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Full text of "Annual report"

iririi'Mft " • iif 



"J if«>»*l^N»" 



Digitized by the Internet Archive 

in 2010 with funding from 

Boston Public Library 



http://www.archive.org/details/annualreport1986bostsew 



///// 



Message from Chairman Tye 



GOVERNMENT DOCU'VitNTS OfCARTMf*^ 

JUL 2^ m9 



'^• v *f' t0» i t* 9^mm0lt*- 



The Massachusetts State Legislature granted authority to the Boston Water and Sewer Connmis- 
sion in 1 977. The Commission's mission is to ensure proper maintenance, operation, and reconstruction of 
the more than 100-year-old Boston water and sewer delivery systems, as well as to assure the future finan- 
cial stability of the Commission. 

We believe the debt management policies which the Commission has undertaken will secure our 
ability to accomplish our goals, both now and in the future. Basically the Commission has designed an 
innovative debt structure which provides the flexibility to meet the demands, occasioned by changing 
interest rates, or extreme changes in the economy. 

Our 1 986 achievements, which include the upgrading of our bond ratings and our ninth consecu- 
tive unqualified audit, substantiate the Commission's continued dedication to strong and sound fiscal 
management policies. 

In the years ahead the Commission looks forward to completing its mission of system rehabilitation 
and further establishing its reputation as one of the outstanding suppliers of water and sewer services in 
the country. 



Respectfully 




A. Raymond T/e 
Chairman 




Fiscal Management 



The Boston Water and Sewer Commission was created in 1 977 to ensure adequate funding for the 
City of Boston's water and wastewater systems, and to improve the long-term quality and reliability of water 
and sewer services for all users in Boston. With this overall mandate as a driving force, the Commission has 
set forth a number of goals, among which is to have rehabilitated all 1 00-year-old pipe, guaranteeing users 
a high level of service at a reasonable cost. The quantity of debt financing to achieve these goals is largely 
determined by technical and engineering requirements. 

Therefore, the Commission has established a debt management policy with a tri-fold objective to 
ensure our ability to accomplish our goals as well as maintain superior water and sewer services. Basically 
BWSCs debt management involves a strategy which will: 

Minimize the cost of debt within an acceptable range of interest rate exposure: 
Provide protection against extreme economic events, particularly in an environment of hyper- 
inflation or severe deflation: 

Ensure sufficient flexibility for the Commission to alter the nature of its debt structure in response 
to internal and external developments. 

Primarily the Commission's aim has been to achieve a prudent mix of outstanding debt. Currently 
the Commission has $206 million in debt outstanding: of which $ 1 5 5 million, or approximately 75% is in 
long term fixed rates. However, the exclusive use of long term fixed debt could expose a borrower to possi- 
ble financial stress in the event of a rapid decline in the inflation rate or, in the extreme, deflation. The Com- 
mission has made a policy decision to include as a portion of its debt structure, short term variable rate 
bonds because it would be fiscally unwise to totally forego the advantages of the lower interest rates which 
have historically always been tied to shorter maturities. At the same time, as a public agency with a respon- 
sibility to protect its ratepayers, the Commission must limit its exposure to the impact of possible extreme 
economic events which would cause rapid increases in short term variable interest rates. To this end, the 
Commission has established a flexible debt structure which will provide the foundation for funding all 
future capital needs. 

Combined Capital Improvements to Water & Sewer Property 



1977 H^l 


^^ $36,347,669 




1978 f^^M 


$37,427,351 




1979 f^^^ 


$43,542,231 




1980 mi^i 


$51,151,258 




1981 ll^H 


$54,419,330 




1982 fl0^^ 


• $58,882,238 




1983 ^Ij^l 


$65,816,991 




1984 jjljjjj^l 


$70,296,763 




1985 ff/l^^ 


f'. 


$93,753,284 


1986 ^^H 




^^^^^ $101,917,492 




IMPLEMENTATION OF DEBT MANAGEMENT FOLIC 

In late 1 984, the Commission refinanced its outstanding debt, at no financial cost, with the 
issuance of the $69,670,000 1 984 Series A General Revenue Bonds. This refunding was carried out to 
enable the Commission to replace its existing bond resolution with a more modern and flexible resolution: 
one which would allow for the utilization of variable rate debt among other financing alternatives. The 1 984 
Bonds were structured as junior lien bonds, subordinate to future debt, in order to provide for future 
increased debt capacity. 

During March of 1 985 , BWSC took advantage of the flexibility contained in its new General Reve- 
nue Bond Resolution through the issuance of $5 1 ,000,000 of variable rate debt. The 1 985 Series A Bonds 
carried an initial average coupon of 678% in an environment in which the long term fixed rate alternative 
would have been 1 '/i % or higher The proceeds of the 1 98 5 Bonds supplied the capital to continue the 
Commission's efforts to rehabilitate and improve Boston's water and wastewater systems. 

In the Spring of 1 986, the Commission assessed the implications of the impending Federal TSx 
Reform Legislation. Consideration was given to the impacts of future tax reform which would have affected 
the Commissions ability to efficiently and cost-effectively access the financial marketplace and achieve the 
objectives of its long term debt management policy The results of this examination concluded on August 
5 , 1986 with the issuance of $8 5 ,000,000 in General Revenue Bonds. This financing was structured as a 
Rolling Cross-Over Refunding and New Money Issue. 

The 1 986 Bonds provide the Commission with funds necessary to execute its capital improve- 
ments through 1 989. The sale of the 1 986 Bonds also furnished the funds which established the 1 986 Series 
A Escrow Account to secure a guaranteed lock in at historically low long term interest rates for the 1985 
bonds. Coupled with the 1 98 5 $ 5 1 ,000,000 f lexi-note issue, the 1 986 Bonds alleviate the risks associated 
with floating rates while still allowing the Commission to enjoy the low short term interest rates associated 
withthe 1985 issue. 

As an almost immediate sequel to the closing of the 1 986 financing, in October 1 986, the Commis- 
sion successfully completed the remarketing of $2 5 . 5 million of its 1 98 5 Series A Variable Rate Bonds. This 
process served to highlight the advantages of the Rolling Cross-Over strategy The remarketed bonds were 
sold at a one-year rate of 4. 1 5% maturing on November 1 , 1 987. Including letter of credit and remarketing 
fees, the gross cost of the bonds is approximately 4.85% which represents a net savings over the next 
twelve months of approximately 2 .90% or $7 50,000 over the equivalent cost of long-term bonds. 

DEBT MANAGEMENT RESULTS 

The 1 986 Issue solidifies the Commission debt structure as we face a period of intensive capital 
pressures: this was acknowledged by both Rating Agencies resulting in an upgrade by Standard & Poors 
from A- to A and by Moody s from Baal to Baa. 

Based on an audit of 1 986 results, the Commission received its ninth consecutive unqualified 
audit opinion. Continual clean audit opinions are evidence not only of good fiscal management, but also 
instill a high level of confidence to the holders of Commission debt. Clean audit opinions also positively 
affect the Commission's ability to cost-effectively access the bond markets, influence its bond rating and 
consequently lessen the interest costs associated with its debt service, thus providing protection for the 
Commission's ratepayers. 







A. Raymond lye 

CHAIRMAN 



Mary Nee 

COMMISSIONER 



LisaG.Chapnick 

COMMISSIONER 






David L. Conlon 

TREASURER 



Francis W. Gens 

EXECUTIVE DIRECTOR 



Charles Button 

CHIEF ENGINEER 




Richard Luccio 

GENERAL COUNSEL 




Michael T. Feeney 

DIRECTOR OF 
ADMINISTRATION 




Edmund Ackerson 

DIRECTOR OF MIS, 



///// 



Auditors' Opinion 

Boston Water and Sewer Commission: 

We have examined the balance sheets of the Boston Water and Sewer Commission as of December 
31.1 986 and 1 985 and the related statements of operations, of Commission equity and of changes in finan- 
cial position for the years then ended. Our examinations were made in accordance with generally accepted 
auditing standards and, accordingly, included such tests of the accounting records and such other auditing 
procedures as we considered necessary in the circumstances. 

In our opinion, such financial statements present fairly the financial position of the Boston Water 
and Sewer Commission at December 31,1 986 and 1 985 and the results of its operations and changes in its 
financial position for the years then ended, in conformity with generally accepted accounting principles 
applied on a consistent basis. 



\^Jijgri:^ ^cu^ fS^t^ 



Boston, Massachusetts 
March 20, 1987 




Balance Sheets, Decembers!, 1986and 1985 



ASSETS 



CURRENT ASSETS: 

Cash 

Trusteed assets 

Nontrusteed assets 

Accounts receivable— customers. 

less allowances of $8,604,000 in 

1986 and $4,389,000 in 1985 
Earned revenues in excess of 

billings, less allowances of 

$397,000 in 1986 and $632,000 in 

1985 
Accounts receivable: 

Federal and state construction 
grants 

City of Boston— net 
Prepaid expenses 
Deferred charges 
Total Current Assets 

TRUSTEED ASSETS 

NONTRUSTEED ASSETS 

PROPERTY, PLANT AND EQUIPMENT NET 

DEFERRED CHARGES 

DEBT ISSUE COSTS, LESS AMORTIZATION 

TOTAL 



1,4,7 
1,4 



$ 699,389 $ 616,806 
12,595,006 22,034,432 
3,554,581 19,313,246 



35,002,146 



27,338,903 





4.528,671 


7,578,599 




12,591,636 


8.312,284 


6 


2,071,369 






1,126,018 


1,194,653 


1,2,7 


17,230,355 


8,825,590 




89,399,171 


95,214,513 


1.4 


96,867,616 


22,904,826 


1.4 


28,335,874 


33,809,763 


1, 3, 8 


181,065,695 


156,400,245 


1,2,7 


29,570,773 


18,588,284 


1 


4,941,062 


3,679,475 




$430,180,191 


$330,597,106 



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 
Total 

General Revenue Bonds 
Deferred revenues 
Total Current Liabilities 

OTHER LIABILITIES: 
Massachusetts Water Resources 

Authority assessment for water and 

sewerage 
City Bonds 

General Revenue Bonds 
Deferred revenues 
Other liabilities 
Total Other Liabilities 

COMMISSION EOUITY: 
Contributed capital 
Accumulated deficit 
Total Commission Equity 

TOTAL 





$ 6,154,860 


$ 4,301,686 


7 


3,041,058 


11,083,122 


6 




5,481,835 




9,195,918 


20,866,643 


5 


34,663,756 


27,245,808 


4 


747,023 


849,224 




35,410,779 


28,095,032 


4 


8,548,984 


4,762,788 


1,2 


21,010,789 


18,973,734 




74,166,470 


72,698,197 



18,242,304 

3,525,000 

195,201,294 

53,672,248 

3,827.794 

274,468,640 



87,091,777 
(5.546,696) 
81,545.081 



16.121.457 

4.215.000 

115,172,068 

51,799.980 

3.622,871 

190,931,376 



72,514,229 
15,546.696 ) 
66.967.533 



$430,180,191 $330,597,106 




Statements of Operations 

for the Years Ended December 31, 1986 and 1985 





TOTAL 


WATER 


SEWER 




NOTE 1986 


1985 


1986 


1985 


1986 


1985 


OPERATING 














REVENUES: 














Water and sewer 














usage 


$62,487,001 


$50,776,445 


$30,681,253 


$27,277,897 


$31,805,748 


$23,498,548 


Fire pipe 


742,152 


951,135 


742,152 


951.135 






Of -r 


853,753 


377,776 


418,339 


202.866 


435,414 


174,910 


Tc O, -'rating 






.evenues 


64,082,906 


52,105.356 


31,841,744 


28,431,898 


32,241,162 


23.673,458 


OPERATING 














EXPENSES: 














Operations 


41,953,509 


32,700,176 


20,753,385 


18,337,123 


21,200,124 


14,363,053 


Engineering and 














administrative 


11,108,885 


9,470,741 


5,443,354 


5,085,788 


5,665,531 


4,384,953 


Maintenance 


3,389,586 


3,433,962 


1.829.625 


1,810,639 


1,559,961 


1.623,323 


Depreciation 


2,924,362 


2,691,923 


1.819.423 


1.371,682 


1,104,939 


1,320,241 


Total Operating 














Expenses 


59,376,342 


48,296,802 


29,845.787 


26,605,232 


29,530,555 


21,691,570 


TOTAL OPERATING 














INCOME 


4,706,564 


3,808.554 


$ 1.995.957 


$ 1.826,666 


$ 2,710,607 


$ 1,981,888 


OTHER INCOME 














(EXPENSE): 














Interest income 


6,746,611 


9.646,691 










Interest expense 


(7,504,1601 


(9.313.374) 










INCOME FROM 














CURRENT 














OPERATIONS 


1 3,949,015 


4,141,871 










PRIOR YEAR RATE 














SURPLUS 














RECOGNIZED 














IN CURRENT 














YEAR 


4,914,236 


772,365 










CURRENT YEAR 














RATE SURPLUS 














DEFERRED TO 














SUBSEOUENT 














YEAR 


1 (8,863,251) 


(4,914,236) 










NET INCOME 


$ -0- 


$ -0- 











See notes to financial statements. 



///// 

Statements of Commission Equity 

for the Years Ended December 31, 1986 and 1985 



Balance, lanuary 1, 1985 

Contributions In aid of 
construction 

Depreciation of related 

property 
Balance, Decembers!. 1985 

Contributions in aid of 
construction 

Depreciation of related 
property 

Balance. December 31,1 986 



CONTRIBUTED ACCUMULATED 
CAPITAL DEFICIT 



$59,057,664 


$(5,546,696) 


13.902.552 




(445,987) 




72,514,229 


(5,546,696) 


15,138,007 




(560,459) 




$87,091,777 


$(5,546,696) 



TOTAL 

COMMISSION 

EQUITY 

$53,510,968 

13,902,552 

(445,987 ) 
66,967,533 

15,138,007 

(560,459 ) 
$81,545,081 



See notes to financial statements. 




Statements of Changes in Financial Position 

for the Years Ended December 31, 1986 and 1985 



OPERATING ACTIVITIES: 

Net income 

Depreciation and amortization (no funds 

required) 
Realized from (used for): 

Accounts receivable— net 

Earned revenues in excess of billings- 
net 

Deferred charges 

Accounts payable, assessments, accrued 
liabilities and otfier 

Deferred revenues 
Total 



1986 1985 

$ -0- S -0- 

3,243,407 3,293,589 

(14,013,964) (3,220,037) 

3,049,928 1,136.210 

(19,387,254) (14,505.954) 

886,051 18,012.134 

3,909,323 16,849.927 



(22.312,509) 21,565,^ 



FINANCING ACTIVITIES: 

Bond: 

Proceeds 
Payments 

Contributions in aid of construction- 
net 

Debt issue costs 

Total 



SI ,876,248 51,000,000 
(1,630,000) (815,000) 



14,577,548 13,456,565 
(1,548,082 ) (1,294,665 ) 



93,275.714 62.346,900 



INVESTING ACTIVITIES-Purchase of 
property plant, and equipment 

CASH AND SECURITIES: 
Increase (decrease) during year 
Balances at beginning of year 

Balances at end of year 

YEAR-END BALANCES COMPRISED OF: 

Cash 

Current portion: 

TYusteed assets 

Nontrusteed assets 
Noncurrent portion; 

Trusteed assets 

Nontrusteed assets 

TOTAL CASH AND SECURITIES 



(27.589.812 ) (23.677.152 ) 



43.373,393 
98,679,073 



60,235,617 
38,443,456 



$142,052,466 $98,679,073 



699.389 



12.595,006 22,034,432 
3,554,581 19.313.246 



96.867.616 22.904.826 
28.335.874 33.809.763 



$142,052,466 $98,679,073 



See notes to fimndal statements. 




Notes to Financial Statements 



ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT 
ACCOUNTING PRINCIPLES 

The Boston Water and Sewer Commission (the "Commission") has the responsibility to provide 
water and wastewater services on a fair and equitable basis in the City of Boston (the "City") as required 
under the Boston Water and Sewer Reorganization Act of 1977 (the "Enabling Act"). 

Under the Enabling Act, the Commission is required to maintain and present its financial state- 
ments in accordance with generally accepted accounting principles ("GAAP"). Also, the Commission has 
adopted a rate setting process which recognizes certain costs in periods other than when the costs are 
incurred. This is generally accepted as appropriate regulatory practice. 

To accommodate this rate setting process the Commission follows the accounting standards set 
forth under the Financial Accounting Standards Board Statement No. 7 1 ("FAS-7 1"), "Accounting for the 
Effects of Certain Types of Regulation." FAS-7 1 requires that under regulation a) revenues provided for 
future allowable costs are deferred until the costs are actually incurred (deferred revenues): b) allowable 
incurred costs are capitalized if future recovery is assured (deferred charges). 

The following is a reconciliation outlining the effects of FAS-7 1 on the statement of operations for 
the years ended December 31, 1986 and 1985: 



Net income prior to deferrals 
Revenues and expenses deferred in 

accordance with FAS-7 1 : 
Deferred revenues: 

Excess of revenues raised over 
expenditures 

Other 
Deferred expenses 
Income from current operations 



1986 1985 

$ 2,631.615 $ 5,294.324 



(2,096,566) 
14,386,709) (4,388,437) 
15,704,109 5,332,550 



$3,949,015 $4,141,871 



The Enabling Act requires that any net surplus or deficit, as defined by the rate setting process, 
must either be returned to the City or applied to offset water and sewer rates for the following year. The 
Commission has applied $8,863,2 51 and $4,914, 236for the years ended December 31, 1986 and 1985, 
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. Revenues are 
accrued for periods between the termination of billings for the various cycles and the end of the year. 

Trusteed and Non-Trusteed Assets 

These assets, consisting of direct and unconditionally guaranteed short-term obligations 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 expense as incurred. Major renewals or betterments are capitalized and depreciated over their 
estimated useful lives. 



///// 



60 to 100 


lOto 


40 


40 to 


75 


35 




3 to 


15 



Contributions received in aid of specific construction projects are considered contributed capital 
and are included in Commission equity. Accordingly, depreciation of the related property 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 

Meters and hydrants 
Sewerage: 

Works 

Pumping station 
Other 

The Commission capitalizes interest cost related to construction of assets for its own use. Interest totaling 
approximately $734,000 and $722,000 was capitalized in 1986and 1985, respectively. 

Bond issue Lost: 

Expenses related to the issuance of bonds are amortized on a weighted-average basis over the life 
of the bonds. 

2. DEFERRED CHARGES AND ^° 

The following is a summarization of the major components of deferred charges and revenues as 
reflected in the accompanying balance sheet: 

1986 1985 

(OOOs omitted) 

Deferred charges: 

Provision for pension settlement (see 

Note7| $17,707 $ 8,300 

Excess of amounts accrued for water and 

sewerage assessments over cash payments 
Provision for litigation claims 
Provision for adjustments 



:3,938 


14,400 


2,928 


1,744 


2,228 


2,970 



Total deferred charges $46,801 $27,414 

Current deferred charges $17,230 $ 8,826 

Noncurrent deferred charges 29,571 18,588 

Total $46,801 $27,414 

Deferred revenues: 

Capital improvement reimbursements $45,803 $34,391 

Principal payments on long-term debt 2,899 8,814 

Allowance for slow collection 9,682 12,196 

Other 16,299 15,373 

Total deferred revenues $74,683 $70,774 

Current deferred revenue $21,011 $18,974 

Noncurrent deferred revenue 53,672 51,800 

Total $74,683. $70,774 



///// 



3. PROPERTY, PLANT AND EQUIPMEr 



The cost of water and sewerage plant and equipment in service and related accumulated deprecia- 
tion at December 3 1 , 1986 and 1985 are summarized as follows: 



Water: 

Works 

Meters and liydrants 

Total water 

Sewerage: 

Land 

Works 

Pumping station 

Tbtal sewerage 

Other 

Total 

Less accumulated depreciation 

Total 

Construction in progress 

Total 



$ 63.189,978 


$ 58,285,036 


8,228,903 


7,574,543 


71,418,881 


65.859,579 


195,482 


195,482 


54,002,202 


51,397.296 


6,777,290 


6,772.785 


60,974,974 


58,365.563 


6,622,028 


5.037,862 


139,015,883 


129,263,004 


21,921,021 


18,711,037 


1 17,094,862 


110,551,967 


63,970,833 


45,848,278 


$181,065,695 


$156,400,245 



C DAVADl C 

J 

Outstanding bonds payable including accrued interest, at December 31. 1986 and 1985 were 
as follows: 



Revenue Bonds: 

1 984 Series A, bearing interest rates 
ranging from 6.75% to 10.5% with maturity 
dates ranging from lanuary 1 . 1 987 to 
lanuary 1. 2011 

1985 Series A. bearing variable interest 
rates (4.1 5% and 7.375% at December 3 1 , 
1 986), maturing in two equal amounts on 
November 1, 2014 and 201 5 and requiring 
annual sinking fund contributions through 
2014 

1 986 Series A, bearing interest rates 
ranging from 4.75% to 7.875% with maturity 
dates ranging from November 1 , 1 987 to 
2015 

City Bonds, bearing interest rates ranging 

from 4 . 2 5 % to 8% with maturity dates 

ranging from November 1987 to 

December 1999 
Total bonds outstanding 
Less current portion due within one year 

including accrued interest 
Portion due after one year net of 

unamortized original issue discount 



$ 67.991.521 $ 68.350.481 



51,288,424 



84,470,333 



4,272,023 
208,022,301 



9.296.007 



51,584.375 



5,064,224 
124,999,080 



5,612,012 



$198,726,294 $119,387,068 




The Resolution Establishing Issue of Revenue Bonds adopted by the Commission 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 sufficient 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 pro- 
vides that all excess cash be held in the Revenue Fund until the last business day of the fiscal year. At that 
time, if certain covenants 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 Commission has options for early redemption of revenue bonds starting in 1995 at prices 
ranging from 103 to 100 percent of face value. 

Revenue Bonds 

The 1 984 Series A Bonds were issued in order to advance refund a series of 1 980 System Revenue 
Bonds. Under the Refunding TVust Agreement, the Commission deposited sufficient funds with the 1 980 
Bond TVustee to pay when due, the principal and interest on all 1 980 bonds through lanuary 1 . 200 1 , the 
final maturity date thereon. By depositing such funds with the 1 980 Bond TVustee under the Refunding TVust 
Agreement, the Commission caused the 1 980 Bonds to be no longer outstanding under the 1 980 Resolu- 
tion. The 1 980 Bondholders have no right, title, interest or liens in any other funds, real or personal prop- 
erty or assets of the Commission other than the amounts held under the Refunding TYust Agreement and 
pledged for their benefit thereunder. 

The 1985 Series A Bonds were issued to provide funds for projects under the Commission's 
ongoing capital improvement programs and other capital and operating needs. 

In August of 1 986, the Commission issued 1 986 Series A General Revenue Bonds (1986 Bonds) . 
This issue was structured as a rolling cross-over refunding and new money issue. The 1986 bonds provide 
funds for the Commission's ongoing capital improvement program and other capital and operating needs. 
In addition, a portion of the proceeds of the 1 986 bonds were deposited to the 1 986 Series A Escrow 
Account to provide for the principal payments of the 1 985 Series A Bonds and the interest payments of the 
1986 bonds as they come due. Thus, the Commission is allowed to pay the low short-term interest rates 
provided under the 1 98 5 bonds and has secured a guaranteed redemption for the 1 98 5 bonds. 

City Bonds 

At the time of its creation, the Commission assumed general obligation certificates of indebted- 
ness of the City (City Bonds) pertaining to the water and sewerage works systems. Payments for principal 
and interest are made directly to the City in accordance with the original maturity and interest schedule. 

Aggregate bond maturity and sinking fund requirements of the Revenue bonds and City bonds at 
December 31, 1986 are as follows: 

Year Total 



1987 S 2,850,000 

1988 2,900,000 

1989 3,015,000 

1990 3,180,000 

1991 3,165,000 
Thereafter 193,925,000 
Subtotal 209,03 5,000 
Accrued interest 6,446,007 
Unamortized debt discount (7,458,706 ) 
Total bonds payable $208,022,301 



///// 



5. MASSACHUSETTS WATER " 



rmiB DBrrr 



On January 1, 1985, 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 
onluly 1, 1985. 

The Authority (previously MDC) provides all the Commissions water and sewer treatment require- 
ments and assesses the Commission for its actual operating and capital expenses. Payments 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. Charges and 
assessments for 1986 and 1985 are as follows: 



Watercharges $15,761,242 $14,141,028 

Wastewater assessments 20,723,367 18,101,887 

Total $36,484,609 $32,242,915 



In 1 986 and 1985, approximately 67% of water purchased from the Authority was billable to cus- 
tomers. Since its inception, the Commission has increased the percentage of billable water from 52% in 
1 977 to the current level of 67% in 1 986 and is continuing to take steps to improve the amount of water bill- 
able, including replacement of old and defective meters and a comprehensive leak detection and repair 
program. 

6. TRAi^iSACTIONS 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 consumption of $1 ,016,000 and $707,000 in 1 986 and 1985, respectively 
The remaining four City departments were billed based on estimated consumption for $ 1 , 1 82,000 and 
$988,000 during 1986 and 1985, respectively 

The City provides services to the Commission, including paving and facilities rental. Operating 
costs billed by the City were $48 1 ,000 and $924,000 during 1 986 and 1 98 5, respectively Capital costs 
billed by the City were $264,000 and $684,000 during 1986 and 1985, respectively 

7. RETIREMENT BENEFITS 

The Commission provides retirement benefits to substantially all of its employees through a pen- 
sion trust fund (trust fund) and the State-Boston Retirement System (Boston System). The Commission's 
policy is to accrue the normal cost of future benefits using an actuarially determined rate of 1 1 . 1 4% of regu- 
lar compensation. Pension expense is generally funded annually and was $1 ,267,.000 and $1,1 79,000 for 
1986 and 1985, respectively 

The fair market value of trust fund net assets available for benefits was $ 1 0,984,000 and 
$9,45 1 ,000 at December 3 1 , 1986 and 1 985, respectively The trust fund reimburses the Boston System for 
the Commission's share of all benefit payments made to its retired employees and related administrative 
costs. 

During 1986, a dispute concerning the Commission's past and future obligations to all employees 
covered by the Boston System was settled, resulting in a payment of $ 1 9, 1 00,000 to the Boston System. 
This payment, funded primarily through proceeds from bonds issued in 1 98 5 and 1 986. was recorded as a 
deferred charge to be recovered through future rates. 



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8. COMMITMENTS 

The Commission exercised its option to renew the lease for office space through April 1 988 at an 
annual rental of $ 1 93 ,000 which provides that the Commission pay for utilities, insurance, tax escalation 
and maintenance. Total rent expense charged to operations amounted to $7 58.000 and $764,000 in 1 986 
and 1985, respectively. 

A major capital improvement program is currently in progress. As part of this program, the Com- 
mission has entered into a number of contracts for the design and construction of its facilities. Commit- 
ments under these contracts aggregate $3,686,000 at December 31, 1986. 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 $89 million for 1987 through 1 991 . Of this amount $47 million represents 
extension and improvement projects to be funded by the proceeds of Commission revenue bonds and fed- 
eral and state grants for certain wastewater projects, and $42 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. Manage- 
ment 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 subject to 
review and audit by the grantor agencies. Such audits could lead to requests for reimbursement to the 
grantor agency for expenditures disallowed under terms of the grant. The Commission believes such disal- 
lowances, if any, will not be significant. 

The Commission is involved as a defendant in litigation regarding the pollution of Boston Harbor. 
Management believes that, except for increases in future MWRA assessments incidental to the litigation, 
the Commission's extensive capital improvement program (see Note 8) addresses possible actions that the 
Commission may be required to undertake in connection with this litigation. 



;jg;IIl- Design: Media Matrix. Inc. 



Boston Water and Sewer Commission 

10 Post Office Square 

Boston, MA 02 109. '":^'-'U\„. -