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Full text of "Annual report"

Boston 
Water one 

Sewer 
Commission 



ANNUAL REPORT 
1987 



MESSAGE FROM 
CHAIRMAN TYE 



< Dating back to the 
second century A.D., this 

aqueduct is located in Segovia, 
Spain. It was built by the 
Romans with unmortored 
granite blocks to tronsport 

water from over ten miles away. 



Throughout our ten year history, The Boston Water and Sewer Commission has endeav- 
ored to build and constantly improve its service obligation to its rate payers by being an efficient 
and well managed agency. The Commission is proud, not only of our record of past accomplish- 
ments, but also of the significant initiatives which we have undertaken to ensure the proper 
delivery and maintenance of quality water and wastewater services to the City of Boston. 

As the Commission enters the next decade, we are preparing now for future system 
demands. As the largest customer of the Massachusetts Water Resources Authority we are cur- 
rently facing the financial impact that the Boston Harbor cleanup mandate will have upon both the 
Commission and the citizens of all the MWRA member communities in the Commonwealth of 
Massachusetts. 

In addition, as Boston's strong economy continues to grow and attract new industry to this 
area, we are planning for the additional demand for water and wastewater services. We see our 
challenge to be the control of rate increases concurrent with the provision of necessary capital 
Improvements. 

With continued prudent and sound fiscal management strategies, equipment mainte- 
nance and customer service, the Boston Water and Sewer Commission will move confidently into 
the 1 990's. We are secure in knowing that the Commission has the resources to continue its 
tradition of service to the City of Boston. 

Sincerely, 




A. Raymond Tye 
Chairman 




A. Raymond Tye 

CHAIRMAN 



Lisa G. Chapnick 

COMMISSIONER 



■«■»«■■"■■»' 



A TRADITION 
OF SERVICE 




Discovered in the Andean region 

of Peru, this Inca pottery jar, 

or calabash, dates back to 500 

A.D., when it was used to 

transport water from rivers 

and streams to highland 

fortresses. 



Over tlie past decade ttie Boston Water and Sewer Commission iias embarked upon an 
aggressive Capital Improvement Program intended to meet the present and future needs of the 
City of Boston. As a result, the Commission is well positioned to provide quality water and waste- 
water services at reasonable rates both now and into the next century 

The Commission has established an innovative long term debt management strategy 
which is designed to cost effectively fund its Capital Improvement Program enabling the Commis- 
sion to keep water and sewer rates stable, thus mitigating the cost of required improvements to 
Boston's rate payers. 

WATER AND SEWER RATES 

The Commission's responsibility to provide water and wastewater services on a fair and 
equitable basis requires that it set rates at sufficient levels to meet all costs for operations. 

The Commission is sensitive to the concerns of its rate payers over rising water and sewer 
rates, fueled by the much needed Boston Harbor cleanup. As a result, management has embarked 
upon an intensive public awareness effort while at the same time redoubling its efforts to control or 
cut administrative costs. 

CAPITAL IMPROVEMENT PROGRAM 

Boston's public water system dates back to 1 848. Although some components of the 
system are over 1 00 years old, its overall structural integrity remains strong. Those portions of 
the system that require replacement or repairs have been identified and the necessary work has 
either been effected or is in the planning stages. Wherever possible, the Commission has enhanced 
the system's operability through upgrading its components to take advantage of advancements in 
technology. 

Relaying and Relining Program 

The primary purpose of the relaying and relining program is to ensure a supply of high 
quality water, at adequate pressure, for customer use and fire protection through the rehabilitation, 
installation and the cleaning of the water mains. 

Metering Program 

Since the inception of the metering program in late 1978, over 48,000 remote reading 
residential meters have been installed. This has dramatically reduced the number of estimated bills 
and has increased water accountability. 



Computerized Work Order System 

Automation of the water maintenance system was implemented at ttie end of January, 
1987 The computerization of this system provides us with better utilization of manpower and 
isolation of troublesome areas. 




The Boston Water and Sewer 

Commission currently 

services over 87,000 homes, 

apartments, business and 

institutions through 1080 miles 

of delivery pipes and 1300 

miles of drainage pipes. 



Leak Detection Program 

During 1 987 the Commission conducted leak detection testing on 447 miles of piping 
out of a system total of 1 1 82 miles, or 38% of the total system. Increased leak detection efforts will 
continue in order to encompass a greater percentage of the total system. 

To make the detection of leaks much easier, the Commission has initiated a program of 
valve upgrading intended to facilitate the subdividing of service areas Into smaller sections. This 
program will be instrumental In shortening response time required to detect and repair water main 
breaks or leaks. 

The Commission's Hydrant Improvement Program will also reduce unaccounted for 
water by improving the operabillty of hydrants by eliminating ungated hydrants. 

Wastewater Collection System 

The backbone of the wastewater collection system is the Boston Main Drainage system, 
which was constructed between 1 877 and 1 884 and currently remains operational. This system 
combines five sewer mains, referred to as "interceptors," the Calf Pasture Pumping Station, and the 
Dorchester Bay Tunnel. Extensive plans were developed to replace two of the original interceptors 
with construction beginning In 1 982, resulting in the completion of the New Boston Main Inter- 
ceptor in 1 987 and the New East Side Interceptor to be completed in 1 988. Commission engineers 
consider the remaining interceptors to be structurally sound. 

FINANCIAL STABILITY 

The Boston Water and Sewer Commission's financial statements for 1 987 show continued 
improvement in the Commission's financial condition. In 1 987, our debt service coverage was 
200%, significantly exceeding the mandated 1 25% requirement of our indenture documents. 

Throughout this past year, the Commission maintained its Standard and Poors rating at 
"A" and its Moodys rating at "Baa 1 ." Early in the second quarter of 1 988, Moody's Investor 
Services upgraded its rating to "A." The Commission has for the tenth consecutive year received 
an unqualified audit opinion. 

The City's robust, vibrant economy continues to outperform much of the nation, and 
with this economic growth comes increased demand for services. As we prepare for these 
demands, we stand upon past achievements, secure In knowing that we are prepared to meet 
future challenges. 



LOOKING 



Combined Capital 

Improvements 

to Water & Sewer 

Property 



While the accomplishments of the Boston Water and Sewer Commission are many, our 
mission has only begun. 

WATER DISTRIBUTION SYSTEM 

The primary objectives of the proposed 1988-1990 water Capital Improvement Program 
will be met through three major areas of activity: a relaying and relining program; a metering pro- 
gram; and special projects. 

Commission policy, whenever possible, is to tie relaying and relining of water to other 
work requiring street and highway construction, urban development, housing development, and 
subway construction. Coordinating projects in this way helps to minimize costs and reduce 
traffic-flow problems. 

The Commission's metering program continues to place emphasis on increasing water 
accountability and equitably allocating the costs of water and wastewater services to its customers 
based upon actual usage. With this as our goal, we plan to continue the installation of remote read- 
ing residential meters, in conjunction with the Commission's 1 5 year meter replacement program. 

As a special pilot project, we plan to initiate the use of electronic probing devices on 
larger user accounts , as well as the use of computerized hand held meter reading devices. These 
innovations should provide for quicker billing, better route manipulations, and the elimination of 
read verifications. 

SEWER AND DRAINAGE SYSTEM 

The sewer system Capital Improvement Program includes the protection of the structural 
integrity of current wastewater collection and storm drainage systems; the reduction of infiltration 
and inflow in the wastewater system; the control of combined sewer overflows; the improvement 
of water quality in Boston Harbor as well as its tributary rivers; and the separation of combined 
systems where appropriate and cost-effective. 

Improvement projects fall into three broad categories: renewals and replacements, separa- 
tion of combined sewers, and increased system capacity Renewal and replacement projects, which 
maintain the useful life of existing facilities, are financed from the annual sewer rates. Projects in 
the other categories, which improve, enlarge or expand the system, are financed through the sale 
of bonds. 

The promise of cost-efficient, quality water and wastewater systems is becoming a reality 
in Boston due to sound fiscal planning and effective operations management. Regardless of what 
the fijture may bring to the City, the Boston Water and Sewer Commission lies prepared to meet 
the challenge given to us a decade ago . 



AUDITORS' 
OPINION 



Boston Water and Sewer Commission: 

We have examined the balance sheets of the Boston Water and 
Sewer Commission as of December 31, 1987 and 1986 and the related state- 
ments of operations, of Commission equity and of changes in financial posi- 
tion 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 finan- 
cial position of the Boston Water and Sewer Commission at December 31, 
1987 and 1986 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. 



^^jdifi:^ \^cKtAu4 '^sji^ 



Boston, Massachusetts 
March 23, 1988 



BALANCE SHEETS, December 31, 1987 and 1986 



ASSETS 

CURRENT ASSETS: 

Cash 

Trusteed assets 

Nontrusteed assets 

Accounts receivable -customers, less 

allowances of $8, 1 60,000 in 1 987 

and $8,604,000 in 1986 
Earned revenues in excess of billings, 

less allowances of $639,000 in 1 987 

and $397,000 in 1986 
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 



NOTES 



1,4,7 
1,4 



1987 



1986 



$ 241,950 $ 699,389 
10,602,991 12,595,006 

4,524,851 3,554,581 



27,327,027 35,002,146 



7,300,955 



4,528,671 





19,299,357 


12,591,636 


6 


2,390,799 


2,071,369 




721,792 


1,126,018 


1,2,7 


32,563,431 


22,505,758 




104,973,153 


94,674,574 


1,4 


100,426,523 


96,867,616 


1,4 


11,328,676 


28,335,874 


1,3,8 


208,654,029 


181,065,695 


1,2,7 


35,958,127 


29,570,773 


1 


4,606,390 


4,941,062 




$465,946,898 


$435,455,594 



See notes to financial statements. 



LIABILITIES AND COMMISSION EQUITY 

CURRENT LIABILITIES: 
Payable from current assets: 

Accounts payable 

Other accrued liabilities 

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 



NOTES 



1987 



5,030,822 
4,054,777 
9,085,599 



1986 



$ 6,154,860 
3,041,058 
9,195,918 



5 


42,322,893 


34,663,756 


4 


689,436 


747,023 




43,012,329 


35,410,779 


4 


7,152,511 
18,604,763 


8,548,984 


1,2 


21,010,789 




77,855,202 


74,166,470 



OTHER LIABILITIES: 
Massachusetts Water Resources 

Authority assessment for water and 

sewerage 
City Bonds 

General Revenue Bonds 
Deferred revenues 
Other liabilities 

Total Other Liabilities 

COMMISSION EQUITY: 
Contributed capital 
Accumulated deficit 
Total Commission Equity 

TOTAL 



5 

4 
4 

1,2 


29,066,270 

2,885,000 

193,461,826 

68,697,369 
2,354,328 


18,242,304 

3,525,000 

195,201,294 

58,947,651 

3,827,794 




296,464,793 


279,744,043 


1 


97,173,599 
(5,546,696) 


87,091,777 
(5,546,696) 




91,626,903 


81,545,081 




$465,946,898 


$435,455,594 



STATEMENTS OF OPERATIONS 

for the Years Ended December 31, 1987 and 1986 



OPERATING 
REVENUES: 

Water and sewer 
usage 

Fire pipe 

Other 

Total Operating 
Revenues 



NOTE 



TOTAL 



WATER 



SEWER 



1987 



1986 



1987 



1986 



1987 



1986 



$70,103,869 $62,487,001 $32,553,268 $30,681,253 
1,021,521 742,152 1,021,521 742,152 

1,127,391 853,753 515,218 418,339 



$37,550,601 $31,805,748 
612,173 435,414 



72,252,781 64,082,906 34,090,007 31,841,744 38,162,774 32,241,162 



OPERATING 
EXPENSES: 

Operations 

Engineering and 
administrative 

Maintenance 

Depreciation 

Total Operating 
Expenses 



49,595,870 41,953,509 22,671,027 20,753,385 26,924,843 21,200,124 



12,616,729 11,108,885 5,765,845 5,443,354 
4,422,268 3,389,586 2,539,977 1,829,625 
3,181,591 2,924,362 1,453,987 1,819,423 



6,850,884 5,665,531 
1,882,291 1,559,961 
1,727,604 1,104,939 



69,816,458 59,376,342 32,430,836 29,845,787 37,385,622 29,530,555 



TOTM OPERAT 
ING INCOME 



2,436,323 4,706,564 $ 1,659,171 $ 1,995,957 $ 777,152 $ 2,710,607 



OTHER INCOME 

(EXPENSE): 
Interest income 
Interest expense 



7,716,628 6,746,611 
(15,568,111) (7,504,160) 



INCOME (LOSS) 
FROM 
CURRENT 
OPERATIONS 1 

PRIOR YEAR 
RATE SURPLUS 
RECOGNIZED 
IN CURRENT 
YEAR 

CURRENT YEAR 
RATE SURPLUS 
DEFERRED TO 
SUBSEQUENT 
YEAR 1 



(5,415,160) 3,949,015 



8,863,251 4,914,236 



(3,448,091) (8,863,251) 



NET INCOME 



-0- $ -0- 



See notes to financial statements. 



STATEMENTS OF COMMISSION EQUITY 

for the Years Ended December 31, 1987 and 1986 



Balance, January 1, 1986 

Contributions in Aid of 
Construction 

Depreciation of Related 
Property 

Balance, December 31, 1986 

Contributions in Aid of 
Construction 

Depreciation of Related 
Property 

Balance, December 31, 1987 







TOTAL 


CONTRIBUTED 


ACCUMULATED 


COMMISSION 


CAPITAL 


DEFICIT 
$(5,546,6961 


EOUITY 


$72,514,229 


$66,967,533 


15,138,007 




15,138,007 


(560,459) 




(560,459) 


87,091,777 


(5,546,696) 


81,545,081 


10,707,286 




10,707,286 


(625,464) 




(625,464) 


$97,173,599 


$(5,546,696) 


$91,626,903 



See notes to financial statements. 



STATEMENTS OF CHANGES IN FINANCIAL POSITION 
for the Years Ended December 31, 198 7 and 1986 



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 other 

Deferred revenues 
Total 



1987 1986 

■0- $ -0- 

3,677,254 3,243,407 

647,968 (14,013,964) 

(2,772,284) 3,049,928 

(16,445,027) (24,662,657) 

16,159,025 886,051 

7,343,692 9,184,726 

8,610,628 (22,312,509) 



FINANCING ACTIVITIES: 
Bond: 

Proceeds 

Payments 
Contributions in aid of construction -net 
Debt issue costs 
Total 



81,876,248 
(2,850,000) (1,630,000) 
10,081,822 14,577,548 

(1,548,082 ) 

7,231,822 93,275,714 



INVESTING ACTIVITIES-Purchase of 
property, plant, and equipment 



(30,769,925) (27,589,812) 



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

Balances at end of year 



(14,927,475) 43,373,393 
142,052,466 98,679,073 



$127,124,991 $142,052,466 



YEAR-END BALANCES COMPRISED OF: 

Cash 

Current portion: 

Trusteed assets 

Nontrusteed assets 
Noncurrent portion: 

Trusteed assets 

Nontrusteed assets 



$ 241,950 $ 699,389 



10,602,991 
4,524,851 

100,426,523 
11,328,676 



12,595,006 
3,554,581 

96,867,616 
28,335,874 



TOTM CASH AND SECURITIES 



$127,124,991 $142,052,466 



See notes to financial statements. 



10 



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 statements 
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. 71 ("FAS-71"), "Accounting for the Effects of 
Certain Types of Regulation." FAS-71 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 capi- 
talized if future recovery is assured (deferred charges). 

The following is a reconciliation outlining the effects of FAS-71 on the statement of operations for the 
years ended December 31, 1987 and 1986: 

1987 1986 

Income (loss) prior to deferrals $ (4,770,020) $ 2,631,615 
Revenues and expenses deferred in 

accordance with FAS-71: 

Deferred revenues (12,546,479) (14,386,709) 

Deferred expenses 11 ,90 1 ,339 1 5,704, 1 09 

Income (loss) from current operations $ (5,415,160) $ 3,949,015 



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 
hasapplied $3,448,091, and $8,863,251 for the years ended December 31, 1987 and 1986, 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 
10 to 40 


40 to 

35 

3 to 


75 

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: 

YEARS 

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 total- 
ing approximately $1,258,000 and $734,000 was capitalized in 1987 and 1986, 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 balances have been reclassified to conform with current year presentation. 

2. DEFERRED CHARGES AND REVENUES 

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

1987 1986 

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 and other 
accruals 

Provision for adjustments 

Excess of amounts accrued over cash payments- 
bond interest 

Total deferred charges 

Current deferred charges 
Noncurrent deferred charges 

Total 

Deferred revenues: 

Capital improvement reimbursements 

Principal payments on long-term debt 

Allowance for slow collection 

Other 

Total deferred revenues 

Current deferred revenue 
Noncurrent deferred revenue 

Total 



(OOO's omitted) 


$17,111 


$17,707 


42,403 


23,938 


2,675 
1,485 


2,928 
2,228 


4,848 


5,276 


$68,522 


$52,077 


$32,564 
35,958 


$22,506 
29,571 


$68,522 


$52,077 


$57,897 
4,573 
8,282 
16,550 


$45,803 
8,175 
9,682 
16,299 


$87,302 


$79,959 


$18,605 
68,697 


$21,011 
58,948 


$87,302 


$79,959 



3. PROPERTY, PLANT AND EQUIPMENT 

The cost of "water and se"werage plant and equipment in service and related accumulated depreciation 
at December 31, 1987 and 1986 are summarized as follows: 

1987 1986 



Water: 
Works 
Meters and hydrants 


$ 76,078,487 
8,926,947 


$ 63,189,978 
8,228,903 


Total water 


85,005,434 


71,418,881 


Sewerage: 
Land 
Works 
Pumping station 


195,482 

77,030,797 

6,781,316 


195,482 

54,002,202 

6,777,290 


Total sewerage 


84,007,595 


60,974,974 


Other 


8,541,307 


6,622,028 


Total 

Less accumulated depreciation 


177,554,336 
25,372,933 


139,015,883 
21,921,021 


Total 

Construction in progress 


152,181,403 
56,472,626 


117,094,862 
63,970,833 


Total 


$208,654,029 


$181,065,695 



4. BONDS PAiABLE 

Outstanding bonds pa"yable including accrued interest, at December 31, 1987 and 1986 "were 



as follows: 



1987 1986 



Revenue Bonds: 

1 984 Series A, bearing interest at 
rates ranging from 6.75% to 10.5% 
with maturity dates ranging from 

January 1,1 988 to January 1,2011 $ 67,495,121 $ 67,991,521 

1985 Series A, bearing variable 
interest rates (6.50% and 7.375% 
at December 31, 1987), maturing 
in two equal amounts on 
November 1, 2014 and 2015 and 
requiring annual sinking fund 

contributions through 2014 51,170,192 51,288,424 

1986 Series A, bearing interest at 
rates ranging from 4.75% to 7.875% 
with maturity dates ranging from 

November 1,1988 to 2015 81,949,024 84,470,333 

City Bonds, bearing interest at 
rates ranging from 4.25% to 8% 
with maturity dates ranging from 
November 1988 to December 
1999 3,574,436 4,272,023 

Total bonds outstanding 204,188,773 208,022,301 

Less current portion due within one 
year including accrued interest 7,841,947 9,296,007 

Portion due after one year, net of 
unamortized original issue 
discount $196,346,826 $198,726.294 



The Resolution Establishing Issue of Revenue Bonds adopted by the Commission on December 6, 
1984 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 dis- 
bursed 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 of the fiscal year. At that time, if certain cov- 
enants 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 reftand a series of 1980 System Revenue 
Bonds. Under the Reftinding Trust Agreement, the Commission deposited sufficient funds with the 1980 Bond 
Trustee to pay when due, the principal and interest on all 1980 bonds through January 1, 2001, the final matu- 
rity date thereon. By depositing such funds with the 1980 Bond Trustee under the Refunding Trust Agreement, 
the Commission caused the 1980 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 other than the amounts held under the Reftinding Trust Agreement and pledged for their benefit 
thereunder. 

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

In August of 1986, the Commission issued 1986 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 programs and other capital and operating needs. In addition, 
a portion of the proceeds of the 1986 bonds were deposited to the 1986 Series A Escrow Account to provide 
for the principal payments of the 1985 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 1985 
bonds and has secured a guaranteed redemption for the 1985 bonds. 

City Bonds 

At the time of its creation, the Commission assumed general obligation certificates of indebtedness of 
the City (City Bonds) pertaining to the vrater and sewerage works systems. Payments for principal and interest 
are madedirectly to the City in accordance with the original maturity and interest schedule. 

Aggregate bond maturity and sinking ftind requirements of the Revenue bonds and City bonds at 
December 31, 1987 are as follows: 

YEAR TOTAL 



1988 $ 2,900,000 

1989 3,015,000 

1990 3,180,000 

1991 3,165,000 

1992 3,380,000 
Thereafter 190,545,000 
Subtotal 206,185,000 
Accrued interest 4,94 1 ,947 
Unamortized debt discount (6,938,174 ) 
Total bonds payable $204,188,773 



MASSACHUSETTS WATER RESOURCES AUTHORITY 

On January 1,1985, legislation became effective creating the Massachusetts Water Resources Author- 
ity (the Authority) which transferred possession, control and operations of the Metropolitan District Commis- 
sion (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 require- 
ments and assesses the Commission for its actual operating and capital expenses. Payments for the prior calen- 
dar 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 
1987 and 1986 are as follows: 

1987 1986 

Water charges $21,720,502 $15,761,242 

Wastewater assessments 31,127,262 20,723,367 

Total $52,847,764 $36,484,609 



In 1987 and 1986, approximately 67% of water purchased from the Authority was billable to custom- 
ers. Since its inception, the Commission has increased the percentage of billable water from 52% in 1977 to the 
current level of 67% in 1 987 and is continuing to take steps to improve the amount of water billable, including 
replacement of old and defective meters and a comprehensive leak detection and repair program. 

TRANSACTIONS WITH THE CITY OF BOSTON 

The Commission's ongoing program to meter City facilities has resulted in billings to nine City depart- 
ments based on actual consumption of $1,090,000 and $1,016,000 in 1987 and 1986, respectively The 
remaining four City departments were billed based on estimated consumption for $ 1 ,3 1 9,000 and $ 1 , 1 82,000 
during 1987 and 1986, respectively. 

The City provides services to the Commission, including paving and fecilities rental. Operating costs 
billed by the City were $463,000 and $481,000 during 1987 and 1986, respectively Capital costs bUled by the 
City were $263,000 and $264,000 during 1987 and 1986, respectively 

RETIREMENT BENEFITS 

The Commission provides retirement benefits to substantially all of its employees through a pension 
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 6.75% and 1 1 . 1 4% of regular 
compensation in 1987 and 1986, respectively. Pension expense is generally funded annually and was 
$805,000 and $1,267,000 for 1987 and 1986, respectively 

The fair market value of trust fund net assets available for benefits was $ 1 1 ,442,000 and $ 1 0,984,000 
at December 31, 1987 and 1986, respectively The trust fund reimburses the Boston System for the Commis- 
sion'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 cov- 
ered by the Boston System was settled, resulting in a payment of $19,100,000 to the Boston System. This pay- 
ment, funded primarily throught proceeds from bonds issued in 1985 and 1986, was recorded as a deferred 
charge to be recovered through future rates. 



8. COMMITMENTS 

During 1987, the Commission moved its administrative offices. In conjunction with the move to new- 
offices, the Commission terminated its lease and a new lease was obtained for the new office space. The new 
lease provides for an initial term of five years with two options to extend the lease for additional five-year terms. 
The basic rent will include an allocation for building operating costs and is subject to an escalation clause sub- 
ject to certain limitations. Total rent expense charged to operations amounts to $820,000 and $758,000 in 
1987 and 1986, respectively. 

A major capital improvement program is currently in progress. As part of this program, the Commis- 
sion has entered into a number of contracts for the design and construction of its facilities. Commitments under 
these contracts aggregate $1 1,107,000 at December 31, 1987. 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 $65 million for 1987 through 1991. Of this amount $30 million represents extension and improve- 
ment projects to be ftinded by the proceeds of Commission revenue bonds and federal and state grants for cer- 
tain wastewater projects, and $35 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 the terms of the grant. The Commission believes such disallowances, 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.