Annual report

BOSTON PUBLIC LIBRARY

Today in Boston we look to a future filled with promises and cfiallenges,
as well as uncertainties. While our skyline is rich with the evidence of new de-
velopment and continued growth, fiscal belt-tightening is becoming a major
concern for all City agencies.

As we close out the decade, the Boston Water and Sewer Commission
(BWSC) accepts the challenge of maintaining a water and sewer system that
must meet the promise of this new revitalized Boston. At the same time, we
continue a management program of fiscal austerity.

Since its inception, the BWSC has provided the City with some of the
purest water in the nation. Originating at the Quabbin Reservoir, our water
flows through 50 miles of MWRA pipeline before reaching the City of Boston.
We also maintain a wastewater collection system that consists of over
90,000 service pipes and extends over a length of 1 ,300 miles. Operating,
maintaining and improving this vast service delivery infrastructure is a constant
challenge.

In addition, BWSC has earned a growing respect in financial communi-
ties for its sound fiscal management, as well as in the environmental commu-
nity for water conservation and pollution control programs, hiowever, since
parts of our system are over 1 30 years old, much remains to be accom-
plished.

As the Executive Director of the Boston Water and Sewer Commission, I
have set three important goals for the Commission: cost-control, continued
excellence in customer service, and an increased vigilance in protecting our
urban environment.

I am committed to these goals. I also believe that the employees of the
Commission share a common desire to serve the needs of the people of Bos-
ton. This dedication of purpose will result in a greatly improved water and
wastewater delivery system as we enter the next century.

Sincerely,

Robert J. Cioiek
Executive Director

Robert J Cioiek
Executive Director

Mary Net

Lisa C. Cbapnick
Commis

la

" Since its inception.

tiie BWSC has

provided tlie City

witli some of

the purest water

in the nation.

The Boston Woter and Sewer Commission (BWSC) fakes very seriously its role in
presen/ing ond protecting Boston's urban environment. While the Commission has
earned notional recognition for resource conservation programs and for achievements
in rehabilitating and operating our water and wastewater system, we are committed to
further improvements. As we move towards the year 2000, The Boston Water and
Sewer Commission is pleased to be part of the increased effort to improve the environ-
mental quality of life in the City of Boston.

Conserving a Precious Resource. The BWSC has developed several
model conservation programs to insure that Boston residents, businesses and visitors
continue to receive a stable supply of clean, pure water. Successful conservation pro-
grams include:

■ An aggressive leak detection and repair program which has helped to reduce Bos-
ton's vi^ater consumption from 150 million gallons per day in 1976 to 1 1 1 .4 million
gallons per day in 1 989 - a reduction of 26 percent. In 1 989 alone, the program
saved 1 0. 1 million gallons per day;

■ A progressive rate structure which promotes water conservation by charging a
higher rate for higher amounts of water used;

■ Ongoing domestic and industrial consen/otion programs.

Guarding Against Pollution. Improving water quality in Boston hHorbor
will continue to be one of the most pressing environmental issues of the decade. The
Commission, in cooperation with other state and federal agencies, plays a significant
role in harbor clean-up efforts.

The BWSC has token several major steps to control doily discharge of sewage
info the harbor. Through the construction of two new interceptors in 1 988 and the sys-
tematic cleaning of existing interceptors, we have enlarged our capacity for transport-
ing sewage and have virtually eliminated dry weather overflows.

During wet weather, Boston's sewage system, which combines wastewoter and
storm drainage, often overflows at dozens of points around the harbor. These com-
bined sewer overflows (CSOs), are a major source of pollution in the harbor and its
tributaries.

The BWSC has already separated over 4,600 feet of combined sewers, signifi-
cantly reducing the threat of sewage spills during wet weather. In addition, the Com-
mission exceeds federal permit requirements for inspection and maintenance of our
fidegates and regulators, which help control the flow of combined sewage into the har-
bor.

The BWSC is actively locating and correcting illegal sewage connections to storm
drains, thus reducing another source of contaminants being dischorged into the City's
waterways. And by using the Calf Pasture CSO Pumping Station as a back-up to the
Massachusetts Water Resources Authority treatment plant, BWSC is providing on outlet
for combined sewage during storms and is treating harmful bacteria by chlorinating the
flow into Dorchester Bay.

Through aggressive maintenance and upgrading of Boston's woter and sewer sys-
tem, the BWSC will continue to ploy a major part in restoring Boston Harbor.

Uk

Since ifs inception, the Boston Water and Sewer Commission has practiced inno-
vative financial strategies that have allowed for capital improvements while securing a
reputation for the Commission as one of the best managed utilities in the country.

Today, however, we are faced with a future that calls for tighter cost controls,
fiscal austerity and an ever-vigilant, ongoing scrutiny of our budgets and resources.

The clean-up of Boston hHarbor involves costs of staggering proportions. Unfortu-
nately, because of the abdication of the responsibility of the federal and state govern-
ments in providing grants for this project, our customers will pay much more for water
and wastewater services. Due to existing laws and our commitment to the quality of our
water and wastewater systems, capital cost increases are largely unavoidable.

As we enter this period of rapidly escalating rates, BWSC will actively seek ways
to continue delivering high quality services in the most cost-effective manner.

Fiscal Accountability. The major impetus for the creation of the Commission
was to generate adequate revenue to meet the cost of proper operation and mainte-
nance of the City's water and sewer system.

Currently, rates must be established at a level sufficient to generate revenues to re-
cover the full costs of operations on a fair and equitable basis, to encourage water
conservation, and to provide continued discounts for the elderly and disabled.

With the creation of the MWRA and its mission to clean up Boston Harbor as well
as upgrade the existing water and sewer infrastructure, the City is now feeling the im-
pact of increased rates. To assure accurate rate levels, the Commission carefully moni-
tors metering at the 29 points where water is delivered by the MWRA and independ-
ently reviews Authority rotemaking methodology.

Our commitment to fiscal accountability assures our customers that their rote dollars
are used wisely and efficiently. Recently, a national bond rating service recognized the
Commission's sound fiscal management by awarding us an A/A - bond rating.

Management Accountability. The Commission's policies are formulated
by a three-member Board of Commissioners, appointed to four-year terms by the
Mayor, subject to confirmation by the City Council.

Policy is implemented under the direction of the Executive Director, RobertJ.
Cioiek, and carried out through various departments managed by experienced senior
staff. Units within the Office of the Executive Director include Legal, Planning and Pro-
gram Management, Affirmative Action and Public Affairs. In addition to the Office of
the Executive Director, the Commission is organized into four principal departments:
Finance, Administration, Operations, and Engineering.

Buoyed by a reputation for management accountability and fiscal stability and in-
tegrity, the Commission enters this period of maximum fiscal austerity with a sound
management and financial structure.

Service to the

people of Boston

Service to the people of Boston, delivered with courtesy and respect, is Boston
Water and Sewer Commission's most essential mission. We firmly believe that the
people of Boston will be more willing to accept the high costs associated with harbor
clean-up and increased water rates when they ore receiving value for their dollar as
well as a sustained quality of service.

Encouraging Community Access. Our customer service department con-
tinues to actively work through community outreach to make the Commission more ac-
cessible and accountable to residents.

Public outreach efforts include cost-effective educational tools, such as conservation
tips, billing inserts, and a traveling wafer conservation exhibit. Neighborhood meetings
are frequently held to update customers on construction projects and local system
improvements.

By holding office hours in 1 5 convenient locations throughout Boston's neighbor-
hoods, BWSC representatives are available to accept payments, listen to service-re-
lated complaints and process elderly and disabled discounts.

The BWSC once again confirms its commitment to the concept that our customers'
needs are our most important consideration.

is our most

essential mission.

The same vision that guided planners to tap

Long Pond, to construct the Boston Main interceptor

System and build the Quabbin Reservoir, must

guide us to shape our future as well.

1^

INDEPENDENT A,

TORS'

Boston Water and Sewer Commission:

We have audited the accompanying balance sheets of the Boston Water and Sewer Com-
mission (the "Commission"! as of December 31,1 989 and 1 988 and the related statements of
operations, Commission equity and cash flows for the years then ended. These financial state-
ments and the supplemental schedule discussed below are the responsibility of the Commission's
management. Our responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial
position of the Commission at December 31,1 989 and 1 988 and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic financial state-
ments taken as a whole. The supplemental schedule of revenues and expenses for the years
ended December 31,1 989 and 1 988 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such supplemental schedule has been sub-
jected to the auditing procedures applied in our audits of the basic financial statements and, in
our opinion, is fairly stated in all material respects when considered in relation to the basic finan-
cial statements taken as a whole.

DELOIUE & TOUCHE
Boston, Massachussetts
April 27, 1990

BALANCE SHEETS, December 31, 1989 and 1988

ASSETS

CURRENT ASSETS:

Cash and cosh equivalents

Accounts receivable:

Customers, less allowances of
$12,5 17,089 in 1989 and
$10,179,803 in 1988

City of Boston - net
Earned revenues in excess of

billings, less allowances of

$1,732,419 in 1989 and $641,623

in 1988
Construction grants receivable
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

1989

1,5,9 $ 26,801,667 $ 36,932,369

42,429,786 36,812,209

7 976,736 1,585,750

1

9
,2,8

10,838,488

12,893,326

1,521,537

12,594,773

108,056,313

7,134,473
11,784,224

1,073,979

11,387.415

106,710,419

,5,9

86,691,747

86,008,860

,5,9

44,528,169

2,614,295

4,10

256,914,295

228,925,916

,2,8

27,355,384

28,526,521

1

4,451,430

3,989,837

$527,997,338

$456,775,848

See notes lo financial slatemenls.

BALANCE SHEETS, December 31, 1989 and 1988 (cont.)

IIABIIITIES AND COA/WISSION EQUITY NOTES

CURRENT LIABILITIES:
Payable from current assets:

Accounts payable

Other accrued liabilities
Total
Payable from current trusteed assets:

Massachusetts Water Resources
Authority assessment

City bonds
Total

General revenue bonds
Deferred credits
Total current liabilities

OTHER LIABILITIES:
City bonds

General revenue bonds
Deferred credits
Other liabilities
Total other liabilities

COA^MISSION EQUITY:
Contributed capital
Accumulated deficit
Total commission equity

TOTAL

$ 8,252,043

$ 5,581,059

4,144,934

3,763,845

12,396,977

9,344.904

6 2,976,492

2,495,227

5 621,453

630,174

3,597,945

3,125,401

5 6,320,820

7,386,749

1,3 18,426,107

30,752,850

40.741,849

50,609,904

5 1,705,000

2,295,000

5 241,143,511

204,632,803

1,3 125,570,982

97,342,356

1,249,247

1,674,126

369,668,740

305,944,285

1 117,586,749

105,768,355

(5,546,6961

117,586,749

100,221.659

$527,997,338

$456,775,848

See notes to financial statements.

STATEMENTS OF OPERATIONS

For The Years Ended December 31, 1989 and 1988

TOTAL WATER SEWER

1989

1988

1989

1988

1989

1988

OPERATING REVENUES;

Water and sewer usage

$120,484,970

$ 90,734,764

$56,375,198

$44,560,550

$64,109,772

$46,174,214

Fire pipe

1,678,379

1,378,635

1,678,379

1,378,635

Other

870.533
123,033.882

813,539
92,926.938

400,445
58,454,022

382,363
46,321,548

470,088

43 1 , 1 76

Total operoting revenues

64,579,860

46,605.390

OPERATING EXPENSES:

Operations

79,034,656

61,353.142

35,172,791

27,832,594

43,861,865

33,520,548

Engineering and

administrative

23,807,038

14,409,642

12,143,322

6,585,206

11,663,716

7,824,436

Maintenance

4,831,816

4,575,196

2,222,635

2.726.623

2,609,181

1,848,573

Depreciation

_ 4,366.778

3,901,230

2,008,076

1,782.862

2,358,702

2,118,368

Total operating expenses

112.040,288

84,239.210

51,546,824

38,927,285

60,493,464

45.311.925

TOTAL OPERATING INCOME

10,993,594

8,687,728

$ 6,907,198

$ 7,394,263

$ 4,086.396

$ 1.293.465

OTHER INCOME (EXPENSE):

Interest income

7,986,618

6,503,666

Interest expense

(15,543.8201

(15.642.921)

INCOME (LOSS) FROM

CURRENT OPERATIONS

(Note 1 )

3,436,392

(451,527)

PRIOR YEAR RATE SURPLUS
RECOGNIZED IN
CURRENT YEAR 2,996,564 3,448,091

CURRENT PERIOD RATE
SURPLUS DEFERRED TO
SUBSEQUENT YEAR (Note 1 ) (6.432.956) (2.996.564)

NET INCOME $ -0- $ -0-

See notes lo financial statements.

STATEMENTS OF COMMISSION EQUITY

For The Years Ended December 31, 1989 and 1988 (Note 1)

TOTAL
CONTRIBUTED ACCUMULATED CO^W\ISSION
CAPITAL DEFICIT EQUITY

BALANCE, JANUARY 1, 1988 $97,173,599 $(5,546,696) $91,626,903

CONTRIBUTIONS IN AID OF

CONSTRUCTION 9,373,194 9,373,194

DEPRECIATION OF RELATED

PROPERTY (778,438) (778,438)

BALANCE, DECEMBER 31, 1988 105,768,355 (5,546,696) 100,221,659

CONTRIBUTIONS IN AID OF

CONSTRUCTION 13,309,386 13,309,386

DEPRECIATION OF RELATED

PROPERTY (1,490,992) (1,490,992)

PRIOR YEARS RATE DEFICITS

RECOVERED IN 1989 4,856,609 4,856,609

RECOVERIES ON PRE-COMMISSION
RECEIVABLES WRITTEN OFF IN
PRIOR YEARS 690.087 690.087

BALANCE, DECEMBER 31, 1989 $117.586.749 $ -0- $117,586,749

See notes to financial statements.

STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 1989 and 1988

NOTES

OPERATING ACTIVITIES:
Net income

Adiustments to reconcile net income to net cosh:
Depreciation and amortization
Loss on disposals of property, plant

and equipment
Recovery of accumulated deficit
Cfiange in assets and liabilities:
Accounts receivable

Earned revenues in excess of billings - net
Deferred charges
Accounts payable, assessments,
accrued liabilities and other
Accrued interest
Deferred credits
Total

FINANCING ACTIVITIES:
Proceeds of debt issuance
Payment for defeasance of bond

principal and interest
Payment of debt issuance costs
Payment of principal on bonds
Proceeds of contributions in aid of construction
Total

$ -0-

$ -0-

5,230,216

5,453,874

5,546,696

100,346

(5,008,563)

(3,704,015)

(36,221)

420,750

166,482

(13,795,966)

(4,855,027)
(1,854,651)
15,901,883
11,220,318

11,954,203

(40,024)

11,807,499

16,067,164

39,269,679

54,290,112

(779,000)
(3,115,000)
12,200.284
47,575,963

(51,498,254)

(1,071,345)

(2,900,000)

8.594.756

7.415.269

INVESTING ACTIVITIES:

Purchase of properly, plant and equipment

Net proceeds (purchases) of investments

Total

CASH AND CASH EQUIVALENTS:
Increase (decrease) during year
Balance, beginning of year

BALANCE, END OF YEAR

(26,330,222) (25,051,900)
(42,596,761) 23,132,044
(68.926.9831 11.919.8561

10,130,702)
36.932,369

21,562,577
15,369.792

$26.801.667 $ 36.932.369

YEAR-END BALANCES COMPRISED OF:

Cosh

Current portion:

Trusteed assets

Nontrusteed assets

$ 503.784 $

20,821,462
5.476.421

199.636

13,925,770
22.806.963

TOTAL CASH AND CASH EQUIVALENTS

$26.801.667 $ 36.932.369

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION ■ Cosh paid
during the year for interest
(net of amount capitalized)

$ 18,019.458 $ 15,682.944

See notes to financial stalemenis

NOTES TO FINANi

TAf EMENTS

1.0RCANIZATI0M, BASIS OF PRESEMTATIOM
AMD SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES

The Boston Water and Sewer Commission (the "Commis-
sion") hos 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 Reor-
ganization 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 recog-
nizes certain costs in periods other than when the costs are in-
curred. 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 "), "Ac-
counting for the Effects of Certain Types of Regulation." FAS-71
requires that under regulation (a) revenues provided for future al-
lowable costs are deferred until the costs are actually incurred
(deferred credits) and (b) allowable incurred costs are capital-
ized if future recover/ is assured (deferred charges).

The following is a reconciliation outlining the effects of
FAS-71 on the statements of operations for the years ended De-
cember 31, 1989 and 1988:

Income prior to deferrals

Revenues and expenses deferred in
accordance with FAS71 ;

Deferred revenues:

Revenue bond principal payments
Interest expense funded from escrow

accounts
Deposits to reserve funds
Investment income on project funds
Amortization of bond issue and

defeasance costs
Revenue raised for working capital
Revenue financed capital

improvements
Depreciation on commission finonced
property, plant and equipment

Other

Total

Deferred expenses - depreciation on
contributed capital

Income (loss) from current operations

1,858,132 $ 7,439,775

(3,115,000)

(2,540,000)

Water:

Works

Meters and hydrants
Sewerage:

Works

6,213,355
(3,213,000)
(5,146,168)

3,589,285
(2,929,162)
(5,912,644)

Pumping station
Other

1,278,819
(6,294,360)

774,208
(10,159,000)

(3,882,320)

4,471,041

4,366,778

(120,8361

(9,912,732)

3,901,231

135,302

(8,669,7391

1 ,490,992

778,437

$ 3,436,392

$ (451,5271

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 fol-
lowing year. The Commission has applied $6,432,956 and
$2,996,564 for the years ended December 31,1 989 and
1988, respectively, to offset rates in the respective subsequent
years.

Revenues and Earned Revenues in Excess of Billings- Wa-
ter and sewerage fees are billed to users of the systems on a
'quarterly cycle basis. Revenues are accrued for periods be-
tween the termination of billings for the various cycles and the
end of the year.

Trusteed and Nontrusteed 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.

Property, Plant and Equipment- Property, plant and equip-
ment is stated at cost. Depreciation is provided on the straight-
line method based upon the estimated useful lives of the various
classes of assets. Maintenance and repairs are charged to ex-
pense as incurred. Major renewals or betterments are capital-
ized and depreciated over their estimated useful lives.

The Commission capitalizes interest costs during construc-
tion of assets for its own use. Interest totaling approximately
$442,000 and $660,000 was capitalized in 1 989 and
1 988, respectively.

Depreciation- The ranges of estimated useful lives used in
computing depreciation are as follows;

Years

60tol00
10 to 40

40 to 75

35

3tol5

Commission Equity- Contributions from governmental agen-
cies, individuals and others received in aid of specific construc-
tion projects, which are not refundable, are included in Commis-
sion equity as contributed capital. Accordingly, depreciation of
the related property is charged directly to Commission equity
and is not included in the accompanying statements of opera-
tions.

In 1989, the Commission determined that the accumulated
deficit, previously recorded as a reduction of Commission eq-
uity, would be recoverable. The balance of $5,546,696 was
recovered in the 1 989 fiscal year, net of all previous receipts
that represented payment of pre-Commission receivables previ-
ously written off to the accumulated deficit.

Cash Equivalents- The Commission considers all highly liq-
uid, short-term cosh investments with a maturity of less than three
months to be cash equivalents.

Bond Issue Costs- Expenses related to the issuance of
bonds are amortized on a weighted-overage basis over the life
of the bonds which approximates the effective interest method.

Reclassification- Certain amounts in the 1988 financial
statements have been reclassified to conform to the 1 989 pres-
entation.

2.DEFERRED CHARGES

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

3.DEFERRED CREDITS

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

Current deferred credits:

Reseive deposits made under the

terms of the Bond Indenture

(Note 5)

$ 11,573,162

$ 8,360,162

Prior year surplus deferred to

subsequent year

6,432,956

2,996,564

Provision for additional working

capital

1 8,440,603

Other

419,989

955,521

Total current deferred credits

$ 18,426,107

$ 30,752,850

Noncurrent deferred credits:
Revenues raised for capital

improvements and payments on

long-term debt
Working capital at inception of

Commission
Provision for additional working

capital
Self insurance and other

Total noncurrent deferred credits

69,626,118 $66,116,781
28,985,575 28,985,575

24,734,963
2,224,326

2.240.000

1 25.570,982 $97,342,356

Current deferred charges:
Accrued interest expenses
Accrued pension expenses
Accrued legal claims
Accrued vocation and sick time

expenses
Debt extinguishment expenses
Provision lor adjustments

Total current deferred charges

Noncurrent deferred charges:
Accrued pension expense
Accrued legal cloims
Debt extinguishment expense

Total noncurrent deferred charges

$10,186,561 $ 8,437,049
201,833 189,255
427,835 418,531

818,544 640,055

960,000 960,000

742,525

1 2,594,773 $11.387.415

$16,541,824 $16,743,657

1,664,822 1,674,126

9,148,73& 10,108,738

$27.355.384 $28,526,521

4.PROPERTY. PLANT AMD EQUIPMENT

The cost of water and sewerage plant and equipment in
service and related accumulated depreciation at December 3 1
1989 and 1988 are summarized as follows:

Water:

Works

Meters and hydrants
Total water
Sewerage:

Worb

Pumping station
Total sewerage
Other
Total

Less accumulated depreciation
Total
Construction in progress

Total

$ 90,153,870 $ 83,217,000

10,762,835 9.559,755

100.916.705 92.776.755

136,939,338
6.798.216

132,419.951
6.781.316

143.737.554 139.201,267
10.017.442

,863.301

256,517,560
35.647.669

220,869,891
36.044.404

241,995,464
29.789.897

2)2,205.567
16.720.349

$256.914.295 $228.925.916

21,902,728 $ 25,048,342

5.BOMDS PAYABLE

Outstanding bonds payable, including accrued interest, at
December 31,1 989 and 1 988 were as follows:

Revenue Bonds:

1 984 Series A, bearing interest at rates
ranging from 7.0% to 1 0.0% with
maturity dotes ranging from January 1 ,
1 990 to January 1, 2011 :

] 985 Series A, bearing a variable
interest rote (6.6% and 7.3% at
Decembers!, 1989 and 1988,
respectively), maturing in two
equal amounts on November 1 ,
201 4 and 201 5 and requiring
annual sinking fund
contributions through 20 1 4

1 986 Series A, bearing interest at
rales ranging from 6.0% to 7.9%
with maturit/ dotes ranging from
November 1, 1990 to 20 15

1988 Series A, bearing interest at
rales ranging from 6.0% to 7.4%
with maturit/ dates ranging from
November 1 , 1 990 to 2008

1 989 Series A, bearing interest at
rates ranging from 5.9% to 7. 1 %
with maturity dates ranging from
November 1, 1990

to November 201 9

City Bonds, bearing interest at

rotes ranging from 5. 1 % to 9.5%
with maturity dotes ranging from
December 1990 to December 1999

Total bonds outstanding

Less current portion due within one
year including accrued interest

80,240,291

50,411,868

143

55,872,063 55,428,199

39,504,439

2,326,453
249,790,784

6,942,273

Z

214

925,

174
726

923

Portion due after one year, net of
unamortized original issue
discount

$242,848,511 $206,927,803

The Resolution Establishing Issue of Revenue Bonds adopted
by the Commission on December 6, 1 984 places certain restric-
tions on the Commission's operations. It requires that rates,
charges and fees be set at a level sufficient to meet a net reve-
nue 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 cosh be held in the Reve-
nue Fund until the last business day of the fiscal year. At that
time, if certain covenants ore met, the Commission has the op-
tion 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 es-
tablished both trusteed and nontrusteed funds with assets, princi-
pally short-term securities, which are restricted for payment of
specified liabilities. The Commission has options for early re-
demption of revenue bonds starting in 1995 at prices ranging
from 1 00% to 1 03% 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 Trust Agreement, the 1980 Bond-
holders hove 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 Refunding Trust Agreement and
pledged for their benefit thereunder.

The 1 985 Series A Bonds were issued to provide funds for
projects under the Commission's ongoing capital improvement
programs and other capital and operating needs. The Commis-
sion maintains a letter of credit to guarantee the principal and
interest payments on these bonds in the event that the Commis-
sion is unable to moke such payments.

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 capi-
tal improvement program and other capital and operating
needs. In addition, a portion of the proceeds of the 1986
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 inter-
est rates provided under the 1 985 bonds and has secured a
guaranteed redemption for the 1 985 bonds.

In December of 1988, the Commission issued 1988 Series
A bonds to provide for the defeasance of a portion of the Com-
mission's General Revenue Bonds 1984 Series A, to provide
supplemental funding for the Operating Reserve Fund and to
pay costs of issuance. Under the 1 988 Refunding Trust Agree-
ment, the Commission deposited sufficient funds with the 1 984

Bond Trustee to pay when due, the principol and interest
on the refunded bonds until the first coll dote, January 1 , 1 995.
As 0 result, the refunded bonds are no longer outstanding under
the Commission's Resolution.

In December of 1989, the Commission issued the 1989
Series A Bonds to provide funds for projects undertaken as part
of the Commission's ongoing capital improvement program.

In the aggregote, $ 1 07, 1 40,000 remains outstanding at
December 31,1 989 on the defeased portions of the 1 980
and 1984 issues.

City Bonds - At the time of its creation, the Commission as-
sumed general obligation certificates of indebtedness of the City
(City Bonds) pertaining to the water and sewerage works sys-
tems. 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 31,1 989 ore
as follows:

Year

1990

1991

1992

1993

1994

Thereafter

Subtotal

Accrued interest

Unamortized original issue discount

Total bonds payable

Total

$ 3,895,000
3,920,000
4,440,000
4,630,000
4,955,000
231,705,000
253,545,000
3,047273
(6,801.4891

$249,790,784

6.MASSACHUSETTS WATER RESOURCES
AUTHORITY

The Massachusetts Water Resources Authority (the "Author-
ity") provides all the Commission's water and sewer treatment re-
quirements and assesses the Commission for its actual operating
and capital expenses. Payments to the Authority are due in four
installments in March, May, September and November. Interest
is not charged on the outstanding balance. Assessments for
1989 and 1988 ore as follows:

During 1989 and 1988, over 70% and 67%, respectively,
of water received from the Authority was billable to customers.
Since its inception, the Commission has increased the percent-
age of billable water from 52% in 1 977 to over 70% in 1 989
and is continuing to take steps to improve the amount of water
billable, including replacement of old and defective meters and
0 comprehensive leak detection and repair program.

7.TRAMSACTIOMS 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 , 39 1 ,000 and $ 1 , 249,000 in 1 989 and
1988, respectively. The remaining four City departments were
billed $ 1 ,593,000 and $ 1 ,564,000 based on estimated con-
sumption during 1989 and 1988, respectively.

The City provides services to the Commission, including
paving and facilities rental. Operating costs billed by the City
were $520,000 during both 1989 and 1988. Capitol costs
billed by the City were $763,000 and $361 ,000 during
1989 and 1988, respectively.

8.RETIREMEMT BENEFITS

The Commission provides retirement benefits to substantially
oil of its employees through a pension trust fund (trust fund) and
the State-Boston Retirement System (Boston System). A dispute
concerning the Commission's past and future obligations to all
Commission employees covered by the Boston System was
settled in 1 986, resulting in a payment of $ 1 9, 1 00,000 to the
Boston System. This payment, funded primarily through 1985
and 1 986 bond proceeds, was recorded as a deferred charge
to be recovered through future rotes.

As port of the settlement with the Boston System, the Com-
mission annually reimburses the City for the Commission's share
of pension benefits paid to Commission employees. The Com-
mission's share is based upon the proportion of each em-
ployee's total years of creditable service that were spent with
the Commission. Employees become 100% vested after 10
years of creditable service as defined by Chapter 32 of the
Massachusetts General Laws.

Assessments allocated on:
Water usage
Wastewater usage

$21,928,747 $18,415,728
32,787,627 24,778,849

Total

$54,716,374 $43,194,577

The Commission's covered payroll was $14,738,993 and
$1 3,570,544 in 1989 and 1988, respectively. Total payroll
for all Commission employees was $17,443,241 and
$14,782,906 in 1989 and 1988, respectively. Incompli-
ance with Governmental Accounting Standard No. 5, as of
Januan/ 1 , 1990, the Commission updated its actuarial valu-
ation originally performed as of January 1 , 1989. The valu-
ation and subsequent update were based on 98 retired and in-
active employees, 153 vested active employees and 365 non-
vested active employees. Employee contributions are defined
under Massachusetts General Laws, Chapter 32. Total em-
ployee contributions were $1,017,036 and $863,522 or
6.9% and 6.4% of covered payroll in 1989 and 1988, re-
spectively.

As required by the Commission's Enabling Act, employee
pension contributions are transferred to the Boston System and
are either returned to employees upon termination or, for vested
employees, are used to defray a portion of the total retirement
benefit. The Commission's policy is to moke additional contribu-
tions to the pension trust fund based upon the actuarially deter-
mined cost of future benefits net of employee contributions.

Trust fund assets at December 31,1 989 and 1 988
comprised:

Assets (at fair market value):

Common stocks

$ 8,740,563

$ 7105,225

U.S. Government securities

4,378,249

4,146,601

Corporate bonds and notes

1 ,924,029

Short-term investments

1,591,600

2,286,000

Cash

264,957

235,535

Other

289,817

189,414

Total

$17,189,215

$13,962,775

Net assets in excess of pension benefit obligation appli-
cable to the Commission's employees are determined as
follows:

Net assets available for benefits
Pension benefit obligation:
Retirees and beneficiories currently

receiving benefits
Current employees:

Employer-financed vested
Employer-financed nonvested
Total pension benefit obligation

Net assets in excess of pension
benefit obligation

$17,189,215 $13,962,775

2,001,000

3,213,000
4,551,000

,685,000

2,790,000
3,954,000

9,765,000 8,429,000

7424,215 $ 5,533,775

The amount shown as the pension benefit obligation is a
standardized disclosure measure of the present value of pension
benefits, adjusted for the effects of projected solar/ increase, es-
timated to be payable in the future as a result of employees'
service to date. The measure is intended to help users assess the
funding status of the system on a going-concern basis, assess
progress mode in accumulating sufficient assets to pay benefits
when due and make comparisons among systems. The meas-
ure is independent of the actuarial funding method used to deter-
mine contributions to the pension trust fund.

The pension benefit obligation was computed as port of an
update performed as of Januan/ 1 , 1 990 using the information
and assumptions contained in the January 1 , 1 989 actuarial
valuation. Significant actuarial assumptions used to calculate the
pension benefit obligations include a rote of return on investment
of present and future assets of 9% a year compounded annually
and projected solan/ increases of 7% a year, compounded an-
nually.

The Commission's funding policy has been to provide for
quarterly employer contributions to the trust fund based upon on
actuarially determined rote using the aggregate actuarial cost
method. The Commission's contributions totaled $990,92.9
and $916,012 in 1989 and 1988, respectively, or 6.7% of
the covered payroll. Historical information on the Commission's
pension plan is not available.

9.DEPOSITS AND INVESTMENTS

The Boston Water and Sewer Commission's General Reve-
nue Bond Resolution, adopted December 6, 1984, as
amended, places certain limitations on the nature of deposits
and investments available to the Commission. Demand deposits
and term deposits without collaterolization can only be made
with financial institutions meeting certain criteria. Certificates of
deposit must be fully collateralized and issued by FDIC insured
banks. Investments con also be made in securities issued by or
unconditionally guaranteed by the U.S. Government or its Agen-
cies; public agencies, municipalities or state obligations carry-
ing the highest bond rating; commercial paper rated A-1 , P-1 ;
A Rated money market funds; fully collateralized investment con-
tracts and certain futures contracts.

In addition, the Commission's Pension Trust Fund has addi-
tional investment powers, most notably the ability to invest in
stocks, corporate bonds and other instruments.

Deposits- The following summary presents the amount of the
Commission's deposits which ore (Category 1 ) fully insured or
collateralized with securities held by the Commission or its agent
in the Commission's name, (Category 2) those deposits which
are collateralized with securities held by the pledging financial
institution's trust department or agent in the Commission's name
and (Category 3) those deposits which are not collateralized as
of December 31,1 989 (in thousands):

Bank Balances

Total

Cateaory

Bank
Balance

Carrying

X

2

3

Amount

Cash
Certificates of

$200

$ 2,115

$ 2,315

$ 2,315

Deposit
Money market

400
200

5,413
3,836

5,813
4,036

5,8)3
4,036

Total

$800

$o

$11,364

$12,164

$12,164

Investments- The Commission's investments are categorized
according to the level of risk assumed by the Commission.
Category 1 includes investments that are insured, registered or
held by the Commission's trustee in the Commission's name.
Category 2 includes uninsured and unregistered investments
held by the counterparty's trust department or agent in the Com-
mission's name. Category 3 includes uninsured or unregistered
investments held by the counterparty, its trust department or
agent but not in the Commission's name (in thousands):

Category

U. S. Government
obligations

U. S. Government
Agency
obligations

Repurchase
Agreements

Money market

Qher

investments

Total

$35,957

47,256

Estimated
Carrying Market
Amount Value

$ 35,957 $ 35,121

47,256 50,658

$33,993 $ 800 34,793 34,793
26,526 26,526 26,526

i,213 $35.319 $27,326 $145.858 $148,424

lO.COMMITMEMTS

The Commission leases its administrative offices. The lease
provides for on initial term of five'years with two options to ex-
tend the lease for additional five-year terms. The basic rent in-
cludes on allocation for building operating costs and an escala-
tion clause subject to certain limitations. In 1 988 the Commis-
sion entered into an additional three-year lease of a vehicle
maintenance facility. Total rent expense for both facilities
amounted to $1,220, 120 and $1 ,025,000 for 1989 and
1988, respectively.

A major capital imiprovemenf program is currently in prog-
ress. As part of this program, the Commission has entered into
a number of contracts for the design and construction of its facili-
ties. Commitments under these contracts aggregate approxi-
mately $41 .7 million at December 3 1 , 1989. Capital im-
provements, primarily related to water and wastewater system
projects with an emphasis on the clean-up of the Boston Harbor
area, are expected to aggregate approximately $ 1 36 million
for 1990 through 1992. Of this amount, approximately
$91 million represents extension and improvement projects and
$45 million represents renewal and replacement projects. The
extension and improvement projects will be 40% funded by fed-
eral and state grants. The remaining amounts will be funded
from Commission revenues.

11.CONTINCEMCIES

The Commission is involved in ordinary and routine litiga-
tion and other matters incidental to its operations and the estab-
lishment of rates. 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 subject to review and audit by the
grantor agencies. Such audits could lead to requests for reim-
bursement 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 re-
garding the pollution of Boston Harbor. Management believes
that, except for increases in future MWRA assessments inciden-
tal to the litigation, the Commission's extensive capital improve-
ment program (see Note 1 0) addresses probable actions that
the Commission may be required to undertake in connection
with this litigation.

SUPPLEMENTAL SCHEDULE

REVENUES AND EXPENSES

For The Years Ended December 31. 1989 and 1988

REVENUES:

Water revenue $ 58.568,444 $45,856,376

Sewer revenue

Less:

Adjustments

Discounts

Bad debt
Total

Net billed charges
Prior year surplus
Miscellaneous revenues:

Late charge revenue

Investment income

Fire pipe revenue

Other income
Total revenues
EXPENSES:
Salaries and wages
Overtime wages
Fringe benefits
Supplies and materials
Repairs and maintenance
Utilities

Professional services
Space and equipment rentals
Other services
Insurance
Damage claims
Inventory
Capital outlay

Total direct operating expenses
MWRA ASSESSMENT
CAPITAL IMPROVEMENTS
PRINCIPAL PAYMENTS
INTEREST EXPENSE
DEPOSITS TO RESERVE FUNDS
WORKING CAPITAL PROVISION
RECOVERY OF ACCUMULATED DEFICIT
TOTAL NONOPERATING EXPENSES
TOTAL CURRENT EXPENSES

CURRENT YEAR RATE SURPLUS

This supplemental schedule presents the Commission's revenues and expenses on the basis that is presented in the Commission's
budget and rote^selling documents.

66,683,058

47,635,464

9,323,376

7,798,591

566,758

372,062

5,850,715

257,391

15,740,849

8,428,044

109,510,653

85,063,796

2,996,564

3,448,090

2,411,481

2,232,288

5,575, 1 37

4,271,378

1,678,380

1,378,635

1,421,737

864,103

123,593,952

97,258,290

16,335,091

13,839,431

1,108,150

943,475

2,900,338

2,858,009

1,247,115

1,276,803

4,831,816

3,927,395

423,507

445,646

1,617,191

1 ,909,925

1,220,120

1,132,730

298,075

100,012

786,642

1,121,585

104,717

319,415

446,41 1

154,314

584,478

1,013,050

31,903,651

29,041,790

54,716,374

43,194,577

3,297,843

(6,469,800)

3,115,000

2,540,000

9,772,770

12,866,997

3,213,000

2,929,162

6,294,360

10,159,000

4,8^7,998

85,257,345

65,219,936

117,160,996

94,261,726

$ 6,432,956

$ 2,996,564

" Much has been accomplished in

the last thirteen years towards

the Commission's goal of providing

superior water and sewer services

to the city of Boston.

But even as this tasic is mastered.

greater challenges now begin.

The BWSC stands ready to

meet these growing challenges

BOSTON'WATER AND SEWER COAAMISSION
425 SUMMER STREET
BOSTON, MA 022 1 0