntarily established a pension trust fund with assets of $9,451 ,000 and $7,531 ,000 as of DecemberBI, 1985and 1984, respectively The Commission does not record this fund as its asset because it is anticipated that the fund will be used to satisfy pension obligations.
The Retirement Board of the Boston System has requested that the Commission be a partici- pating member of the Boston System and, as such, to pay its proportional share of all pension benefits paid by the System. The Commission's estimate of the amount at issue were they to become a member is $1 1 .3 million for benefits paid during the years 1 978 through 1 985. In 1984, the Commission recorded a liability of $8.3 million to provide for its estimate of settle- ment. This amount has been recorded as a deferred charge and an other accrued liability in the accompanying balance sheets.
In 1 985, the Commission voluntarily depos- ited $8.3 million in a trust fund forthis matter (assets were $8.9 million at year end) from pro- ceeds of the 1 985 Series A Bonds (see Note 4). This fund has been recorded as a current trust- eed asset in the accompanying balance sheet. Any of the $8.3 million proceeds which remain unexpended shall be applied on November 1 , 1 986 to the redemption of 1 985 Series A Bonds maturing in 2014.
. COMMITMENTS
The Commission exercised its option to renew the lease for office space through April 1988 at an annual rental of $193,000 which provides that the Commission pay for utilities, insurance, tax escalation and maintenance. Total rent expense charged to operations amounted to $764,000 and $878,000 in 1985 and 1984, respectively
A major capital improvement program is currentlyin progress. As part of this program, the Commission has entered into a number of contracts for the design and construction of its facilities. Commitments underthese contracts aggregate $4,01 3,000 at December 31 , 1 985. Capital improvements, primarily related to water and wastewater system projects with an emphasis on the clean-up of the Boston Harbor area, are expected to aggregate $1 59 million for 1986 through 1993. Of this amount $88
million represents extension and improvement projects to be funded by the proceeds of Com- mission revenue bonds and federal and state grants for certain wastewater projects, and $71 million represents renewal and replacement projects to be funded by current revenues of the Commission.
9. CONTINGENCIES
The Commission is involved in ordinary and routine litigation incidental to its operations. Management believes that the resolution of these matters will not materially affect the financial position of the Commission.
The Commission has received federal and state grants for specific purposes that are sub- ject to review and audit by the grantor agencies. Such audits could lead to requests for reim- bursement to the grantor agency for expendi- tures disallowed under terms of the grant. The Commission believes such disallowances, if any, will not be significant.
10. EVENTS SUBSEQUENT TO DATE OF AUDITORS' OPINION
During July 1986, the Commission, the City and the Retirement Board have engaged in discussions which the Commis- sion expects will lead to the execution, by all three parties, of a settlement agree- ment with respect to the dispute described in Note 7. The terms and conditions of this settlement agreement will require certain approval prior to implementation. In the event the Commission and the City execute a settlement agreement prior to August 1 , 1986, the Commission expects to deposit approximately $9 million from the pro- ceeds of the 1 986 Series A Bonds into a trust fund forthis matter. Any of the $9 million proceeds which remain unex- pended on February 1 , 1 987 shall be applied to the redemption of 1 986 Series A Bonds on the first available call date. This amount, together with the sum of $8.3 million previously deposited (see Note 7) and the investment income earned on the
1 985 deposit, is expected to be sufficient to cover all of the costs of such settlement. The Commission intends to record the
1 986 portion of this settlement as a deferred charge to be recovered through future rates.
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Boston Water and Sewer Commission
10 Post Office Square
Boston, MA 021 09
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